<PAGE> 1
[WEATHERFORD LOGO]
January , 2000
To the Stockholders of Weatherford International, Inc.:
The Board of Directors of Weatherford International, Inc. has authorized a
distribution to the Weatherford stockholders of all of the outstanding shares of
Grant Prideco, Inc., a wholly owned subsidiary of Weatherford. The distribution
will be made on or about , 2000, to holders of record of Weatherford
common stock at the close of business on January , 2000.
The distribution of the Grant Prideco common stock will be made on the
basis of one share of Grant Prideco common stock for each two shares of
Weatherford common stock held by a Weatherford stockholder on the record date
for the distribution. As such, if you hold 100 shares of Weatherford common
stock on the record date, you will receive 50 shares of Grant Prideco common
stock in the distribution.
Grant Prideco is the world's largest provider of drill pipe and other drill
stem products and is a leading provider of premium tubulars and connections in
North America. Grant Prideco also provides tubulars and connections for
conductors and risers for subsea wells. Following the distribution, the stock of
Grant Prideco will be traded on the New York Stock Exchange under the symbol
"GRP".
The distribution of the Grant Prideco stock to the stockholders of
Weatherford is intended to allow Weatherford and Grant Prideco to focus better
on growing their respective businesses to compete in today's highly competitive
and volatile markets. The distribution will separate the businesses of
Weatherford and Grant Prideco in a manner that reflects their different missions
and different financial, investment and operating characteristics so that each
can pursue business strategies and objectives appropriate to its specific
business. We expect the separation of the businesses to result in greater focus
of our management teams on the core strengths that make each business successful
and to allow for more effective incentives for key employees of each group. The
separation also will permit our investors, customers, lenders and other
constituencies to evaluate the respective businesses of Weatherford and Grant
Prideco on a stand-alone basis.
We are providing you the attached information statement solely for your
information. The information statement contains important information about the
distribution and important financial and other information about Grant Prideco.
No action is being requested of you. If you hold shares of Weatherford common
stock on the record date you will receive your shares of Grant Prideco stock in
the distribution.
For those of us who have been involved in the development and growth of
Grant Prideco from its inception as part of Energy Ventures, Inc., the
separation of Grant Prideco from Weatherford is not being done without some
sadness. The managements of Weatherford and Grant Prideco, however, believe that
the opportunities for growth created by the separation are significant and will
enhance stockholder value. We look forward to the successful future of both
companies as we enter the new millennium.
Sincerely,
/s/ Bernard J. Duroc-Danner
Bernard J. Duroc-Danner
President, Chief Executive Officer
and Chairman of the Board
- --------------------------------------------------------------------------------
Weatherford International, Inc. www.weatherford.com
515 Post Oak Blvd., Suite 600
Houston, Texas 77027
<PAGE> 2
[GRANT PRIDECO LOGO]
Information Statement
Common Stock
(par value $.01 per share)
Grant Prideco, Inc. is furnishing this information statement in connection
with the spinoff by Weatherford International, Inc. of its wholly owned
subsidiary, Grant Prideco. Weatherford will make the spinoff through a
distribution to its stockholders of one share of Grant Prideco common stock for
each two shares of Weatherford common stock held by the Weatherford stockholders
on the record date for the distribution. The Board of Directors of Weatherford
has fixed the close of business on January , 2000 as the record date for the
spinoff. Grant Prideco is mailing this information statement to holders of
Weatherford common stock on or about January , 2000.
Grant Prideco is the world's largest provider of drill pipe and other drill
stem products to the oil and gas industry and is a leading provider of premium
tubulars and connections in North America. Grant Prideco also provides tubulars
and connections for conductors and risers for subsea wells. The spinoff will
result in all of the outstanding shares of Grant Prideco common stock being
distributed to holders of Weatherford common stock on a pro rata basis.
Weatherford stockholders will not pay any consideration for shares of Grant
Prideco common stock. The distribution of the Grant Prideco stock to the
Weatherford stockholders is scheduled to be made on , 2000.
Currently, there is no public market for the Grant Prideco common stock,
although we expect that a "when-distributed" trading market will develop before
the distribution date. We have applied to list the Grant Prideco common stock,
and we believe that the Grant Prideco common stock will be approved for listing,
on the New York Stock Exchange.
---------------------
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE SPINOFF. NO
PROXIES ARE BEING SOLICITED. PLEASE DO NOT SEND US A PROXY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
Weatherford stockholders with questions related to the spinoff should
contact Investor Relations, Weatherford International, Inc., 515 Post Oak
Boulevard, Suite 600, Houston, Texas 77027, at (713) 693-4000; or the Grant
Prideco common stock transfer agent, American Stock Transfer & Trust Company, at
(800) 937-5449. American Stock Transfer & Trust Company also is acting as
distribution agent for the spinoff.
---------------------
January 2000.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
ANSWERS TO CERTAIN QUESTIONS REGARDING THE SPINOFF.......... 1
SUMMARY HISTORICAL FINANCIAL DATA........................... 4
RISK FACTORS................................................ 5
The IRS May Treat the Transaction as Taxable to
Weatherford and Its Stockholders if Representations
Weatherford and Grant Prideco Made to the IRS Were
Inaccurate or if Weatherford and Grant Prideco Do Not
Comply with the Undertakings Made to the IRS........... 5
We Generally Will be Responsible for Taxes if the Spinoff
is Determined to be Taxable............................ 5
Weatherford Will Provide No Future Financial Support to
Us..................................................... 5
Weatherford and Grant Prideco Will Have a Business
Relationship After the Spinoff and Conflicts May
Arise.................................................. 6
There Is No Current Trading Market for the Grant Prideco
Common Stock........................................... 6
The Spinoff Could Adversely Affect the Aggregate Value of
Your Investment in Weatherford Common Stock............ 7
Our Business is Materially Affected By Drilling Activity
and the Rig Count...................................... 7
An Economic Downturn Could Adversely Affect Demand for
Products and Services.................................. 7
Disruptions in Foreign Operations Could Adversely Affect
Our Income............................................. 7
We are Subject to Risks Related to the Year 2000 that
could Negatively Impact Our Business................... 8
THE SPINOFF................................................. 9
Reasons for the Spinoff................................... 9
Distribution Agent........................................ 10
Manner of Effecting the Spinoff........................... 10
Results of the Spinoff.................................... 10
Listing and Trading of the Grant Prideco Common Stock..... 11
Federal Income Tax Consequences of the Spinoff............ 11
Conditions; Termination................................... 12
Reason for Furnishing this Information Statement.......... 13
RELATIONSHIP BETWEEN GRANT PRIDECO AND WEATHERFORD AFTER THE
SPINOFF................................................... 13
Distribution Agreement.................................... 13
Pre-Spinoff Contributions.............................. 14
The Weatherford Note and Contribution of Debt.......... 14
Employment Matters; Treatment of Outstanding Stock
Options and Restricted Stock.......................... 14
Adjustment and Substitution of Existing Weatherford
Stock Options....................................... 14
Options Granted Prior to September 1998.............. 15
Options Granted in September 1998 and Thereafter..... 15
Treatment of Outstanding Restricted Stock............ 16
Payments under Weatherford Nonqualified Deferred
Compensation Plans.................................. 16
Additional Actions................................... 17
Terms and Conditions of the Spinoff.................... 17
Allocation of Liabilities and Indemnities.............. 17
Tax Allocation Agreement.................................. 17
Transition Services Agreement............................. 18
Preferred Supplier Agreement.............................. 18
Policies and Procedures for Addressing Conflicts.......... 19
ACCOUNTING TREATMENT........................................ 19
DIVIDEND POLICY............................................. 19
SELECTED HISTORICAL FINANCIAL DATA.......................... 20
</TABLE>
i
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<TABLE>
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 21
Forward-Looking Statements............................................................................... 21
Market Trends and Outlook................................................................................ 22
Results of Operations.................................................................................... 24
Three and Nine Months Ended September 30, 1999 Compared to the Three and Nine Months Ended September
30, 1998............................................................................................. 24
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997................................. 27
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996................................. 29
Other Charges......................................................................................... 31
Acquisitions............................................................................................. 33
Liquidity and Capital Resources.......................................................................... 34
Tax Matters.............................................................................................. 35
Recent Accounting Pronouncements......................................................................... 35
Year 2000 Matters........................................................................................ 36
Quantitative and Qualitative Market Risk Disclosures..................................................... 37
Foreign Currency Risk................................................................................. 37
Interest Rates........................................................................................ 38
BUSINESS................................................................................................... 39
General.................................................................................................. 39
Market Trends and Outlook................................................................................ 39
Growth Strategy.......................................................................................... 40
Drill Stem Products...................................................................................... 40
Drill Pipe............................................................................................ 41
Drill Collars......................................................................................... 41
Heavyweight Drill Pipe and Other Drill Stem Products.................................................. 41
Premium Tubulars and Engineered Connections.............................................................. 41
Premium Tubulars and Connections...................................................................... 42
Premium Casing........................................................................................ 42
Couplings............................................................................................. 42
Accessories and Insulated Tubing...................................................................... 42
Conductors and Risers for Subsea Structures........................................................... 42
Other................................................................................................. 42
Raw Materials............................................................................................ 42
Properties............................................................................................... 43
Patents.................................................................................................. 44
Backlog.................................................................................................. 44
Insurance................................................................................................ 44
Federal Regulation and Environmental Matters............................................................. 45
Employees................................................................................................ 45
Litigation............................................................................................... 45
Principal Executive Offices.............................................................................. 45
MANAGEMENT................................................................................................. 46
Board of Directors and Committees of the Board of Grant Prideco.......................................... 46
Director Compensation.................................................................................... 47
Fees.................................................................................................. 47
Grant Prideco, Inc. 1999 Non-Employee Director Stock Option Plan...................................... 47
Director Deferred Compensation Plan................................................................... 48
Executive Officers of Grant Prideco...................................................................... 48
Executive Compensation................................................................................... 49
Stock Option Grants in Fiscal 1998....................................................................... 50
Aggregated Option Exercises in Fiscal 1998 and December 31, 1998 Option Values........................... 50
</TABLE>
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<TABLE>
<S> <C>
Benefit Plans.............................................................................................. 51
Grant Prideco, Inc. 1999 Employee Stock Option and Restricted Stock Plan.............................. 51
Grant Prideco, Inc. Executive Deferred Compensation Plan.............................................. 51
Grant Prideco, Inc. Foreign Executive Deferred Compensation Plan...................................... 52
Grant Prideco, Inc. 401(k) Savings Plan............................................................... 52
Employment Agreements and Change-of-Control Arrangements................................................. 52
Compensation Committee Interlocks and Insider Participation.............................................. 54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 55
DESCRIPTION OF GRANT PRIDECO CAPITAL STOCK................................................................. 56
General.................................................................................................. 56
Grant Prideco Common Stock............................................................................... 56
Voting Rights......................................................................................... 56
Dividend Rights....................................................................................... 56
Liquidation Rights and Other Provisions............................................................... 56
Grant Prideco Preferred Stock............................................................................ 56
No Preemptive Rights..................................................................................... 57
Business Combinations with Interested Stockholders....................................................... 57
Nomination of Directors.................................................................................. 57
Transfer Agent and Registrar............................................................................. 57
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS.................................................... 58
Exculpation of Monetary Liability........................................................................ 58
Indemnification.......................................................................................... 58
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 58
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 59
FINANCIAL STATEMENTS....................................................................................... F-1
</TABLE>
iii
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ANSWERS TO CERTAIN QUESTIONS REGARDING THE SPINOFF
The following answers certain questions you may have regarding the spinoff.
We encourage you to read this information statement carefully and completely.
References in this information statement to "Grant Prideco", "we", "us" or the
"Company" include Grant Prideco, Inc. and its subsidiaries (after giving effect
to the transactions contemplated in connection with the spinoff), except where
the context otherwise requires. References in this information statement to
"Weatherford" include Weatherford International, Inc. and its consolidated
subsidiaries (other than Grant Prideco), except where the context otherwise
requires.
Q: WHAT IS THE SPINOFF?
A: Grant Prideco currently is a wholly owned subsidiary of Weatherford. At the
close of business on , 2000, Weatherford will distribute all of
the shares of Grant Prideco common stock to the Weatherford stockholders as
a non-cash distribution, resulting in Grant Prideco becoming an
independent, publicly-owned company.
Q: WHO WILL RECEIVE GRANT PRIDECO COMMON STOCK?
A: Holders of Weatherford common stock will receive Grant Prideco common stock
as of the close of business on January , 2000.
Q: WHEN WILL THE SPINOFF OCCUR?
A: The spinoff will occur on , 2000.
Q: HOW MANY SHARES OF GRANT PRIDECO COMMON STOCK WILL I RECEIVE?
A: You will receive one share of Grant Prideco common stock for each two
shares of Weatherford common stock you hold as of the close of business on
the record date. We estimate that Weatherford will distribute approximately
54.3 million shares of Grant Prideco common stock (based on the number of
shares of Weatherford common stock outstanding on September 30, 1999). The
shares to be distributed will constitute all of the outstanding shares of
Grant Prideco common stock immediately after the spinoff.
Q: WHEN WILL I RECEIVE SHARES OF GRANT PRIDECO COMMON STOCK?
A: On the distribution date, Weatherford will deliver certificates
representing the shares of Grant Prideco common stock to the distribution
agent for distribution. The distribution agent will mail certificates
representing the shares of Grant Prideco common stock to holders of
Weatherford common stock as soon as practicable thereafter. See "The
Spinoff -- Manner of Effecting the Spinoff".
Q: WHO IS ACTING AS THE DISTRIBUTION AGENT?
A: American Stock Transfer & Trust Company.
Q: SHOULD I SEND IN MY WEATHERFORD STOCK CERTIFICATES FOR EXCHANGE?
A: No. Holders of Weatherford common stock should not send stock certificates
to Weatherford, Grant Prideco or the distribution agent. See "The
Spinoff -- Manner of Effecting the Spinoff".
Q: WILL THERE BE A TRADING MARKET FOR GRANT PRIDECO COMMON STOCK AFTER THE
SPINOFF? WILL GRANT PRIDECO HAVE A TRADING SYMBOL?
A: There is currently no public market for the Grant Prideco common stock. We
have applied to list the shares of Grant Prideco common stock on the New
York Stock Exchange under the trading symbol "GRP". See "The
Spinoff -- Listing and Trading of the Grant Prideco Common Stock".
Q: WHY IS WEATHERFORD SPINNING OFF GRANT PRIDECO?
A: Weatherford is spinning off Grant Prideco to allow Weatherford and Grant
Prideco to focus better on growing their respective businesses to compete
in today's highly competitive and volatile markets. We expect the spinoff
to allow each company to develop its own strategy for growth and to fund
that growth with its own capital resources without internal competition for
financial and other resources. The objective of the spinoff is to allow
Weatherford to continue its current strategy of becoming a major provider
of products and services used to enhance reservoir recovery and complete
oil and gas wells while allowing Grant Prideco to expand in the tubular and
drilling markets by leveraging off its leading position as the world's
largest provider of drill pipe and other drill stem products. We believe
that given current
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market conditions, these objectives could not be achieved other than
through a separation of Grant Prideco from Weatherford. See "The
Spinoff -- Reasons for the Spinoff".
Q: WHAT ARE GRANT PRIDECO'S OPERATIONS? WHICH OPERATIONS WILL WEATHERFORD
RETAIN?
A: Grant Prideco conducts Weatherford's drilling products business. This
business includes the manufacturing and sale of drill pipe and other drill
stem products to the oil and gas industry, the provision of premium tubular
and connections and the provision of tubulars and connections for
conductors and risers for subsea applications. Weatherford will retain its
downhole and well intervention services business, its completion products
and services business, its artificial lift systems business and its
compression services business.
Q: HOW WILL GRANT PRIDECO BE CAPITALIZED AFTER THE SPINOFF?
A: Before the spinoff, we will issue a $100 million unsecured subordinated
note to Weatherford. Weatherford will then contribute to us substantially
all remaining intercompany indebtedness that we owe to Weatherford. We also
will grant to Weatherford a $15 million drill stem purchase credit. We
currently are negotiating with potential lenders to establish a secured
credit facility that would provide us with up to $100 million for working
capital purposes, of which we expect $30 million to $50 million to be
available to us initially. Following the spinoff, we will have outstanding
approximately $38 million in indebtedness (exclusive of the drill stem
credit) including capitalized leases relating to obligations we previously
incurred from third parties. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Relationship Between
Grant Prideco and Weatherford After the Spinoff -- Distribution
Agreement -- The Weatherford Note and Contribution of Debt" and the
Financial Statements.
Q: CAN WEATHERFORD DECIDE NOT TO GO THROUGH WITH THE SPINOFF?
A: Yes. Weatherford can cancel the spinoff for any reason at any time before
it is effected. See "The Spinoff -- Conditions; Termination".
Q: WILL I BE TAXED ON THE SHARES OF GRANT PRIDECO THAT I RECEIVE IN THE
SPINOFF?
A: Weatherford has conditioned the spinoff on the receipt of a favorable
ruling from the Internal Revenue Service to the effect that, for United
States federal income tax purposes, the spinoff generally will be tax-free
to Weatherford stockholders. The tax ruling will not address state, local
or foreign tax consequences that may apply to Weatherford stockholders. You
should consult your tax advisor as to the particular tax consequences to
you of the spinoff.
Q: WILL WEATHERFORD BE TAXED ON THE SPINOFF?
A: The tax ruling that Weatherford is seeking requests confirmation that
Weatherford generally should not recognize income, gain or loss as a result
of the spinoff. The requested tax ruling will be based on representations
made by Weatherford and Grant Prideco, the accuracy of which are critical
to the spinoff qualifying as a tax-free distribution. See "The
Spinoff -- Federal Income Tax Consequences of the Spinoff".
Q: WHAT WILL BE THE RELATIONSHIP BETWEEN WEATHERFORD AND GRANT PRIDECO AFTER
THE SPINOFF?
A: Weatherford will not own any stock of Grant Prideco after the spinoff.
Before the spinoff, Grant Prideco and Weatherford will enter into
agreements with respect to relationships and transactions between Grant
Prideco and Weatherford after the spinoff. These agreements include:
- Distribution Agreement, providing for, among other things, (1) the
spinoff and the division between Weatherford and us of certain assets and
liabilities, (2) the issuance by us of a $100 million note to Weatherford
and a $15 million drill stem purchase credit and the cancellation of
substantially all remaining intercompany indebtedness, (3) the allocation
of responsibilities with respect to employee benefit plans, employee
compensation, and other labor and employment matters, (4) the terms and
conditions of the spinoff and (5) the material indemnification
provisions.
- Tax Allocation Agreement, providing for the allocation between
Weatherford and us of tax liabilities that relate to periods before and
after the distribution date. This agreement will provide that we
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generally will be responsible for any taxes relating to the spinoff other
than in certain circumstances involving a change of control of
Weatherford.
- Preferred Supplier Agreement, pursuant to which we will sell drill pipe
and related products to Weatherford as Weatherford's primary supplier at
prices not higher than the lowest price at which we sell those products
to similarly situated third parties. Weatherford will agree to purchase
at least 70% of its drill stem purchases from us for a period of three
years, subject to certain exceptions. Weatherford will be able to apply
its $15 million drill stem credit for purchases under this agreement.
- Transition Services Agreement, pursuant to which Weatherford will provide
us with certain services on a temporary basis.
Q: WILL WEATHERFORD AND GRANT PRIDECO HAVE ANY COMMON DIRECTORS OR OFFICERS?
HOW WILL CONFLICTS OF INTEREST BE AVOIDED?
A: Grant Prideco and Weatherford will share five common directors. In
addition, Bernard Duroc-Danner, President, Chief Executive Officer and
Chairman of the Board of Weatherford, will serve as Chairman of the Board
of Grant Prideco, and Curtis Huff, Senior Vice President and General
Counsel of Weatherford, will serve as Vice President and Interim General
Counsel of Grant Prideco. Grant Prideco and Weatherford will each adopt
policies and procedures to be followed by the board of directors of each
company to limit the involvement of these common directors in potential
conflict situations, including requiring them to abstain from voting as a
director of either Grant Prideco or Weatherford on certain matters that
present a potential conflict of interest between the two companies and
providing for the outside directors of each company to control the decision
making process in certain situations. We believe that such potential
conflict situations will be minimal. See "Relationship Between Grant
Prideco and Weatherford After the Spinoff -- Policies and Procedures for
Addressing Conflicts".
Q: WHAT ELSE SHOULD I BE CONCERNED ABOUT WITH RESPECT TO THE SPINOFF AND
HOLDING AN INVESTMENT IN GRANT PRIDECO?
A: You should read this entire information statement carefully. You should
read the sections entitled "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of
Operations -- Forward-Looking Statements" in evaluating whether and for how
long you should retain an investment in Grant Prideco common stock received
in the spinoff.
3
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SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth certain historical combined financial data
of Grant Prideco. This information has been prepared as if we had been a
stand-alone company for the periods presented. This information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Combined Financial Statements and the Notes
thereto (the "Financial Statements"). The following information may not be
indicative of our future operating results.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ------------------- -----------------------------------------------------
1999 1998 1999 1998 1998 1997 1996 1995 1994
------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues................. $57,987 $160,196 $210,987 $521,911 $646,805 $630,021 $367,336 $167,616 $107,256
Operating Income
(Loss)................. (11,841) 35,732 (13,179) 118,702(a) 112,877(a) 115,436 46,322 15,238 2,640
Net Income (Loss)........ (10,545) 20,515 (15,722) 69,843(a) 65,720(a) 61,514 23,588 3,059 (3,768)
Pro Forma Earnings (Loss)
Per Share:(b)
Basic.................. (0.21) 0.42 (0.32) 1.44 1.35 1.28 0.53 0.08 (0.11)
Diluted................ (0.21) 0.42 (0.32) 1.43 1.34 1.26 0.52 0.08 (0.11)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
1999 1998 1997 1996 1995 1994
------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets......................................... $708,467 $738,314 $662,598 $396,693 $237,854 $146,824
Long-Term Debt....................................... 26,499 9,265 27,387 3,432 2,591 4,641
Subordinated Note to Weatherford..................... 100,000 100,000 100,000 100,000 51,425 65,911
Stockholder's Equity................................. 471,625 445,211 332,722 164,220 104,094 18,593
</TABLE>
- ---------------
(a) Includes $7.0 million, $4.5 million net of tax, and $35.0 million, $22.8
million net of tax, of other charges relating to a reorganization and
rationalization of our business in light of our industry conditions for the
nine months ended September 30, 1998 and for the year ended December 31,
1998, respectively.
(b) We have calculated our pro forma earnings per share using our pro forma
basic and diluted weighted average shares outstanding for each of the
periods presented. In calculating our pro forma basic weighted average
shares, we have adjusted Weatherford's historical basic weighted average
shares outstanding for the applicable period to reflect the number of
shares that would have been outstanding at the time assuming a distribution
of one share of our common stock for each two shares of Weatherford common
stock. Our pro forma diluted weighted average shares reflect an estimate of
the potential dilutive effect of common stock equivalents. This estimate is
calculated based on Weatherford's dilutive effect of stock options and
restricted stock divided by two. The effect of stock options and restricted
stock is not included in the diluted weighted average shares computation
for periods in which a loss occurs because to do so would have been
anti-dilutive.
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<PAGE> 10
RISK FACTORS
In addition to the other information contained in this information
statement, recipients of Grant Prideco common stock should carefully consider
the following information.
THE IRS MAY TREAT THE TRANSACTION AS TAXABLE TO WEATHERFORD AND ITS STOCKHOLDERS
IF REPRESENTATIONS WEATHERFORD AND GRANT PRIDECO MADE TO THE IRS WERE INACCURATE
OR IF WEATHERFORD AND GRANT PRIDECO DO NOT COMPLY WITH THE UNDERTAKINGS MADE TO
THE IRS.
The spinoff is conditioned on Weatherford receiving a favorable ruling from
the IRS to the effect that, for United States federal income tax purposes, the
spinoff generally will be tax-free to Weatherford and its stockholders. It is
possible that Weatherford and its stockholders could be subject to a material
amount of taxes as a result of the spinoff if the representations and
undertakings Grant Prideco and Weatherford made to the IRS in connection with
obtaining the proposed tax ruling are determined to be inaccurate. In addition,
under the Internal Revenue Code of 1986, as amended, and Treasury regulations
promulgated thereunder (including proposed regulations), the spinoff could be
determined to be taxable if within two years following the spinoff there were to
be a change of control of either Weatherford or Grant Prideco and Weatherford
and Grant Prideco were not able to rebut the presumption that the change in
control was contemplated at the time of the spinoff. For a description of
material United States federal income tax consequences to Weatherford
stockholders of the spinoff, see "The Spinoff -- Federal Income Tax Consequences
of the Spinoff".
WE GENERALLY WILL BE RESPONSIBLE FOR TAXES IF THE SPINOFF IS DETERMINED TO BE
TAXABLE.
Under the terms of the Distribution Agreement, we will be responsible and
liable to Weatherford for any and all corporate-level taxes or liabilities
incurred by Weatherford relating to the spinoff except to the extent the spinoff
is determined to be taxable as a result of a change of control of Weatherford
following the spinoff. Our obligation and liability will apply under all other
circumstances, regardless of the reason for the spinoff being determined to be
taxable. This liability would extend to circumstances within the control of
Weatherford as well as circumstances under which it is alleged or determined
that there was a breach or misrepresentation, negligent or otherwise, by
Weatherford in connection with the proposed tax ruling. We also will be
restricted under the Tax Allocation Agreement from engaging in certain
transactions without the consent of Weatherford that could affect the taxability
of the spinoff unless Weatherford receives a supplemental tax ruling or an
acceptable tax opinion. For a summary of Weatherford's and Grant Prideco's
obligations in connection with obtaining the tax ruling and potential tax
liabilities if the transaction is held to be taxable, see "Relationship Between
Grant Prideco and Weatherford After the Spinoff -- Tax Allocation Agreement".
WEATHERFORD WILL PROVIDE NO FUTURE FINANCIAL SUPPORT TO US.
We cannot assure you that we will generate or have available to us
sufficient funds to fund our planned expenditures and meet our obligations to
pay principal and interest on our debt following the spinoff. Further, we cannot
assure you that we will be able to secure sufficient debt or equity financing to
fund our growth strategy.
Weatherford has no obligation to support us financially after the spinoff.
As a result, we will need to secure and maintain our own credit facilities. As a
smaller company engaged in a volatile sector of the oil and gas industry, the
cost of capital to us is expected to be greater than that which we paid as a
Weatherford subsidiary. Financing in our industry also is illiquid at this time,
and the long-term debt markets are expensive for companies of our size and
credit.
Our strategy envisions growth through acquisitions. We expect to finance
future acquisitions through a combination of the issuance of additional equity
and debt financing. Additional equity issuances will be dependent on the nature
of the opportunity that arises and the anticipated accretion or dilution from
the acquisition to our stockholders. We expect any debt financing would
initially be in the form of high-yield notes or debentures. Under the terms of
the $100 million note that we will issue to Weatherford, the proceeds from any
new financing (other than working capital borrowings and equity financings
issued as part of an
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acquisition) generally must first be applied to the repayment of the Weatherford
note. This repayment obligation could affect the amount and terms of any third
party debt financing that would be available to us. The Weatherford note will
limit our ability to incur new debt, engage in certain acquisitions and
investments and make distributions to our stockholders.
In connection with the spinoff, we currently are negotiating with potential
lenders to establish a credit facility that would provide us with up to $100
million for working capital purposes, of which we expect $30 to $50 million to
be available to us initially. We expect that this facility would be secured by
our domestic inventory and receivables and guaranteed by our domestic
subsidiaries. This facility also would place limits on our ability to incur new
debt, engage in certain acquisitions and investments, invest in our foreign
operations, grant liens and make distributions to our stockholders.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Relationship Between Weatherford and Grant Prideco
After the Spinoff" and the Financial Statements.
WEATHERFORD AND GRANT PRIDECO WILL HAVE A BUSINESS RELATIONSHIP AFTER THE
SPINOFF AND CONFLICTS MAY ARISE.
The terms of the agreements between Weatherford and Grant Prideco were not
negotiated and were proposed by Weatherford as our sole stockholder. As a
result, the terms of those agreements, in particular the Distribution Agreement,
the Tax Allocation Agreement, the Preferred Supplier Agreement and the
Weatherford note, may not reflect the terms that would have been provided to us
from an unrelated third party. Weatherford as our sole stockholder has ratified
the terms of these agreements, and we have acknowledged that the agreements will
constitute our valid obligations.
Persons associated with Weatherford also will have a continuing
relationship with Grant Prideco. Five current directors of Weatherford, Messrs.
Bernard J. Duroc-Danner, Sheldon B. Lubar, William E. Macaulay, Robert K. Moses,
Jr. and Robert A. Rayne, will be named directors of Grant Prideco. These
directors will represent a majority of our initial Board of Directors of Grant
Prideco. In addition, Mr. Duroc-Danner, President, Chief Executive Officer and
Chairman of the Board of Directors of Weatherford, will serve as our Chairman of
the Board and Curtis W. Huff, Senior Vice President and General Counsel of
Weatherford, will serve as our Vice President and Interim General Counsel.
The persons currently associated with Weatherford were asked to serve as
directors or officers of Grant Prideco because of their experience and knowledge
of us and our businesses. Although each of them will have a fiduciary obligation
to both Weatherford and Grant Prideco, we cannot assure you that no conflicts of
interest will arise with them or Weatherford relating to Weatherford and Grant
Prideco after the spinoff. Weatherford and Grant Prideco will each adopt
policies and procedures to be followed by their respective board of directors to
limit the involvement of Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne
in conflict situations, including requiring them to abstain from voting as a
director of either Grant Prideco or Weatherford on certain matters that present
a potential conflict of interest between the two companies. See "Relationship
Between Grant Prideco and Weatherford After the Spinoff".
THERE IS NO CURRENT TRADING MARKET FOR THE GRANT PRIDECO COMMON STOCK.
There currently is no public market for our common stock. Although we
expect our common stock to be listed on the New York Stock Exchange following
the spinoff, we cannot predict the prices at which our common stock will trade
after the spinoff. We expect that a large number of holders of our common stock
may sell their shares shortly after the spinoff due to the investment objectives
and requirements of those holders. Until our common stock is fully distributed
and an orderly market develops, we believe the prices at which our common stock
will trade will fluctuate significantly. The trading price of our common stock
will be influenced by a variety of factors, including our operating results and
liquidity of the market for our common stock, investor perception of Grant
Prideco, the industry in which we operate and general and economic market
conditions. See "The Spinoff -- Listing and Trading of the Grant Prideco Common
Stock".
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THE SPINOFF COULD ADVERSELY AFFECT THE AGGREGATE VALUE OF YOUR INVESTMENT IN
WEATHERFORD COMMON STOCK.
Following the spinoff, the trading prices of our common stock and
Weatherford common stock will not necessarily be related. The combined trading
prices of our common stock and Weatherford common stock after the spinoff may be
less than the trading price of Weatherford common stock immediately before the
spinoff. As a result of the spinoff, we expect the trading price range of
Weatherford common stock to be lower than the trading price range of Weatherford
common stock immediately before the spinoff. See "The Spinoff -- Listing and
Trading of the Grant Prideco Common Stock".
OUR BUSINESS IS MATERIALLY AFFECTED BY DRILLING ACTIVITY AND THE RIG COUNT.
A material decline in either prices or drilling activity would negatively
impact our future results. Our business is materially dependent on the level of
drilling activity worldwide. During 1997 and the first half of 1998, we
benefitted from an increase in drilling activity that resulted in strong demand
for our drill pipe and other drill stem products. When drilling activity
declined in the second half of 1998 and 1999, our business fell significantly.
In general, we believe that our drill stem business trails changes in the rig
count by six to nine months. The worldwide monthly rig count for each month in
1999 did not surpass the rig count for the corresponding month of 1998 until
October, and the October 1999 rig count was well below the rig count of any
single month in 1997. This suggests that our drill stem business may not recover
for several more quarters and will not recover completely unless rig counts
continue to rise. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
AN ECONOMIC DOWNTURN COULD ADVERSELY AFFECT DEMAND FOR OUR PRODUCTS AND
SERVICES.
The economic downturn that began in Asia in 1997 affected the economies in
other regions of the world, including South America and the former Soviet Union,
and contributed to the decline in the price of oil and the level of drilling
activity. Although the economy in the United States has experienced one of its
longest periods of growth in recent history, the continued strength of the
United States economy cannot be assured. If the United States or European
economies were to begin to decline or if the economies of South America or Asia
were to experience further material problems, the demand and price for oil and
gas and our products and services again could adversely affect our revenues and
income.
DISRUPTIONS IN FOREIGN OPERATIONS COULD ADVERSELY AFFECT OUR INCOME.
Our operations in certain locations outside the United States, including
Mexico, India, China and Indonesia, are subject to various political and
economic conditions existing in such countries that could disrupt operations.
These risks include (1) currency fluctuations and potential devaluations in most
countries, in particular those in South America and Asia, (2) currency
restrictions in China and India and limitations on repatriation of profits in
various countries in South America and Asia and (3) political instability in
countries such as Indonesia, India, Mexico, Venezuela, the former Soviet Union
and China. Disruptions may occur in our foreign operations and losses may occur
that will not be covered by insurance.
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Oil Country Tubular Limited ("OCTL") manufactures drill pipe and other
products for us under a long-term exclusive manufacturing arrangement. Over the
years, we have provided OCTL with a substantial amount of raw materials,
inventory and working capital for the products it manufactures for us. As of
September 30, 1999, OCTL owed us approximately $21 million for prior advances
for working capital paid by us. Our business in India through our relationship
with OCTL has been adversely affected by the downturn of the economies in the
eastern hemisphere and is subject to various political and economic risks as
well as financial and operational risks with respect to OCTL. We have
substantially curtailed purchases from OCTL in India and expect to continue to
curtail these purchases into 2000. In this regard, we are currently discussing
with OCTL various potential modifications to our arrangement with OCTL in light
of market conditions, political events and other matters. Among the matters
being considered and discussed is a termination of the manufacturing arrangement
as well as a possible conversion of the debt OCTL owes us into equity of OCTL. A
termination of our relationship with OCTL could result in our inability to
recover funds we advanced to OCTL and the loss or impairment of our inventory
and equipment located in India. Such an impairment could result in a charge of
up to $20 million and would materially adversely affect our results of
operations. At this time we are unable to predict the ultimate outcome of our
ongoing negotiations.
WE ARE SUBJECT TO RISKS RELATED TO THE YEAR 2000 THAT COULD NEGATIVELY IMPACT
OUR BUSINESS.
The Year 2000 issue is the risk that information systems, computers,
equipment and products using date-sensitive software or containing computer
chips with two-digit date fields will be unable to correctly process the Year
2000 date change. If not identified and corrected prior to the Year 2000,
failures could occur in our software, hardware, equipment and products and those
of our suppliers, vendors and customers that could result in interruptions in
our business. Any failure could have a material impact on us.
We cannot guarantee that our information technology and non-information
technology systems or those of our third-party contractors will be Year 2000
ready or that the failure of us or any of these third parties to have Year 2000
ready systems would not result in interruptions in our business. Any such
interruptions could have a material adverse impact on us. Further, there can be
no assurance that any contingency plan we develop will be sufficient to
alleviate or remediate any significant Year 2000 problems that we may
experience. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Matters".
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THE SPINOFF
REASONS FOR THE SPINOFF
The spinoff is intended to allow Weatherford and Grant Prideco to focus
better on growing their respective businesses to compete in today's highly
competitive and volatile markets. We expect the spinoff to allow each company to
develop its own strategy for growth and to fund that growth with its own capital
resources without internal competition for financial and other resources. The
objective of the spinoff is to allow Weatherford to continue its current
strategy of becoming a major provider of products and services used to enhance
reservoir recovery and complete oil and gas wells while allowing Grant Prideco
to expand in the tubular and drilling markets by leveraging off its position as
the world's largest provider of drill pipe and other drill stem products. We
believe that given current market conditions, these objectives could not be
achieved other than through a separation of Grant Prideco from Weatherford.
The decision to effect the spinoff was triggered by the significant changes
that have occurred in the oil and gas industry during the last year and a half.
During this period, the industry has experienced what we believe to have been
one of the most fundamental economic and structural changes ever seen in the
industry. These changes were caused in part by a precipitous drop in the
worldwide price of oil in 1998 and a related fall in the North American and
international rig counts. During the latter part of 1998 and through the first
half of 1999, our industry saw oil prices range from a high of $17.89 per barrel
to a low of $10.44 per barrel and the North American and international rig
counts range from a high of 1,059 and 732, respectively, to a low of 534 and
591, respectively.
The decline and volatility in oil prices and drilling activity resulted in
record low drilling activity by Weatherford's and Grant Prideco's customers
throughout the world and wholesale reductions in field activity and capital
spending in many regions, in particular Canada, the United States and the Far
East. These conditions led to large layoffs and cost reductions in the industry,
an unprecedented consolidation among the major oil companies and what we believe
to be a long-term change in the competitive landscape in the industry.
It is against this background that Weatherford undertook a review of our
businesses and prospects and our relationship with Weatherford's other
businesses to determine the best way to achieve long-term growth. In analyzing
our future prospects, Weatherford's board concluded that for us to continue to
grow and prosper, we would need to pursue new opportunities and acquisitions in
the tubular and drilling segments of the industry. Although we believe that many
opportunities exist for us to grow in these areas, we have not been able to take
full advantage of these opportunities as part of Weatherford due to the capital
cost that would be necessary to do so and Weatherford's focus on reservoir and
production enhancement and investments in technology to compete in today's cost
conscious environment. In general, additional material investments in our
businesses were considered to be inconsistent with the strategic direction and
focus of Weatherford's other businesses.
Over the past year, we have been presented with certain acquisition and
combination opportunities for growth in the tubular segment of the industry that
would have required Weatherford to invest substantial amounts of cash in our
businesses or for us to issue our own stock to fund the acquisition. While we
believe those opportunities would have been desirable for us, they generally
were inconsistent with the strategic direction of Weatherford's other
businesses. Those opportunities also had to compete against other opportunities
Weatherford was pursuing during the market downturn that had generally lower
costs of capital and potentially higher growth rates. Because of these
limitations and constraints on capital and a related desire by Weatherford to
remain focused on reservoir recovery enhancement, we were not able to take
advantage of those opportunities.
Following the spinoff, we intend to actively pursue acquisitions and other
opportunities for growth in our core businesses, including:
- Additional acquisitions where desirable;
- The addition of new tubular and thread technologies;
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- International expansion;
- The addition of new products and services that are complementary to our
existing products and services;
- The investment in new tubular and connection technologies and joint
venture projects such as our titanium drill pipe project with RTI Energy
Systems, Inc. and our connection project for expandable tubing; and
- The investment in additional subsea products and services.
We intend to finance these acquisitions and growth opportunities through a
combination of internally generated capital, equity issuances and incurrences of
debt where deemed prudent or appropriate. Any issuances of equity will depend
upon the opportunity and circumstances. We will incur debt only where we
consider the terms to be appropriate.
The separation of our businesses from Weatherford also is intended to allow
us to reduce various conflicts that have arisen over the past year between our
businesses and certain of Weatherford's other businesses. In particular, many of
our customers are competitors of Weatherford and have been reluctant to support
our businesses when the benefit of that support inured to Weatherford as a
competitor. We believe that a separation of our businesses from Weatherford
should reduce these conflicts and benefit both of our businesses.
DISTRIBUTION AGENT
The distribution agent is American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York 10005.
MANNER OF EFFECTING THE SPINOFF
The general terms and conditions relating to the spinoff are set forth in
the Distribution Agreement between Weatherford and Grant Prideco.
Weatherford will effect the spinoff on the distribution date by delivering
certificates evidencing shares of our common stock to the distribution agent for
distribution to holders of record of Weatherford common stock as of the close of
business on the record date. The spinoff will be made on the basis of one share
of our common stock for each two shares of Weatherford common stock outstanding
as of the close of business on the record date. The total number of shares of
our common stock to be distributed will depend on the number of shares of
Weatherford common stock outstanding on the record date. The shares of our
common stock will be fully paid and non-assessable and the holders thereof will
not be entitled to preemptive rights. See "Description of Grant Prideco Capital
Stock".
THE DISTRIBUTION AGENT WILL MAIL CERTIFICATES REPRESENTING SHARES OF OUR
COMMON STOCK TO WEATHERFORD STOCKHOLDERS AS SOON AS PRACTICABLE AFTER THE
DISTRIBUTION DATE. HOLDERS OF WEATHERFORD COMMON STOCK SHOULD NOT SEND
CERTIFICATES TO GRANT PRIDECO, WEATHERFORD OR THE DISTRIBUTION AGENT. THE
DISTRIBUTION AGENT WILL MAIL THE STOCK CERTIFICATES REPRESENTING SHARES OF OUR
COMMON STOCK AS SOON AS PRACTICABLE AFTER THE DISTRIBUTION DATE. WEATHERFORD
STOCK CERTIFICATES WILL CONTINUE TO REPRESENT SHARES OF WEATHERFORD COMMON STOCK
AFTER THE SPINOFF IN THE SAME AMOUNT SHOWN ON THOSE CERTIFICATES.
No holder of Weatherford common stock will be required to pay any cash or
other consideration for the shares of our common stock received in the spinoff
or to surrender or exchange shares of Weatherford common stock to receive shares
of our common stock. No fractional shares of our common stock will be issued in
the spinoff. Any fractional shares of our common stock will be rounded up to the
nearest whole.
RESULTS OF THE SPINOFF
We will be a separate public company after the spinoff and will continue to
own and operate our drilling products and tubular businesses. The number and
identity of the holders of our common stock immediately
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after the spinoff likely will be substantially the same as the number and
identity of the holders of Weatherford common stock on the record date.
Immediately after the spinoff, we expect to have approximately 3,140 holders of
record of our common stock and approximately 54.3 million shares of our common
stock outstanding based on the number of record holders and outstanding shares
of Weatherford common stock as of the close of business on September 30, 1999.
We will determine the actual number of shares of our common stock to be
distributed as of the record date.
The spinoff will not affect the number of outstanding shares of Weatherford
common stock or any rights of Weatherford stockholders. For certain information
regarding the options to purchase our common stock that will be outstanding
after the spinoff, see "Relationship Between Grant Prideco and Weatherford After
the Spinoff -- The Distribution Agreement -- Employment Matters; Treatment of
Outstanding Stock Options and Restricted Stock".
LISTING AND TRADING OF THE GRANT PRIDECO COMMON STOCK
We have applied to list our common stock on the New York Stock Exchange
under the ticker symbol "GRP". We anticipate that our common stock will be
approved for listing by the distribution date, and that trading may commence on
a "when-distributed" basis before the spinoff. On the trading day following the
date that the distribution agent mails certificates for our common stock,
"when-distributed" trading of our common stock and Weatherford common stock will
end and ordinary trading will begin. The New York Stock Exchange will not
approve any trading of our common stock until the Securities and Exchange
Commission has declared our registration statement in respect of our common
stock effective, which is expected to occur before the distribution date.
There currently is no public market for our common stock. Although we
expect our common stock to be listed on the New York Stock Exchange following
the spinoff, we cannot predict the prices at which our common stock will trade
after the spinoff. We expect that a large number of holders of our common stock
may sell their shares shortly following the spinoff due to their investment
objectives and requirements. Until our common stock is fully distributed and an
orderly market develops, we believe the prices at which our common stock will
trade will fluctuate significantly. The trading price of our common stock will
be influenced by a variety of factors, including our operating results, the
depth and liquidity of the market for our common stock, investor perception of
Grant Prideco, the industry in which we operate and general and economic market
conditions.
FEDERAL INCOME TAX CONSEQUENCES OF THE SPINOFF
The following is a summary of the material United States federal income tax
consequences relating to the spinoff. The summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder, and interpretations of the Code and Treasury regulations
by the courts and the IRS, all as they exist as of the date of this document.
TAX MATTERS ARE COMPLICATED, AND THE TAX CONSEQUENCES OF THE SPINOFF TO YOU
MAY DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE YOU TO CONSULT YOUR OWN
TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE
SPINOFF, PARTICULARLY IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE UNITED
STATES FEDERAL INCOME TAX LAWS, SUCH AS IF YOU ARE A TAX-EXEMPT ENTITY,
NON-RESIDENT ALIEN INDIVIDUAL, FOREIGN ENTITY, FOREIGN TRUST OR ESTATE OR
BENEFICIARY THEREOF, PERSON WHO ACQUIRED SUCH WEATHERFORD STOCK PURSUANT TO THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, INSURANCE
COMPANY OR DEALER IN SECURITIES, OR IF YOU DO NOT HOLD YOUR WEATHERFORD COMMON
STOCK AS A CAPITAL ASSET. THIS SUMMARY DOES NOT ADDRESS STATE, LOCAL OR FOREIGN
TAX CONSEQUENCES.
Weatherford has requested a ruling from the IRS to the effect that, for
United States federal income tax purposes, the spinoff will qualify under
Section 355 of the Code as a distribution that is generally tax-free to
Weatherford and its stockholders. Although rulings generally are binding on the
IRS, Weatherford will not be able to rely on the tax ruling if any factual
representations Weatherford and Grant Prideco made to the IRS are incorrect or
untrue in any material respect or if Weatherford and Grant Prideco do not comply
with any
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undertakings they made to the IRS. We are not aware of any facts or
circumstances that would cause any such representations to be incorrect or
untrue in any material respect.
If Weatherford completes the spinoff and, notwithstanding the tax ruling,
the spinoff is held to be taxable for United States federal income tax purposes,
both Weatherford and its stockholders that receive our common stock could be
subject to a material amount of taxes as a result of the spinoff. The amount of
taxes to which Weatherford would be subject will be based on the difference
between our aggregate market value immediately following the spinoff and
Weatherford's tax basis in our common stock at the time of the spinoff (which
Weatherford estimates will be approximately $396.4 million). We will be liable
to Weatherford for any such corporate-level taxes incurred by Weatherford,
except to the extent those taxes are attributable to a change of control of
Weatherford following the spinoff. For a description of Weatherford's and Grant
Prideco's obligations in connection with obtaining the tax ruling and potential
tax liabilities if the spinoff is held to be taxable, see "Relationship Between
Grant Prideco and Weatherford After the Spinoff -- Tax Allocation Agreement".
We expect that the tax ruling will provide that for United States federal
income tax purposes:
- No gain or loss will be recognized by, and no amount will be included in
the income of, the Weatherford stockholders upon their receipt of shares
of our common stock in the spinoff.
- The aggregate basis of our common stock and the Weatherford common stock
in the hands of each Weatherford stockholder after the spinoff will equal
the aggregate basis of the Weatherford common stock held by such
Weatherford stockholder immediately before the spinoff, allocated between
our common stock and the Weatherford common stock in proportion to their
respective fair market values.
- The holding period of our common stock received from Weatherford by each
Weatherford stockholder in the spinoff will include the holding period of
the Weatherford common stock held by such Weatherford stockholder
immediately before the spinoff, provided that such Weatherford
stockholder held the Weatherford common stock as a capital asset on the
date of the spinoff.
We expect that the tax ruling will not address tax basis issues with
respect to holders of Weatherford common stock who have blocks of Weatherford
common stock with different per share tax bases. Those holders are urged to
consult their tax advisors regarding the possible tax basis consequences to them
of the spinoff.
United States Treasury regulations require each Weatherford stockholder
that receives shares of our common stock in the spinoff to attach to the
holder's United States federal income tax return for the year in which such
stock is received a detailed statement of data demonstrating the applicability
of Section 355 of the Code to the spinoff. Within a reasonable time after the
spinoff, Weatherford will provide Weatherford stockholders and Weatherford
stockholders who receive our common stock in the spinoff with the information
necessary to comply with this requirement, and will provide information
regarding the allocation of tax basis described above.
We urge you to consult your tax advisors as to the particular tax
consequences to you of the spinoff, including the application of state, local
and foreign tax laws and any changes in federal tax laws that occur after the
date of this document.
CONDITIONS; TERMINATION
The Distribution Agreement provides that Weatherford may decline to
consummate the spinoff if:
- The transfers of assets and liabilities contemplated by the Distribution
Agreement to occur prior to the spinoff have not been consummated in all
material respects.
- Our new board of directors has not been elected as of the spinoff and our
certificate of incorporation and the bylaws, as each will be in effect
after the spinoff, are not effective as of the spinoff.
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- The registration statement of which this information statement is a part
has not been declared effective.
- Weatherford has not received the tax ruling.
- We have not entered into the agreements, instruments, understandings,
assignments or other arrangements contemplated by the Distribution
Agreement, including the Tax Allocation Agreement, the Transition
Services Agreement and the Preferred Supplier Agreement. See
"Relationship Between Grant Prideco and Weatherford After the Spinoff".
- Our common stock has not been approved for listing on the New York Stock
Exchange.
Weatherford's board may waive any of these conditions in its discretion.
Weatherford, however, has advised us that it would not waive the condition of a
tax ruling, the registration of our stock under the Exchange Act or the
execution by us of the material agreements contemplated by the Distribution
Agreement. YOU ALSO SHOULD BE AWARE THAT EVEN IF ALL OF THESE CONDITIONS ARE
SATISFIED, WEATHERFORD'S BOARD HAS THE RIGHT TO ABANDON, DEFER OR MODIFY THE
TERMS OF THE SPINOFF AT ANY TIME BEFORE THE DISTRIBUTION DATE. See "Relationship
Between Grant Prideco and Weatherford After the Spinoff".
REASON FOR FURNISHING THIS INFORMATION STATEMENT
We are providing this information statement solely to provide information
to Weatherford stockholders who will receive our common stock in the spinoff. It
is not an inducement or encouragement to buy or sell any securities of
Weatherford or Grant Prideco. We believe the information contained in this
information statement is accurate as of the date set forth on the cover page.
Changes may occur after that date, and neither Grant Prideco nor Weatherford
will update the information except in the normal course of their respective
public disclosure practices.
RELATIONSHIP BETWEEN GRANT PRIDECO AND WEATHERFORD
AFTER THE SPINOFF
On or before the distribution date, we will enter into various agreements
with Weatherford to govern certain of the ongoing relationships between
Weatherford and us after the spinoff and to provide for an orderly transition to
the status of two separate companies. These agreements will be approved and
ratified by Weatherford as our sole stockholder before the spinoff. A summary of
the material provisions of these agreements follows. The terms of these
agreements are subject to change before the spinoff. The forms of agreements
summarized in this section are included as exhibits to our registration
statement of which this information statement forms a part, and the following
summaries are qualified in their entirety by reference to the agreements as
filed.
DISTRIBUTION AGREEMENT
Before the spinoff, we will enter into a Distribution Agreement with
Weatherford that will:
- Set forth the steps to be taken to separate our business from the
remaining Weatherford businesses, which will result in our business being
conducted by us and our wholly owned subsidiaries.
- Provide for our issuance of the $100 million Weatherford note and
Weatherford's contribution to us of substantially all remaining
intercompany indebtedness we owe to Weatherford.
- Provide for allocations of responsibilities with respect to employee
benefit plans, employee compensation, and other labor and employment
matters, including the satisfaction of obligations to issue stock upon
the exercise of prior Weatherford options.
- Set forth the terms and conditions of the spinoff.
- Provide for certain indemnities of Weatherford by us with respect to
matters involving our business.
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Pre-Spinoff Contributions
The Distribution Agreement will outline certain corporate transactions to
be taken immediately before the spinoff, which transactions will result in our
business being wholly within Grant Prideco. The information in this information
statement gives effect to these transactions.
The Weatherford Note and Contribution of Debt
As of September 30, 1999, we owed Weatherford approximately $446.4 million.
We incurred this indebtedness for various purposes including (1) the funding of
approximately $275.0 million for our acquisitions with cash and stock provided
by Weatherford, (2) $125.4 million for purchases of capital equipment for
manufacturing, (3) $46.0 million for funding of working capital and third party
debt requirements.
Before the spinoff, we will issue an unsecured subordinated note to
Weatherford in the amount of $100 million. Weatherford will then contribute to
us substantially all remaining intercompany indebtedness that we owe to
Weatherford. We also will grant to Weatherford a $15 million drill stem purchase
credit. The Weatherford note will bear interest at an annual rate of 10%.
Interest payments will be due quarterly, and principal and all unpaid interest
will be due no later than December 31, 2001. If we complete a debt or equity
financing (whether public or private, but excluding working capital borrowings
under our proposed credit facility and any equity issued in connection with a
business combination) while the Weatherford note is outstanding, we generally
will be required to use a portion of the net proceeds of that financing to repay
any amount outstanding under the Weatherford note as of the time we complete
that financing. The Weatherford note will be subordinated to our proposed credit
facility. The terms of the drill stem purchase credit are described under
"Preferred Supplier Agreement". We expect to refinance the Weatherford note as
soon as practicable when market conditions permit.
Employment Matters; Treatment of Outstanding Stock Options and Restricted
Stock
The Distribution Agreement will allocate certain responsibilities with
respect to employee compensation, benefit and labor matters. The allocation of
responsibility and adjustments to be made pursuant to the Distribution Agreement
is substantially consistent with the existing benefits provided to Weatherford
employees under Weatherford's various compensation plans. We will be required to
provide participants in certain of Weatherford's deferred compensation plans
with shares of our common stock. We also will be required to provide to the
holders of certain of Weatherford's options shares of our common stock on the
exercise of Grant Prideco options granted in partial substitution of those
options.
Adjustment and Substitution of Existing Weatherford Stock Options
As of September 30, 1999, there were outstanding options and warrants to
purchase an aggregate of 6,691,854 shares of Weatherford common stock under
various Weatherford employee and director option plans and agreements. The
holders of these options include both employees who will be employed by us and
employees who will be employed by Weatherford after the spinoff. Included in
these options were options to purchase an aggregate of 4,916,000 shares of
Weatherford common stock granted under Weatherford's 1998 Employee Stock Option
Plan, which was adopted in September 1998, and 360,000 shares subject to
Weatherford director options and warrants granted in September 1998. Of the
options to purchase 4,916,000 shares of Weatherford common stock granted under
Weatherford's 1998 Employee Stock Option Plan, options to purchase 862,000
shares of Weatherford common stock were held by employees who will be primarily
employed by us. The options and warrants granted to employees and directors in
September 1998 and thereafter generally vest only after three years from the
date of grant. All other outstanding options are either fully or partially
vested.
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Under the terms of the Distribution Agreement, the outstanding Weatherford
options and warrants will be adjusted as follows:
Options Granted Prior to September 1998. All outstanding options granted
prior to September 1998 will be adjusted to provide the holder with the right to
purchase both a share of Weatherford common stock and one half of a share of our
common stock. The adjusted exercise price of the outstanding Weatherford options
and the related Grant Prideco options will be a function of the relative market
price of our common stock after giving effect to the spinoff and the value of
the Weatherford common stock before giving effect to the spinoff, with those
values to be determined as described in the table below. This adjustment is
intended to assure that each holder will have the opportunity after the spinoff
to obtain the same number of shares of Weatherford common stock and our common
stock at the same aggregate exercise price as if that option holder had
exercised the Weatherford option in full immediately before giving effect to the
spinoff. The Weatherford options will be administered by the Weatherford
compensation committee, and the substitute Grant Prideco options will be issued
and administered by our compensation committee under a new Grant Prideco
employee stock option plan. We will provide to the option holders the shares of
our common stock required to be issued to them on exercise of their substitute
Grant Prideco options.
Options Granted in September 1998 and Thereafter. All Weatherford options
or warrants granted in September 1998 and thereafter were granted under
Weatherford's 1998 Employee Stock Option Plan or as part of a one time grant
made to Weatherford directors in September 1998. Under the terms of the
Weatherford 1998 plan and the Weatherford director grants, all outstanding
options and warrants granted thereunder will be adjusted to provide the holder
with the right to purchase only shares of common stock of either Weatherford or
Grant Prideco depending upon with which company the employee is primarily
employed. The adjustment will provide for both a new exercise price and number
of shares subject to option. The new exercise price will be based on the
relationship of the value of one-half of a share of our common stock after the
spinoff to the value of the Weatherford common stock before the spinoff. The
number of shares subject to option will be calculated by dividing the new
exercise price into the aggregate exercise price of the holder's option prior to
the spinoff. The formulas, which are set forth below, are intended to tie the
future value of the option to the company that employs the option holder and to
maintain the economic value of the option to the holder before and after the
spinoff.
<TABLE>
<S> <C> <C> <C>
Weatherford Employee and Director Option Adjustments:
W-G
New Exercise Price: E( --- )
W
E
New Number of Weatherford Shares Subject to Option: N( --- )
P(w)
Grant Prideco Employee Option Adjustments:
2G
New Exercise Price: E( --- )
W
E
New Number of Grant Prideco Shares Subject to Option: N( --- )
P(g)
</TABLE>
15
<PAGE> 21
<TABLE>
<S> <C> <C> <C>
Where E = The original exercise price of the Weatherford option.
N = The original number of shares of Weatherford common stock
subject to the Weatherford option.
G = One half of the market value of a share of Grant Prideco
common stock. The market value of a share of Grant Prideco
common stock initially will be based on the average of the
high and low trading prices on the NYSE on the first full
trading date after "when-distributed" trading begins.
Following 30 consecutive trading days after
"when-distributed" trading begins, for options remaining
outstanding on that date, the market value of a share of
Grant Prideco common stock will be based on the average of
the last sales price per share on the NYSE for each of the
30 consecutive trading days beginning on the date
"when-distributed" trading begins.
W = The market value per share of Weatherford common stock as of
the close of market on the last trading day before
"when-distributed" trading begins.
P(w) = The adjusted exercise price of the Weatherford option
determined in accordance with the first formula above.
P(g) = The exercise price of the new Grant Prideco option
determined in accordance with the third formula above.
</TABLE>
Except for the above adjustments, the terms of Weatherford's outstanding
options will remain substantially the same as those in effect before the
spinoff, provided that employment with either Grant Prideco or Weatherford will
satisfy any condition to continuing employment where discontinued employment
would cause the options to terminate. The adjusted Weatherford options will be
administered by the Weatherford compensation committee and the substitute Grant
Prideco options will be issued and administered by our compensation committee
under a new Grant Prideco employee stock option plan. We will provide to the
option holders the shares of our common stock required to be issued to them by
our compensation committee and the substitute Grant Prideco options will be
issued and administered by our compensation committee under a new Grant Prideco
employee stock option plan. We will provide to the option holders the shares of
our common stock required to be issued to them on the exercise of their options
and Weatherford will provide the shares of Weatherford common stock required to
be issued to them on exercise of those options.
Treatment of Outstanding Restricted Stock
Holders of restricted Weatherford common stock will receive one share of
restricted Grant Prideco common stock for each two shares of restricted
Weatherford common stock they hold. The restricted Grant Prideco common stock
will be subject to the same restrictions as the applicable restricted
Weatherford common stock.
Payments under Weatherford Nonqualified Deferred Compensation Plans
As of September 30, 1999, there were accrued deferred compensation
liabilities with respect to an aggregate of 494,152 shares of Weatherford common
stock under the Weatherford International, Inc. Executive Deferred Compensation
Stock Ownership Plan, the Weatherford International, Inc. Foreign Executive
Deferred Compensation Stock Plan and the Weatherford International, Inc.
Deferred Compensation Plan for Non-Employee Directors (the "Weatherford Deferred
Compensation Plans"). Upon the spinoff, the accounts of all participants in the
Weatherford Deferred Compensation Plans will be adjusted so that the accounts
will be deemed to be credited with one non-monetary unit equal to one share of
our common stock for every two non-monetary units equal to two shares of
Weatherford common stock that are then deemed credited to the accounts. When
benefits become distributable under the Weatherford Deferred Compensation Plans,
we will issue directly to the participants the number of shares of our common
stock deemed credited to their accounts, as adjusted under the antidilution
provisions of the Weatherford Deferred Compensation Plans and as adjusted by any
dividends on shares of our common stock.
16
<PAGE> 22
Additional Actions
Effective as of the spinoff, we will assume responsibility for liabilities
and obligations as of the distribution date for medical and dental plan coverage
and for vacation and welfare plans with respect to employees who will be
employees of Grant Prideco or its subsidiaries on or after the distribution
date. We will be responsible for reimbursing Weatherford for all self-insured
amounts under Weatherford's policies to the extent such amounts relate to
current or past employees of Grant Prideco and its businesses.
The Distribution Agreement will provide that the spinoff will not
constitute a termination of employment for employees who will continue to be
employees of Grant Prideco or Weatherford after the spinoff. Therefore, those
employees who continue to be employed by Grant Prideco or Weatherford after the
spinoff will not be deemed severed from employment from Weatherford or any of
its subsidiaries for purposes of any policy, plan, program or agreement that
provides for the payment of severance, salary, continuation, vesting or similar
benefits based on periods of past service. Weatherford and Grant Prideco
employees also will be entitled to service credit for any period of employment
with the other company before the distribution date or for five years following
the distribution date.
Terms and Conditions of the Spinoff
The Distribution Agreement outlines the terms and conditions of the spinoff
as described under the heading "The Spinoff -- Conditions; Termination".
Allocation of Liabilities and Indemnities
Subject to certain exceptions, the Distribution Agreement will provide for
an express assumption of liabilities by us and is designed to allocate,
effective as of the distribution date, financial responsibility for the
liabilities arising out of or in connection with our business. We also will
indemnify Weatherford for matters involving (1) our business, including the
business of our and our subsidiaries' predecessors, regardless of whether those
matters are historical or arise in the future, and (2) the spinoff, including
any claims by stockholders relating to the spinoff or the transactions related
thereto.
The Distribution Agreement also will provide that by the distribution date
our certificate of incorporation and bylaws shall be in the forms included in
our registration statement as exhibits, and that Grant Prideco and Weatherford
will elect the persons indicated herein as our directors. See "Description of
Grant Prideco Capital Stock".
The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the spinoff will be charged to Weatherford.
TAX ALLOCATION AGREEMENT
We and our subsidiaries have historically been included in Weatherford's
consolidated group (the "consolidated group") for United States federal income
tax purposes as well as in consolidated, combined or unitary groups that include
Weatherford and/or a number of its subsidiaries (a "combined group") for state,
local and foreign income tax purposes.
We will enter into a Tax Allocation Agreement with Weatherford in
connection with the spinoff. Under the Tax Allocation Agreement, we generally
will make payments to Weatherford such that, with respect to tax returns for any
taxable period in which we or any of our subsidiaries are included in the
consolidated group or any combined group, the amount of taxes to be paid by us
will be determined, subject to adjustments, as if we and each of our
subsidiaries included in the consolidated group or combined group filed our own
consolidated, combined or unitary tax return. We generally will be responsible
for any taxes related to tax returns that include only us and our subsidiaries.
The Tax Allocation Agreement allocates responsibility between Weatherford
and us for preparing and filing tax returns and controlling and contesting
audits and tax proceedings. Weatherford will be primarily responsible for
preparing and filing any tax return with respect to the consolidated group or
any combined
17
<PAGE> 23
group. We will be responsible for preparing the portion of any such tax return
that relates exclusively to us or any of our subsidiaries. We generally will be
responsible for preparing and filing any tax returns that include only us and
our subsidiaries. Weatherford will be primarily responsible for controlling and
contesting any audit or other tax proceeding relating to the consolidated group
or any combined group. We have the right to participate in any audit or tax
proceeding. We may not, however, enter into any settlement or compromise or make
any decision in connection with any audit or tax proceeding that would require
settlement or compromise of issues relating to the tax liabilities of
Weatherford and its subsidiaries. Disputes arising between Weatherford and us
relating to matters covered by the Tax Allocation Agreement are subject to
resolution through specific dispute resolution provisions.
We were included in the consolidated group for periods in which Weatherford
beneficially owned at least 80% of the total voting power and value of our
outstanding stock. We will cease to be included in the consolidated group
following the spinoff. Each member of a consolidated group for United States
federal income tax purposes is jointly and severally liable for the United
States federal income tax liability of each other member of the consolidated
group. Accordingly, although the Tax Allocation Agreement allocates tax
liabilities between Weatherford and us, for any period in which we were included
in the consolidated group, we could be liable if any United States federal
income tax liability was incurred, but not discharged, by any other member of
the consolidated group.
We have agreed with Weatherford that we will not take any action
inconsistent with any information, covenant or representation provided to the
IRS in connection with obtaining the tax ruling and have further agreed to be
liable for any taxes arising from a breach of that agreement. In addition, we
have agreed that, during the three-year period following the spinoff, we will
not engage in transactions that could adversely affect the tax treatment of the
spinoff, unless we obtain a supplemental tax ruling from the IRS or a tax
opinion acceptable to Weatherford of nationally recognized tax counsel to the
effect that the proposed transaction would not adversely affect the tax
treatment of the spinoff. Moreover, we will be liable to Weatherford for any
corporate level taxes incurred by Weatherford as a result of the spinoff, except
to the extent the taxes arise as a result of a change of control of Weatherford.
Our indemnity obligation would include indemnification where the taxes are
attributable to specified actions or failures to act by us, or to specified
transactions involving us following the spinoff, including the acquisition of
our common stock by any person or persons.
TRANSITION SERVICES AGREEMENT
We will enter into a Transition Services Agreement with Weatherford for a
period of one year from the distribution date pursuant to which Weatherford will
provide to us certain services requested by us for the conduct of our business.
The fee for these services will be based on a cost-plus-10% basis. Subject to
termination provisions of the agreement, Grant Prideco and Weatherford will be
free to obtain services from outside vendors or may develop an in-house
capability to provide these services. The transition services to be provided
under this agreement may include accounting, tax, treasury services, insurance
and risk management, and management information systems.
PREFERRED SUPPLIER AGREEMENT
We will enter into a Preferred Supplier Agreement with Weatherford pursuant
to which Weatherford will agree for at least a three year period to purchase at
least 70% of its requirements of drill stem products from us. The price for
those products will be at a price not greater than that at which we sell to
similarly situated customers. Weatherford's obligation to purchase will not
apply when:
- we are unable to assure Weatherford of our ability to deliver products to
the location and at the time specified by Weatherford,
- the sale would be illegal,
- we are unable to assure Weatherford of our ability to meet product
specifications,
- we are unable to meet expedited delivery requirements,
18
<PAGE> 24
- Weatherford is required to use local content,
- Weatherford's customer specifies a competitor,
- we do not accept an order, or
- we breach the Preferred Supplier Agreement.
Under this agreement, we will provide Weatherford with a $15 million purchase
credit that Weatherford will be entitled to apply against its purchases under
the agreement, subject to a limitation of the application of the credit to no
more than 20% of any single purchase.
POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
The ongoing relationship between Weatherford and us may present certain
conflict situations for Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne.
We and Weatherford have adopted appropriate policies and procedures to be
followed by the board of directors of each company to limit the involvement of
Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne (or such executive
officers and other directors having a significant ownership interest in the
companies) in potential conflict situations, including matters relating to
contractual relationships or litigation between Weatherford and us. Such
procedures require Messrs. Duroc-Danner, Lubar, Macaulay, Moses and Rayne (or
such executive officers and other directors having a significant ownership
interest in the companies) to abstain from voting as directors of each company
with respect to matters that involve a material conflict of interest between the
companies. Whether or not a material conflict of interest situation exists will
be determined on a case-by-case basis depending on such factors as the dollar
value of the matter, the degree of personal interest of Messrs. Duroc-Danner,
Lubar, Macaulay, Moses and Rayne (or such executive officers and other directors
having a significant ownership interest in the companies) in the matter and the
likelihood that resolution of the matter has significant strategic, operational
or financial implications for our business. We believe such conflicts will be
minimal.
ACCOUNTING TREATMENT
Our historical financial statements present our financial position, results
of operations and cash flows as if we were a separate entity for all periods
presented. Weatherford's historical basis in our assets and liabilities has been
carried over and, in accordance with generally accepted accounting principles,
allocations of certain Weatherford costs have been made.
DIVIDEND POLICY
We presently intend to retain earnings for use in our business and do not
anticipate paying cash dividends in the foreseeable future. The terms of our
$100 million note to Weatherford also will prohibit us from paying any dividends
or distributions to our stockholders for so long as the note is outstanding. We
also expect that our ability to declare and pay dividends will be limited by our
credit facilities.
19
<PAGE> 25
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain historical combined financial data
of Grant Prideco. This information has been prepared as if we had been a
stand-alone company for the periods presented. This information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements. The following
information may not be indicative of our future operating results.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ------------------- -----------------------------------------------------
1999 1998 1999 1998 1998 1997 1996 1995 1994
------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues.................. $57,987 $160,196 $210,987 $521,911 $646,805 $630,021 $367,336 $167,616 $107,256
Operating Income (Loss)... (11,841) 35,732 (13,179) 118,702(a) 112,877(a) 115,436 46,322 15,238 2,640
Net Income (Loss)......... (10,545) 20,515 (15,722) 69,843(a) 65,720(a) 61,514 23,588 3,059 (3,768)
Pro Forma Earnings (Loss)
Per Share:(b)
Basic................... (0.21) 0.42 (0.32) 1.44 1.35 1.28 0.53 0.08 (0.11)
Diluted................. (0.21) 0.42 (0.32) 1.43 1.34 1.26 0.52 0.08 (0.11)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
1999 1998 1997 1996 1995 1994
------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets........................................ $708,467 $738,314 $662,598 $396,693 $237,854 $146,824
Long-Term Debt...................................... 26,499 9,265 27,387 3,432 2,591 4,641
Subordinated Note to Weatherford.................... 100,000 100,000 100,000 100,000 51,425 65,911
Stockholder's Equity................................ 471,625 445,211 332,722 164,220 104,094 18,593
</TABLE>
- ---------------
(a) Includes $7.0 million, $4.5 million net of tax, and $35.0 million, $22.8
million net of tax, of other charges relating to a reorganization and
rationalization of our business in light of our industry conditions for the
nine months ended September 30, 1998 and for the year ended December 31,
1998, respectively.
(b) We have calculated our pro forma earnings per share using our pro forma
basic and diluted weighted average shares outstanding for each of the
periods presented. In calculating our pro forma basic weighted average
shares, we have adjusted Weatherford's historical basic weighted average
shares outstanding for the applicable period to reflect the number of
shares that would have been outstanding at the time assuming a distribution
of one share of our common stock for each two shares of Weatherford common
stock. Our pro forma diluted weighted average shares reflect an estimate of
the potential dilutive effect of common stock equivalents. This estimate is
calculated based on Weatherford's dilutive effect of stock options and
restricted stock divided by two. The effect of stock options and restricted
stock is not included in the diluted weighted average shares computation
for periods in which a loss occurs because to do so would have been
anti-dilutive.
20
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of our results of operations and current
financial position on a stand-alone basis. This discussion should be read in
conjunction with the Financial Statements.
FORWARD-LOOKING STATEMENTS
This information statement contains statements relating to our future
results, including certain projections and business trends, which constitute
"forward-looking statements". Certain risks and uncertainties may cause actual
results to be materially different from projected results contained in forward-
looking statements in this information statement and in our other disclosures.
These risks and uncertainties include, but are not limited to, those described
in "Risk Factors" and the following:
Any unexpected material changes in oil and gas prices or other market
trends that would impact drilling activity would likely affect the
forward-looking information contained in this information statement. Our results
for 1999 were materially and adversely affected by the downturn in the industry
that began in 1998. Although we currently expect that our results for 2000 will
show an improvement over 1999 due to the recent increase in oil prices and
drilling activity and a general industry view that market conditions have
bottomed out and are beginning to recover, the oil and gas industry is extremely
volatile and subject to change based on political and economic factors outside
our control.
Our estimates as to future results and industry trends described in this
information statement are based on assumptions regarding the future prices of
oil and gas, the North American and international rig counts and their effect on
the demand and pricing of our products and services. In analyzing the market and
its impact on us for the balance of 1999 and 2000, we have made the following
assumptions:
- The recent increase in the price of oil will result in modest
improvements in drilling activity in the fourth quarter of 1999 and an
improvement in activity of between 10% and 20% by the second half of
2000.
- Oil prices will average around $20 per barrel for West Texas Intermediate
crude.
- Average natural gas prices for 2000 will remain at or near their current
levels.
- World demand for oil will be up only slightly.
- Drilling activity will increase slightly beyond normal demand as oil
companies seek to replace and produce reserves that were not replaced or
produced in 1999.
- North American and international rig counts will improve, with increases
in the international rig count following the North American rig count
increase by around six months. In 2000, we expect the average rig count
for North America to be around 1,040 and the average international rig
count to be around 630.
- Demand for drill pipe and other drill stem products will gradually
increase during 2000, with the strongest increases occurring in the
second half of 2000. Demand for premium tubulars will continue to
increase into 2000 as drilling activity increases and distributors
restock inventories.
- Pricing for many of our products and services will continue to be subject
to pricing pressures due to industry consolidations and competition as
the industry recovers.
- No worldwide recession or material downturn in the United States economy
will occur.
- Our currency hedges and revenue/expense matching procedures will
adequately mitigate any material fluctuations in currency exchange rates
involving countries in which we conduct operations.
- That there will be no material changes in global trading policies.
- That there will be no unexpected litigation involving us or unexpected
results in our existing litigation.
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<PAGE> 27
- That there will be no unexpected events or incurrences for which we are
responsible that are not covered by insurance.
- That we will not incur additional general and administrative expenses
materially exceeding our current estimates associated with the spinoff
and our becoming a stand-alone public company.
We have based these assumptions on various macro-economic factors, and actual
market conditions could vary materially from those assumed.
MARKET TRENDS AND OUTLOOK
Our business is materially dependent on drilling activity and the
associated demand for our drill stem products and production tubulars and
connections. Beginning in late 1996, we began experiencing improvements in our
markets due to more stable pricing of oil and natural gas and increased drilling
activity. This improvement in demand, combined with prior consolidations in our
industry, resulted in a substantial increase in the demand for our drill pipe
and other drill stem and tubular products as well as increases in pricing for
many of our products. For most of 1997 and the first half of 1998, our drill
pipe manufacturing facilities operated at or near full capacity and we invested
capital to expand our capacity and international presence. These improved market
conditions resulted in our revenues almost doubling and our operating profit,
before depreciation and amortization, increasing from approximately $58.8
million in 1996 to approximately $142.5 million in 1997. We also had a backlog
of drill stem products in excess of $319.8 million as we entered into 1998.
Beginning in 1998, the price of oil began to fall. This decline in the
price was attributable to a number of factors. The most significant of the
factors were:
- A drop in demand due to the downturn in Asian and other developing
economies;
- An excess supply of oil due to increased production by most of the oil
exporting countries;
- Concerns over future production from Iraq; and
- The impact of prior exploration efforts and large reserve discoveries.
During 1998, the price of oil ranged from a high of $17.62 per barrel of
West Texas Intermediate crude to a low of $10.44 per barrel of West Texas
Intermediate crude. The North American rig count also fell from a high in 1998
of 1,508 rigs to a low in 1998 of 854 rigs. The international rig count, which
typically trails the domestic rig count by a number of months, fell in 1998 from
a high of 819 to a low of 671. In 1999, the price of oil hit an historical low
of $11.07 per barrel and the North American and international rig counts reached
historical lows of 534 and 556, respectively.
The following table sets forth certain information with respect to oil and
natural gas prices and the United States and international rig counts for the
periods reflected:
<TABLE>
<CAPTION>
HENRY HUB NORTH AMERICAN INTERNATIONAL
WTI OIL(1) GAS(2) RIG COUNT(3) RIG COUNT(3)
---------- --------- -------------- -------------
<S> <C> <C> <C> <C>
September 30, 1999.......................... $24.51 $2.560 966 557
December 31, 1998........................... 11.28 1.945 895 671
December 31, 1997........................... 18.32 2.264 1,499 819
December 31, 1996........................... 25.39 2.757 1,195 810
</TABLE>
- ---------------
(1) Price per barrel, as of September 30, 1999, and December 31, 1998, 1997 and
1996 -- Source: Applied Reasoning, Inc.
(2) Price per MMBtu as of September 30, 1999, and December 31, 1998, 1997 and
1996 -- Source: Oil World
(3) Average rig count for months ended September 30, 1999, and December 31,
1998, 1997 and 1996 -- Source: Baker Hughes Rig Count
22
<PAGE> 28
The downturn in the industry that began in 1998 led our customers to
substantially curtail their drilling and exploration activity during the second
half of 1998 and 1999. This decline in activity resulted in substantially lower
purchases of capital equipment used for the exploration and drilling of oil, in
particular, drill pipe and other drill stem products we manufacture. We also
were impacted by customers and distributors reducing their inventories of
premium tubular products in light of market conditions and customers cancelling
and delaying orders to reduce costs. Indicative of the impact of the downturn,
we estimate that worldwide drill pipe demand for 1999 will be less than five
million feet compared to more than ten million feet during each of 1997 and
1998. As of September 30, 1999, our backlog for drill stem products declined to
approximately $45.1 million and the level of new orders for drill stem products
fell to levels not experienced by us in over ten years. Our manufacturing
facilities were also operating at less than 30% utilization.
In light of the adverse market conditions facing us, we elected to reduce
substantially the operations at our manufacturing facilities in 1999 to avoid
producing excess supplies of inventory in the market. This decision has impacted
our 1999 results by creating large unabsorbed costs for the operation of our
manufacturing facilities at extremely low utilization levels. These unabsorbed
costs combined with lower sales resulted in our operating at a loss for most of
1999. Our revenues and operating loss for the third quarter of 1999 were $58.0
million and $11.8 million, respectively. We recorded a net loss for the three
and nine month periods ended September 30, 1999, of $10.5 million and $15.7
million, respectively. We expect fourth quarter results to improve over second
and third quarters as demand for our products increases, in particular the
demand for our premium tubulars and connections. Despite this anticipated
improvement, we expect that revenues for 1999 will be less than $300.0 million
and that we will have a net loss from ongoing continuing operations for 1999 of
up to $22.0 million. This loss could increase to include any charges for unusual
items, such as any impairment of our assets in India or the indebtedness OCTL
owes us in India or any exit or impairment costs associated with the
consolidation of our domestic and foreign facilities.
Recently, the price of oil has increased due to members of the Organization
of Petroleum Exporting Countries reducing production in compliance with
production quotas. Although oil prices have been higher for a number of months,
the increased prices have not yet translated to materially higher drilling
activity. In particular, drilling activity for deeper wells and wells in harsh
environments has not increased. However, orders for drill stem products and
other premium tubular products are increasing, and we expect that demand will
continue to improve absent another material decline in oil prices. Since August
1, 1999, we have averaged approximately $37.0 million per month in new orders
compared to approximately $20.0 million per month for the first seven months of
1999. We currently expect that demand for our drill pipe and other drill stem
products will slowly improve during 2000, with most of the improvement occurring
in the second half of 2000. We expect that results will be significantly better
in 2000 than they were in 1999. Nevertheless, demand for all of our products
continues to be highly dependent upon drilling activity and the price of oil and
natural gas and any material decline in the price of oil and natural gas or
drilling activity could result in a further delay in the recovery in our
industry.
In July 1999, we acquired a 50.01% ownership interest in Voest-Alpine
Stahlrohr Kindberg GmbH & Co KG in Austria. Our investment in Voest-Alpine is
reported on the equity method of accounting. Voest-Alpine owns a tubular mill in
Austria with a capacity of approximately 300,000 metric tons that is capable of
supplying a large portion of our green tube requirements in the United States.
In addition, we entered into a long-term green tube supply contract with
Voest-Alpine. The impact of this investment and supply contract should benefit
us as the market recovers by providing us with a reliable source of raw
materials which is expected to significantly reduce the cost of our raw material
and provide us a 50% profit participation in Voest-Alpine's business.
Over the years, we have provided OCTL with a substantial amount of raw
materials, inventory and working capital for the products it manufactures for
us. As of September 30, 1999, OCTL owed us approximately $21.0 million for prior
advances for working capital paid by us. Our business in India through our
relationship with OCTL has been adversely affected by the downturn of the
economies in the eastern hemisphere and is subject to various political and
economic risks as well as financial and operational risks with respect to OCTL.
We have substantially curtailed purchases from OCTL in India and expect to
continue to curtail these purchases into 2000. In this regard, we are currently
discussing with OCTL various potential modifications to our arrangement with
OCTL in light of market conditions, political events and other matters.
23
<PAGE> 29
Among the matters being considered and discussed is a termination of the
manufacturing arrangement as well as a possible conversion of the debt OCTL owes
us into equity of OCTL. A termination of our relationship with OCTL could result
in our inability to recover funds we advanced to OCTL and the loss or impairment
of our inventory and equipment located in India. Such an impairment could result
in a charge of up to $20.0 million and would materially adversely affect our
results of operations. At this time we are unable to predict the ultimate
outcome of our ongoing negotiations.
Our future results of operations also will be affected by the spinoff and
our becoming a stand-alone public company. In preparation for the spinoff, we
have added additional financial, accounting, legal and other administrative
personnel who will have responsibility for matters historically provided by
Weatherford on our behalf. We also will incur additional costs associated with
complying with our public-company reporting requirements and being listed on the
New York Stock Exchange. Although our historical results of operations include
an overhead allocation from Weatherford, we anticipate that the overhead costs
incurred by us following the spinoff will exceed the historical overhead
allocations from Weatherford by approximately $4.0 million.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1999 Compared to the Three and Nine
Months Ended September 30, 1998
Our business continued to be severely impacted during the three and nine
month periods ended September 30, 1999 by the decline in worldwide drilling
activity that began in 1998 and has continued through 1999. Our revenues for the
third quarter of 1999 were down by more than 60% from the relatively high levels
recorded in the third quarter of 1998. Our backlog of drill stem products
continued to decline during 1999 due to lower drilling activity. At September
30, 1999, our backlog in drill stem products was $45.1 million compared to
backlog of $71.7 million at December 31, 1998 and $210.1 million at September
30, 1998.
The following chart sets forth additional data regarding our results for
the three and nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Revenues.................................... $ 57,987 $160,196 $210,987 $521,911
Gross Profit................................ 299 47,972 21,681 157,723(a)
Gross Profit %.............................. 0.5% 29.9% 10.3% 30.2%
Selling, General and Administrative
Attributable to Segments.................. $ 7,966 $ 8,657 $ 23,181 $ 22,804
Corporate General and Administrative........ 4,174 3,583 11,679 11,767
Operating Income (Loss)..................... (11,841) 35,732 (13,179) 118,702(a)
EBITDA(b)................................... (4,166) 43,057 8,983 141,231(a)
</TABLE>
- ---------------
(a) Includes merger and other charges of $7.0 million, comprised of $2.5
million for write-off of inventory, $4.3 million for facility closures and
exit costs and $0.2 million of severance and related costs. The write-off
of inventory is classified as cost of sales.
(b) EBITDA is calculated by taking operating income and adding back
depreciation and amortization. We have included an EBITDA calculation here
because when we look at the performance of our businesses, we give
consideration to their EBITDA. Calculations of EBITDA should not be viewed
as a substitute to calculations under GAAP, in particular cash flows from
operations, operating income and net income. In addition, EBITDA
calculations by our company may not be comparable to those of another
company.
24
<PAGE> 30
Material items affecting our results for the three and nine months ended
September 30, 1999 compared to same periods in 1998 were:
- The decrease in revenues from 1998 to 1999 reflects our customers'
reduced drilling and exploration activity, the consumption of excess
drill pipe from idle rigs and the reduction of inventories held by
customers and distributors.
- Sales of premium tubulars and connections were materially down due to
reduced offshore activity, lower distributor purchases and a decline in
tubular processing activity.
- For the three and nine months ended September 30, 1998, revenues and
gross profit benefitted from sales from backlog notwithstanding a general
decline in market conditions that began in early 1998.
- Gross profit, gross profit percentages and operating income declined for
the three and nine months ended September 30, 1999 as compared to the
same periods in 1998, due to lower sales volume, pricing pressure and
high fixed costs associated with the manufacturing operations.
- We are in the process of finalizing a plan to consolidate three of our
U.S. manufacturing plants into our Navasota, Texas manufacturing facility
and also two of our foreign manufacturing plants into one foreign
manufacturing plant. We expect the consolidation to reduce operating
costs through the creation of greater efficiencies and to reduce our
selling, general and administrative expenses by reducing administrative
personnel. This consolidation is expected to benefit both the drill stem
products and premium tubulars and engineered connections segments through
an increase of manufacturing capacity utilization and lower plant
operating costs.
- Selling, general and administrative costs attributable to segments for
the three months ended September 30, 1999 decreased primarily due to cost
reductions related to the premium tubulars and engineered connections
segment, which were partially offset by increased amortization of
goodwill of $0.4 million. Selling, general and administrative costs
increased for the nine months ended September 30, 1999 primarily due to
goodwill amortization of $1.0 million. This increase was partially offset
by cost reductions related to the premium tubulars and engineered
connections segment.
- Our corporate general and administrative expenses for the three months
ended September 30, 1999 increased 16% as compared to the same period in
1998 due primarily to increased support from Weatherford personnel.
- Our effective tax rate on our loss from continuing operations for the
three and nine months ended September 30, 1999 was 28.1% and 25.5%,
respectively, due primarily to non-deductible goodwill expense.
- During the nine months ended September 30, 1999, we reduced our workforce
by approximately 300 people.
Drill Stem Products. Our drill stem products segment was most affected by
the decline in worldwide drilling activity in 1998 and 1999. Revenues for the
three and nine month periods ended September 30, 1999 were down by approximately
78% and 67%, respectively, from the record high levels reported in the
comparable periods of 1998.
The following chart sets forth additional data regarding the results of our
drill stem products segment for the three and nine months ended September 30,
1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1999 1998 1999 1998
------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Revenues.................................... $24,846 $115,404 $112,045 $334,621
Gross Profit (Loss)......................... (1,759) 38,970 16,363 120,656(a)
Gross Profit (Loss) %....................... (7.1)% 33.8% 14.6% 36.1%
Selling, General and Administrative......... $ 3,713 $ 3,772 $ 10,353 $ 9,322
Operating Income (Loss)..................... (5,472) 35,198 6,010 106,884(a)
EBITDA...................................... (1,668) 39,014 16,743 118,654(a)
</TABLE>
25
<PAGE> 31
- ---------------
(a) Includes merger and other charges of $7.0 million, comprised of $4.3 million
for facility closures and exit costs, $0.2 million of severance and related
costs and $2.5 million for write-off of inventory. The write-off of
inventory is classified as cost of sales.
Material items affecting the results of our drill stem products segment for
the three and nine months ended September 30, 1999 compared to the same periods
in 1998 were:
- The decrease in revenues from 1998 to 1999 reflects the overall decline
in drilling activity and the consumption of excess drill pipe from idle
rigs.
- Revenues and gross profit for the three months ended September 30, 1999
were negatively affected by the continued weak demand for our products
and resulting unabsorbed fixed costs associated with the manufacturing
facilities operating at extremely low utilization levels. These factors
resulted in an operating loss of $5.5 million.
- For the three and nine months ended September 30, 1998, revenues and
gross profit for this segment benefitted from sales from backlog
notwithstanding a general decline in market conditions that began in
early 1998.
- The unabsorbed manufacturing costs for the three and nine months ended
September 30, 1999 were somewhat reduced by Weatherford purchases of
drill pipe of $15.1 million and $22.7 million, respectively.
- Selling, general and administrative costs for the nine months ended
September 30, 1999 increased due primarily to goodwill amortization
associated with acquisitions subsequent to September 30, 1998 of $0.8
million.
Premium Tubulars and Engineered Connections. Our premium tubulars and
engineered connections segment was severely impacted by the decline in worldwide
drilling activity in 1998 and 1999. Revenues for the three and nine months ended
September 30, 1999 were down by approximately 26% and 47%, respectively, from
the same periods in 1998.
The following chart sets forth additional data regarding the results of our
premium tubulars and engineered connections segment for the three and nine
months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1999 1998 1999 1998
-------- -------- ------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Revenues..................................... $33,141 $44,792 $98,942 $187,290
Gross Profit................................. 2,058 9,002 5,318 37,067
Gross Profit %............................... 6.2% 20.1% 5.4% 19.8%
Selling, General and Administrative.......... $ 4,253 $ 4,885 $12,828 $ 13,482
Operating Income (Loss)...................... (2,195) 4,117 (7,510) 23,585
EBITDA....................................... 1,403 7,354 3,098 33,523
</TABLE>
Material items affecting the results of our premium tubulars and engineered
connections segment for the three and nine months ended September 30, 1999 and
1998 were:
- The decline in revenues reflected the impact of a large reduction in
distributor and direct sales in light of market conditions. Revenue
declines also reflected a substantial drop in riser and conductor sales
by XL Systems due to a decline in offshore activity.
- Gross profit, gross profit percentages and operating income declined due
to lower sales volume and unabsorbed fixed costs associated with the low
utilization levels at the manufacturing operations.
- The selling, general and administrative costs attributable to this
segment declined 13% and 5% for the three and nine months ended September
30, 1999, respectively, as compared to three and nine month
26
<PAGE> 32
periods ended September 30, 1998 due to cost reductions implemented
during the first half of 1999 in response to market conditions.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Our results for 1998 compared to 1997 reflected improved market conditions
during the first half of 1998. During the first half of 1998, our operations
benefitted from strong demand and pricing as well as a large backlog going into
the second half of 1998. As the year progressed, demand declined and prices
began to soften. This decline in demand and prices, however, did not materially
affect the results due to the backlog that existed during the year.
Our results for 1998 also included a $35.0 million charge associated with
the market changes that occurred during 1998. Excluding these charges, our
results for 1998 were significantly higher due to the higher margins and prices
we received on our sales during 1998 compared to 1997. The higher margins and
prices reflected improved demand during the first half of 1998 and that our
facilities were operating at near capacity.
The following chart sets forth additional data regarding our results for
1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1998 1997
-------- --------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $646,805 $630,021
Gross Profit................................................ 166,771(a) 158,242
Gross Profit %.............................................. 25.8% 25.1%
Selling, General and Administrative Attributable to
Segments.................................................. $ 32,077 $ 29,903
Corporate General and Administrative........................ 15,367 12,903
Operating Income............................................ 112,877(a) 115,436
EBITDA...................................................... 144,050(a) 142,487
</TABLE>
- ---------------
(a) Includes merger and other charges of $35.0 million, comprised of $5.1
million for facility closures and exit costs, $0.2 million of severance and
related costs, $28.5 million for the write-off of inventory and $1.2
million for the write-down of equipment. The write-off of inventory is
classified as cost of sales.
Material items affecting our results for 1998 compared to 1997 were:
- The increase in revenues for 1998 reflects the benefit of sales from
backlog from 1997 and the first half of 1998.
- In December 1998, we acquired from Tubos de Acero de Mexico, S.A. (TAMSA)
93% of the outstanding shares of T.F. de Mexico, which owned the
manufacturing facility in Veracruz, Mexico that we were operating under a
capital lease arrangement. As part of the consideration we paid in the
acquisition, we sold the international rights, excluding Canada, to our
Atlas Bradford tubular connection line for carbon grade tubular to TAMSA
through a license arrangement. This license resulted in our sale of all
of our rights, effective upon the closing of this transaction. We
retained no obligations with respect to the development, maintenance or
improvement of the Atlas Bradford connection line for the international
market, and TAMSA has no obligation to give us any additional
consideration for this license. Any future support by Grant Prideco is
provided on a fee basis. The rights we sold through this license
arrangement had a fair value of $9.0 million. As a result, in December
1998 we recorded $9.0 million in revenues to recognize the sale of our
international rights to the Atlas Bradford connection line.
- Sales in the second half of 1998 decreased by 21.2% as compared to the
first half of 1998.
- Increased sales of drill stem products offset reduced sales of premium
tubulars and connections.
27
<PAGE> 33
- Lower sales of premium tubulars and connections reflected the more
immediate impact of the tubular and connection market due to industry
changes and lower activity in sales of drill stem products.
- Improved gross profit, before charges of $28.5 million, significantly
benefitted from lower average costs associated with higher production
volumes during the first half of 1998. The second half of 1998 reflected
a shift in the sales mix from higher margin product sales to lower margin
product sales.
- Selling, general and administrative expenses attributable to segments
increased as a percentage of revenues from 4.7% in 1997 to 5.0% in 1998.
The increase reflects $1.4 million of goodwill amortization associated
with the 1997 acquisitions.
- Corporate general and administrative expenses increased as a percentage
of revenues from 2.0% in 1997 to 2.4% in 1998. Information systems costs
increased to $5.6 million in 1998 from $3.5 million in 1997 as a result
of an increase in the number of users, as well as costs associated with
system conversions, including those related to Year 2000 compliance.
- Operating income improved from $115.4 million in 1997 to $147.9 million,
before charges of $35.0 million, in 1998 due to strong demand and sales
from backlog from 1997 and the first half of 1998.
Drill Stem Products. The following chart sets forth additional data
regarding the results of our drill stem products segment for 1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1998 1997
-------- --------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $411,191 $333,716
Gross Profit................................................ 115,547(a) 102,618
Gross Profit %.............................................. 28.1% 30.8%
Selling, General and Administrative......................... $ 12,260 $ 10,699
Operating Income............................................ 96,837(a) 91,919
EBITDA...................................................... 113,608(a) 105,604
</TABLE>
- ---------------
(a) Includes merger and other charges of $35.0 million, comprised of $5.1
million for facility closures and exit costs, $0.2 million of severance and
related costs, $28.5 million for the write-off of inventory and $1.2
million for the write-down of equipment. The write-off of inventory is
classified as cost of sales.
Material items affecting the results of our drill stem products segment for
1998 compared to 1997 were:
- The increase in revenues for 1998 reflects the benefit of sales from
backlog from 1997 and the first half of 1998. Backlog as of December 31,
1997 was $319.8 million.
- Sales in the second half of 1998 decreased by 12.4% as compared to the
first half of 1998.
- Improved gross profit, before charges of $28.5 million, significantly
benefitted from lower average costs associated with higher production
volumes during the first half of 1998. The second half of 1998 reflected
a shift in the sales mix from higher margin product sales to lower margin
product sales.
- Selling, general and administrative expenses decreased as a percentage of
revenues from 3.2% in 1997 to 3.0% in 1998. The decrease reflects a
higher revenue base.
28
<PAGE> 34
Premium Tubulars and Engineered Connections. The following chart sets forth
additional data regarding the results of our premium tubulars and engineered
connections segment for 1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $235,614 $296,305
Gross Profit................................................ 51,224 55,624
Gross Profit %.............................................. 21.7% 18.8%
Selling, General and Administrative......................... $ 19,817 $ 19,204
Operating Income............................................ 31,407 36,420
EBITDA...................................................... 44,716 48,938
</TABLE>
Material items affecting the results of our premium tubulars and engineered
connections segment for 1998 compared to 1997 were:
- Revenues declined in the second half of 1998 by 34.7% as compared to the
first half of 1998, due to a decrease in demand as distributors'
inventories fell in light of prevailing market conditions.
- Gross profit benefitted from lower average costs associated with higher
production volumes during the first quarter of 1998, however the gross
profit was adversely impacted by the sharp decline in demand during the
second quarter of 1998.
- In December 1998, we acquired from Tubos de Acero de Mexico, S.A. (TAMSA)
93% of the outstanding shares of T.F. de Mexico, which owned the
manufacturing facility in Veracruz, Mexico that we were operating under a
capital lease arrangement. As part of the consideration we paid in the
acquisition, we sold the international rights, excluding Canada, to our
Atlas Bradford tubular connection line for carbon grade tubular to TAMSA
through a license arrangement. The rights we sold through this license
arrangement had a fair value of $9.0 million. As a result, in December
1998 we recorded $9.0 million in revenues to recognize the sale of our
international rights to the Atlas Bradford connection line.
- Selling, general and administrative expenses increased as a percentage of
revenues from 6.5% in 1997 to 8.4% in 1998 primarily due to a lower
revenue base. Selling, general and administrative expenses increased by
$1.2 million as a result of a full year of expenses associated with TA
Industries, Inc.
- Operating income declined from $36.4 million in 1997 to $30.2 million in
1998 primarily due to lower revenues and high fixed costs associated with
our manufacturing facilities.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Our results for 1997 compared to 1996 reflected the significant improvement
in market conditions that occurred in 1996. Beginning in 1996, the market and
demand for drill pipe and other drill stem products improved significantly. This
improvement was reflected in both increased volumes and pricing for our
products. The increased volume and pricing resulted in substantially higher
revenues and gross profit margins. During 1997 we were also able to implement
price increases for our drill stem products that we had not previously been able
to implement due to adverse market conditions. Our operations also benefitted
from prior consolidation efforts and the effects of our international expansion
in Mexico.
29
<PAGE> 35
The following chart sets forth additional data regarding our results for
1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $630,021 $367,336
Gross Profit................................................ 158,242 70,739
Gross Profit %.............................................. 25.1% 19.3%
Selling, General and Administrative Attributable to
Segments.................................................. $ 29,903 $ 16,904
Corporate General and Administrative........................ 12,903 7,513
Operating Income............................................ 115,436 46,322
EBITDA...................................................... 142,487 58,840
</TABLE>
Material items affecting our results for 1997 compared to 1996 were:
- Improved results were primarily due to increased demand for drill pipe
and other drill stem products, strength in premium tubular activity and
our acquisition in April 1997 of TA Industries, Inc., a premium and API
tubular couplings and accessories manufacturer. The acquisition of TA
Industries, Inc. benefitted 1997 revenues and operating income by $73.7
million and $10.3 million, respectively.
- Gross profit increased as a percentage of revenues from 19.3% in 1996 to
25.1% in 1997 due to increased pricing on our products and reduced costs
resulting from the expansion of our Mexico tool joint facility.
- Selling, general and administrative expenses attributable to segments
increased by $13.0 million in 1997 as compared to 1996. The increase is
primarily attributable to a full year of expenses associated with
acquisitions completed in 1996 and 1997. Such acquisitions resulted in an
increase in selling, general and administrative expenses of $12.8 million
from 1996 to 1997.
Drill Stem Products. The following chart sets forth additional data
regarding the results of our drill stem products segment for 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $333,716 $275,178
Gross Profit................................................ 102,618 49,858
Gross Profit %.............................................. 30.8% 18.1%
Selling, General and Administrative......................... $ 10,699 $ 9,489
Operating Income............................................ 91,919 40,369
EBITDA...................................................... 105,604 48,629
</TABLE>
Material items affecting the results of our drill stem products segment for
1997 compared to 1996 were:
- Improved results were primarily due to increased demand for drill pipe
and other drill stem products.
- The increase in demand for drill pipe reflected higher domestic and
international drilling activity, in particular offshore drilling.
Revenues from drill pipe sales also reflected higher pricing of products.
- Increased pricing on our products and reduced costs resulting from the
expansion of our Mexico tool joint facility benefitted gross profit of
this segment. In the third quarter of 1997, the Mexico facility became
fully operational, which benefitted operations in the second half of 1997
by over $3.0 million.
- Selling, general and administrative expenses for 1997, as a percentage of
revenues, was 3.2% compared to 3.4% for 1996 due to the higher sales
volume.
30
<PAGE> 36
Premium Tubulars and Engineered Connections. The following chart sets forth
certain data regarding the results of our premium tubulars and engineered
connections segment for 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1996
---------- ---------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Revenues.................................................... $296,305 $92,158
Gross Profit................................................ 55,624 20,881
Gross Profit %.............................................. 18.8% 22.7%
Selling, General and Administrative......................... $ 19,204 $ 7,415
Operating Income............................................ 36,420 13,466
EBITDA...................................................... 48,938 17,574
</TABLE>
Material items affecting the results of our premium tubulars and engineered
connections segment for 1997 compared to 1996 were:
- Improved results were primarily due to strength in premium tubular
activity and our acquisition of TA Industries, Inc., a premium and API
couplings and accessories manufacturer in April 1997.
- The increase in premium tubular revenues reflected the acquisition of TA
Industries, Inc. The improvement in premium tubular and connection
revenues also reflected strong demand for these products in the Gulf of
Mexico.
- During 1997, our acquisition of TA Industries, Inc. and various small
acquisitions benefitted 1997 revenues in this segment by $77.3 million
and benefitted its operating income by $12.0 million.
- Gross profit for this segment decreased as a percentage of revenues from
22.7% in 1996 to 18.8% in 1997 due to a shift in the sales mix. The
revenues from the 1997 acquisition of TA Industries, Inc. generated lower
margins as compared to 1996 revenues generated primarily from higher
margin premium threading services.
- Selling, general and administrative expenses for 1997, as a percentage of
revenues, were 6.5% compared to 8.0% for 1996 and reflected the higher
revenue base, offset in part by higher selling, general and
administrative expenses of $6.1 million associated with the operations of
TA Industries, Inc., including the increase in the amortization of
goodwill and other intangibles.
Other Charges
In 1998, our drill stem segment incurred $35.0 million in charges relating
to the reorganization and rationalization of our businesses in light of
declining industry conditions and the merger between EVI, Inc. ("EVI") and
Weatherford Enterra, Inc. ("WII"). In the second quarter of 1998, we incurred
$7.0 million of these charges in accordance with Grand Prideco's formalized
plan, which reflected costs associated with the merger between EVI and WII and
the effects of the beginning of the downturn in the industry. Following a
further deterioration in the markets that we serve, and accordingly we incurred
an additional $28.0 million charge in the fourth quarter of 1998. These charges
reflected additional reductions in operations and an attempt to align our cost
structure with current demand. All such costs had been fully expended as of
December 31, 1998, accordingly no accruals remained on the Combined Balance
Sheet as of December 31, 1998. No adjustments to the initial estimates were
required. The net after-tax effect of these charges was $22.8 million.
31
<PAGE> 37
The following chart summarizes our other charges in 1998.
<TABLE>
<CAPTION>
SECOND FOURTH
QUARTER QUARTER REMAINING
1998 1998 BALANCES AT
CHARGE CHARGE UTILIZED DECEMBER 31, 1998
------- ------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Facility Closures and Exit Costs(1)...... $4,250 $ 850 $ 5,100 $
Severance and Related Costs(2)........... 200 -- 200 --
Inventory Write-off(3)................... 2,500 26,000 28,500 --
Asset Write-down(4)...................... -- 1,150 1,150 --
------ ------- ------- -------
Total.......................... $6,950 $28,000 $34,950 $ --
====== ======= ======= =======
</TABLE>
(1) The facility and exit costs were $5.1 million, all of which were
expended by December 31, 1998. The $4.3 million of costs accrued in the
second quarter related primarily to the elimination of duplicative
manufacturing facilities as a result of the reorganization and
rationalization of our businesses following the merger of WII and EVI
and the downturn in the industry. In the fourth quarter an additional
$0.8 million was accrued to further align our costs in response to the
significant decline in market conditions. The costs related primarily
to the (i) closure of the Channelview, Texas facility, (ii) the closure
of the sales location in the U.K. and a Houston, Texas administrative
location, and (iii) exit costs for certain operations at the Edmonton,
Canada, Pearland, Texas and Bryan, Texas facilities. The Pearland,
Texas facility was a location of WII prior to the merger. The Bryan,
Texas, the Channelview, Texas and Edmonton, Canada manufacturing
facilities, the U.K. sales location and a Houston, Texas administrative
location were EVI locations prior to the merger.
(2) The severance and related costs included in the Company's second
quarter charge were $0.2 million for approximately 60 employees
specifically identified, with terminations completed in the second half
of 1998.
(3) We reported the inventory write-off of $28.5 million as cost of sales.
The second quarter inventory write-off of $2.5 million resulted from
the elimination of certain products at the time of the merger of WII
and EVI and due to the declining industry conditions. The fourth
quarter inventory write-off of $26.0 million related to the significant
decline in market conditions.
(4) The write-down of assets was $1.2 million in the fourth quarter of
1998. The charge related to the write-down of equipment as a result of
the rationalization of product lines and the specific identification of
assets held for sale. The identified equipment had a net book value of
$0.6 million as of December 31, 1998. The effect of suspending
depreciation is $0.2 million annually. The equipment was originally
projected to be sold in 1999, but because of market conditions we have
not been able to dispose of the equipment to date. We currently expect
to dispose of these assets in 2000.
In the fourth quarter of 1996, we adopted a plan to close our Bastrop,
Texas tool joint manufacturing facility. In connection with this decision, we
incurred a charge of $4.3 million associated with the facility closing and
relocation of equipment from this facility. Of the $4.3 million, we expensed as
incurred $2.8 million in the fourth quarter of 1996, for costs associated with
these activities, including costs relating to the relocation of equipment from
our Bastrop facility to other facilities. The remaining $1.5 million was accrued
as part of the $4.3 million charge for exit costs that were incurred by June
1997 which related to the closure of the facility. These costs include $0.9
million for the exit costs associated with the disposition of the facility and
$0.6 million for severance and related costs. In connection with this facility
closure, the employment of approximately 200 employees was terminated, of which
approximately 105 were terminated in 1996 and the remaining in the first half of
1997. Severance and related costs were $0.2 million and $0.6 million in 1996 and
the first half of 1997, respectively. The closure of the Bastrop facility was
completed by June 1997 and all accrued exit costs had been expended. No
adjustments to the initial estimates were required.
32
<PAGE> 38
ACQUISITIONS
On October 27, 1999, we acquired an additional 27% interest in H-Tech, an
Indonesia-based drill pipe manufacturer with facilities located on Batam Island.
We previously held a 27% interest in H-Tech and with this purchase we own a
controlling 54% interest in H-Tech. The purchase price for the acquisition was
$6.0 million.
On October 1, 1999, we acquired Drill Pipe Industries, Inc., a manufacturer
of drill stem products, for $2.8 million in cash.
On August 25, 1999, we acquired Louisiana-based Petro-Drive, Inc., for 0.3
million shares of Weatherford common stock and assumed debt of approximately
$3.5 million. Petro-Drive's offerings include conductors, connections and
installation services and equipment. Under the terms of the acquisition, if any
former shareholder of Petro-Drive elects to sell any of the shares of
Weatherford common stock and the corresponding shares of Grant Prideco common
stock received by the shareholder between August 2000 and August 2001 at a
combined sale price of less than $36.50, we will be obligated to pay to the
shareholder an additional amount of cash equal to the deficit.
On July 23, 1999, we acquired a 50.01% interest in the Voest-Alpine
Stahlrohr Kindberg GmbH & Co. KG for approximately $31.5 million, of which we
paid approximately $6.9 million at closing, and we will pay the remainder over a
period of up to seven years. Voest-Alpine produces high quality seamless
tubulars in Austria.
On July 7, 1999, we acquired Texas Pup, Inc., a manufacturer of premium and
API pup joints and utility boring drill pipe, for 105,000 shares of Weatherford
common stock and assumed debt of approximately $1.7 million.
On May 31, 1999, we acquired Texas Pipe Works, Inc., a manufacturer of API
couplings, for approximately $1.7 million in cash and 500,000 shares of
Weatherford common stock.
On May 31, 1999, we acquired InterOffshore Services, Pte., a manufacturer
of drilling tool accessories, for approximately $2.1 million in cash.
In December 1998, we acquired from Tubos de Acero de Mexico, S.A. (TAMSA)
93% of the outstanding shares of T.F. de Mexico, which owned the manufacturing
facility in Veracruz, Mexico that we were operating under a capital lease
arrangement. As part of the consideration we paid in the acquisition, we sold
the international rights, excluding Canada, to our Atlas Bradford tubular
connection line for carbon grade tubular to TAMSA through a license arrangement.
The total consideration given was $59.0 million comprised of $48.5 million in
debt (which was repaid in March 1999), cash of $1.5 million and a $9.0 million
license to the international rights of our Atlas Bradford thread line. The
rights we sold through this license arrangement had a fair value of $9.0
million. As a result, in December 1998 we recorded $9.0 million in revenues to
recognize the sale of our international rights to the Atlas Bradford connection
line.
On February 12, 1998, we acquired Drill Tube International, Inc., a
manufacturer of drill pipe and other drill stem products, for $29 million. The
consideration we paid in the acquisition consisted of $9 million in cash and a
contractual purchase credit obligation to manufacture and deliver products to
the seller over a two year period. Under our contract with the sellers, we were
required to provide product to the sellers at a notional price of $16 million.
The fair value of the products to be delivered to the sellers was $20 million.
Accordingly, a liability of $20 million was recorded as of the date of the
acquisition. As products are delivered under this commitment the liability is
reduced. As of September 30, 1999 and December 31, 1998, the contractual
purchase credit balance was $1 million and $8 million, respectively.
On August 25, 1997, we acquired XLS Holding, Inc., a provider of premium
connections for conductors, risers and other offshore structure components. We
accounted for the acquisition as a pooling of interests. The consideration we
paid consisted of approximately 0.9 million shares of Weatherford common stock.
On July 23, 1997, we acquired Rotary Drilling Tools, a manufacturer of
drill collars and accessories, for approximately $3.3 million in cash.
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On July 18, 1997, we acquired Coastal Tubular Inc., a manufacturer of API
threads and thread connections, for approximately $3.3 million in cash.
On April 14, 1997, we acquired TA Industries, Inc. for approximately $44.1
million in cash and $19.7 million of assumed debt. TA designs, manufactures and
markets premium and API couplings and accessories under the brand names Texas
Arai and Tube-Alloy.
On September 4, 1996, we acquired Superior Tube Limited, an Alberta,
Canada-based premium tubular manufacturer, for total cash consideration of
approximately $16.0 million.
On August 5, 1996, we acquired Tubular Corporation of America, a premium
casing manufacturer, for approximately 1.0 million shares of Weatherford common
stock, $14.4 million in cash, a $0.7 million note due January 1997 and assumed
debt of approximately $15.0 million.
On May 3, 1996, we acquired ENERPRO International, Inc., a manufacturer of
premium threads and thread connections, for 0.6 million shares of Weatherford
common stock and the assumption of approximately $3.1 million in indebtedness.
The acquisitions discussed above, with the exception of XLS Holding, Inc.,
were accounted for using the purchase method of accounting. The results of
operations of all acquisitions, excluding XLS Holding, Inc., are included in our
Combined Statements of Operations from their respective dates of acquisition.
The 1999, 1998 and 1997 acquisitions are not material to us individually or in
the aggregate for each applicable year. Our historical financial statements have
been restated to reflect the historical results of operations of XLS Holding,
Inc. in accordance with the pooling of interest method of accounting.
LIQUIDITY AND CAPITAL RESOURCES
As a subsidiary of Weatherford, our liquidity and capital resources
historically have been provided from cash flow from operations and cash provided
to us by Weatherford. As an independent entity following the spinoff, our
liquidity and capital resources will depend upon our cash flow from operations
and our ability to raise capital from third parties.
Our cash flow from operating activities for 1998 was approximately $10.7
million and reflected uses of cash for working capital purposes and delays in
collections of receivables relating to the downturn in the market. For the nine
months ended September 30, 1999, our cash flow from operations was $51.8 million
and reflected a reduction in working capital needs. As of September 30, 1999, we
estimated that our required principal and interest payments for then outstanding
debt to be approximately $1.5 million over the remainder of 1999 and $11.9
million for the year ending December 31, 2000. At current operating levels, our
businesses generate only marginal levels of excess cash flow. We have, however,
taken a number of steps to reduce our operating cost structure and expect that
our operations for the year ending December 31, 2000 will generate sufficient
cash flow from operations to satisfy all required capital expenditures and debt
service requirements. We expect to finance additional acquisitions and
expansions from cash flow from operations due to improved market conditions or
through a combination of the issuance of additional equity and debt financing.
We currently intend to seek the placement of between $100.0 million and
$200.0 million of long-term debt in the private or public market during the year
2000. The terms of this financing will depend upon market conditions. Although
we expect to pursue the financing during the year, there can be no assurances
that such financing will occur or as to the terms and conditions thereof.
We currently are negotiating with potential lenders to establish a credit
facility that would provide us with up to $100.0 million for working capital
purposes, of which we expect $30.0 to $50.0 million to be available to us
initially. We expect that this facility would be secured by our inventory and
receivables and guaranteed by our domestic subsidiaries. This facility also
would place limits on our ability to incur new debt, engage in certain
acquisitions and investments, grant liens and make distributions to our
stockholders.
Before the spinoff, we will issue an unsecured subordinated note to
Weatherford in the amount of $100.0 million. The Weatherford note will bear
interest at an annual rate of 10%. Interest payments will be due quarterly, and
principal and all unpaid interest will be due no later than December 31, 2001.
If we
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complete a debt or equity financing (whether public or private, but excluding
working capital borrowings under the proposed credit facility and any equity
issued in connection with a business combination) while the Weatherford note is
outstanding, we will be required to use a portion of the net proceeds of that
financing to repay any amount outstanding under the Weatherford note as of the
time we complete that financing. The Weatherford note will be subordinated to
the credit facility. We expect to refinance the Weatherford note as soon as
practicable when market conditions permit.
We currently are discussing with the Department of Energy our participation
in a consortium to develop composite drill pipe. We do not expect our
participation in this project to involve any material funding by us or our
receipt of any material funding. The development of composite drill pipe is
aimed primarily at specific niche markets where the drill pipe could be used as
a conduit for the transmission of data for directional and other drilling
applications. We do not expect the successful development of composite drill
pipe to have a material adverse impact on our traditional drill pipe business.
We also are participating in a joint project with RTI Energy Systems, Inc.
to develop titanium drill pipe. The titanium drill pipe developed under this
project was recently successfully used in its first commercial project. Under
our arrangement with RTI, RTI provides the titanium tubulars and we provide the
connections. We sell the products jointly. Our participation in the project does
not involve any material costs to us. We will offer the titanium drill pipe
manufactured under this project as part of our complete drill stem product
offering.
As part of our arrangement to invest in Voest-Alpine Stahlrohr Kindberg
GmbH & Co. KG, we entered into a four-year supply contract to Voest-Alpine.
Under this agreement, we agreed to purchase a minimum of 45,000 tonnes of
tubulars for the first twelve months of the agreement at a negotiated third
party price that we believe to be attractive. We also agreed to purchase 60,000
tonnes per year for the next three years at the negotiated price. The volume
requirements fixed in the supply agreement were based on our anticipated needs
for tubulars of the type manufactured by Voest-Alpine and represented less than
half of our normal worldwide requirements for this type of tubular. Because this
agreement requires us to purchase tubulars regardless of our needs, our
purchases under this agreement may be made for inventory during periods of low
demand. These types of purchases will require us to use our working capital and
expose us to risks of excess inventory during those periods. Although these
purchases could require us to expend a material amount of money, we expect that
we will be able to use or sell all of the tubular products we are required to
purchase from Voest-Alpine.
TAX MATTERS
As a result of the separation from Weatherford, we will no longer be able
to combine the results of our operations with those of Weatherford in reporting
income for United States federal income tax purposes and for income tax purposes
in some states and foreign countries. We believe this will not have a material
adverse effect on our earnings.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. The SOP provides guidance with respect to accounting for the various types
of costs incurred for computer software developed or obtained for our use. We
have adopted SOP 98-1. The adoption did not have a significant effect on our
combined results of operations or financial position.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-Up Activities. This SOP provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. We adopted this SOP in the
first quarter of 1999. The adoption of SOP 98-5 is not expected to have a
significant effect on our combined results of operations or financial position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
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hedging activities. SFAS No. 133 has been amended by SFAS No. 137, which delays
the effective date to fiscal years beginning after June 15, 2000. We currently
are evaluating the impact of SFAS No. 133 on our combined financial statements.
YEAR 2000 MATTERS
The Year 2000 issue is the risk that information systems, computers,
equipment and products using date-sensitive software or containing computer
chips with two-digit date fields will be unable to process the Year 2000 date
change correctly. If not identified and corrected prior to the Year 2000,
failures could occur in our software, hardware, equipment and products and those
of our suppliers, vendors and customers that could result in interruptions in
our business. Any failure could have a material impact on us.
In response to the Year 2000 issue, we have prepared and implemented a plan
to assess significant Year 2000 issues and remediate any problems we identify in
our:
- information technology systems, including computer software and hardware;
and
- non-information technology systems utilizing date-sensitive software or
computer chips, including products, facilities, equipment and other
infrastructures.
Our management information systems department, together with our technical
and engineering employees and outside consultants, are responsible for the
implementation and execution of the Year 2000 plan. Our Year 2000 plan is a
comprehensive, multi-step process covering our information technology systems
and non-information technology systems. The primary phases of the Year 2000 plan
are:
(1) assessing and analyzing our systems to identify those that are not
Year 2000 ready;
(2) preparing cost and resource estimates to repair, remediate or
replace all systems that are not Year 2000 ready;
(3) developing a company-wide, detailed strategy to coordinate the
repair or replacement of all systems that are not Year 2000 ready;
(4) implementing the strategy to make all systems Year 2000 ready; and
(5) verifying, testing and auditing the Year 2000 readiness of all
systems.
The first, second, third and fourth phases of the Year 2000 plan have been
completed. The fifth phase will be completed during the fourth quarter of 1999.
Any unexpected delays or problems that prevent us from completing all phases of
the Year 2000 plan in a timely manner could have a material adverse impact on
us.
We retained outside consultants to assist us with the installation of new
software and with the assessment of the Year 2000 readiness of our information
technology systems. We expect to retain additional consultants to assist us in
the testing phase of the Year 2000 plan.
In addition to our assessment and review of our own systems, we have
communicated with our third-party contractors, such as vendors, service
providers and customers, for the purpose of evaluating their readiness for the
Year 2000 and determining the extent to which we may be affected by the
remediation of their systems, software, applications and products. However, we
are unable to guarantee that our information technology and non-information
technology systems or those of third-party contractors will be Year 2000 ready
or that the failure of us or any of these third parties to have Year 2000 ready
systems would not result in interruptions in our business that could have a
material adverse impact on us.
In connection with the implementation and completion of the Year 2000 plan,
we currently expect to incur pretax expenditures of approximately $3.5 million.
We incurred approximately $3.1 million of such expenditures from January 1998
through September 30, 1999, of which approximately $2.5 million was incurred in
connection with the replacement of our business application software and
approximately $0.6 million was incurred in connection with the replacement of
certain information technology hardware systems. We intend to continue to fund
the Year 2000 plan expenditures with working capital and third-party
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lease financing. Based upon information currently available, we believe that
expenditures associated with achieving Year 2000 compliance will not have a
material impact on our operating results. However, any unanticipated problems
relating to the Year 2000 issue that result in materially increased expenditures
could have a material adverse impact on us.
The 1999 expenditures associated with the Year 2000 plan represent
approximately 15% of our 1999 management information systems department's
budget. Various other information technology projects that are not related to
the Year 2000 issue have been deferred due to the Year 2000 efforts. The effects
of these delays are not expected to have a material impact on us.
We are unable to predict the most likely worst case Year 2000 scenario. We
are preparing a contingency plan in response to a Year 2000 worst case scenario
and we estimate no lost revenues due to Year 2000 issues. However, we are unable
to provide assurance that any contingency plan we develop will be sufficient to
alleviate or remediate any significant Year 2000 problems that we may
experience.
The above discussion of our efforts and expectations relating to the risks
and uncertainties associated with the Year 2000 issues and our Year 2000 plan
contain forward-looking statements. These statements involve predictions and
expectations concerning our ability to achieve Year 2000 compliance, the amount
of costs and expenses related to the Year 2000 issue and the effect the Year
2000 issue may have on business and results of operations. Certain risks and
uncertainties may cause actual results to be materially different from the
projected or expected results, the overall effect of which may have a materially
adverse impact on us. These risks and uncertainties include, but are not limited
to, unanticipated problems and costs identified in all phases of the Year 2000
plan, our ability to successfully implement the Year 2000 plan in a timely
manner and the ability of our suppliers, vendors and customers to make their
systems and products Year 2000 compliant.
QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
We currently are exposed to certain market risks arising from transactions
that we enter into in the normal course of business. These risks relate to
fluctuations in foreign currency exchange rates and changes in interest rates.
We do not believe these risks are material.
Foreign Currency Risk
We operate in countries outside of the United States and conduct a portion
of our business in currencies other than the U.S. dollar; however, most of our
international revenues are denominated in the U.S. dollar. Historically, the
impact of foreign currency exchange rate fluctuations has not had a material
impact on our results of operations or financial position.
We utilize foreign currency forward contracts to hedge our exposure on firm
commitments. We enter into foreign exchange contracts only as a hedge against
existing economic exposures and not for speculative or trading purposes. Our
objective in managing our exposure to foreign currency exchange rate
fluctuations is to reduce the impact of fluctuations on earnings and cash flows.
In connection with our July 1999 acquisition of a 50.01% interest in
Voest-Alpine Stahlrohr Kindberg GmbH & Co., we incurred debt denominated in
Austrian Shilling for 319.8 million Austrian Shilling ($24.6 million as of
September 30, 1999) (the "VA Debt"). Principal of $9.2 million is payable over
three years in six equal installments in each January and July beginning in
January 2000 and ending in July 2002. The remaining principal balance of $15.4
million is payable over a 7 1/2-year period. To date, we have mitigated our
exposure to short-term exchange rate fluctuations in the Austrian Shilling
through a hedging arrangement Weatherford entered into on our behalf. At
September 30, 1999, Weatherford had a foreign currency contract maturing on
November 30, 1999 to purchase 319.8 million Austrian Shillings for $24.5
million. On November 24, 1999, Weatherford entered into a foreign currency
contract maturing on January 31, 2000 to purchase 319.8 million Austrian
Shillings for $23.9 million. Although we are exposed to exchange rate
fluctuations in the Austrian Shilling subsequent to January 31, 2000, we are
reviewing longer-term hedge arrangements to mitigate this risk. Gains and losses
on the change in market value of Weatherford's foreign
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currency contract are charged to us and recognized currently in earnings, which
offsets the impact of the change in the fair value of the Austrian Shilling
denominated VA debt.
If a 10% devaluation in the Austrian Shilling compared to the U.S. dollar
were to occur, the fair value of the short-term hedge receivable and the fair
value of the VA debt would be decreased by approximately $2.0 million. Such
change would have no impact on earnings. However, were the settlement of the
hedge contract to occur at this time, it would result in a net cash outflow of
approximately $2.0 million.
Interest Rates
We are subject to interest rate risk on our long-term fixed interest rate
debt. We believe that significant interest rate changes will not have a material
near-term impact on our future earnings or cash flows. Excluding the
subordinated note payable to Weatherford, most of our borrowings are at variable
rates and therefore the fair value of these borrowings approximate book value.
With respect to the subordinate note to Weatherford, it is not practical to
estimate the fair market value as our borrowing rates have not yet been
determined.
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BUSINESS
GENERAL
We are an international manufacturer and supplier of products used for the
exploration and production of oil and gas. Our business is conducted through two
operating segments: (1) drill stem products and (2) premium tubulars and
engineered connections. Segment data for drill stem products and premium
tubulars and engineered connections segments is contained in Footnote 17 to the
Financial Statements. We are the world's leading provider of drill pipe and
other drill stem products. We are also a leading provider in North America for
engineered connections used for casing, production tubing and marine conductors
and subsea structures. Our drilling products are designed and engineered for
high performance and include all components of a drill stem from the rig floor
to the drill bit. We have been the innovator in the field of drill pipe and
other drill stem products for more than 20 years, and we are a leader in
connection technology used in the drilling of wells. Our Atlas Bradford division
also has been providing connection technology to the oil industry for
approximately 50 years.
Our company has grown substantially over the years through strategic
acquisitions and internal development. Our operations are conducted throughout
the world through manufacturing facilities located in the United States, Mexico,
Canada, Europe and Asia. We also have 19 sales, service and repair locations
around the world.
MARKET TRENDS AND OUTLOOK
The market conditions in which we compete have been depressed since
mid-1998 due to low oil prices and reduced drilling activity. This decline has
affected our operations in two significant ways:
- The lower rig count has reduced demand for drill stem products. The
reduction in demand is attributable to both the lower number of drilling
rigs requiring drill stem products and an increased level of stock on
hand with our customers, as drill stem products from idle rigs are made
available to other rigs.
- The decline in drilling activity has reduced the number of wells being
completed offshore. This reduction in the number of completed offshore
wells also reduces the demand for our premium casing, liner and
production tubing and connections for these products. The reduced demand
for premium tubular products also affects our accessory products.
We currently expect that the demand for our drill stem products for 1999
will be down as much as 60% from 1998. The utilization of the excess drill stem
products provided by idle rigs also will suppress levels of demand substantially
below requirements for current drilling activity. We expect, however, that
excess inventory with our customers should, absent any further changes in the
drilling markets, be substantially diminished by the middle of the year 2000.
Our premium tubulars and engineered connections business historically has
reacted faster to downturns in the industry and has responded quicker to
recoveries in the industry. This segment was the first of our businesses to be
affected by the downturn in 1998 and the first to begin to experience
improvements in demand. Demand for our premium tubular products and connections
was up in the fourth quarter of 1999 compared to the third quarter of 1999 due
to improvements in offshore drilling and the rig count and due to technological
developments of our products. We also expect that demand for these products will
continue to improve next year absent a downturn in the market. Because the
market conditions for our drilling products is heavily dependent on drilling
activity, which in turn is dependent on the price of oil and gas, the effect of
the current market conditions on our business is extremely difficult to project
and is subject to much uncertainty.
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GROWTH STRATEGY
Our strategy for growth is to seek new opportunities in the drilling and
tubular segments of the oilfield equipment market. During the last year, we
completed various acquisitions that are important to our long-term growth. Those
acquisitions included:
- The acquisition of a 50.01% ownership interest in Voest-Alpine Stahlrohr
Kindberg in Austria. Voest-Alpine owns a modern tubular mill in Austria
with a production capacity of approximately 300,000 tons per year. We
also entered into a long-term green tube supply agreement with
Voest-Alpine to supply a large portion of the raw materials we need for
drill pipe in the United States. The investment in Voest-Alpine provided
us with a low cost source of raw materials for our operations as well as
a platform to enter the Eastern hemisphere tubular markets.
- The acquisition of substantially all of the outstanding shares of the
Mexican entity that owned the manufacturing facility in Veracruz, Mexico
where we manufacture drill pipe and tool joint connections for drill
pipe. This acquisition expanded our drill pipe manufacturing capacity and
enhanced our ability to provide our drill pipe operations throughout the
world with low cost tool joints.
- The acquisition of Petro-Drive, Inc., a provider of conductors,
connections and installation services and equipment for the Gulf of
Mexico and other offshore markets. This acquisition has helped strengthen
our XL Systems offshore conductor and riser business by expanding its
market presence and product offering. This acquisition in conjunction
with a smaller acquisition in Singapore earlier in the year also has
provided a platform for the expansion of our conductor and riser business
internationally.
- The acquisition of an additional interest in H-Tech, an Indonesia-based
manufacturer of drill pipe for the Southeast Asian markets. This
acquisition provides us with a controlling interest in H-Tech and a
stronger presence in the important and growing Asian markets.
We also acquired during 1999 various smaller companies that have allowed us
to expand our premium coupling, pup joint and accessory businesses. Following
the spinoff, we intend to continue to actively pursue acquisitions and other
opportunities for growth. Our strategy for growth through acquisitions and
internal development will focus on:
- Lowering costs through consolidations
- Introducing and acquiring new tubular and thread technologies
- Expanding internationally
- Adding new products and services that are complementary to our existing
products and services
- Investing in new tubular and connection technologies and joint venture
projects such as our titanium drill pipe project with RTI Energy Systems,
Inc. and the development of connections for expandable tubing
- Investing in additional subsea products and services
- Maintaining manufacturing capacity for growth
We intend to finance future acquisitions and growth opportunities through a
combination of internally generated capital, equity issuances and incurrences of
debt where we deem prudent or appropriate. Any issuances of equity will depend
upon the opportunity and circumstances. We will only incur debt where we
consider the terms to be appropriate.
DRILL STEM PRODUCTS
Our drill stem products segment manufactures and sells a complete line of
drill stem products. Those products include primarily drill pipe, drill collars,
heavyweight drill pipe and kellys. The products offered by
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our drill stem products segment constitute all of the components of the drill
stem used to drill a well from the rig floor to the drill bit.
We sell our drill stem products to a variety of customers including
drilling contractors, oil field equipment rental companies and oil and gas
operators. We also sell drill pipe to utility boring and water well companies as
well as distributors to those companies. Drill stem purchasing decisions are
based on quality, price, delivery and operational requirements.
A description of our principal drill stem products follows:
Drill Pipe
Drill pipe is the principal mechanical tool used in drilling for oil and
gas. We sell our drill pipe primarily to rig contractors and rental companies.
Unlike a drilling rig, drill pipe is a consumable product with a limited life
span based on usage. Our drill pipe is designed and manufactured to operate in
highly corrosive and harsh environments and is engineered to withstand extreme
operating conditions such as those that exist offshore and in deep wells.
Our drill pipe incorporates a number of proprietary designs, connections
and coatings. We recently introduced a line of drill pipe designed for extreme
drilling conditions as well as the first drill pipe manufactured using titanium
for short radius drilling. Our Drill Tube division also provides drill pipe for
the growing utility boring and water well industries. Our principal competitors
in drill pipe are Omsco, IDPA, NKK and various local manufacturers in foreign
countries. Sales of drill pipe represented approximately 56%, 39% and 43% of our
total sales during 1998, 1997 and 1996, respectively.
Drill Collars
Drill collars are used to provide weight on a drill bit to assist in the
drilling process. A drill collar is generally located directly above the drill
bit and is machined from a solid steel bar to provide the necessary weight for a
vertical well. Our principal competitors for drill collars are the same as our
competitors for drill pipe.
Heavyweight Drill Pipe and Other Drill Stem Products
Our heavyweight drill pipe is a seamless tubular product that is less rigid
than a drill collar. Heavyweight drill collars provide the transition zone
between a drill collar and the drill pipe. Heavyweight drill pipe also serves to
apply weight to a drill bit in a directional well. We also provide kellys, subs
and pupjoints (short and odd-sized tubular products). Our principal competitors
for heavyweight drill pipe and other drill stem products are Smith
International, Inc., SMFI and Omsco.
PREMIUM TUBULARS AND ENGINEERED CONNECTIONS
Our premium tubular and engineered connections segment manufactures and
sells premium production tubing, liners and casing and connections for marine
conductors and subsea structures. This segment also provides couplings and
accessories for casings and other tubular products. The term "premium" refers to
seamless tubulars with high alloy chemistry, specific molecular structure and
highly engineered connections. Our premium tubulars are sold both with and
without our proprietary Atlas Bradford(R) and other owned or licensed
connections. Our premium tubulars are used in particularly harsh environments,
such as offshore and deep natural gas wells where pressure, temperature and
corrosive elements are extreme.
Our premium tubular products and connections are sold both through
distributors and directly to operators of oil and gas wells. These products and
connections also are sold to mills and various oilfield service companies. The
principal competitors for our premium engineered connections are Hydril, Hunting
Interlock and VAM. During 1999, we licensed to TAMSA the international rights to
our Atlas Bradford connections.
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A description of our principal premium tubulars and engineered connections
products follows:
Premium Tubulars and Connections
Our Atlas Bradford division provides connection threading and related
services to oil and gas companies, tubular distributors and oilfield service
companies. Threading services provided by this division may be sold with
tubulars we provide or on tubular products provided by the customer. We believe
that Atlas Bradford is one of the largest providers of connections in North
America for premium production tubing and casing.
Premium Casing
Our TCA division is a leading provider of critical-service casing for
offshore and extreme applications. TCA offers a wide variety of sizes ranging
from 4 1/2" to 17". Products sold by TCA also are sold with our proprietary
Atlas Bradford connections. TCA also provides tubular processing services for
major tubular steel mills.
Couplings
Our Texas Arai division provides couplings used to connect premium and API
casing and tubing. Texas Arai is one of the world's largest providers of
couplings for oilfield applications. Texas Arai's couplings are provided to
mills, distributors of tubular products and end users.
Accessories and Insulated Tubing
Our Tube-Alloy division provides a variety of tubular accessories, flow
control equipment and connections used in connection with the completion of oil
and gas wells. Tube-Alloy also has developed and is marketing a proprietary line
of insulated tubing used for deepwater and extreme temperature applications.
Conductors and Risers for Subsea Structures
Our XL Systems division provides connections and installation services for
marine conductors and subsea structures. Conductors are the initial support for
new wells from which both downhole and wellhead sections attach. Conductors are
typically hammered in place at the beginning of the drilling process. We use a
proprietary wedge thread technology to connect the conductors. Our primary
competition for conductors and subsea constructors are ABB, DrillQuip and
various smaller companies.
Other
Our premium tubulars and engineered connections segment also provides
design and connection services to third parties. This group has developed
connections for expandable casing and is developing on other new tubular and
connection technology.
RAW MATERIALS
We use the following principal raw materials:
<TABLE>
<CAPTION>
PRODUCT RAW MATERIAL
- ------- ------------
<S> <C>
Drill pipe Steel billets and seamless green
tubing
Drill collars Solid steel bars
Heavyweight drill pipe Heavy walled tubes
Premium tubing and casing Seamless green tubing
</TABLE>
Our suppliers for these raw materials are the major domestic and
international steel mills, including our Voest-Alpine Kindberg affiliate. We
also have established relationships with several domestic and foreign mill
sources to provide us with these products. TAMSA in Mexico currently provides
raw materials for our Mexican and Indian operations. We have a 30-year supply
contract with TAMSA in which we have given it
42
<PAGE> 48
the right to supply these operations as long as the prices are on a competitive
basis and we are not providing those supplies internally or from affiliates such
as Voest-Alpine.
PROPERTIES
The following table describes the material manufacturing and other
facilities and principal offices we currently own or lease.
<TABLE>
<CAPTION>
FACILITY PROPERTY
SIZE SIZE
LOCATION (SQ.FT.) (ACRES) TENURE UTILIZATION
-------- --------- -------- ------ -----------
<S> <C> <C> <C> <C>
Navasota, Texas 347,000 83.00 Owned Manufacture of drill pipe,
premium threaded casing,
liners and tubing
Veracruz, Mexico 303,400 42.00 Owned Manufacture of tool joints
Muskogee, Oklahoma 195,900 108.40 Owned Manufacture of TCA premium
casing
Houston, Texas 148,500 20.00 Under lease through Manufacture of Atlas
03/31/2012 for $62,180 Bradford connectors
per month; renewable
for 10 additional years
114,200 21.90 Owned Manufacture of API and
premium threaded couplings
54,500 7.00 Owned Premium threading services
and manufacture of tubular
accessories
23,150 10.0 Owned Manufacture of drill
collars, heavyweights and
kellys
31,800 10.0 Owned Heat-treat of drill
collars and kellys
The Woodlands, Texas 52,000 -- Under lease through Corporate Headquarters
10/25/2008 for $80,381
per month; renewable
for 5 additional years
Bryan, Texas 160,000 55.30 Owned Manufacture of drill pipe
Kindberg, Austria 1,614,600 101.27 Owned through our Manufacture of green tube
50.01% joint venture and casing
with Voest-Alpine
Edmonton, Alberta, 109,600 10.20 Owned Manufacture of drill pipe,
Canada premium threaded casing,
liners and tubing
Houma, Louisiana 85,000 9.40 Owned Manufacture of downhole
accessories
</TABLE>
43
<PAGE> 49
<TABLE>
<CAPTION>
FACILITY PROPERTY
SIZE SIZE
LOCATION (SQ.FT.) (ACRES) TENURE UTILIZATION
-------- --------- -------- ------ -----------
<S> <C> <C> <C> <C>
Broussard, Louisiana 24,600 5.64 Under lease through Provider of drivers for
08/24/2006, for $20,000 conductor installation
per month, Purchase services
option through 8/2000
Jurong, Singapore 33,600 2.67 Under lease through Manufacture of drill
08/14/2029 for $9,467 collars, accessories and
per quarter and an threading services
initial payment of $1.8
million
Beaumont, Texas 12,300 29.0 Owned Premium threading services
and manufacture of
conductors
</TABLE>
In addition to the above facilities, we have an agreement with Oil Country
Tubular Limited pursuant to which OCTL's manufacturing facility in Narketpally,
India is dedicated by OCTL to the production of drill pipe and other tubular
products exclusively for us. OCTL owns this facility, which consists of 262,000
square feet located on 60 acres. We currently are reviewing our manufacturing
arrangement with OCTL in India and expect that we will modify or terminate that
arrangement.
PATENTS
Many areas of our business rely on patents and proprietary technology. We
currently have more than 130 patents issued or pending. Many of our patents
provide us with competitive advantages in our markets. Although we consider our
patents and our patent protection to be an important part of our business, we do
not believe that the loss of one or more of our patents would have a material
adverse effect on our business.
BACKLOG
With the exception of drill pipe, our backlog is not material. We had a
backlog of drill pipe as of December 31, 1998, 1997 and 1996 of $71.7 million,
$319.8 million and $114.8 million, respectively. This backlog represented
approximately 11.1%, 50.8% and 31.3% of our total company sales for those years.
The decline in drill pipe backlog reflects current market conditions. Our
backlog at September 30, 1999 was approximately $45.0 million. We also believe
that sales will be materially dependent upon timing and recovery of drilling
activity.
INSURANCE
We currently participate in the insurance policies carried by Weatherford.
We have negotiated similar insurance policies for our U.S. and international
operations that will become effective on or before the spinoff. We do not
maintain political risk insurance (generally designed to cover expropriation and
nationalization exposures), but do maintain an all risk property insurance that
covers losses from insurrection, civil commotion and uprising. This insurance
does not cover losses resulting from a declared state of war.
Although we believe that we maintain insurance coverage that is adequate
for the risks involved, there is always a risk that our insurance may not be
sufficient to cover any particular loss or that our insurance may not cover all
losses. For example, while we maintain product liability insurance, this type of
insurance is limited in coverage and it is possible that an adverse claim could
arise that exceeds our coverage. Our insurance rates as a stand-alone entity may
differ from those rates obtained by Weatherford. Finally, insurance rates have
in the past been subject to wide fluctuation and changes in coverage could
result in increases in our cost or higher deductibles and retentions.
44
<PAGE> 50
FEDERAL REGULATION AND ENVIRONMENTAL MATTERS
Our operations are subject to federal, state and local laws and regulations
relating to the energy industry in general and the environment in particular.
Environmental laws have over the years become more stringent and compliance with
such laws increases our overall cost of operations. In addition to affecting our
ongoing operations, applicable environmental laws can require us to remediate
contamination at our properties, at properties formerly owned or operated by us,
and at facilities to which we sent waste materials for treatment or disposal.
While we are not currently aware of any situation involving an environmental
claim that would likely have a material adverse effect on our business, it is
always possible that an environmental claim with respect to one or more of our
current businesses or a business or property that one of our predecessors owned
or used could arise that could have a material adverse effect.
Our expenditures during 1998 to comply with environmental laws and
regulations were not material and we currently expect that the cost of
compliance with environmental laws and regulations for 1999 also will not be
material. We also believe that our costs for compliance with environmental laws
and regulations are generally within the same range with those of our
competitors. However, we can offer no assurance that our costs to comply with
environmental laws in the future will not be material.
EMPLOYEES
As of September 30, 1999, we had approximately 2,290 employees. Certain of
our operations are subject to union contracts. These contracts, however, cover
only a small portion, approximately 17%, of our total employees. We believe that
our relationship with our employees is good.
LITIGATION
From time to time, we may be involved in litigation relating to claims
arising out of the ordinary course of our business. We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would materially adversely affect us.
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 1450 Lake Robbins Drive,
Suite 600, The Woodlands, Texas 77380. Our telephone number is (281) 297-8500.
Grant Prideco was incorporated in Delaware in 1990.
45
<PAGE> 51
MANAGEMENT
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF GRANT PRIDECO
Effective as of the distribution date, Grant Prideco's board of directors
will consist of nine persons. The following persons are currently expected to
serve as directors. In addition, we expect that at least one or two additional
persons will be named to our board of directors. Each director will serve until
our annual meeting of stockholders to be held in 2001.
<TABLE>
<CAPTION>
NAME AGE
- ---- ---
<S> <C>
John C. Coble............................................... 57
Bernard J. Duroc-Danner*.................................... 46
Eliot M. Fried.............................................. 66
Sheldon B. Lubar*........................................... 70
William E. Macaulay*........................................ 54
Robert K. Moses*............................................ 59
Robert A. Rayne*............................................ 50
</TABLE>
* Also a director of Weatherford.
John C. Coble will serve as Chief Executive Officer, President and Director
of Grant Prideco upon the completion of the spinoff. Mr. Coble was appointed
President of Grant Prideco in 1995. From 1989 to 1995, Mr. Coble held senior
executive positions at Weatherford and held senior executive positions at Grant
Prideco from 1981 to 1989. Prior to 1981, Mr. Coble spent 12 years with Shell
Oil Company in both marketing and financial areas. Mr. Coble graduated with a
Bachelors degree from the University of Missouri and a Masters degree from
Kellogg School of Business (Northwestern University).
Bernard J. Duroc-Danner is the President, Chief Executive Officer and
Chairman of the Board of Directors of Weatherford. Mr. Duroc-Danner has served
as President and CEO of Weatherford since May 1990. Mr. Duroc-Danner holds a
Ph.D. in economics from Wharton (University of Pennsylvania). In prior years,
Mr. Duroc-Danner held positions with Arthur D. Little and Mobil Oil Inc. Mr.
Duroc-Danner is a director of Parker Drilling Company (an oil and gas drilling
company) and Cal Dive International, Inc. (a company engaged in subsea services
in the Gulf of Mexico).
Eliot M. Fried, a Managing Director of Lehman Brothers, is a member of
Lehman Brothers' Investment and Capital Commitment Committees, as well as Senior
Trustee of Lehman Brothers Holdings Inc. Retirement Plan. Mr. Fried is a
director of Axsys Technologies Inc., L-3 Communications Corporation and Blount
International Inc.
Sheldon B. Lubar has been the Chairman of Lubar & Co., a private investment
company, for more than the past five years. Until February 8, 1999, Mr. Lubar
served as Chairman and Chief Executive Officer of Christiana Companies, Inc., a
diversified holding company that held shares of Weatherford common stock and
owned a company that was engaged in refrigerated and dry warehousing,
transportation and logistic services. Mr. Lubar is a director of C2, Inc.,
Ameritech Corporation, Massachusetts Mutual Life Insurance Company, Firstar
Corporation, MGIC Investment Corporation and Jefferies & Company, Inc.
William E. Macaulay has been the Chief Executive Officer of First Reserve
Corporation, a Connecticut-based-corporation that manages various investment
company funds, for more than the past five years and has served as Chairman of
First Reserve Corporation since June 1998. He is a director of Maverick Tube
Corporation (a manufacturer of oilfield tubulars, line pipe and structural
steel), National-Oilwell, Inc. (a company engaged in the design, manufacture and
sale of machinery and equipment and the distribution of products used in oil and
gas drilling production), and Cal Dive International, Inc. (a company engaged in
subsea services in the Gulf of Mexico).
46
<PAGE> 52
Robert K. Moses, Jr. has been a private investor, principally in the oil
and gas exploration and oilfield services business in Houston, Texas, for more
than the past five years. He served as Chairman of the Weatherford Enterra Board
from May 1989 to December 1992.
Robert A. Rayne has been an Executive Director of London Merchant
Securities plc (property investment and development with major investments in
leisure enterprises), a United Kingdom-listed public limited company, for more
than the past five years.
Our board will have a three standing committees: an Audit Committee, a
Compensation Committee and an Executive Committee. We will not have a nominating
committee.
The Audit Committee will comprise certain directors who are not employees
of Grant Prideco or any of its subsidiaries. Messrs. Fried, Lubar and Rayne will
serve initially as members of the Audit Committee. The primary functions of the
Audit Committee are:
- assessing the independence and performance of our independent and
internal auditors;
- recommending to our board the selection and discharge of our independent
auditors; and
- evaluating the adequacy of our internal accounting controls.
Our independent auditors and internal auditors will have unrestricted
access to the Audit Committee and vice versa.
The Compensation Committee will comprise certain directors who are not
employees of Grant Prideco or any of its subsidiaries. Messrs. Lubar, Moses and
Rayne will serve initially as members of the Compensation Committee. The primary
functions of the Compensation Committee are:
- recommending to our board the compensation to be paid to the directors,
officers and key employees; and
- subject to review and approval of certain matters by our full board of
directors, administering the compensation plans for our executive
officers.
Messrs. Duroc-Danner, Coble and Macaulay will serve initially as members of
the Executive Committee. The primary function of the Executive Committee is to
act on behalf of our board of directors between regularly scheduled meetings of
the board.
DIRECTOR COMPENSATION
Fees
We pay our directors who are not our employees the following fees:
- $1,000 for each board and committee meeting attended;
- $1,500 for the Committee Chairman for each committee meeting attended;
and
- $7,000 for each quarter of the year in which the person serves as a
director.
Pursuant to Grant Prideco's Director Plan, each outside director will be
granted stock options or warrants to purchase an aggregate of 60,000 shares of
our common stock. In addition, the directors will be reimbursed for their travel
expenses to and from board and committee meetings.
Grant Prideco, Inc. 1999 Non-Employee Director Stock Option Plan
Our non-employee director stock option plan is designed to encourage our
non-employee directors to obtain an equity interest in Grant Prideco. A total of
780,000 shares of Grant Prideco common stock may be subject to options under the
plan. We believe that stock ownership in Grant Prideco motivates our directors
to work toward our long-term growth and development. Under the plan,
non-employee directors, upon their
47
<PAGE> 53
initial election to the board, are granted options or warrants to purchase
60,000 shares of common stock at exercise prices equal to the market price of
our common stock on the date of grant. In addition, on every third annual
meeting of our stockholders, each person who is then a non-employee director
will be granted options or warrants to purchase 60,000 shares of our common
stock at exercise prices equal to the market price of our common stock on the
date of the grant. Each person who becomes a non-employee director on the date
of the spinoff will be granted options or warrants to purchase 60,000 shares of
common stock at exercise prices equal to the market price of the common stock on
that date. The options granted under the plan generally are subject to
three-year cliff-vesting so that a non-employee director generally will not be
entitled to the options if he or she elects to leave. However, the options will
be immediately exercisable if the non-employee director dies or becomes disabled
or if there is a change in control of Grant Prideco while he or she is still a
director. The options also will be exercisable in part if the non-employee
director retires from Grant Prideco in good standing. We believe that this type
of vesting schedule provides strong incentives for creating long-term value for
Grant Prideco.
Director Deferred Compensation Plan
Under our deferred compensation plan for non-employee directors, each
non-employee director may elect to defer up to 7.5 percent of any fees paid by
us. The deferred fees are converted into non-monetary units representing shares
of common stock that could have been purchased with the deferred fees based on
the market price of common stock at the time of the deferral. If a non-employee
director elects to defer at least five percent of his fees, we will make an
additional credit to the director's account equal to the sum of (1) 7.5 percent
of the director's fees plus (2) the amount of fees deferred by the director. Our
directors may generally determine when the funds will be distributed from the
plan. The amount of the distribution will be equal to the number of units in the
director's account multiplied by the market price of the common stock at the
time of distribution. Distributions will generally be made in common stock,
except that amounts representing fractional shares will be distributed in cash.
EXECUTIVE OFFICERS OF GRANT PRIDECO
Set forth below is information with respect to the individuals who will
serve as our executive officers as of the distribution date.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Bernard J. Duroc-Danner................ 46 Chairman of the Board
John C. Coble.......................... 57 Chief Executive Officer, President and
Director
William G. Chunn....................... 66 Executive Vice President of Operations
Curtis W. Huff......................... 42 Vice President and Interim General
Counsel
Frances R. Powell...................... 45 Vice President, Chief Financial Officer
and Treasurer
</TABLE>
William G. Chunn was appointed Executive Vice President, Operations in 1995
after the merger of Grant TFW, Inc. and Prideco, Inc. Mr. Chunn served as
President, Chief Executive Officer and Director of Prideco from 1985 to 1995.
Mr. Chunn has held senior executive positions in the drill stem industry for
over 30 years.
Curtis W. Huff will serve as Vice President and Interim General Counsel for
Grant Prideco subsequent to the spinoff in addition to his current duties as
Senior Vice President, General Counsel and Secretary of Weatherford. Mr. Huff
has served as Senior Vice President, General Counsel and Secretary of
Weatherford since June 1998. Prior to that time, Mr. Huff was a partner with the
law firm of Fulbright & Jaworski L.L.P., our counsel, and held that position for
more than five years.
Frances R. Powell will serve as Vice President, Chief Financial Officer and
Treasurer of Grant Prideco after the spinoff. Ms. Powell is currently Vice
President of Accounting and Controller for Weatherford, where she has served in
this position since 1991. From 1986 to 1990, Ms. Powell served as Controller for
and held other executive positions with GulfMark Offshore, Inc.
48
<PAGE> 54
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
regarding compensation we paid for the fiscal year ended December 31, 1998 to
the individuals serving as our Chief Executive Officer and the only other
executive officer whose base salary and bonus exceeded $100,000 for fiscal 1998
(collectively, the "Named Executive Officers"). During the periods presented,
the individuals were compensated in accordance with Weatherford's plans and
policies. No compensation information is provided for Mr. Duroc-Danner, Mr. Huff
or Ms. Powell because compensation paid to those persons by Weatherford for 1998
was for their employment with Weatherford and not Grant Prideco. Descriptions of
employment agreements to be entered into effective as of the distribution date
between Grant Prideco and certain of the Named Executive Officers are set forth
under "-- Employment Agreements and Change-of-Control Arrangements".
All references in the tables to stock, stock options, prices and values
relate to awards of stock and stock options and historical prices of Weatherford
common stock. See "Relationship Between Grant Prideco and Weatherford After the
Spinoff -- Employment Matters; Treatment of Outstanding Stock Options and
Restricted Stock" for a discussion of how existing options and restricted stock
will be adjusted in connection with the spinoff.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- -----------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION STOCK UNDERLYING COMPENSATION
COMPENSATION($) ($)(1) ($)(1) ($)(2)(3) AWARDS($) OPTIONS(#) ($)(4)
- --------------------------- --------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
John C. Coble............................. 296,108 150,000 103,366 -- 100,000 11,056
Chief Executive Officer,
President and Director
William G. Chunn.......................... 207,692 35,700 59,984 -- 25,000 1,920
Executive Vice
President of Operations
</TABLE>
- ---------------
(1) Salary and bonus compensation include amounts deferred by each executive
officer under the Weatherford Executive Deferred Compensation Stock
Ownership Plan (the "Executive Deferred Plan") described in Note 2 below.
The bonus amounts were earned in the year in which they are shown in the
table but were paid in the first half of the following year.
(2) Other Annual Compensation includes (i) the vested portion of the amount
contributed by us under the Executive Deferred Plan equal to 7.5% of each
annual officer's compensation for each year, plus (ii) the vested portion of
our matching contribution under the Executive Deferred Plan equal to 100% of
the amount deferred by the officer. Each officer can defer up to 7.5% of his
or her total salary and bonus compensation each year. Our contributions vest
over a five-year period on the basis of 20% per year from the date of
initial participation in the Executive Deferred Plan. Under the Executive
Deferred Plan, the compensation deferred by each officer and our
contributions are converted into non-monetary units equal to the number of
shares of common stock that could have been purchased at a market-based
price by the amounts deferred and contributed. Distributions are made under
the Executive Deferred Plan after an officer retires, terminates his
employment or dies. The amount of the distribution under the Executive
Deferred Plan is based on the number of vested units in the officer's
account multiplied by the market price of the common stock at that time.
Following the spinoff, the accounts of the executive officers for deferrals
made prior to spinoff will be maintained by Weatherford with the executive
being credited with both Weatherford common stock units and our common stock
units. Distributions in respect of deferrals prior to the spinoff will be
paid by Weatherford based on the market price of the Weatherford common
stock allocated to the account of the executive immediately prior to the
spinoff and our common stock issued as a distribution in respect of those
shares. Distributions under the Executive Deferred Compensation Plan may, at
Weatherford's election, be made in cash, stock or combination of both. We
have agreed to issue to participants in the Executive Deferred Compensation
Plan shares of our stock to
49
<PAGE> 55
the extent required by Weatherford to satisfy the distribution under that plan.
We also will maintain a separate Executive Deferred Compensation Plan for our
executives after the spinoff in which the common stock accounts will be based
solely on our stock and distributions will be made by us in cash, our stock
or a combination of both. Weatherford's and our obligations with respect to
the Executive Deferred Plan are unfunded. However, Grant Prideco and
Weatherford have established grantor trusts that are subject to the claims
of our creditors, into which funds are deposited with an independent
trustee that purchases shares of common stock for the Executive Deferred
Plan. As of December 31, 1998, Messrs. Coble and Chunn had 33,863 and
13,219 units allocated to their respective accounts.
(3) Excludes the total amount of all perquisites and other benefits that were
less than the lesser of $50,000 or 10% of the total of annual salary and
bonus of each executive officer.
(4) Represents matching contributions of $1,920 made by Weatherford in 1998
under Weatherford's 401(k) Savings Plan for each of Messrs. Coble and Chunn
and life insurance premiums of $7,493 and $2,063 paid by Weatherford in 1998
for each of Messrs. Coble and Chunn, respectively.
STOCK OPTION GRANTS IN FISCAL 1998
The following table provides certain information related to Weatherford
options granted to the Named Executive Officers during fiscal 1998. For
information concerning the treatment of options held by our officers after the
spinoff, see "Relationship Between Grant Prideco and Weatherford After the
Spinoff -- Distribution Agreement -- Employment Matters; Treatment of
Outstanding Stock Options and Restricted Stock".
All references in the tables to stock, stock options, prices and values
relate to awards of stock and stock options and historical prices of Weatherford
common stock. See "Relationship Between Grant Prideco and Weatherford After the
Spinoff -- Employment Matters; Treatment of Outstanding Stock Options and
Restricted Stock" for a discussion of how existing options and restricted stock
will be adjusted in connection with the spinoff.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED
UNDERLYING TO EXERCISE
OPTIONS EMPLOYEES OR BASE
GRANT IN FISCAL PRICE GRANT DATE
NAME GRANTED(1) 1998 ($/SH) EXPIRATION DATE PRESENT VALUE($)(2)
- ---- ---------- ---------- -------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
John C. Coble................. 100,000 13.8% 18.125 September 7, 2011 1,075,100
William G. Chunn.............. 25,000 3.4 18.125 September 7, 2011 268,775
</TABLE>
- ---------------
(1) The options become fully exercisable on September 8, 2001.
(2) The grant date present value is based upon Black-Scholes option valuation
model. The calculation assumes volatility of 52%, a risk free rate of 5.02%,
a seven year expected life, no expected dividends and option grants at
$18.125 per share. The actual value, if any, of any option will depend on
the amount, if any, by which the stock price exceeds the exercise price on
the date the option is exercised. Thus, this valuation may not be a reliable
indication as to value and there is no assurance the value realized will be
at or near the value estimated by the Black-Scholes model.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND DECEMBER 31, 1998 OPTION VALUES
The following table provides information related to Weatherford common
stock options exercised by the Named Executive Officers during fiscal 1998 and
the number and value of Weatherford options held at December 31, 1998.
All references in the tables to stock, stock options, prices and values
relate to awards of stock and stock options and historical prices of Weatherford
common stock. See "Relationship Between Grant Prideco and Weatherford After the
Spinoff -- Employment Matters; Treatment of Outstanding Stock Options and
50
<PAGE> 56
Restricted Stock" for a discussion of how existing options and restricted stock
will be adjusted in connection with the spinoff.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
VALUE UPON VALUE --------------------------- ---------------------------
NAME OPTION EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Coble.......... -- -- 80,400 100,000 450,650 125,000
William G. Chunn....... -- -- -- 25,000 -- 31,250
</TABLE>
- ---------------
(1) The value is based on the difference in the closing market price of the
Weatherford common stock on December 31, 1998 ($19.375), and the exercise
price of the options. The actual value, if any, of the unexercised options
will depend on the market price of the Weatherford or Grant Prideco stock
issuable on the exercise of the options at the time of the exercise of the
options.
BENEFIT PLANS
We will maintain the following plans after the Spinoff:
Grant Prideco, Inc. 1999 Employee Stock Option and Restricted Stock Plan
We consider stock options and restricted stock to be an important incentive
to our employees to work toward the Company's long-term growth. Accordingly, we
will from time to time grant to our employees (including our executive officers)
options to purchase shares of Grant Prideco common stock and awards of
restricted Grant Prideco stock. The number of shares to be granted will be based
on the level and contribution of the employee. A total of 5,000,000 shares of
Grant Prideco common stock have been dedicated to the plan. Stock options are
subject to vesting over a number of years and generally will have exercise
prices equal to the market price of the common stock at the date of grant.
However, the exercise price and exercisability of each option may be determined
by the Compensation Committee of the board of directors. Similarly, restricted
stock awards will generally be subject to certain restrictions so that an
employee will not be entitled to the stock if he or she elects to leave the
Company. We believe that these types of vesting and restrictions provide strong
incentives for creating long-term value for the Company. We intend to grant to
our executive officers the number of stock options and restricted stock that is
consistent with industry standards and our objectives towards emphasizing
stock-based compensation for our senior executive officers.
Grant Prideco, Inc. Executive Deferred Compensation Plan
We will maintain an executive deferred compensation plan to provide our key
employees with long-term incentive compensation through benefits that are linked
directly to future increases in the value of Grant Prideco common stock and that
may be realized only upon the employee's termination of employment. Under this
plan, eligible employees receive a tax deferred credit equal to 7.5 percent of
their annual compensation through a credit to an account that is converted into
non-monetary units representing the number of shares of Grant Prideco common
stock that the credited funds could purchase at an price equal to the average
closing price of our common stock during the month the amounts are credited. In
addition, as an incentive to the participants to base their deferred
compensation on increases in our common stock a portion of the compensation that
they would otherwise receive from us, the participating employees also are
offered the opportunity to defer up to 7.5 percent of their compensation to
their account under this plan, in which case we will make a matching credit
equal to the amount of the deferral by the employee. This plan provides for a
five-year vesting period with respect to credits we provide, and the ultimate
value of benefits under the plan to the participant are wholly dependent upon
the price of Grant Prideco common stock at the time the employee terminates his
employment. We believe that our deferred compensation plans are an important
component of our stock-based compensation program and align management's
interest with those of our stockholders. Under the plan, Grant Prideco intends
to create a grantor trust so that each employer may make periodic
51
<PAGE> 57
contributions to the trust approximating the amounts credited to an employee's
account. The trustee would use these contributions to purchase our common stock
in the open market, and this stock could be used to satisfy the obligation to
the employee when due.
Grant Prideco, Inc. Foreign Executive Deferred Compensation Plan
We also will maintain an executive deferred compensation plan that will
provide our key foreign employees with long-term incentive compensation through
benefits that are directly linked to future increases in the value of the common
stock. Under this plan, eligible foreign employees receive a tax deferred credit
equal to 15 percent of their annual compensation through a credit to an account
that is converted into non-monetary units representing the number of shares of
our common stock that the contributed funds could purchase at a price equal to
the average closing price of our common stock during the month the amounts are
credited. This plan provides for a five-year vesting period with respect to
these credits, and the ultimate value of benefits under the plan to the
participant are wholly dependent upon the price of our common stock at the time
the employee terminates his employment.
Grant Prideco, Inc. 401(k) Savings Plan
We have established a 401(k) savings plan that allows eligible employees to
make before- and after-tax contributions toward their retirement security and
receive matching and discretionary contributions from us. All of our employees
are eligible to participate in the plan unless they are employees covered under
a collective bargaining agreement, leased employees, employees working outside
the United States, non-resident aliens with no United States source income or
employees participating in a retirement plan maintained outside the United
States. An eligible employee may elect to defer up to 16 percent of his or her
compensation on a before-tax basis. After a year of service, we will match half
of up to six percent of a participant's before-tax deferrals, and the
participant will be able to share in any discretionary contributions we make. A
participant's contributions and any matching and discretionary contributions we
make will be vested immediately. Participants may invest their accounts in
various investment funds offered under the plan. A participant may withdraw
certain funds from his or her account in the case of a financial hardship or on
or after age 59 1/2, and may withdraw his or her after-tax and/or rollover
contributions at any time. Loans are also available to participants under the
plan. Distributions of a participant's before- and after-tax contributions and
our contributions may be made when the participant dies, becomes disabled,
retires or terminates employment. We believe that financial security is often
the main factor for determining the quality of life during retirement, and this
plan provides our employees with the opportunity to effectively save toward
long-term financial goals.
EMPLOYMENT AGREEMENTS AND CHANGE-OF-CONTROL ARRANGEMENTS
We currently expect to enter into an employment agreement with each of Mr.
Coble and Ms. Powell as our executive officers. These employment agreements will
be in lieu and in substitution of the employment agreements that Mr. Coble and
Ms. Powell have with Weatherford. We expect that each employment agreement will
have a term of three years and be renewable annually. Under the terms of these
employment agreements, if we terminate the executive's employment for any reason
other than "cause" or "disability" or if the executive terminates his or her
employment for "good reason", as defined in the employment agreements, the
executive will be entitled to receive an amount equal to the sum of (1) three
times the executive's current annual base compensation plus the highest bonus
paid by Grant Prideco or Weatherford to the executive during the three years
prior to the year of termination, (2) any accrued salary or bonus (pro-rated to
the date of termination), (3) an amount payable as if all retirement plans were
vested, (4) the amount that would have been contributed as our match under our
401(k) plan and our executive deferred plan for three years and (5) the
executive's car allowance for three years. Under the employment agreements,
"cause" is defined as the willful and continued failure to perform the
executive's job after written demand is made by the Chief Executive Officer or
the board or the willful engagement in illegal conduct or gross misconduct.
Termination by the executive for "good reason" is generally defined as (A) a
material reduction in title and/or responsibilities of the executive, (B)
certain relocations of the executive or (C) any material reduction in the
executive's benefits. In addition, under such circumstances, all stock options
and restricted stock granted to
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<PAGE> 58
the executive will vest automatically. The executive also would have the right
to surrender for such cash all such options unless to do so would cause a
transaction otherwise eligible for pooling of interests accounting treatment
under Accounting Principles Board Opinion No. 16 to be ineligible for such
treatment, in which case the executive would receive shares of common stock
equal in value to the cash he or she would have received. All health and medical
benefits would also be maintained after termination for a period of three years
provided the executive makes his or her required contribution. Under the Deficit
Reduction Act of 1984, certain severance payments that exceed a certain amount
could subject both us and the executive to adverse U.S. federal income tax
consequences. Each of the employment agreements provides that we would be
required to pay the executive a "gross up payment" to insure that the executive
receives the total benefit intended by the employment agreement. The base
compensation payable to Mr. Coble and Ms. Powell under the employment agreements
are $400,000 and $225,000, respectively.
It is also expected that Mr. Coble and Ms. Powell will be granted options
to purchase an additional 200,000 and 50,000 shares of Grant Prideco common
stock, respectively, effective as of the spinoff. The exercise price of those
options will be equal to the fair market value of the Grant Prideco common stock
at the time of the spinoff.
Upon the spinoff, we expect to enter into a change of control agreement
with Mr. Chunn. Under this agreement, he will be provided with certain benefits
if there is both a change of control of Grant Prideco and is subsequently
terminated for any reason other than for "cause" or elects to terminate his
employment for "good reason" within two years after a change of control. A
change of control is defined generally as an acquisition by a person or group of
persons of at least 50% of our outstanding common stock. Under his agreement, if
there is a change of control of Grant Prideco, we would agree that his base
salary would not decrease unless there was a company-wide salary reduction, Mr.
Chunn would continue to be eligible for an annual bonus under our incentive plan
applicable to other key employees and if we are not the surviving entity in a
change of control, the surviving company would be required to issue
substantially similar options in replacement of any Grant Prideco options held
by him. "For cause" under Mr. Chunn's change of control agreement will be
defined to be the failure by him to perform his job after written notice from
us, engaging in illegal conduct or misconduct, a conviction of a crime involving
moral turpitude, a misappropriation of funds, disparagement of us or our
management or other cause determined by our board of directors in good faith.
"Good reason" will be defined in Mr. Chunn's change of control agreement as a
material reduction in responsibility or benefits.
If, following a change of control, Mr. Chunn's employment is terminated by
us for any reason other than cause or Mr. Chunn's employment is terminated by
him for good reason, he would be entitled to two years base salary plus two
years bonus, and all of his outstanding options will vest.
We also expect to enter into employment agreements with each of Messrs.
Duroc-Danner and Huff in connection with the services they will provide to us.
In each case, the term of their employment will be for a period of three years
and will be renewable annually. The base compensation to be paid to Mr.
Duroc-Danner will be $150,000 per year and the base compensation to be paid to
Mr. Huff will be $100,000 per year. Messrs. Duroc-Danner and Huff also will be
granted options to purchase 200,000 and 120,000 shares, respectively, of Grant
Prideco common stock at an exercise price equal to the fair market value of the
Grant Prideco common stock at the time of the spinoff. These options will vest
three years from the date of grant, subject to acceleration in the event of a
change of control or termination of employment for any reason other than for
cause. Messrs. Duroc-Danner and Huff will provide services to us only on a
part-time basis from time to time as we may reasonably require to assist us in
the development and implementation of our strategic initiatives. Their services
also would be subject to their commitments to Weatherford. Mr. Huff also will
serve as Interim General Counsel of Grant Prideco until such time as a full time
General Counsel may be named. The employment agreements with Messrs.
Duroc-Danner and Huff also will be substantially similar to the employment
agreements with Mr. Coble and Ms. Powell.
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<PAGE> 59
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before the spinoff, we had no Compensation Committee. As of the spinoff,
the Compensation Committee of our board will consist of Messrs. Lubar, Moses and
Rayne. Messrs. Lubar, Moses and Rayne also comprise the compensation committee
of Weatherford's board.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Because the spinoff will be on the basis of one share of our common stock
distributed for each two shares of Weatherford common stock owned on the record
date, each Weatherford stockholder will own at the distribution date the same
percentage of the issued and outstanding Grant Prideco common stock as that
stockholder owns of Weatherford common stock.
The following table sets forth certain information regarding the
anticipated beneficial ownership of our common stock by persons we anticipate
will own beneficially more than 5% of our outstanding common stock as of the
distribution date, based upon the actual holdings of Weatherford common stock as
of September 30, 1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENT OF
BENEFICIAL OWNER NUMBER OF SHARES(1) OUTSTANDING SHARES
------------------- ------------------- ------------------
<S> <C> <C>
FMR Corp.(2)
82 Devonshire Street
Boston, Massachusetts 02109................................ 5,783,670 10.6%
</TABLE>
- ---------------
(1) This information is based on information furnished by each stockholder or
contained in filings made with the Securities and Exchange Commission. The
persons listed have sole voting and dispositive power for their shares of
common stock, unless otherwise noted.
(2) Fidelity Management & Research Company ("Fidelity"), a wholly owned
subsidiary of FMR Corp. ("FMR"). FMR and a registered investment adviser, is
the beneficial owner of 4,731,070 shares as a result of acting as investment
adviser to various registered investment companies (the "Funds"). Fidelity
Management Trust Company ("FMTC"), a wholly owned subsidiary of FMR, is the
beneficial owner of 1,052,600 shares as a result of serving as investment
manager of various institutional accounts. Edward C. Johnson 3d, FMR's
Chairman and principal stockholder, FMR, through its control of Fidelity,
and the Funds each has sole power to dispose of the 4,731,070 shares owned
by the Funds. Mr. Johnson and FMR, through its control of FMTC, each has
sole power to dispose of 1,052,600 shares owned by the institutional
accounts and sole power to vote or direct the voting of 944,250 of such
shares. Members of Mr. Johnson's family and trusts for their benefit are the
predominant owners of Class B shares of common stock of FMR. Mr. Johnson
owns 12.0% and Abigail P. Johnson, Mr. Johnson's wife and a Director of FMR,
owns 24.5% of the voting stock of FMR. The Johnson family and all other
Class B shareholders have entered into a shareholders' voting agreement
under which all Class B shares will be voted in accordance with the majority
vote of Class B shares. Through their ownership of voting common stock and
the shareholders' voting agreement, members of the Johnson family may be
deemed, under the Investment Company Act of 1940, to form a controlling
group as to FMR.
All of the figures in this table and the footnotes for shares of our common
stock have been derived based upon the hypothetical assumption that the record
date and the distribution date were September 30, 1999, so as to reflect what
the beneficial ownership of Grant Prideco common stock would have been at that
time. Actual ownership on the distribution date may vary substantially from that
shown in the table. The following table sets forth information with respect to
the shares of our common stock that we anticipate will be beneficially owned by
each director of Grant Prideco, each Named Executive Officer, and by all
directors and
54
<PAGE> 60
executive officers of Grant Prideco as a group effective as of the distribution
date. Each person has sole voting and investment power for the shares shown
below, unless otherwise noted.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF SHARES
BENEFICIALLY OWNED AS OF SEPTEMBER 30, 1999
----------------------------------------------
NUMBER OF RIGHT TO PERCENT OF
NAME SHARES OWNED ACQUIRE(1) OUTSTANDING SHARES
---- ------------ ---------- ------------------
<S> <C> <C> <C>
John C. Coble......................................... -- 40,200 *
Bernard J. Duroc-Danner............................... 25 415,000 *
Eliot M. Fried........................................ 10,000 -- *
Sheldon B. Lubar(2)................................... 373,485 15,000 *
William E. Macaulay(3)................................ 1,722,505 5,000 3.2%
Robert K. Moses, Jr.(4)............................... 212,192 5,000 *
Robert A. Rayne(5).................................... 140 10,000 *
William G. Chunn...................................... 19,403 -- *
Curtis W. Huff(6)..................................... 28,625 16,667 *
Frances R. Powell..................................... 477 20,500 *
All officers and directors as a group (10 persons).... 2,366,852 527,367 5.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Shares of common stock that can be acquired through stock options
exercisable through November 29, 1999.
(2) Includes 177,557 shares held by his wife, over which he has no voting or
dispositive power and as to which he disclaims beneficial ownership. Also
includes 13,671 shares held in trusts for his grandchildren, of which he is
the trustee and has voting and dispositive power.
(3) Includes 3,310 shares held by his wife, over which he has no voting or
dispositive power and as to which he disclaims beneficial ownership.
Includes 1,718,000 shares owned beneficially by First Reserve Corporation.
Mr. Macaulay is Chairman and Chief Executive Officer of First Reserve. Mr.
Macaulay disclaims beneficial ownership of the shares of common stock
beneficially owned by First Reserve.
(4) Includes an aggregate of 21,375 shares held in various trusts for Mr. Moses'
family, of which Mr. Moses is the trustee and has sole voting and
dispositive power. Excludes (i) an aggregate of 24,937 shares held in
various trusts for Mr. Moses' children, (ii) 879 shares held in a trust for
Mr. Moses' son and (iii) 297 shares held by Mr. Moses' adult son supported
by him. Mr. Moses has no voting or dispositive power over these excluded
shares. Mr. Moses disclaims beneficial ownership of all of the
above-described shares.
(5) Excludes 270,000 shares beneficially owned by London Merchant Securities
plc, of which Mr. Rayne serves as Executive Director. Mr. Rayne disclaims
beneficial ownership of all of these shares.
(6) Includes 28,125 restricted shares that vest over a three-year period through
June 2002.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective as of the spinoff, Grant Prideco and Weatherford will have five
common directors. Mr. Huff, Senior Vice President and General Counsel of
Weatherford, will serve as our Vice President and Interim General Counsel. Mr.
Duroc-Danner, President, Chief Executive Officer and Chairman of the Board of
Weatherford, will serve as our Chairman of the Board. We will enter into several
agreements with Weatherford in connection with the spinoff, including the
Distribution Agreement, the Tax Allocation Agreement, the Transition Services
Agreement and the Preferred Supplier Agreement. We will also issue a $100
million note to Weatherford. See "Relationship Between Grant Prideco and
Weatherford After the Spinoff".
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<PAGE> 61
DESCRIPTION OF GRANT PRIDECO CAPITAL STOCK
GENERAL
Our authorized capital stock as of the spinoff will consist of 150 million
shares of our common stock and 10 million shares of preferred stock, par value
$.01 per share, of which, approximately 54.3 million shares of our common stock
will be issued and outstanding and owned by Weatherford. No shares of our
preferred stock will be issued or outstanding. All of these issued and
outstanding shares of our common stock will be distributed to holders of
Weatherford common stock in the spinoff. Following the spinoff, Weatherford will
not own any of our common stock other than in trust for employee benefit plans.
All of the shares of our common stock issued in the spinoff will be validly
issued, fully paid and nonassessable.
GRANT PRIDECO COMMON STOCK
Voting Rights
Holders of our common stock will be entitled to one vote for each share on
all matters voted on by stockholders. Our common stock will possess all voting
power of Grant Prideco, except as otherwise required by law or provided in any
resolution adopted by our board designating any series of Grant Prideco
preferred stock. The shares of our common stock will not have cumulative voting
rights.
Although the holders of our common stock are generally entitled to vote for
the approval of amendments to our certificate of incorporation, the voting
rights of the holders of our common stock are limited with respect to certain
amendments to our certificate of incorporation that affect only the holders of
our preferred stock. Specifically, subject to the rights of any outstanding
shares of any series of our preferred stock, our certificate of incorporation
may be amended from time to time in any manner that would solely modify or
change the relative powers, preferences and rights and the qualifications or
restrictions of any issued shares of any series of our preferred stock then
outstanding with the only required vote or consent for approval of such
amendment being the affirmative vote or consent of the holders of a majority of
the outstanding shares of the series of our preferred stock so affected,
provided that the powers, preferences and rights and the qualifications and
limitations or restrictions of such series after giving effect to such amendment
are no greater than the powers, preferences and rights and qualifications and
limitations or restrictions permitted to be fixed and determined by the board of
directors with respect to the establishment of any new series of shares of our
preferred stock pursuant to the authority vested in the board of directors as to
such matters.
Dividend Rights
Subject to any preferential or other rights of any outstanding series of
our preferred stock that our board may designate, and subject to contractual
restrictions contained in our debt agreements, holders of our common stock will
be entitled to such dividends as may be declared from time to time by our board
from funds legally available therefor. See "Dividend Policy".
Liquidation Rights and Other Provisions
Subject to the prior rights of creditors and the holders of any of our
preferred stock that may be outstanding from time to time, the holders of our
common stock are entitled in any liquidation, dissolution or winding up to share
pro rata in the distribution of all remaining assets.
Our common stock is not liable for any calls or assessments and is not
convertible into any other securities. Our certificate of incorporation will
provide that the private property of the stockholders shall not be subject to
the payment of corporate debts. There are no redemption or sinking fund
provisions applicable to our common stock.
GRANT PRIDECO PREFERRED STOCK
Our board will be authorized to issue shares of preferred stock, in one or
more series, and to fix the voting powers, designations, preferences and
relative, participating, optional and other special rights, qualifications,
limitations or restrictions of such shares, subject to the Delaware General
Corporation Law. No shares of our preferred stock will be issued in connection
with the spinoff.
56
<PAGE> 62
NO PREEMPTIVE RIGHTS
No holder of any stock of Grant Prideco of any class authorized at the
distribution date will have any preemptive right to subscribe to any securities
of Grant Prideco of any kind or class.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
As a Delaware corporation, we are subject to Section 203 of the Delaware
General Corporation Law. In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the time such person became an interested stockholder unless:
- before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding stock held by directors who are also
officers of the corporation and by employee stock plans that do not
provide employees with the rights to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer); or
- following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of two-thirds of the outstanding
voting stock of the corporation not owned by the interested stockholder.
Under Section 203, the restrictions described above also do not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors.
NOMINATION OF DIRECTORS
Our bylaws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the board or a committee
thereof, of candidates for election as directors.
This nomination procedure requires that a stockholder give advance written
notice, in proper form, of a planned nomination for the board to the Secretary
of Grant Prideco. The requirements as to the form and timing of that notice,
which are specified in our bylaws, are not inconsistent with the requirements of
the Securities Exchange Act of 1934 for a stockholder proposal. If a person is
not nominated in accordance with this nomination procedure, that person will not
be eligible for election as a director.
Although our bylaws do not give the board any power to approve or
disapprove stockholder nominations for the election of directors, our bylaws may
have the effect of precluding a nomination for the election of directors at a
particular meeting if the proper procedures are not followed and may discourage
a third party from soliciting proxies to elect its own slate of directors or
otherwise attempting to obtain control of Grant Prideco, even if that
solicitation or attempt might be beneficial to us and our stockholders.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent of our common stock will be American Stock
Transfer & Trust Company.
57
<PAGE> 63
LIABILITY AND INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Delaware law and our certificate of incorporation and bylaws include
provisions designed to limit the liability of our officers and directors and, in
certain circumstances, to indemnify our officers and directors against certain
liabilities. These provisions are designed to encourage qualified individuals to
serve as our officers and directors.
EXCULPATION OF MONETARY LIABILITY
Under Delaware law, a corporation may include provisions in its certificate
of incorporation that relieve its directors of monetary liability for breaches
of their fiduciary duty to the corporation, except under certain circumstances,
including
- a breach of the director's duty of loyalty,
- acts or omissions of the director not in good faith or which involve
intentional misconduct or a knowing violation of law,
- the approval of an improper payment of a dividend or an improper purchase
by the corporation of the corporation's stock or
- any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation will provide that our directors are not
liable to us or our stockholders for monetary damages for breach of their
fiduciary duty, subject to the restrictions above. These limitations of
liability may not affect claims arising under the federal securities laws.
INDEMNIFICATION
Under Section 145 of the Delaware General Corporation Law and our bylaws,
we are obligated to indemnify our present and former directors and officers and
may indemnify other employees and individuals against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with specified actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation, a "derivative action"), if the person to whom indemnity is granted
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to our best interests, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
A similar standard of care is applicable in the case of derivative actions,
except that indemnification extends only to expenses (including attorneys' fees)
incurred in connection with defense or settlement of such an action, and the
Delaware General Corporation Law requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to Grant Prideco.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors and officers and controlling persons pursuant to
the foregoing provisions, we have been advised that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
INDEPENDENT PUBLIC ACCOUNTANTS
Our board will select before the end of fiscal 1999 an independent
accounting firm to audit our financial statements for the year ending December
31, 1999. Arthur Andersen LLP has served as independent accountants of
Weatherford through the periods covered by the financial statements included in
this information statement.
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<PAGE> 64
WHERE YOU CAN FIND MORE INFORMATION
We will file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934. You may inspect those reports, proxy statements
and other information at the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Regional Offices of the SEC at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, New York, New York
10048. Please call the SEC at 1-800-SEC-0300 for further information about the
public reference rooms. You may also obtain copies of those materials from the
Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The SEC maintains a site on the Internet at WWW.SEC.GOV that contains these
reports, proxy and information statements and other information regarding
Weatherford. You can also inspect and copy those reports, proxy and information
statements and other information at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005, on which our common stock is
expected to be listed.
We have filed with the SEC a registration statement on Form 10 that
includes this information statement. This information statement is only a part
of that registration statement and does not contain all of the information in
our registration statement. For further information on us and our common stock,
please review our registration statement and the exhibits that are filed with
it. Statements made in this information statement that describe documents may
not necessarily be complete. We recommend that you review the documents that we
have filed with our registration statement to obtain a more complete
understanding of those documents.
All documents that we file pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 after the date of this information
statement will be deemed to be incorporated in this information statement by
reference and will be a part of this information statement from the date of the
filing of the document. Any statement contained in a document incorporated or
deemed to be incorporated by reference in this information statement will be
deemed to be modified or superseded for purposes of this information statement
to the extent that a statement contained in this information statement or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference in this information statement modifies or supersedes that
statement. Any statement that is modified or superseded will not constitute a
part of this information statement, except as modified or superseded.
We will provide without charge to each person, including any beneficial
owner, to whom a copy of this information statement has been delivered, upon
written or oral request, a copy of any or all of the documents incorporated by
reference in this information statement, other than the exhibits to those
documents, unless the exhibits are specifically incorporated by reference into
the information that this information statement incorporates. You should direct
a request for copies to Weatherford at 515 Post Oak Boulevard, Suite 600,
Houston, Texas 77027, Attention: Secretary (telephone number: (713) 693-4000).
If you have any other questions regarding us, please contact our Investor
Relations Department in writing (1450 Lake Robbins Drive, Suite 600, The
Woodlands, Texas 77380) or by telephone ((281) 297-8500).
We intend to furnish holders of our common stock with annual reports
containing consolidated financial statements audited by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial statements.
59
<PAGE> 65
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Combined Financial Statements of Grant Prideco
Report of Independent Public Accountants.................. F-2
Combined Balance Sheets as of December 31, 1998 and 1997
and September 30, 1999 unaudited....................... F-3
Combined Statements of Operations for the years ended
December 31, 1998, 1997, and 1996 and the nine months
and three months ended September 30, 1999 and 1998
unaudited.............................................. F-4
Combined Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 and the nine months
ended September 30, 1999 and 1998 unaudited............ F-5
Combined Statements of Stockholder's Equity for the years
ended December 31, 1998, 1997 and 1996 and the nine
months ended September 30, 1999 unaudited.............. F-6
Notes to Combined Financial Statements.................... F-7
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Grant Prideco, Inc.:
We have audited the accompanying combined balance sheets of the drilling
product businesses of Weatherford International, Inc. (a Delaware corporation)
(Grant Prideco), as of December 31, 1998 and 1997, and the related combined
statements of operations, stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1998. 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 combined financial position of Grant Prideco as of
December 31, 1998 and 1997, and the combined results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
October 22, 1999
F-2
<PAGE> 67
GRANT PRIDECO
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- --------------
1998 1997 1999
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents................................. $ 6,070 $ 8,203 $ 1,743
Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $366 and $396 at December 31, 1998 and 1997
and $568 at September 30, 1999......................... 129,019 143,455 70,979
Inventories............................................... 186,267 186,248 165,438
Current Deferred Tax Asset................................ 10,785 9,044 11,483
Other Current Assets...................................... 18,155 4,295 8,574
-------- -------- --------
350,296 351,245 258,217
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Machinery and Equipment................................... 197,552 166,096 210,409
Land, Buildings and Other Property........................ 86,350 88,386 92,572
-------- -------- --------
283,902 254,482 302,981
Less: Accumulated Depreciation............................ 74,908 61,642 93,345
-------- -------- --------
208,994 192,840 209,636
-------- -------- --------
GOODWILL, NET............................................... 162,464 107,598 185,455
INVESTMENT IN UNCONSOLIDATED AFFILIATES..................... 6,848 -- 38,668
OTHER ASSETS................................................ 9,712 10,915 16,491
-------- -------- --------
$738,314 $662,598 $708,467
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-Term Borrowings and Current Portion of Long-Term
Debt................................................... $ 52,881 $ 6,637 $ 13,122
Accounts Payable.......................................... 43,454 101,247 29,892
Accrued Wages and Benefits................................ 4,427 8,086 4,799
Current Deferred Tax Liability............................ 8,231 15,987 8,231
Purchase Credit........................................... 8,000 -- 998
Other Accrued Liabilities................................. 27,275 24,242 12,657
-------- -------- --------
144,268 156,199 69,699
-------- -------- --------
SUBORDINATED NOTE TO WEATHERFORD............................ 100,000 100,000 100,000
LONG-TERM DEBT.............................................. 9,265 27,387 26,499
DEFERRED INCOME TAXES....................................... 24,838 23,464 27,462
OTHER LONG-TERM LIABILITIES................................. 14,732 22,826 13,182
COMMITMENTS AND CONTINGENCIES
TOTAL STOCKHOLDER'S EQUITY.................................. 445,211 332,722 471,625
-------- -------- --------
$738,314 $662,598 $708,467
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE> 68
GRANT PRIDECO
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED NINE MONTHS ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------- -------------------
1998 1997 1996 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES.................................. $646,805 $630,021 $367,336 $210,987 $521,911 $ 57,987 $160,196
-------- -------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Cost of Sales........................... 480,034 471,779 296,597 189,306 364,188 57,688 112,224
Selling, General and Administrative
Attributable to Segments.............. 32,077 29,903 16,904 23,181 22,804 7,966 8,657
Corporate General and Administrative.... 14,407 11,983 6,633 10,679 11,047 3,674 3,343
Weatherford Charges..................... 960 920 880 1,000 720 500 240
Nonrecurring Charges.................... 6,450 -- -- -- 4,450 -- --
-------- -------- -------- -------- -------- -------- --------
533,928 514,585 321,014 224,166 403,209 69,828 124,464
-------- -------- -------- -------- -------- -------- --------
OPERATING INCOME (LOSS)................... 112,877 115,436 46,322 (13,179) 118,702 (11,841) 35,732
-------- -------- -------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest Expense........................ (4,758) (5,726) (1,384) (2,894) (3,684) (1,130) (1,159)
Weatherford Interest Expense............ (7,250) (7,250) (5,987) (5,438) (5,437) (1,813) (1,812)
Other, Net.............................. 4,699 (396) (1,013) 400 4,095 109 394
-------- -------- -------- -------- -------- -------- --------
(7,309) (13,372) (8,384) (7,932) (5,026) (2,834) (2,577)
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES......... 105,568 102,064 37,938 (21,111) 113,676 (14,675) 33,155
PROVISION (BENEFIT) FOR INCOME TAXES...... 39,848 40,550 14,350 (5,389) 43,833 (4,130) 12,640
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS)......................... $ 65,720 $ 61,514 $ 23,588 $(15,722) $ 69,843 $(10,545) $ 20,515
======== ======== ======== ======== ======== ======== ========
Pro Forma Earnings (Loss) Per Share:
Basic................................... $ 1.35 $ 1.28 $ 0.53 $ (0.32) $ 1.44 $ (0.21) $ 0.42
======== ======== ======== ======== ======== ======== ========
Diluted................................. $ 1.34 $ 1.26 $ 0.52 $ (0.32) $ 1.43 $ (0.21) $ 0.42
======== ======== ======== ======== ======== ======== ========
Pro Forma Weighted Average Shares:
Basic................................... 48,533 48,026 44,921 49,385 48,487 50,704 48,693
======== ======== ======== ======== ======== ======== ========
Diluted................................. 48,879 48,781 45,491 49,385 48,842 50,704 48,910
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE> 69
GRANT PRIDECO
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1998 1997 1996 1999 1998
------- ------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)............................. $65,720 $61,514 $23,588 $(15,722) $69,843
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) By Operating
Activities:
Non-Cash Portion of Other Nonrecurring
Charges.................................... 30,500 -- -- -- 3,350
Depreciation and Amortization................. 31,173 27,051 12,518 22,162 22,529
Deferred Income Tax Provision (Benefit)....... (4,513) 14,944 10,513 182 (5,260)
Gain on Asset Disposal........................ (1,226) -- (112) -- (1,247)
Deposit for Long-Term Contract................ -- -- (8,000) -- --
Sale of Technology License.................... (9,000) -- -- -- --
Change in Assets and Liabilities, Net of
Effects of Businesses Acquired:
Accounts Receivable........................ 13,308 (40,922) (19,334) 59,103 (8,301)
Inventories................................ (22,878) (52,686) (23,458) 22,310 (52,764)
Other Current Assets....................... (13,812) (1,375) (927) 10,416 (10,747)
Accounts Payable........................... (57,091) 11,964 17,604 (14,208) (26,041)
Accrued Current Liabilities................ (8,653) (9,967) (4,171) (20,611) (9,046)
Other Assets............................... (1,215) (1,456) (614) (1,701) (541)
Purchase Credit............................ (8,000) -- -- (7,002) (4,713)
Other, Net................................. (3,586) 805 1,731 (3,177) (3,884)
------- ------- ------- -------- -------
Net Cash Provided (Used) by Operating
Activities............................... 10,727 9,872 9,338 51,752 (26,822)
------- ------- ------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash
Acquired................................... (17,400) (50,847) (38,119) (10,703) (15,850)
Capital Expenditures for Property, Plant and
Equipment.................................. (38,102) (34,813) (16,829) (14,795) (26,355)
Proceeds on Sale of Assets.................... 6,023 -- 232 -- 5,986
------- ------- ------- -------- -------
Net Cash Used by Investing Activities...... (49,479) (85,660) (54,716) (25,498) (36,219)
------- ------- ------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on Debt, Net....................... (6,990) (22,778) (10,781) (53,608) (5,662)
Stockholder's Investment...................... 43,609 105,466 54,868 23,027 65,407
------- ------- ------- -------- -------
Net Cash Provided (Used) by Financing
Activities............................... 36,619 82,688 44,087 (30,581) 59,745
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (2,133) 6,900 (1,291) (4,327) (3,296)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR.......................................... 8,203 1,303 2,594 6,070 8,203
------- ------- ------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...... $ 6,070 $ 8,203 $ 1,303 $ 1,743 $ 4,907
======= ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE> 70
GRANT PRIDECO
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
CURRENCY TOTAL
STOCKHOLDER'S RETAINED TRANSLATION STOCKHOLDER'S
INVESTMENT EARNINGS ADJUSTMENT EQUITY
------------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995.................. $101,625 $ 7,304 $ (4,835) $104,094
Total Comprehensive Income (Loss)........... -- 23,588 (235) 23,353
Stockholder's Contribution.................. 48,543 -- -- 48,543
Stockholder's Dividend...................... -- (11,770) -- (11,770)
-------- -------- -------- --------
Balance at December 31, 1996.................. 150,168 19,122 (5,070) 164,220
Total Comprehensive Income (Loss)........... -- 61,514 (2,360) 59,154
Stockholder's Contribution.................. 109,348 -- -- 109,348
-------- -------- -------- --------
Balance of December 31, 1997.................. 259,516 80,636 (7,430) 332,722
Total Comprehensive Income (Loss)........... -- 65,720 (5,908) 59,812
Stockholder's Contribution.................. 51,928 749 -- 52,677
-------- -------- -------- --------
Balance at December 31, 1998.................. 311,444 147,105 (13,338) 445,211
Total Comprehensive Income (Loss)
(unaudited).............................. -- (15,722) 25 (15,697)
Stockholder's Contribution (unaudited)...... 42,111 -- -- 42,111
-------- -------- -------- --------
Balance at September 30, 1999 (unaudited)..... $353,555 $131,383 $(13,313) $471,625
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE> 71
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS
1. WEATHERFORD INTERNATIONAL INC.'S PROPOSED SPINOFF OF ITS DRILLING PRODUCTS
DIVISION
On October 22, 1999, the Board of Directors of Weatherford International,
Inc. ("Weatherford" or "Stockholder") authorized the spinoff of its drilling
products businesses (the "Company" or "Grant Prideco") to its shareholders as an
independent, publicly-traded company (the "Distribution"). The drilling products
businesses will be transferred to Grant Prideco, Inc. from Weatherford. The
Distribution is subject to a tax ruling by the Internal Revenue Service that
would allow it to be tax-free to shareholders subject to U.S. Federal income
taxes and appropriate stock market conditions. Immediately following the
Distribution, Weatherford will no longer have an equity investment in Grant
Prideco other than shares of the Company held in trust for employee benefit
plans, however, Grant Prideco will have a $100.0 million unsecured subordinated
note to Weatherford with a three year maturity and a $15 million drill stem
credit obligation to Weatherford. Weatherford will also remain liable on certain
existing contingent liabilities relating to Grant Prideco which were not able to
be released, terminated or replaced prior to the Distribution date ("unreleased
contingent liabilities"). Grant Prideco will fully indemnify Weatherford for any
payments made under the unreleased contingent liabilities.
Basis of Presentation
The combined financial statements reflect the results of operations of
Weatherford's drilling products businesses that will be transferred to Grant
Prideco, Inc. from Weatherford. The combined financial statements have been
prepared using the historical bases in the assets and liabilities and historical
results of operations related to Grant Prideco, except as noted herein. The
combined financial statements include allocations ("carve-outs") of general and
administrative corporate overhead costs of Weatherford to Grant Prideco and
direct costs of services provided by Weatherford for the benefit of Grant
Prideco (See Note 15). Management believes such allocations are reasonable;
however, the costs of these services charged to Grant Prideco are not
necessarily indicative of the costs that would have been incurred if Grant
Prideco had performed these functions as a stand-alone entity. Subsequent to the
Distribution, Grant Prideco will perform these functions using its own resources
or purchased services and will be responsible for the costs and expenses
associated with the management of a public corporation.
The financial information included herein may not necessarily reflect the
combined results of operations, financial position, changes in stockholder's
equity and cash flows of Grant Prideco in the future or what they would have
been had it been a separate, stand-alone entity during the periods presented.
The combined financial statements included herein do not reflect any changes
that may occur in the financing of Grant Prideco as a result of the
Distribution.
The combined financial information for the periods ended September 30, 1998
and 1999 is unaudited.
Nature of Operations
The Company manufactures and supplies drill pipe and drilling tools,
premium connectors and associated high grade tubular and marine connectors used
in the exploration and production of oil and natural gas.
Principles of Combination
Intercompany transactions and balances between Grant Prideco's businesses
have been eliminated. The Company accounts for its 50% or less-owned affiliates
using the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-7
<PAGE> 72
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Inventories
Inventories are valued using the first-in, first-out ("FIFO") method and
are stated at the lower of cost or market.
Property Plant and Equipment
Property, plant and equipment is carried at cost. Maintenance and repairs
are expensed as incurred. The costs of renewals, replacements and betterments
are capitalized. Depreciation on fixed assets is computed using the
straight-line method over the estimated useful lives for the respective
categories. The Company evaluates potential impairment of property, plant and
equipment and other long-lived assets on an ongoing basis and reduces the
carrying value whenever events or circumstances effecting the carrying amounts
indicate that amounts may not be fully recoverable. The useful lives of the
major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
LIFE
------------
<S> <C>
Machinery and equipment................................ 3 - 20 years
Buildings and other property........................... 5 - 40 years
</TABLE>
Intangible Assets and Amortization
The Company's intangible assets are comprised primarily of goodwill and
identifiable intangible assets, principally patents and technology licenses. The
Company periodically evaluates goodwill and other intangible assets, net of
accumulated amortization, for impairment based on the undiscounted cash flows
associated with the asset compared to the carrying amount of that asset.
Management believes that there have been no events or circumstances which
warrant revision to the remaining useful life or which affect the recoverability
of any intangible assets. Goodwill is being amortized on a straight-line basis
over the lesser of the estimated useful life or 40 years. Other identifiable
intangible assets, included as a component of other assets, are amortized on a
straight-line basis over the years expected to be benefited, ranging from 5 to
15 years.
Amortization expense for goodwill and other intangible assets was
approximately $4.4 million, $3.4 million, $5.8 million, $3.4 million and $1.2
million for the nine months ended September 30, 1999 and 1998, and the years
ended December 31, 1998, 1997, and 1996, respectively. Accumulated amortization
for goodwill at September 30, 1999 and December 31, 1998 and 1997 was $10.9
million, $7.1 million and $3.8 million, respectively.
Foreign Currency Translation
The functional currency for most of the Company's international operations
is the applicable local currency. Results of operations for foreign subsidiaries
with functional currencies other than the U.S. dollar are translated using
average exchange rates during the period. Assets and liabilities of these
foreign subsidiaries are translated using the exchange rates in effect at the
balance sheet date, and the resulting translation adjustments are included in
stockholder's equity. Currency transaction gains and losses are reflected in
income for the period.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts only as a hedge against
existing economic exposures, and not for speculative or trading purposes. These
contracts reduce exposure to currency
F-8
<PAGE> 73
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
movements affecting specific existing assets and liabilities denominated in
foreign currencies. The future value of these contracts and related currency
positions are subject to offsetting market risks resulting from foreign currency
exchange rate volatility. The counterparties to the Company's foreign exchange
contracts are creditworthy multinational commercial banks. Management believes
that the risk of counterparty nonperformance is immaterial. At September 30,
1999, the Company had a contract maturing on November 30, 1999 to purchase
Austrian Shillings equivalent to $24.5 million. Gains and losses on the change
in market value of the contract are recognized currently in earnings.
Accounting for Income Taxes
The accompanying financial statements have been prepared assuming Grant
Prideco was a separate entity under Statement of Financial Accounting Standards
No. 109 ("SFAS No. 109"). Accounting for Income Taxes under SFAS 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
In connection with the Distribution, Grant Prideco and Weatherford will
enter into a tax allocation agreement (the "Tax Allocation Agreement"). Under
the terms of the Tax Allocation Agreement, Grant Prideco, will be responsible
for all taxes and associated liabilities relating to the historical businesses
of Grant Prideco. The Tax Allocation Agreement will also provide that any tax
liabilities associated with the spinoff shall be assumed and paid by Grant
Prideco subject to certain exceptions relating to changes in control of
Weatherford. The Tax Allocation Agreement will further provide that in the event
there is a tax liability associated with the historical operations of the
Company that is offset by a tax benefit of Weatherford, Weatherford will apply
the tax benefit against such tax liability and will be reimbursed for the value
of such tax benefit when and as Weatherford would have been able to otherwise
utilize that tax benefit for its own businesses.
As Weatherford manages its tax position on a consolidated basis, which
takes into account the results of all of its businesses, the Company's effective
tax rate in the future could vary from its historical effective rates. Grant
Prideco's future effective tax rate will largely depend on its structure and tax
strategies as a separate, independent company.
Revenue Recognition
The Company recognizes revenue as products are shipped or accepted by the
customer.
Pro Forma Earnings Per Share
Pro forma earnings per share has been calculated using Grant Prideco's pro
forma basic and diluted weighted average shares outstanding for each of the
periods presented. Grant Prideco's pro forma basic weighted average shares have
been calculated by adjusting Weatherford's historical basic weighted average
shares outstanding for the applicable period to reflect the number of Grant
Prideco shares that would have been outstanding at the time assuming the
distribution of one share of Grant Prideco common stock for each two shares of
Weatherford common stock. Grant Prideco's pro forma diluted weighted average
shares reflect an estimate of the potential dilutive effect of common stock
equivalents. Such estimate is calculated based on Weatherford's dilutive effect
of stock options and restricted stock divided by two. The effect of stock
options and restricted stock is not included in the diluted computation for
periods in which a loss occurs because to do so would have been anti-dilutive.
F-9
<PAGE> 74
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Recent Accounting Requirements
In March 1998, the AICPA issued Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. The SOP provides guidance with respect to accounting for the various types
of costs incurred for computer software developed or obtained for the Company's
use. We have adopted SOP 98-1. The adoption did not have a significant effect on
the Company's combined results of operations or financial position.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-Up Activities. This statement provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. We have adopted
this SOP in the first quarter of 1999. The adoption of SOP 98-5 is not expected
to have a significant effect on the Company's combined results of operations or
financial position.
In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133 , Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. SFAS No. 133
has been amended by SFAS No. 137, which delays the effective date to fiscal
years beginning after June 15, 2000. SFAS No. 133 will have no impact on the
Company's combined financial statements.
2. INVENTORIES
Inventories by category are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1998 1997 1999
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials, components and supplies............. $126,559 $121,340 $110,587
Work in process.................................... 17,060 35,552 12,658
Finished goods..................................... 42,648 29,356 42,193
-------- -------- --------
$186,267 $186,248 $165,438
======== ======== ========
</TABLE>
Work in process and finished goods inventories include the cost of
materials, labor and plant overhead.
3. ACQUISITIONS
On August 25, 1999, the Company acquired Louisiana-based Petro-Drive, Inc.,
for 0.3 million shares of Weatherford common stock and assumed debt of
approximately $3.5 million. Petro-Drive's offerings include conductors,
connections and installation services and equipment. If any of the former
Petro-Drive shareholders sell any shares of Weatherford common stock and the
corresponding shares of Grant Prideco common stock between August 2000 and
August 2001 at a combined price of less than $36.50, the Company will be
obligated to pay cash to these persons equal to the amount of such deficit.
On July 23, 1999, the Company acquired a 50.01% interest in the
Voest-Alpine Stahlrohr Kindberg GmbH & Co. KG ("VA") for approximately $31.5
million, of which approximately $6.9 million was paid at closing and the
remainder is to be paid over a period of up to 7 years. VA produces high quality
seamless tubulars in Austria. The Company's investment in Voest-Alpine is
reported on the equity method of accounting.
On July 7, 1999, the Company acquired Texas Pup, Inc., a manufacturer of
premium and API pup joints (odd-sized tubular products) and utility boring drill
pipe, for 0.1 million shares of common stock of Weatherford and assumed debt of
approximately $1.7 million.
F-10
<PAGE> 75
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On May 31, 1999, the Company acquired Texas Pipe Works, Inc., a
manufacturer of API couplings, for approximately $1.7 million in cash and 0.05
million shares of Weatherford common stock.
On May 31, 1999, the Company acquired InterOffshore Services, Pte., a
manufacturer of drilling tool accessories, for approximately $2.1 million in
cash.
In December 1998, the Company acquired from Tubos de Acero de Mexico, S.A.
("TAMSA") 93% of the outstanding shares of T.F. de Mexico, which owned the
manufacturing facility in Veracruz, Mexico that the Company was operating under
a capital lease arrangement. The total consideration given was $59.0 million
comprised of $48.5 million in debt (which was repaid in March 1999), cash of
$1.5 million and a $9.0 million license to the international rights of the
Company's Atlas Bradford thread line. The Company sold the international rights,
excluding Canada, to its Atlas Bradford tubular connection line to TAMSA through
a license arrangement that resulted in a sale of all of the Company's rights
which became effective upon the closing of this transaction. The Company
retained no obligations with respect to the development, maintenance or
improvement of the Atlas Bradford connection line for carbon grade tubular for
the international market and TAMSA has no obligation to give any additional
consideration for this license. Any future support by Grant Prideco is provided
on a fee basis. The rights sold through this license arrangement had a fair
value of $9.0 million. As a result, in December 1998 the Company recorded $9.0
million in revenues to recognize the sale of the international rights to the
Atlas Bradford connection line.
On February 12, 1998, the Company acquired Drill Tube International, Inc.,
a manufacturer of drill pipe and other drill stem products, for $29 million. The
consideration paid in the acquisition consisted of $9 million in cash and a
contractual purchase credit obligation to manufacture and deliver products to
the seller over a two year period. Under the Company's contract with the
Sellers, the Company was required to provide product to the Sellers at a
notional price of $16 million. The fair value of the products to be delivered to
the Sellers was $20 million. Accordingly, a liability of $20 million was
recorded as of the date of the acquisition. As products are delivered under this
commitment the liability is reduced. As of September 30, 1999 and December 31,
1998, the contractual purchase credit balance was $1 million and $8 million,
respectively.
On August 25, 1997, the Company acquired XLS Holding, Inc. ("XL"), a
provider of premium connections for conductors, risers and other offshore
structure components. The acquisition was accounted for as a pooling of
interests and the consideration paid consisted of approximately 0.9 million
shares of Weatherford common stock. The accompanying financial statements
include the results of XL for all periods presented.
The separate results of Grant Prideco, XL and the combined company were as
follows:
<TABLE>
<CAPTION>
JANUARY 1 TO YEAR ENDED
AUGUST 25, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Grant Prideco............................................ $376,030 $337,312
XL....................................................... 18,306 30,024
-------- --------
Combined................................................. $394,336 $367,336
======== ========
Net Income (Loss):
Grant Prideco............................................ $ 40,924 $ 20,936
XL....................................................... (5,514) 2,652
-------- --------
Combined................................................. $ 35,410 $ 23,588
======== ========
</TABLE>
On July 23, 1997, the Company acquired Rotary Drilling Tools ("RDT"), a
manufacturer of drill collars and accessories, for $3.3 million in cash.
On July 18, 1997, the Company acquired Coastal Tubular Inc. ("Coastal"), a
manufacturer of API threads and thread connections, for approximately $3.3
million in cash.
F-11
<PAGE> 76
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On April 14, 1997, the Company acquired TA Industries, Inc. ("TA") for
approximately $44.1 million in cash and $19.7 million of assumed debt. TA
designs, manufactures and markets premium and API couplings and accessories
under the brand names Texas Arai and Tube-Alloy.
On September 4, 1996, the Company acquired Superior Tube Limited
("Superior"), an Alberta, Canada-based manufacturer, for total cash
consideration of approximately $16.0 million.
On August 5, 1996, the Company acquired Tubular Corporation of America,
Inc. ("TCA"), a premium casing manufacturer, for approximately 1.0 million
shares of Weatherford common stock, $14.4 million in cash, a $0.7 million note
due January 1997 and assumed debt of approximately $15.0 million.
On May 3, 1996, the Company acquired ENERPRO International, Inc.
("ENERPRO"), a manufacturer of premium threads and thread connections, for 0.6
million shares of Weatherford common stock and the assumption of approximately
$3.1 million in indebtedness.
The acquisitions discussed above, with the exception of XL, were accounted
for using the purchase method of accounting. The results of operations of all
acquisitions, excluding XL, are included in the Combined Statements of
Operations from their respective dates of acquisition. The 1999, 1998 and 1997
acquisitions are not material to the Company individually or in the aggregate
for each applicable year.
4. SHORT-TERM BORROWINGS
In December 1998, the Company acquired 93% of the stock of the company that
owned the Veracruz, Mexico facility. As part of the consideration for the
acquisition the Company issued a note payable of $48.5 million due in March of
1999 with an effective interest rate of 7.0%. This note was subsequently paid in
March 1999.
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Long-term loan, interest at prime less .025%, due March
2001........................................................ $ 6,750 $ 9,750
Capital lease obligations under various agreements.......... 5,114 21,617
Other....................................................... 1,832 2,657
------- -------
13,696 34,024
Less: amounts due in one year............................... 4,431 6,637
------- -------
$ 9,265 $27,387
======= =======
</TABLE>
The following is a summary of scheduled long-term debt maturities by year
(in thousands):
<TABLE>
<S> <C>
1999....................................................... $ 4,431
2000....................................................... 4,264
2001....................................................... 1,726
2002....................................................... 934
2003....................................................... 837
Thereafter................................................. 1,504
-------
$13,696
=======
</TABLE>
In connection with the July 1999 acquisition of a 50.01% interest in VA,
the Company incurred debt in the amount of $24.6 million (the "VA Debt"). The VA
Debt bears interest at a rate equal to the six month EURIBOR rate. Principal of
$9.2 million is payable over three years in six equal installments beginning in
January 2000 and in each July and January thereafter until July 2002. The
remaining principal balance of $15.4 million shall be paid over a 7.5 year
period out of the annual dividend payable to the Company as a shareholder in VA.
If the total principal balance has not been repaid by the fifth anniversary of
the closing date of the acquisition, the remaining unpaid principal shall be
paid in five equal semi-annual installments
F-12
<PAGE> 77
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
beginning on December 1, 2004. Interest on the VA Debt is payable every six
months beginning January 2000. The interest rate as of September 30, 1999 was
3.12% per annum.
The Company is expected to have a capital structure different from the
capital structure in the combined financial statements and accordingly, interest
expense is not necessarily indicative of the interest expense that the Company
would have incurred as a separate, independent company or will incur in future
periods.
Capital Lease
In 1997, the Company effected a major expansion of its Veracruz, Mexico
tool joint manufacturing facility. As a result of this expansion, the Company
recorded a capital lease obligation of approximately $16.3 million. In December
1998, this Veracruz facility was purchased through the acquisition of 93% of the
outstanding shares of the company that owned the Veracruz, Mexico facility,
which extinguished the capital lease.
6. SUBORDINATED NOTE TO WEATHERFORD
In connection with the Distribution, the Company will issue an unsecured
subordinated note in the amount of $100.0 million. The Weatherford note will
bear interest at an annual rate of 10%. Interest payments will be due quarterly,
and principal and all unpaid interest will be due no later than December 31,
2001. If the Company completes a debt or equity financing (whether public or
private, but excluding working capital borrowings under the credit facility and
any equity issued in connection with a business combination) while the
Weatherford note is outstanding, the Company generally will be required to use a
portion of the net proceeds of that financing to repay any amount outstanding
under the Weatherford note as of the time the Company completes that financing.
The Weatherford note will be subordinated to the credit facility. The Company
expects to refinance the Weatherford note as soon as practicable when market
conditions permit.
Weatherford interest expense shown in the combined financial statements
reflects the interest expense associated with the $100.0 million indebtedness
for each period presented based on Weatherford's average long-term debt rates
for the applicable periods. As of December 31, 1998, the effective interest rate
was 7.25%. It is not practical to estimate the fair market value of the
subordinated note payable to Weatherford as borrowing rates available to the
Company have not been determined.
7. STOCKHOLDER'S EQUITY
Changes in stockholder's equity represent net income and comprehensive net
income of the Company plus net transfers between the Company and Weatherford.
8. OTHER CHARGES
The Company adopted a plan to close its Bastrop, Texas, tool joint
manufacturing facility in the fourth quarter of 1996. In connection with this
decision, the Company incurred a charge of $4.3 million associated with the
facility closing and relocation of equipment from this facility. Of the $4.3
million, the Company expensed as incurred $2.8 million in the fourth quarter of
1996 for costs associated with these activities, including the costs relating to
the relocation of equipment at its Bastrop facility to other facilities. The
remaining $1.5 million was accrued as part of the $4.3 million charge for exit
costs that were incurred by June 1997 which related to the closure of the
facility. Such costs include $0.9 million for the exit costs associated with the
disposition of the facility and $0.6 million for severance and related costs. In
connection with this facility closure, approximately 200 employees were
terminated, of which approximately 105 were terminated in 1996 and the remaining
in the first half of 1997. Severance and related costs incurred were $0.2
million and $0.6 million in 1996 and the first half of 1997, respectively. The
closure of the Bastrop facility was completed
F-13
<PAGE> 78
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
by June 1997 and all accrued exit costs had been expended. No adjustments to the
initial estimates were required.
In 1998, the Company's drill stem segment incurred $35.0 million in charges
relating to the reorganization and rationalization of Grant Prideco's businesses
in light of declining industry conditions and the merger between EVI, Inc.
("EVI") and Weatherford Enterra, Inc. ("WII"). Of these charges, $7.0 million
was incurred in the second quarter of 1998 in accordance with the Company's
formalized plan, and reflected costs associated with the merger between EVI and
WII and the effects of the beginning of a downturn in the industry. Following a
further deterioration in the markets which the Company serves, an additional
$28.0 million charge was incurred in the fourth quarter of 1998. These charges
reflected additional reductions in operations and an attempt to align the cost
structure of the Company with its then current demand. All such costs had been
fully expended as of December 31, 1998, accordingly no accruals remained on the
Combined Balance Sheet as of December 31, 1998. No adjustments to the initial
estimates were required. The net after-tax effect of these charges was $22.8
million.
<TABLE>
<CAPTION>
SECOND FOURTH
QUARTER QUARTER REMAINING
1998 1998 UTILIZED BALANCES AT
CHARGE CHARGE IN 1998 DECEMBER 31, 1998
------- ------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Facility Closures and Exit Costs(1)...... $4,250 $ 850 $ 5,100 $ --
Severance and Related Costs(2)........... 200 -- 200 --
Inventory Write-off(3)................... 2,500 26,000 28,500 --
Asset Write-down(4)...................... -- 1,150 1,150 --
------ ------- ------- -------
Total.......................... $6,950 $28,000 $34,950 $ --
====== ======= ======= =======
</TABLE>
- ---------------
(1) The facility and exit costs were $5.1 million, all of which have been
expended by December 31, 1998. The $4.3 million of costs accrued in the
second quarter related primarily to the elimination of duplicative
manufacturing facilities as a result of the reorganization and
rationalization of the Company's businesses following the merger of EVI and
WII and the downturn in the industry. In the fourth quarter an additional
$0.8 million was accrued to further align the Company's costs in response to
the significant decline in market conditions. The costs related primarily to
the (i) closure of the Channelview, Texas facility, (ii) closure of the
sales location in the U.K. and a Houston, Texas administrative location and
(iii) exit costs for certain operations at the Edmonton, Canada, Pearland,
Texas and Bryan, Texas facilities. The Pearland, Texas facility was a
location of WII prior to the merger. The Bryan, Texas, the Channelview,
Texas and the Edmonton, Canada manufacturing facilities, the U.K. sales
location and the Houston, Texas administrative location were EVI locations
prior to the merger.
(2) The severance and related costs included in the Company's second quarter
charge were $0.2 million for approximately 60 employees specifically
identified, with terminations completed in the second half of 1998.
(3) The inventory write-off of $28.5 million was reported as cost of sales. The
second quarter inventory write-off of $2.5 million resulted from the
elimination of certain products at the time of the merger between EVI and
WII and due to the declining industry conditions. The fourth quarter
inventory write-off of $26.0 million related to the significant decline in
market conditions.
(4) The write-down of assets was $1.2 million in the fourth quarter of 1998. The
charge relates to the write-down of equipment as a result of the
rationalization of product lines and the specific identification of assets
held for sale. The identified equipment had a net book value of $0.6 million
as of December 31, 1998. The effect of suspending depreciation is $0.2
million annually. The equipment was originally projected to be sold in 1999,
but because of market conditions the Company has not been able to dispose of
the equipment to date. The Company currently expects to dispose of these
assets in 2000.
F-14
<PAGE> 79
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Cash paid for interest and income taxes (net of refunds) was as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------
1998 1997 1996 1999 1998
------ ------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest paid......................... $4,768 $5,349 $1,154 $3,543 $3,608
Income taxes paid, net of refunds..... 1,779 474 86 330 85
</TABLE>
For the year ended December 31, 1997, there were noncash investing
activities of $28.3 million relating to capital leases (See Note 5).
The following summarizes investing activities relating to acquisitions (in
thousands):
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------------
1998 1997 1996 1999 1998
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Fair value of assets, net of cash
acquired............................... $12,133 $63,213 $85,103 $ 41,596 $ 16,737
Goodwill............................... 58,644 56,198 32,923 25,958 22,113
Total liabilities...................... (53,377) (68,564) (55,413) (39,203) (23,000)
Weatherford common stock issued........ -- -- (24,494) (17,648) --
------- ------- ------- -------- --------
Cash consideration, net of cash
acquired............................. $17,400 $50,847 $38,119 $ 10,703 $ 15,850
======= ======= ======= ======== ========
</TABLE>
10. STOCK-BASED COMPENSATION
Stock Option Plans
Various employees of the Company were granted stock options under
Weatherford's 1998 Employee Stock Option Plan (the "1998 Plan"). The total
number of options granted to the Grant Prideco employees under the 1998 Plan was
787,000 at December 31, 1998. Under the terms of the 1998 Plan, the options
granted to the Grant Prideco employees are to be converted into options to
solely acquire Grant Prideco's common stock (the "Grant Prideco Common Stock").
As a result, the Company has adopted the Grant Prideco Employee Stock Option
Plan under which options would be granted to the employees of Grant Prideco in
substitution of the Weatherford options granted under the 1998 Plan. Under the
terms of the 1998 Plan, the options to be granted to the Grant Prideco employees
will be determined based on the relative market price of Grant Prideco Common
Stock to the stock of Weatherford prior to the Distribution. The exercise price
for the options to be granted to the Grant Prideco employees will be the
historical option price multiplied by a percentage equal to the percentage that
the value of the Grant Prideco Common Stock represents to the value of the
Weatherford stock prior to the spinoff. The number of shares that will be
subject to the options will also be adjusted so that each option holder will be
entitled to purchase a number of shares of Grant Prideco Common Stock having the
same aggregate exercise price of the prior 1998 Plan options held by the option
holder.
Employees, as well as the directors of Weatherford, also hold various
options to purchase shares of Weatherford that were granted prior to September
1998. It is anticipated that these options will be divided into options to
purchase Weatherford common stock and Grant Prideco Common Stock, with the
exercise
F-15
<PAGE> 80
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
price allocated between the Weatherford common stock and the Grant Prideco
Common Stock based on the relative market value of the shares following the
spinoff. All other terms will remain the same. In connection with the
Distribution, the Company will agree to issue to the holders of those options
the number of shares of Grant Prideco Common Stock issuable upon the exercise of
those options. Similarly, Weatherford will agree to issue to the employees of
Grant Prideco who hold options to purchase Weatherford common stock the number
of shares of Weatherford common stock subject to the options held by those
employees. At December 31, 1998, there were 1,415,854 options granted under
these various plans. The Company cannot currently determine the number of shares
its common stock that will be subject to substitute awards after the
Distribution.
Executive Deferred Compensation Plan
Weatherford and the Company each have maintained an Executive Deferred
Compensation Stock Ownership Plan ("EDC Plan"). Prior to the Distribution,
participants in the EDC Plan had a right to receive shares of Weatherford common
stock upon their termination of their employment based on the deferred amounts
placed in an account for them. Under the EDC Plan, in the event of a dividend or
special distribution to the shareholders of Weatherford, the accounts of the
employees are to represent a right to receive the consideration provided through
the spinoff or dividend. As a result, upon the spinoff, participants in the EDC
Plan will be entitled to receive shares of both Weatherford common stock and
Grant Prideco Common Stock in respect of amounts deferred by the participants
prior to the Distribution. Participants will only be entitled to receive shares
in respect of amounts deferred subsequent to the Distribution of Weatherford or
the Company, depending upon which company they are employed with.
In order to satisfy the obligations of Weatherford and Grant Prideco under
the EDC Plan, Weatherford and Grant Prideco have established a Grantor Trust to
fund the benefits under the EDC Plan. The funds provided to the trust are
invested by a trustee independent of Weatherford and Grant Prideco primarily in
shares of common stock of Weatherford, which is purchased by the trustee in the
open market. The trustee of the EDC Plan will agree to waive the trust's receipt
of any shares of Grant Prideco common stock to be issued to the trust in respect
of the shares of Weatherford common stock held by the trust in consideration of
the Company's agreement to issue directly to the participants in the EDC Plan
any shares of Grand Prideco common stock that may be required to be issued to
them upon distribution of amounts under the plan. Shares of stock held by the
trustee as part of the Trust to satisfy the obligations of Weatherford and Grant
Prideco to the employees of Weatherford and Grant Prideco. A separate trust will
be established by Grant Prideco following the Distribution in which only shares
of the Company will be purchased for satisfaction of future obligations under a
new Executive Deferred Compensation Stock Ownership Plan to be adopted by Grant
Prideco. The assets of these trusts are available to satisfy the claims of all
general creditors of Weatherford and Grant Prideco in the event of a bankruptcy
or insolvency. As such, the liability of Grant Prideco employees participating
in the Weatherford EDC Plan has been recorded in the accompanying Combined
Balance Sheets as a long-term liability.
11. RETIREMENT AND EMPLOYEE BENEFIT PLANS
Weatherford has defined contribution plans covering certain of the
Company's employees. The Company's expenses related to these plans totaled $0.6
million, $0.8 million and $0.3 million in 1998, 1997 and 1996, respectively.
Grant Prideco plans to adopt similar plans.
F-16
<PAGE> 81
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES
The domestic and foreign components of earnings before income taxes consist
of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.............................................. $ 93,767 $ 66,021 $32,986
Foreign............................................... 11,801 36,043 4,952
-------- -------- -------
Total earnings before income taxes.......... $105,568 $102,064 $37,938
======== ======== =======
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
U.S. federal and state income taxes................... $37,249 $22,638 $ 5,577
Foreign............................................... 7,112 2,968 (1,740)
------- ------- -------
44,361 25,606 3,837
------- ------- -------
Deferred
U.S. federal.......................................... (1,170) 4,105 6,341
Foreign............................................... (3,343) 10,839 4,172
------- ------- -------
(4,513) 14,944 10,513
------- ------- -------
Total income tax provision.................... $39,848 $40,550 $14,350
======= ======= =======
</TABLE>
The following is a reconciliation of income taxes at the U.S. Federal
income tax rate of 35% to the effective provision for income taxes reflected in
the Combined Statements of Operations:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory rates........... $36,949 $35,721 $13,278
Effect of foreign income tax, net....................... (361) 1,191 698
Foreign Sales Corporation benefit....................... (308) (308) (236)
Non-deductible expense.................................. 1,014 3,099 459
State and local income taxes net of U.S. Federal income
tax benefit........................................... 2,554 847 151
------- ------- -------
Provision for income taxes.............................. $39,848 $40,550 $14,350
======= ======= =======
</TABLE>
Deferred tax assets and liabilities are recognized for the estimated future
tax effects of temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements. The measurement
of deferred tax assets and liabilities is based on enacted tax laws and rates
currently in effect in each of the jurisdictions which the Company has
operations.
F-17
<PAGE> 82
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities are classified as current or noncurrent
according to the classification of the related asset or liability for financial
reporting. The components of the net deferred tax asset (liability) were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Domestic and foreign operating losses..................... $ 1,204 $ 4,276
Accrued liabilities and reserves.......................... 9,537 3,207
Inventory basis differences............................... 754 (5,720)
-------- --------
Total deferred tax asset.......................... 11,495 1,763
-------- --------
Deferred tax liabilities:
Property & equipment...................................... (31,403) (32,170)
Goodwill.................................................. (2,376) --
-------- --------
Total deferred tax liability...................... (33,779) (32,170)
-------- --------
Net deferred tax liability................................ $(22,284) $(30,407)
======== ========
</TABLE>
13. DISPUTES, LITIGATION AND CONTINGENCIES
Litigation and Other Disputes
The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known, the Company believes
that the ultimate liability, if any, which may result from known claims,
disputes and pending litigation, would not have a material adverse effect on the
Company's combined financial position or its results of operations with or
without consideration of insurance coverage.
Insurance
The Company is self-insured through participation in Weatherford's
insurance policy for employee health insurance claims and is self-insured for
workers' compensation claims for certain of its employees. The amounts in excess
of the self-insured levels are fully insured. Self-insurance accruals are based
on claims filed and an estimate for significant claims incurred but not
reported. Although the Company believes that adequate reserves have been
provided for expected liabilities arising from its self-insured obligations, it
is reasonably possible that management's estimates of these liabilities will
change over the near term as circumstances develop.
Weatherford will remain liable on certain existing contingent liabilities
relating to Grant Prideco's businesses which were not able to be released,
terminated or replaced prior to the Distribution Date. Grant Prideco will also
fully indemnify Weatherford for any payments made under the unreleased
contingent liabilities.
14. COMMITMENTS
Operating Leases
The Company is committed under various noncancelable operating leases which
primarily relate to office space and equipment. Total lease expense incurred
under noncancelable operating leases was approximately $3.8 million, $1.9
million and $2.5 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
F-18
<PAGE> 83
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental commitments under these noncancelable operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
1999...................................................... $ 3,598
2000...................................................... 2,919
2001...................................................... 2,147
2002...................................................... 1,956
2003...................................................... 1,713
Thereafter................................................ 3,302
-------
$15,635
=======
</TABLE>
Other Commitments
Drill pipe and other products are manufactured for the Company by Oil
Country Tubular Limited ("OCTL") in India under a long-term exclusive
manufacturing arrangement. Although the Company has sought to minimize the risks
of this operation through a manufacturing agreement rather than owning a local
manufacturing operation, it has provided OCTL with a substantial amount of raw
materials, inventory and working capital for the products OCTL manufactures for
the Company. The Company's business in India through its relationship with OCTL
has been adversely affected by the downturn of the economies in the eastern
hemisphere and is subject to various political and economic risks as well as
financial and operational risks with respect to OCTL.
As of September 30, 1999, OCTL was indebted to the Company for
approximately $21.0 million for prior advances for working capital paid by the
Company. The Company has substantially curtailed purchases from OCTL in India
and expects to continue to curtail these purchases into 2000. In this regard,
the Company is currently discussing with OCTL various potential modifications to
the arrangement with OCTL in light of market conditions, political events and
other matters. Among the matters being considered and discussed is a termination
of the manufacturing arrangement as well as a possible conversion of the debt
owed to the Company by OCTL into equity of OCTL. A termination of the Company's
relationship with OCTL could result in the Company's inability to recover funds
advanced by the Company to OCTL and the loss or impairment of the Company's
inventory and equipment located in India. Such an impairment could result in a
charge of up to $20.0 million and would materially adversely affect the
Company's results. At this time, the Company is unable to predict the ultimate
outcome of the Company's ongoing negotiations.
At the time of the December 1998 acquisition by the Company of 93% of
TAMSA, the Company entered into a 30 year supply contract with TAMSA. Under the
supply contract, TAMSA has been given the right to supply certain of the
Company's operations as long as the prices are on a competitive basis. This
supply agreement does not obligate the Company to make purchases from TAMSA for
any location other than Mexico and India nor restrict the Company's right to
make purchases without offering a right to purchase the materials from TAMSA to
the extent those purchases are made from affiliates of the Company such as
Voest-Alpine.
As part of the arrangement to invest in Voest-Alpine Stahlrohr Kindberg
GmbH & Co. KG, the Company entered into a four-year supply contract with
Voest-Alpine. Under this agreement, the Company agreed to purchase a minimum of
45,000 tonnes of tubulars for the first twelve months of the agreement at a
negotiated third party price that the Company believed to be attractive. The
Company also agreed to purchase 60,000 tonnes per year for the next three years
at the negotiated price.
Grant Prideco maintains consignment purchase arrangements with various
suppliers whereby suppliers' inventory is held on site at the Company's
manufacturing facilities. Under the terms of these arrangements, the Company
pays to the supplier an inventory stocking fee on the consignment inventory and
has an
F-19
<PAGE> 84
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
obligation to purchase the inventory under certain circumstances. As of
September 30, 1999, the Company had closed-ended purchase commitments maturing
within the next six months of approximately $5.0 million and open-ended purchase
commitments of approximately $25.1 million.
15. RELATED PARTY TRANSACTIONS
Sales
Weatherford purchases drill pipe and other related products from Grant
Prideco. The amounts purchased by Weatherford for the three and nine months
ended September 30, 1999 and the three and nine months ended September 30, 1998
were $15.1 million, $22.7 million, $1.5 million and $6.1 million, respectively.
Purchases for the years ended December 31, 1998, 1997 and 1996 were $9.6
million, $7.7 million and $5.7 million, respectively. Such sales represent Grant
Prideco's cost. The sales to Weatherford have been eliminated from the
accompanying combined financial statements.
Weatherford Overhead Charges
Weatherford overhead charges represent corporate overhead costs incurred by
Weatherford in providing services to the Company based on the time devoted to
Grant Prideco. These services include accounting, tax, treasury and risk
management services. Such allocation is included in the accompanying Combined
Statements of Operations as Weatherford Charges.
Weatherford Direct Services
Grant Prideco was allocated $1.4 million, $4.3 million, $1.4 million, and
$4.2 million of costs related to Weatherford's information systems function in
the three and nine months ended September 30, 1999 and three and nine months
ended September 30, 1998, respectively. For the years ended December 31, 1998,
1997 and 1996 Grant Prideco was allocated $5.6 million, $3.5 million and $1.1
million, respectively. Information systems allocation charges were allocated
based on direct support provided, equipment usage and number of system users and
are included in corporate general and administrative expense in the accompanying
Combined Statements of Operations.
Tax Allocation Agreement
The Company and Weatherford intend to enter into the Tax Allocation
Agreement in connection with the spinoff (see Note 1).
Transition Services Agreement
The Company intends to enter into a transition services agreement with
Weatherford for a period of one year from the Distribution date. Under the
agreement, Weatherford will provide certain services requested by the Company.
The fee for these services will be based on a cost-plus 10% basis. The
transition services to be provided under this agreement may include accounting,
tax, finance and legal services, employee benefit services, information
services, management information systems and may include any other similar
services.
Preferred Supplier Agreement
The Company intends to enter into a preferred supplier agreement with
Weatherford pursuant to which Weatherford will agree for at least a three-year
period to purchase at least 70% of its requirements of drill stem products from
Grant Prideco. The price for those products will be at a price not greater than
that which the Company sells to its best similarly situated customers.
Weatherford will be entitled to apply against its purchases a drill stem credit
granted to it in the amount of $15 million, subject to a limitation of the
application of the credit to no more than 20% of any purchase.
16. SUBSEQUENT EVENTS
On October 1, 1999, the Company acquired Drill Pipe Industries, Inc., a
manufacturer of drill stem products, for $2.8 million in cash.
F-20
<PAGE> 85
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Event (Unaudited) Subsequent to the Date of the Auditors' Report
On October 27, 1999, the Company acquired a 27% in H-Tech, an
Indonesia-based drill pipe manufacturer with facilities located on Batam Island,
for $6.0 million in cash. The Company previously held a 27% interest in H-Tech
and with this purchase owns a controlling 54% interest in H-Tech.
The 1999 acquisitions are not material to the Company individually or in
the aggregate.
17. SEGMENT INFORMATION
Business Segments
The Company operates through two business segments: Drill Stem Products and
Premium Tubulars and Engineered Connections. The drill stem products segment
manufactures drill pipe, drill collars and heavyweight drill pipe and the
premium tubulars and engineered connections segment manufactures premium
production tubulars, liners, casing and connections for marine conductors and
subsea structures. The Company's products are used in the exploration and
production of oil and natural gas.
Financial information by industry segment is summarized below (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------- -------------------
1998 1997 1996 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES FROM UNAFFILIATED CUSTOMERS:
Drill Stem.............................. $411,191 $333,716 $275,178 $112,045 $334,621 $ 24,846 $115,404
Premium Tubulars........................ 235,614 296,305 92,158 98,942 187,290 33,141 44,792
-------- -------- -------- -------- -------- -------- --------
$646,805 $630,021 $367,336 $210,987 $521,911 $ 57,987 $160,196
======== ======== ======== ======== ======== ======== ========
EBITDA, BEFORE OTHER CHARGES(a):
Drill Stem(b)(c)........................ $148,558 $105,604 $ 48,629 $ 16,743 $125,604 $ (1,668) $ 39,014
Premium Tubulars........................ 44,716 48,938 17,574 3,098 33,523 1,403 7,354
Corporate............................... (14,274) (12,055) (7,363) (10,858) (10,946) (3,901) (3,311)
-------- -------- -------- -------- -------- -------- --------
$179,000 $142,487 $ 58,840 $ 8,983 $148,181 $ (4,166) $ 43,057
======== ======== ======== ======== ======== ======== ========
OTHER NONRECURRING CHARGES:
Drill Stem.............................. $ 34,950 $ -- $ -- $ -- $ 6,950 $ -- $ --
======== ======== ======== ======== ======== ======== ========
DEPRECIATION AND AMORTIZATION:
Drill Stem.............................. $ 16,771 $ 13,685 $ 8,260 $ 10,733 $ 11,770 $ 3,804 $ 3,816
Premium Tubulars........................ 13,309 12,518 4,108 10,608 9,938 3,598 3,237
Corporate............................... 1,093 848 150 821 821 273 272
-------- -------- -------- -------- -------- -------- --------
$ 31,173 $ 27,051 $ 12,518 $ 22,162 $ 22,529 $ 7,675 $ 7,325
======== ======== ======== ======== ======== ======== ========
OPERATING INCOME (LOSS):
Drill Stem(b)(c)........................ $ 96,837 $ 91,919 $ 40,369 $ 6,010 $106,884 $ (5,472) $ 35,198
Premium Tubulars........................ 31,407 36,420 13,466 (7,510) 23,585 (2,195) 4,117
Corporate............................... (15,367) (12,903) (7,513) (11,679) (11,767) (4,174) (3,583)
-------- -------- -------- -------- -------- -------- --------
$112,877 $115,436 $ 46,322 $(13,179) $118,702 $(11,841) $ 35,732
======== ======== ======== ======== ======== ======== ========
CAPITAL EXPENDITURES FOR PROPERTY, PLANT
AND EQUIPMENT:
Drill Stem.............................. $ 16,670 $ 19,956 $ 12,394 $ 8,682 $ 10,027 $ 6,056 $ 2,617
Premium Tubulars........................ 20,698 14,468 3,899 6,012 16,250 822 7,268
Corporate............................... 734 389 536 101 78 34 64
-------- -------- -------- -------- -------- -------- --------
$ 38,102 $ 34,813 $ 16,829 $ 14,795 $ 26,355 $ 6,912 $ 9,949
======== ======== ======== ======== ======== ======== ========
</TABLE>
F-21
<PAGE> 86
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------- -------------------
1998 1997 1996 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
NON-CASH PORTION OF OTHER NONRECURRING
CHARGES:
Drill Stem.............................. $ 30,500 $ -- $ -- $ -- $ 3,350 $ -- $ --
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------
1998 1997 1996 1999
-------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS(d)
Drill Stem........................... $454,285 $374,923 $255,742 $410,548
Premium Tubulars..................... 283,130 286,418 139,929 295,286
Corporate............................ 899 1,257 1,022 2,633
-------- -------- -------- --------
$738,314 $662,598 $396,693 $708,467
======== ======== ======== ========
</TABLE>
- ---------------
(a) The Company evaluates performance and allocates resources based on EBITDA,
which is calculated as operating income (loss) adding back depreciation and
amortization, excluding the impact of other charges. Calculations of EBITDA
should not be viewed as a substitute to calculations under GAAP, in
particular operating income and net income. In addition, EBITDA
calculations by one company may not be comparable to another company.
(b) Includes inventory write-downs of $2.5 million for the nine months ended
September 30, 1998 and $28.5 million for the year ended December 31, 1998,
which have been classified as cost of sales in the accompanying Combined
Statements of Operations.
(c) During 1996, the Company incurred a charge of $4.3 million associated with
plant closures of a tool joint facility within the drill stem products
segment. EBITDA and operating income for 1996 for this segment include
accruals included within the $4.3 million charge of $1.5 million for this
plant closure.
(d) Certain assets that are not directly attributable to a segment have been
allocated to the segments primarily based upon revenues generated.
Foreign Operations and Export Sales
Financial information by geographic segment for each of the three years
ended December 31, 1998 is summarized below. Revenues are attributable to
countries based on the location of the entity selling products. Long-lived
assets are long term assets excluding deferred tax assets.
<TABLE>
<CAPTION>
UNITED LATIN
STATES CANADA AMERICA OTHER TOTAL
-------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1998
Revenues................................. $552,726 $31,925 $ 9,327 $52,827 $646,805
Long-lived assets........................ 276,374 18,399 76,559 16,686 388,018
1997
Revenues................................. $509,451 $45,080 $15,716 $59,774 $630,021
Long-lived assets........................ 228,754 19,713 44,399 18,487 311,353
1996
Revenues................................. $313,889 $10,261 $ 9,138 $34,048 $367,336
Long-lived assets........................ 149,316 19,195 6,923 10,582 186,016
</TABLE>
F-22
<PAGE> 87
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Major Customers and Credit Risk
Substantially all of the Company's customers are engaged in the exploration
and development of oil and gas reserves. The Company's drill pipe and related
products are sold primarily to rig contractors, operators and rental companies.
The Company's premium tubulars and connections are sold primarily to operators
and distributors. This concentration of customers may impact the Company's
overall exposure to credit risk, either positively or negatively, in that
customers may be similarly affected by changes in economic and industry
conditions. The Company performs ongoing credit evaluations of its customers and
does not generally require collateral in support of its trade receivables. The
Company maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign sales also present
various risks, including risks of war, civil disturbances and governmental
activities that may limit or disrupt markets, restrict the movement of funds or
result in the deprivation of contract rights or the taking of property without
fair consideration. Most of the Company's foreign sales, however, are to large
international companies or are secured by letter of credit or similar
arrangements.
In 1998, 1997 and 1996, there was no individual customer who accounted for
10% of combined revenues.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tabulation sets forth unaudited quarterly financial data for
1998 and 1997.
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1998
Revenues..................... $189,713 $172,002 $160,196 $124,894 $646,805
Gross Profit................. 55,487 54,264(a) 47,972 9,048(a) 166,771
Selling, General and
Administrative(b)......... 11,292 11,039 12,240 12,873 47,444
Nonrecurring Charges......... -- 4,450(a) -- 2,000(a) 6,450
Operating Income (Loss)...... 44,195 38,775(a) 35,732 (5,825)(a) 112,877
Net Income (Loss)............ 25,496 23,832(a) 20,515 (4,123)(a) 65,720
Pro Forma Earnings (Loss) Per
Share(c)
Basic..................... 0.53 0.49 0.42 (0.08) 1.35
Diluted................... 0.52 0.49 0.42 (0.08) 1.34
1997
Revenues..................... $126,532 $159,856 $168,091 $175,542 $630,021
Gross Profit................. 30,085 31,865 45,291 51,001 158,242
Selling, General and
Administrative(b)......... 7,785 11,137 10,945 12,939 42,806
Operating Income............. 22,300 20,728 34,346 38,062 115,436
Net Income................... 11,505 10,101 18,128 21,780 61,514
Pro Forma Earnings Per
Share(c)
Basic..................... 0.24 0.21 0.38 0.45 1.28
Diluted................... 0.24 0.21 0.37 0.44 1.26
</TABLE>
- ---------------
(a) The Company incurred $7.0 million and $28.0 million of pre-tax nonrecurring
charges in the second and fourth quarters of 1998, respectively. The effect
of these charges, net of tax, in the second and fourth quarters was $4.5
million and $18.3 million, respectively. Of these charges, $2.5 million and
$26.0 million
F-23
<PAGE> 88
GRANT PRIDECO
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
related to the write-off of inventory in the second and fourth quarters,
respectively, and have been classified as cost of sales in the accompanying
Combined Statements of Operations.
(b) Includes Weatherford overhead charges of $240,000 and $230,000 per quarter
for the years ended December 31, 1998 and 1997, respectively.
(c) Pro forma earnings per share has been calculated using Grant Prideco's pro
forma basic and diluted weighted average shares outstanding for each of the
periods presented. Grant Prideco's pro forma basic weighted average shares
have been calculated by adjusting Weatherford's historical basic weighted
average shares outstanding for the applicable period to reflect the number
of Grant Prideco shares that would have been outstanding at the time
assuming the distribution of one share of Grant Prideco common stock for
each two shares of Weatherford common stock. Grant Prideco's pro forma
diluted weighted average shares reflect an estimate of the potential
dilutive effect of common stock equivalents. Such estimate is calculated
based on Weatherford's dilutive effect of stock options and restricted
stock divided by two. The effect of stock options and restricted stock is
not included in the diluted weighted average shares computation for periods
in which a loss occurs because to do so would have been anti-dilutive.
F-24
<PAGE> 89
SIGNATURE
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.
GRANT PRIDECO, INC.
By: /s/ FRANCES R. POWELL
----------------------------------
Frances R. Powell
Vice President and Chief Financial
Officer
Date: December 28, 1999
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<C> <S>
*2.1 -- Form of Distribution Agreement, dated as of ,
1999, between Weatherford and Grant
*3.1 -- Form of Restated Certificate of Incorporation of Grant
*3.2 -- Form of Restated Bylaws of Grant
*4.1 -- Form of Subordinated Promissory Note to Weatherford
*10.1 -- Form of Distribution Agreement, dated as of ,
1999, between Weatherford and Grant (filed as Exhibit
2.1)
*10.2 -- Form of Tax Allocation Agreement, dated as of ,
1999, between Weatherford and Grant
*10.3 -- Form of Transition Services Agreement, dated as of
, 1999, between Weatherford and Grant
*10.4 -- Form of Preferred Supplier Agreement, dated as of
, 1999, between Weatherford and Grant
*10.5 -- Form of Grant Prideco, Inc. 1999 Employee Stock Option
and Restricted Stock Plan
*10.6 -- Form of Grant Prideco, Inc. 1999 Non-Employee Director
Stock Option Plan
*10.7 -- Form of Grant Prideco, Inc. Individual Stock Option
Agreement
*10.8 -- Form of Grant Prideco, Inc. Foreign Executive Deferred
Compensation Plan
*10.9 -- Form of Grant Prideco, Inc. Executive Deferred
Compensation Plan
*10.10 -- Form of Grant Prideco, Inc. Deferred Compensation Plan
for Non-Employee Directors
*10.11 -- Form of Grant Prideco, Inc. 401(k) Savings Plan
10.12 -- Investment Agreement, dated as of April 29, 1999, by and
between Grant Prideco, Inc. and Voest-Alpine Schienen
GmbH & Co KG
10.13 -- Operating Agreement, dated as of July 23, 1999, by and
between Grant Prideco, Inc. and Voest-Alpine Schienen
GmbH & Co KG
10.14 -- Supply Agreement, dated as of July 23, 1999, by and
between Voest-Alpine Stahlrohr Kindberg GmbH & Co KG and
Grant Prideco, Inc.
10.15 -- Manufacturing and Sales Agreement, dated as of January 1,
1996, by and between Grant Prideco, S.A. and Oil Country
Tubular Limited
10.16 -- Stock Purchase Agreement, dated as of June 19, 1998, by
and among Weatherford, Pridecomex Holding, S.A. de C.V.,
Tubos de Acero de Mexico S.A. and Tamsider S.A. de C.V.
10.17 -- Master Technology License Agreement, dated as of June 19,
1998, by and between Grant Prideco, Inc. and DST
Distributors of Steel Tubes Limited
10.18 -- Agreement, dated as of November 12, 1998, by and between
Tubos de Acero de Mexico, Tamsider S.A. de C.V., DST
Distributors of Steel Tubes Limited, Techint Engineering
Company, Weatherford, Grant Prideco, Pridecomex Holding,
S.A. de C.V. and Grant Prideco, S.A. de C.V.
10.19 -- Agreement, dated as of December 1, 1998, by and between
Tubos de Acero de Mexico, Tamsider S.A. de C.V.,
Weatherford and Pridecomex Holding, S.A. de C.V.
*21.1 -- List of Subsidiaries of Grant (giving effect to the
Spinoff)
*27.1 -- Financial Data Schedule
*27.2 -- Financial Data Schedule
*27.3 -- Financial Data Schedule
*27.4 -- Financial Data Schedule
</TABLE>
- ---------------
* previously filed
<PAGE> 1
EXHIBIT 10.12
INVESTMENT AGREEMENT
BY AND AMONG
GRANT PRIDECO, INC.
A DELAWARE CORPORATION
AND
VOEST-ALPINE SCHIENEN GMBH & CO KG
AN AUSTRIAN LIMITED PARTNERSHIP
DATED AS OF APRIL 29, 1999
<PAGE> 2
-2-
TABLE OF CONTENTS
<TABLE>
<S> <C>
R E C I T A L S......................................................................................................3
1. Definitions......................................................................................................4
2. Sale and Assignment..............................................................................................4
3. Purchase Price...................................................................................................5
4. Adjustment of the Purchase Price.................................................................................7
5. Effectiveness of the Agreement...................................................................................7
6. Conditions Precedent.............................................................................................8
7. Termination; Amendment; Waiver..................................................................................13
8. Certain Covenants...............................................................................................13
9. Representations and Warranties..................................................................................14
10. Indemnification.................................................................................................36
11. Miscellaneous...................................................................................................38
</TABLE>
<PAGE> 3
-3-
I N V E S T M E N T A G R E E M E N T
This investment agreement dated as of April 29, 1999 ("Investment Agreement") by
and among (i) GRANT PRIDECO, Inc., a Delaware corporation with its principal
place of business in The Woodlands, Texas and business address at 1450 Lake
Robbins Drive, The Woodlands, Texas 77380 ("GRANT"), on the one hand, and (ii)
VOEST-ALPINE SCHIENEN GmbH & Co KG, an Austrian limited partnership, with its
principal place of business in Leoben-Donawitz and business address at
Kerpelystrasse 199, 8704 Leoben-Donawitz, Austria, registered in the commercial
register of the Higher Court of Leoben under the registration number 165399 i
("VA SCHIENE"), on the other hand.
R E C I T A L S
WHEREAS, VA SCHIENE is the sole limited partner of VOEST-ALPINE STAHLROHR
KINDBERG GMBH & Co KG, a limited partnership, duly organized, validly existing
and in good standing under the laws of Austria, with its principal place of
business in Kindberg and business address at Alpine Strasse 17, A-8652 Kindberg,
Austria, registered in the commercial register of the Higher Court of Leoben
under the registration number 165400 k, ("VASK GmbH & Co KG"), whose registered
liability amount is of ATS 247,500,000 (in words: Austrian Shillings two hundred
forty-seven million five hundred thousand);
WHEREAS, VA SCHIENE is the sole shareholder of VOEST-ALPINE STAHLROHR KINDBERG
GMBH, a limited liability company, duly organized, validly existing and in good
standing under the laws of Austria, with its principal place of business in Linz
and business address at VOEST-ALPINE-Str. 1, 4020 Linz, registered in the
commercial register of the Higher Court of Linz under the registration number
106933 f, having an entire nominal capital of ATS 500,000 (in words: Austrian
Shillings five hundred thousand), which is fully paid-up, ("VASK GmbH"), being
the general partner and therefore the management company of VASK GmbH & Co KG;
WHEREAS, GRANT intends to acquire from VA SCHIENE and VA SCHIENE intends to sell
and transfer a 50.01 % of VA SCHIENE's limited partnership interest in VASK GmbH
& Co KG, corresponding to a limited partnership interest of ATS 123,774,750 (in
words: Austrian Shillings one hundred twenty-three million and seven hundred
seventy-four thousand seven hundred fifty), ("Limited Partnership Interest") and
50 % of VA SCHIENE's interest in VASK GmbH, corresponding to a fully paid-up
nominal capital of ATS 250,000 (in words: Austrian Shillings two hundred fifty
thousand) ("Shares"), on the terms and conditions set out in this Investment
Agreement; and
<PAGE> 4
-4-
WHEREAS, in connection with such sale and purchase, VA SCHIENE is prepared to
make certain representations and warranties and covenants to GRANT;
NOW THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
GRANT and VA SCHIENE hereby covenant and agree as follows:
1. DEFINITIONS
1.1 All capitalized or other defined terms are used and defined in this
Investment Agreement or are used in this Investment Agreement with
the meanings assigned thereto in Annex 1 to this Investment
Agreement.
1.2 References to Sections, Schedules and Annexes are to Sections in,
Schedules to and Annexes to this Investment Agreement unless the
context requires otherwise and the Schedules and Annexes shall be
deemed to form a part of this Investment Agreement.
1.3 Unless the context requires otherwise, words importing the singular
include the plural and vice versa and words importing a gender
include every gender.
2. SALE AND ASSIGNMENT
2.1 Upon the terms and conditions of this Investment Agreement, VA
SCHIENE will sell the Shares and sell, convey, transfer and deliver
its legal and beneficial interest in the Limited Partnership Interest
to GRANT or its nominee(s), and GRANT will purchase from VA SCHIENE
at the Closing, all (but not fewer than all) of the Shares and the
Limited Partnership Interest free and clear of all liabilities and
obligations, pledges, security interests, liens, contractual
commitments, equities and encumbrances. For the sale and assignment
of the Shares the parties are obliged to execute an assignment
agreement in the form of a notarial deed as attached hereto as
Schedule 2.1.
2.2 At Closing VA SCHIENE agrees to assign the Limited Partnership
Interest to GRANT, who hereby accepts such assignment.
<PAGE> 5
-5-
3. PURCHASE PRICE
3.1 The aggregate purchase price for the sale of the Limited Partnership
Interest and the Shares shall be ATS 400,000,000 (in words: Austrian
Shillings four hundred million), ("Purchase Price"), and is allocated
as follows:
(i) the purchase price for the sale of the Shares shall be an
aggregate price of ATS 250,000 (in words: Austrian Shillings
two hundred fifty thousand), ("Purchase Price I"), and shall
be paid in accordance with the terms and conditions of the
assignment agreement attached hereto as Schedule 2.1;
(ii) the purchase price for the sale of the Limited Partnership
Interest shall be an aggregate price of ATS 399,750,000 (in
words: Austrian Shillings three hundred ninety-nine million
seven hundred fifty thousand), ("Purchase Price II").
3.2 The Purchase Price II shall be satisfied by Grant's transfer of cash
to VA SCHIENE's Bank Account on the dates and in the amounts set
forth below:
(i) 20 % of the Purchase Price II minus the Purchase Price
amounting to ATS 79,950,000 (in words: Austrian Shillings
seventy nine million nine hundred fifty thousand) shall be
transferred on or before the Closing Date ("Installment I");
(ii) 30 % of the Purchase Price II amounting to ATS 119,925,000 (in
words: Austrian Shillings one hundred nineteen million nine
hundred twenty-five thousand) shall be paid over three years
in six equal installments at the end of each six month period,
each in the amount of ATS 19,987,500 (in words: Austrian
shillings nineteen million nine hundred eighty seven
thousand), ("Installment II"). The first Installment II shall
be paid six months after Installment I was due;
(iii) the remaining 50 % of the Purchase Price II amounting to ATS
199,875,000 (in words: Austrian Shillings one hundred ninety
nine million eight hundred seventy-five thousand) shall be
paid over a seven and one-half year period out of the annual
Dividend (each and such installment hereinafter referred to as
"Installment III"). The first Installment III shall be paid
within 14 days after the annual financial statements of the
business year 1999/2000 have been approved by the partner's
meeting by a transfer of the profits, if any, attributable to
GRANT's interest in VASK GmbH & Co KG and VASK GmbH to VA
SCHIENE's Bank Account. During the first five years, the
annual Installment III shall be equal to the annual
<PAGE> 6
-6-
Dividend, provided, however that no payment shall be in excess
of the unpaid Purchase Price II. If an Installment III so
exceeds the unpaid Purchase Price II, the Installment III
shall be reduced accordingly.
If the sum of the amounts actually paid of Installment I, Installment
II and III are not equal to the Purchase Price II by the 5th
anniversary of the Closing Date, the unpaid principal shall be paid
in five equal semi-annual installments (each and such installment
hereinafter referred to as "Installment IV"). The first Installment
IV shall be paid on December 1 of the calendar year during which the
5th anniversary of the Closing Date occurs.
3.3 GRANT shall pay interest on the unpaid principal amount of the
Purchase Price from the Closing Date until the principal amount
thereof shall have been paid in full. Interest shall be computed on
the basis of six months EURIBOR in effect from time to time. The
interest due in accordance with this section shall accrue from day to
day, shall be computed under the basis of the actual number days
elapsed and a year of 360 days, and shall be paid in arrears by GRANT
in semi-annual installments on the end of every six months, following
the Closing Date.
3.4 GRANT shall pay interest on overdue Installments and on overdue
interest from the due date up to the date of actual payment at the
rate determined to be three percent (3 %) per annum above the six
months EURIBOR.
3.5 The outstanding Purchase Price shall be secured by a pledge in favor
of VA SCHIENE on the ownership interest and the profit distribution
rights allocated to the Shares and the Limited Partnership Interest
and GRANT agrees to execute at Closing a pledge agreement in the form
attached hereto as Schedule 3.5 (the "Pledge Agreement").
3.6 (a) 10 % of the Purchase Price II shall be payable as a deposit
within 14 days from the Signing Date to an account designated
by VA SCHIENE ("Deposit"). In the event this Investment
Agreement is terminated pursuant to Section 7 hereof other
than as a result of a material default by GRANT, VA SCHIENE
shall immediately return the Deposit to GRANT.
(b) The Deposit shall be applied against Installment I.
<PAGE> 7
-7-
4. ADJUSTMENT OF THE PURCHASE PRICE
4.1 If at the end of the business quarter immediately prior to the
Closing VASK GmbH & Co KG's equity ("Target Equity") is less than its
equity at March 31, 1998 then the Purchase Price shall be reduced by
50 % of the deficiency, provided, however, that VA SCHIENE may in
lieu of such adjustment elect to pay 100 % of such deficiency to VASK
GmbH & Co KG.
For purposes of calculating the Target Equity:
(a) the same accounting standards and policies shall be used to
calculate the March 31, 1998 equity, consistently applied;
(b) any payment or distribution payable to VA SCHIENE or VASK GmbH
in respect of earnings for the business year ended March 31,
1999 shall be reported as a liability notwithstanding the fact
that such payment or distribution may not otherwise be
recorded as liability at that time; it being understood that
such payment or distribution may be made to VA SCHIENE;
(c) the term equity shall refer to the line item "Eigenmittel" set
forth on the March 31, 1998 balance sheet; and
(d) the transfer of the entire legal ownership as of the Signing
Date of VOEST-ALPINE TUBULAR Corporation to any of the TARGET
COMPANIES ENTITIES shall not result in any adjustment.
The calculation of the Target Equity shall be audited if requested by
GRANT.
5. EFFECTIVENESS OF THE AGREEMENT
5.1 This Investment Agreement shall become binding upon the contracting
parties upon its execution by VA SCHIENE and GRANT subject to
Sections 6.1 and 6.2.
5.2 The transfer of the Shares and the Limited Partnership Interest shall
become effective upon Closing. All rights and obligations, benefits
and charges pass as of that date from VA SCHIENE to GRANT. From the
Closing Date onwards VA SCHIENE shall not participate in the profit
and losses attributable to the Limited Partnership Interest.
<PAGE> 8
-8-
6. CONDITIONS PRECEDENT
6.1 The obligations of GRANT to consummate the transaction contemplated
by this Investment Agreement are subject to the satisfaction and
proof in a form and substance satisfactory to GRANT or waiver on or
prior to the Closing Date, of each of the following conditions
("Conditions Precedent I"):
(a) VASK GmbH & Co KG has concluded an agreement with VOEST-ALPINE
or its Affiliates regarding
(i) the usage of the trade name and mark, including the
usage of the trade name and mark by GRANT and its
Affiliates for marketing purposes; and
(ii) VASK GmbH & Co KG's joining of the IT framework
agreement for SAP; and
(iii) the services per the service agreements in form and
substance acceptable to GRANT attached hereto as
Schedule 6.1 (a) (iii).
(b) VA SCHIENE has obtained the approval of the ERP-Funds to
conclude this Investment Agreement;
(c) VASK GmbH & Co KG has concluded an agreement with VA SCHIENE
regarding the dissolution and final settlement of the
"Besserungsschein" as attached hereto as Schedule 6.1 (c) (i).
(d) VA SCHIENE has provided commercial registry extracts as of the
Closing Date for VASK GmbH & Co KG;
(e) IVM Industrieversicherungsmakler GmbH has issued an official
confirmation that the present terms and conditions of all
insurance policies in favor of VASK GmbH & Co KG or its
employees will remain valid and unchanged following the
Closing of this Investment Agreement;
(f) An agreement has been concluded between the TARGET COMPANIES
and the VA-Group concerning
<PAGE> 9
-9-
(i) the TARGET COMPANIES allocations to premiums of
group insurance policies; and
(ii) the supply of steel billets in a form as attached
hereto as Schedule 6.1.g. (ii);
(g) The members of VASK GmbH's supervisory board delegated by VA
SCHIENE have declared their resignation from office in
writing;
(h) VA SCHIENE shall have taken all necessary steps towards the
transfer of the shareholding of VA SCHIENE in VOEST-ALPINE
SOUTH AMERICA, S.A. to an entity of the TARGET COMPANIES
ENTITIES;
(i) Each Party shall have furnished the other Party with
(i) a certified copy of a resolution or resolutions duly
adopted by the supervisory board of such Party
approving the transaction documents to which it is a
party and consummation of the transaction contemplated
hereby;
(ii) a favorable legal opinion, dated the Closing Date, in
customary form and substance of Dorda, Brugger &
Jordis, outside counsel for VA SCHIENE, and Fulbright &
Jaworski LLP, outside counsel for GRANT to the effect
that:
(A) Each Party is duly organized, existing and in
good standing under the applicable laws and has
all requisite corporate power and authority to
execute and deliver each of the Transaction
Documents to which it is a party and to perform
its obligations thereunder. The execution,
delivery and performance by the Parties of the
Transaction Documents have been duly and validly
authorized and all necessary corporate action on
the part of the Parties has been taken. Each of
the Transaction Documents has been duly and
validly executed and delivered by the Parties;
(B) the execution and delivery by the Parties of the
Transaction Documents, the consummation of the
transaction contemplated hereby and compliance
by the Parties with the provisions thereof will
not conflict with, constitute a default under or
violate any of the terms, conditions or
provisions of the Parties' partnership agreement
or by-laws;
<PAGE> 10
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(iii) a favorable officer's certificate, dated the Closing
Date, in customary form and substance for VA SCHIENE
and GRANT, to the effect that:
(A) each Party is duly organized, existing and in
good standing under the applicable laws and has
all requisite corporate power and authority to
execute and deliver each of the Transaction
Documents to which it is a party and to perform
its obligations thereunder. The execution,
delivery and performance by the Parties of the
Transaction Documents have been duly and validly
authorized and all necessary corporate action on
the part of the Parties has been taken. Each of
the Transaction Documents has been duly and
validly executed and delivered by the Parties;
(B) the execution and delivery by the Parties of the
Transaction Documents , the consummation of the
transaction contemplated hereby and compliance
by the Parties with the provisions thereof will
not conflict with, constitute a default under or
violate any of the terms, conditions or
provisions of the Parties' partnership agreement
or by-laws;
(j) The representations, covenants and warranties of VA SCHIENE
contained in this Investment Agreement (other than any
representations, covenants and warranties made as of a
specific date) shall be true in all material respects on and
as of the Closing Date with the same effect as though such
representations, covenants and warranties had been made on and
as of such date, except for such representations, covenants
and warranties that are no longer true or complete in any
material respect provided that VA SCHIENE has disclosed to
GRANT in writing the nature of the change in circumstances and
such changes do not result in a material adverse change in
respect of the TARGET COMPANIES ENTITIES. GRANT shall receive
a certificate to that effect on the Closing Date, executed on
behalf of VA SCHIENE, by the managing board.
(k) The Parties shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses,
permits, consents, approvals, authorizations, qualifications
and orders of Governmental Authorities and any third parties
as are necessary, if any, in connection with the transactions
contemplated hereby have been obtained.
<PAGE> 11
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(l) There shall not be pending or threatened by any Governmental
Authority any suit, action or proceeding (or by any other
Person any pending suit, action or proceeding which has a
reasonable likelihood of success),
(i) challenging or seeking to restrain or prohibit the
consummation of the transactions contemplated by this
Investment Agreement or seeking to obtain from the
TARGET COMPANIES ENTITIES any damages that are material
in relation to TARGET COMPANIES ENTITIES taken as a
whole; or
(ii) seeking to prohibit or limit the ownership or operation
of any material portion of the TARGET COMPANIES
ENTITIES or to dispose of or hold separate any material
portion of the business or assets of the TARGET
COMPANIES ENTITIES, as a result of the transactions
contemplated by this Investment Agreement.
6.2 The respective obligations of GRANT and VA SCHIENE to consummate the
transactions contemplated by this Investment Agreement are subject to
the clearing from cartel authorities and the payment of Installment I
to VA SCHIENE ("Conditions Precedent II").
6.3 All Conditions Precedent I mentioned under Section 6.1.a to 6.1.r
above, shall be fulfilled by September 30, 1999 (in words: September
thirty, nineteen ninety nine) at the latest. The application to the
cartel authorities according to Section 6.2 shall be filed without
undue delay after the Signing Date.
6.4 As soon as the Condition Precedent II has been fulfilled, the closing
of the transactions contemplated by this Investment Agreement (the
"Closing") shall take place at the offices of Bruckhaus Westrick
Heller Lober, Seilergasse 16, 1010 Vienna, beginning at 10:00 am on
the Closing Date. All actions to be taken at the Closing as set forth
herein and all agreements, documents and instruments delivered and
payments made with respect thereto shall be considered to have been
taken and delivered or made and shall be effective simultaneously at
5 pm Vienna time on the Closing Date (except as otherwise expressly
provided in such agreements, documents and instruments), and no such
action, delivery or payment shall be considered as complete until all
such actions, delivery and payments incident to the Closing have been
completed.
6.5 At Closing the following agreements and documents shall be executed
and action shall be taken:
<PAGE> 12
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(a) a notarial deed regarding the sale and assignment of the
Shares from VA SCHIENE to GRANT in substantially the form as
attached hereto as Schedule 2.1 shall be executed;
(b) the execution of the Operating Agreement by VA SCHIENE and
GRANT in substantially the form as attached hereto as Schedule
6.5.b;
(c) the execution of the Supply Agreement by VASK GmbH & Co KG and
GRANT in substantially the form as attached hereto as Schedule
6.5.c;
(d) the approval of VASK GmbH & Co KG's partnership agreement by
the partners' meeting in substantially the form as attached
hereto as Schedule 6.5.d;
(e) approval of VASK GmbH's articles of association by the
shareholders' meeting in substantially the form as attached
hereto as Schedule 6.5.e;
(f) execution of the Pledge Agreement by VA SCHIENE and GRANT in
substantially the form as attached hereto as Schedule 3.5;
(g) execution of the registration to be filed with the commercial
register, to register the transfer of the Limited Partnership
Interest from VA SCHIENE to GRANT by VA SCHIENE, VASK GmbH and
GRANT; and
(h) execution by the managing director's of VASK GmbH of the
registration to be filed with the commercial register, to
register the transfer of Shares from VA SCHIENE to GRANT.
6.6 Forthwith after Closing a shareholders' meeting of VASK GmbH shall be
held electing the new members of the supervisory board.
6.7 After the election the constituent supervisory board meeting shall
take place, electing a chairman and a deputy-chairman and approving
(i) the by-laws for the supervisory board in substantially the
form attached hereto as Schedule 6.7.i; and
(ii) the by-laws for the management board in substantially the form
as attached hereto as Schedule 6.7.ii.
<PAGE> 13
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Both Parties shall undertake with their best efforts to cause their
designated members of the supervisory board to comply with this
provision.
7. TERMINATION; AMENDMENT; WAIVER
7.1 This Investment Agreement may be terminated at any time prior to the
Closing Date
(i) by mutual written consent of the Parties hereto;
(ii) by either VA SCHIENE or GRANT:
(A) if any court of competent jurisdiction or any
Governmental Authority shall have issued a permanent
injunction or other order or have taken any other
action permanently enjoining, restraining or otherwise
prohibiting the transaction contemplated hereby, or
(B) if the transactions contemplated hereby shall not have
been consummated by September 30, 1999, unless the
failure to consummate the transaction contemplated
hereby is a result of a material breach of this
Investment Agreement by the Party seeking to terminate
this Investment Agreement.
(iii) by GRANT, if VA SCHIENE materially breaches any of its
representations, warranties or covenants herein or fails to
perform in material respect any of its covenants, agreements
or obligations under this Investment Agreement.
7.2 In the event of termination of this Investment Agreement as provided
in Section 7.1 above, this Investment Agreement shall forthwith
become null and void and have no effect, without any liability or
obligation on the part of GRANT or VA SCHIENE, other than
(i) the provisions of Section 11.1, 11.5 and 11.7; and
(ii) such termination shall not relieve any Party hereto for any
intentional breach of this Investment Agreement prior to such
termination.
<PAGE> 14
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8. CERTAIN COVENANTS
8.1 Between the Signing Date and Closing Date VA SCHIENE shall use its,
and shall cause the TARGET COMPANIES to use their, best efforts to
preserve intact the present assets and goodwill of the TARGET
COMPANIES ENTITIES and to ensure that the TARGET COMPANIES ENTITIES
operate their businesses in all material respects only in the usual
course of business and not to take any action that would cause any of
the VA SCHIENE's representations and warranties pursuant to Section 9
not to be true and correct as of the Closing Date and shall not enter
into any agreements that would otherwise be required to be scheduled
under the Transactions Documents without prior consent of GRANT.
8.2 Prior to Closing, VA SCHIENE will use all reasonable endeavors to
procure that the employees of the TARGET COMPANIES ENTITIES at the
date hereof remain and continue as employees of the TARGET COMPANIES
ENTITIES after the Closing Date.
8.3 Prior to Closing, VA SCHIENE shall not take, nor allow any of the
TARGET COMPANIES ENTITIES to take, any action that would have
required GRANT's consent under the Operating Agreement if the
Operating Agreement had been in effect at such time, except as
otherwise provided in this Investment Agreement or as agreed to in
writing by GRANT.
8.4 Prior to Closing the Parties shall use all best endeavors to ensure
that all conditions precedent shall be timely fulfilled.
9. REPRESENTATIONS AND WARRANTIES
9.1 VA SCHIENE represents, covenants and warrants to GRANT at the Signing
Date and again as of the Closing Date, subject to VA SCHIENE's right
to update the Schedules hereto for changes of fact occurring between
the Signing Date and the Closing Date as follows:
9.1.1 VA SCHIENE's Good Standing and Authorization
(i) VA SCHIENE is a limited partnership, duly organized, validly
existing and in good standing under the laws of the Republic
of Austria and is duly registered in the commercial register
of the Higher Court of Leoben under the registration number
165399 i. No Bankruptcy Action has been initiated against VA
SCHIENE. VA SCHIENE owns directly all the outstanding equity
interests in the TARGET COMPANIES, free and clear of all Liens
and all such interests have been validly
<PAGE> 15
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issued and are fully paid and non-assessable. The Limited
Partnership Interest and the Shares are freely transferable
(or any necessary consent of third persons has been obtained)
and will be transferred to GRANT free of any rights of third
persons.
(ii) VA SCHIENE has the requisite partnership power and authority
to enter into this Investment Agreement and to consummate the
transactions contemplated hereby. The execution and delivery
of this Investment Agreement by VA SCHIENE and the
consummation by VA SCHIENE of the transactions contemplated
hereby have been duly authorized by all necessary partnership
action on the part of VA SCHIENE. This Investment Agreement
has been duly and validly executed and delivered by VA SCHIENE
and constitutes a valid and binding obligation of VA SCHIENE,
enforceable against VA SCHIENE in accordance with its terms,
except that
(A) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar
laws or judicial decisions now or hereafter in effect
relating to creditor's rights generally; and
(B) the remedy of specific performance and injunctive
relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding
therefor may be brought.
(iii) The execution and delivery of this Investment Agreement by VA
SCHIENE do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof
will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or
acceleration of or "put" right with respect to any obligation
or to loss of a material benefit under, or result in the
creation of any Lien, upon any of the properties or assets of
the TARGET COMPANIES under, any provision of
(A) the limited partnership agreement, by-laws or other
organizational documents of VA SCHIENE;
(B) any loan or credit agreement, note, bond, mortgage,
indenture, lease, or other agreement, instrument,
permit, concession, franchise or license applicable to
VA SCHIENE or any of its respective properties or
assets; or
<PAGE> 16
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(C) subject to the governmental filings and other matters
referred to in Section 9.1.1.iv below, any judgment,
order, decree, statute, law, ordinance, rule or
regulation or arbitration award applicable to VA
SCHIENE or its respective properties or assets.
(iv) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental
Authority is required by or with respect to VA SCHIENE in
connection with the execution and delivery of this Investment
Agreement by VA SCHIENE or the consummation by VA SCHIENE of
the transactions contemplated hereby, except as has already
been obtained and except for the filing of premerger
notification information with the competent competition
authorities.
(v) No administrative, civil or arbitral proceeding which could
hinder or prevent the execution and delivery of this
Investment Agreement by VA SCHIENE or the consummation by VA
SCHIENE of the transactions contemplated hereby are pending
or, to the best knowledge of VA SCHIENE, threatened.
9.1.2 Financial Statements
(i) VA SCHIENE has delivered to GRANT the following financial
statements (the "VASK Financial Statements") which are
attached as Schedule 9.1.2.i hereto: the audited financial
statements of VASK GmbH & Co KG and its legal predecessor at
March 31, 1998, March 31, 1997 and December 31, 1996, each
together with the report on the economic position, and the
unaudited financial statements of VASK GmbH of March 31, 1998
and will deliver as promptly as practicable after the Signing
Date the audited financial statements of VASK GmbH & Co KG at
March 31, 1999 and the unaudited financial statements of VASK
GmbH at March 31, 1999.
(ii) The VASK Financial Statements, including the balance sheet and
the related statement of income and cash flows have been
prepared in accordance with generally accepted Austrian
accounting principles consistently applied (except for the
financial statements at March 31, 1999 which have been
prepared in accordance with the IAS), and fairly present the
financial position, results of operations, assets and
liabilities of the TARGET COMPANIES as of the date and for the
fiscal period covered thereby.
<PAGE> 17
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(iii) There are no liabilities or obligations of any nature, whether
known or unknown, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise, whether or not of a kind
required by the generally accepted Austrian accounting
principles to be accrued or disclosed in a financial
statement, which are not disclosed as such on the VASK
Financial Statements at the accounting date, except for those
which were incurred after such date in the ordinary course of
business of the TARGET COMPANIES.
(iv) Except for the adoption of the IAS for the VASK Financial
Statements at March 31, 1999 the bases and policies of
accounting of the TARGET COMPANIES (including depreciation)
adopted for the purpose of preparing the VASK Financial
Statements are the same as those adopted for the purpose of
preparing the audited accounts of the TARGET COMPANIES for
each of the three (3) preceding accounting periods.
(v) Depreciation of the fixed assets of the TARGET COMPANIES have
been made at a rate sufficient to write down the value of such
assets to nil not later than the end of their useful working
lives.
(vi) The TARGET COMPANIES' work in progress has been valued by the
TARGET COMPANIES on a basis in all material respects
consistent with that adopted for the purpose of the TARGET
COMPANIES' audited accounts in respect of the beginning and
end of each of the three preceding accounting periods.
(vii) The VASK Financial Statements disclose and make proper
provision or reserve for or note all contingent liabilities,
capital or burdensome commitments.
(viii) The profits and losses of the TARGET COMPANIES shown by the
VASK Financial Statements have not in any material respect
been affected by any unusual or exceptional item or by any
other matter which has rendered such profits or losses
unusually high or low, other than disclosed in the auditors'
reports to VASK Financial Statements.
(ix) The book debts shown in the VASK Financial Statements have
realized or have in aggregate realized the nominal amount
thereof less any reserve for bad or doubtful debts included in
the VASK Financial Statements and none of the same has been
released or settled for an amount less than that shown in the
VASK Financial Statements.
<PAGE> 18
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(x) The commercial books of account, records, documents of the
TARGET COMPANIES, including those that have be kept due to
existing contracts are up to date, are in the custody of the
TARGET COMPANIES and are complete and correct in accordance
with the law and accepted Austrian accounting principles or
IAS.
9.1.3 Subsidiaries and Representative Offices
The TARGET COMPANIES have no Subsidiaries or Representative Offices
with the exception of such Subsidiaries and Representative Offices
which are listed in Schedule 9.1.3 hereto. All Subsidiaries and
Representative Offices are duly organized, validly existing and in
good standing under the law of its jurisdiction of organization and
are directly owned by TARGET COMPANIES in the percentage indicated in
Schedule 9.1.3 hereto. The shares of such Subsidiaries have been
properly issued and are fully paid-up and the Representative Offices
have been properly registered with the competent Governmental
Authority under the law of its jurisdiction of organization. The
Subsidiaries are not insolvent or party in a Bankruptcy Action.
9.1.4 Options
There are no outstanding or authorized securities, options, warrants,
calls, rights, commitments, preemptive rights, agreements,
arrangements or undertakings of any kind to which any of the TARGET
COMPANIES ENTITIES are a party, or by which it is bound, obligating
(A) any of the TARGET COMPANIES ENTITIES to issue, deliver or
sell, or cause to be issued, delivered or sold, any shares of
capital stock or other equity or voting securities of, or
other ownership interests in that entity; or
(B) any of the TARGET COMPANIES ENTITIES to issue, grant, extend
or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking.
9.1.5 Title to Properties
Other than immaterial Liens that do not affect value or use,
(i) All assets exist and the TARGET COMPANIES ENTITIES hold good
and valid title to and actual power of control of them. All
assets are free and clear of all Liens and
<PAGE> 19
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there are no obligations of the TARGET COMPANIES ENTITIES to
grant such rights. Machines and stocks were not pledged and
accounts receivables were not assigned, other than disclosed
in Schedule 9.1.5.i. Encumbrances due to statutory provisions,
such as pledges for taxes, carriers, lessors or similar
persons that concern claims that are either not due yet or
that are contested in good faith are excluded from these
representations. The TARGET COMPANIES ENTITIES are not party
to a lease agreement (notwithstanding if as lessee or lessor),
other than disclosed in Schedule 9.1.5.i.
(ii) Each item of TARGET COMPANIES ENTITIES' plant and equipment:
(A) is licensed, registered or approved for use (if
required to be licensed, registered or approved for
use);
(B) is in good repair and taking into account normal wear
and tear is in satisfactory working condition and
capable of doing the work for which it is designed;
(C) is not the subject of any notice, order or requirement
from any competent Governmental Authority having
control or jurisdiction over its use or ownership; and
(D) is erected or positioned in accordance with all
applicable laws and is operated by the TARGET COMPANIES
ENTITIES without contravening any laws or industrial
health and safety regulations in any material aspect.
(iii) To the best knowledge of VA SCHIENE, there is no claim
outstanding against any supplier of the plant and equipment of
any of the TARGET COMPANIES ENTITIES or of maintenance
services for that plant and equipment in connection with any
defect in that plant and equipment.
(iv) Each item of plant and equipment is in the physical possession
of the TARGET COMPANIES ENTITIES as indicated in the TARGET
COMPANIES ENTITIES' asset register, if any.
(v) To the best knowledge of VA SCHIENE, the TARGET COMPANIES
ENTITIES have not supplied goods or have agreed on the supply
of them that are or shall become defect or that do not or will
not correspond to the provisions of the respective purchase
agreement, other than shown in the VASK Financial Statements
<PAGE> 20
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and other than those listed in Schedule 9.1.5.v. In
particular, there have been no recall actions and no guarantee
claims with respect to goods that were manufactured and
supplied until the Signing Date that exceed the average level
of guarantee repairs of the last 5 years.
(vi) The TARGET COMPANIES ENTITIES have less than USD 15,000,000 in
assets in the United States and the revenues of the TARGET
COMPANIES ENTITIES from sales in the United States for the
business year ended March 31, 1999 were less than USD
25,000,000.
9.1.6 Business Premises
(i) Schedule 9.1.6.i accurately describes all the business
premises owned, leased and/or occupied by the TARGET COMPANIES
ENTITIES (the "Business Premises"). The list and the attached
abstracts from the land register are complete and correct and
comprise
(A) all real property assets (land with or without
buildings, condominium or floor property and similar
rights) of the TARGET COMPANIES ENTITIES structured by
owner, space, location, zoning plan and register
number; and
(B) all branches, offices and any other business sites of
the TARGET COMPANIES ENTITIES.
(ii) The respective company of the TARGET COMPANIES ENTITIES owns
the real property as set forth in the land register, has
exclusive occupation and possession of occupied but not owned
Business Premises, as the case might be, free from any third
party encumbrance, tenancy or right of occupation,
reservation, easement, quasi-easement or privilege in favor of
any third party, other than registered in the land register or
disclosed in Schedule 9.1.6.ii and there are appurtenant to
the Business Premises all rights and easements necessary for
their use and enjoyment on terms which do not entitle any
person to terminate them other than disclosed in Schedule
9.1.6.ii. As far as motions, statements or filings of
documents are required with the respective land registry, to
the best knowledge of VA SCHIENE, such requirements have been
duly fulfilled.
(iii) To the best knowledge of VA SCHIENE, there are no
restrictions, stipulations or outgoings affecting the Business
Premises which are of an onerous or unusual nature
<PAGE> 21
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or conflict with the present use. The use of the Business
Premises by the TARGET COMPANIES ENTITIES does not constitute
a material breach of any applicable law.
(iv) To the best knowledge of VA SCHIENE, no development,
alterations or works have been carried out in relation to the
Business Premises which would require any permission or
consent under any law which has not been obtained and all
conditions attaching to any such permission or consent have
been fully complied with.
(v) To the best knowledge of VA SCHIENE, there are no proposals by
any competent authority or other person which would have a
Material Adverse Effect on the Business Premises.
(vi) To the best knowledge of VA SCHIENE, each of the buildings and
other erections on the Business Premises:
(A) is in such condition and repair as to be substantially
fit for the purpose for which it is presently used; and
(B) is approved and materially complies with applicable
laws and industrial health and safety regulations.
(vii) The connections to power and waste disposal services existing
in the buildings and other erections on the Business Premises
are approved and materially comply with applicable laws.
Neither the TARGET COMPANIES ENTITIES nor VA SCHIENE are, to
VA SCHIENE's best knowledge, aware of any imminent or likely
interruption to those services.
(viii) There are no current disputes relating to any of the Business
Premises or their use.
9.1.7 Tax Matters
(i) All Tax Returns of or with respect to any Tax that are
required to be filed on or before the Signing Date by or with
respect to the TARGET COMPANIES ENTITIES have been duly and
timely filed in accordance with all applicable statutes, rules
and regulations.
<PAGE> 22
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(ii) All items of income, gain, loss, deduction and credit or other
items required to be included in each such Tax Return have
been so included and all information provided in each such Tax
Return is true, correct and complete in all material respects.
(iii) All Taxes which have become due with respect to the period
covered by each such Tax Return whether or not reflected on
the Tax Returns have been timely paid in full.
(iv) To the best knowledge of VA SCHIENE, there is no claim from
any Governmental Authority with respect to the TARGET
COMPANIES ENTITIES for any Taxes, and no assessment,
deficiency or adjustment has been asserted or proposed by any
Governmental Authority with respect to any Tax Return of or
with respect to the TARGET COMPANIES ENTITIES.
(v) There is not in force any extension of time with respect to
the due date for the filing of any Tax Return of or with
respect to the TARGET COMPANIES ENTITIES or any waiver or
agreement for any extension of time for the assessment or
payment of any Tax of or with respect to the TARGET COMPANIES
ENTITIES.
(vi) Schedule 9.1.7.vi attached hereto contains a true and complete
list of each written Tax allocation or sharing agreement and a
true and complete description of each unwritten Tax allocation
or sharing arrangement affecting the TARGET COMPANIES
ENTITIES.
(vii) Except for any requirements due to the adoption of the IAS for
the VASK Financial Statements at March 31, 1999, the TARGET
COMPANIES ENTITIES will not be required to include any amount
in income for any taxable period beginning after the Signing
Date as a result of a change in accounting method for any
taxable period ending on or before the Signing Date or
pursuant to any agreement with any Tax authority with respect
to any such taxable period.
(viii) No Liens (whether filed or arising by operation of law) have
been imposed upon or asserted against the TARGET COMPANIES
ENTITIES as a result of or in connection with the failure, or
alleged failure to pay any tax.
(ix) All amounts of or in relation to Tax required to be collected
or withheld by the TARGET COMPANIES ENTITIES have been duly
collected or withheld and any
<PAGE> 23
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such amounts that are required to be remitted to any
Governmental Authority have been duly remitted.
(x) No extension of time within which to file any Tax Returns has
been requested nor has any tax return not been filed and no
penalty, interest or, to the best knowledge of VA SCHIENE,
other charge is due with respect to the late filing of any
such Tax Return or late payment of any such Tax.
9.1.8 Litigation
(i) The TARGET COMPANIES ENTITIES are not engaged in any legal
(civil or criminal), administrative or arbitration proceedings
other than those disclosed in Schedule 9.1.8.i. There are no
investigations or proceedings pending or, to the best
knowledge of VA SCHIENE, threatened against or affecting the
TARGET COMPANIES ENTITIES which might involve any liability
not fully covered by insurance or provided for in the VASK
Financial Statements nor, to the best knowledge of VA SCHIENE,
is there any basis for such legal action, proceeding or
investigation.
(ii) No claim has been made against the TARGET COMPANIES ENTITIES
in the three (3) year period prior to the Signing Date, in
connection with any product liability, other than disclosed in
Schedule 9.1.8.ii. To the best knowledge of VA SCHIENE, there
are no facts likely to give rise to any such claim and the
TARGET COMPANIES ENTITIES or its legal predecessors have
maintained adequate insurance against any such claim.
(iii) No claim has been made against TARGET COMPANIES ENTITIES by
any former or current employee and/or contractors in
connection with occupational health and safety matters, other
than those disclosed in Schedule 9.1.8.iii.
(iv) None of the operations of the TARGET COMPANIES ENTITIES are
subject to any unsatisfied judgment or any order, award or
decision handed down in any litigation, arbitration or
enforcement proceedings (civil or criminal), other than
disclosed in Schedule 9.1.8.iv.
(v) Other than listed in Schedule 9.1.8.v none of the TARGET
COMPANIES ENTITIES have received a query or questionnaire due
to applicable cartel law, antitrust law or anti-dumping laws
or other laws or regulations by court or a
<PAGE> 24
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governmental authority (including the Austrian Cartel Court or
any other cartel authority, the European Merger Task Force, or
the EFTA-Controlling Authority, the U.S. Trade Commission). To
the best knowledge of VA SCHIENE, there are no other
circumstances that could lead to such investigations. VA
SCHIENE has, however, disclosed to GRANT prior importations of
goods by or on behalf of TARGET COMPANIES ENTITIES and
VOEST-ALPINE TUBULAR Corporation into the United States. Any
liability regarding these importations shall not be covered by
the representations and warranties made herein, but shall be
exclusively dealt with in the Supply Agreement.
9.1.9 Environmental Matters
(i) Schedule 9.1.9.i shows a list of the Austrian and European
Environmental Laws applicable for the business and plant of
the TARGET COMPANIES ENTITIES identified by the environmental
audit company ARP GmbH-Aufbereitung, Recycling, Pruftechnik,
Johann-Sackl Gasse 65-67, A-8700 Leoben ("Environmental
Laws"). The TARGET COMPANIES ENTITIES have been and are
materially in compliance with all Environmental Laws and, to
the best knowledge of VA SCHIENE, there are no conditions
existing on or resulting from the operation of the businesses
or properties of the TARGET COMPANIES ENTITIES that may give
rise to any on-site or off-site remedial obligations under any
Environmental Laws.
(ii) The TARGET COMPANIES ENTITIES and their properties are not
subject to any existing, pending or, to the best knowledge of
VA SCHIENE, threatened action, suit, investigation, inquiry or
proceeding by or before any Governmental Authority under any
Environmental Laws.
(iii) All notices, permits, licenses or similar authorizations, if
any, required to be obtained or filed by the TARGET COMPANIES
ENTITIES under any Environmental Laws, including without
limitation those relating to the treatment, storage, disposal
or release of any substance, material or waste regulated under
Environmental Laws into the environment, have been duly
obtained or filed, and will not be terminated or cease to have
effect as a consequence of the change in ownership of the
Shares and/or Limited Partnership Interest and the TARGET
COMPANIES ENTITIES are materially in compliance with the terms
and conditions of all such permits and authorizations and no
actions or appeals are pending or, to the best knowledge of VA
SCHIENE, threatened, to revoke or materially alter the terms
and conditions of such material permits.
<PAGE> 25
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(iv) Since the effective date of the relevant requirements of the
Austrian Waste Disposal Act ("Abfallwirtschaftsgesetz") or
other comparable Environmental Laws, all substances, materials
or wastes regulated under Austrian Waste Disposal Act
("Abfallwirtschaftsgesetz") or another comparable
Environmental Law that are generated by the TARGET COMPANIES
ENTITIES or at any properties of the TARGET COMPANIES ENTITIES
and require disposal or treatment have been transported only
by carriers, that to the best knowledge of VA SCHIENE,
maintaining valid authorizations under Austrian Waste Disposal
Act ("Abfallwirtschaftsgesetz") and any other comparable
Environmental Laws and treated and disposed of only at
treatment, storage and disposal facilities, that to the best
knowledge of VA SCHIENE, maintain valid authorizations under
Austrian Waste Disposal Act ("Abfallwirtschaftsgesetz") and
any other comparable Environmental Law, and, to the knowledge
of VA SCHIENE, such carriers and facilities have been and are
operating in compliance with such authorizations and are not
the subject of any existing, pending or threatened action,
investigation or inquiry by any Governmental Authority in
connection with any Environmental Laws.
(v) There are no asbestos-containing materials or naturally
occurring radioactive materials on or in any of the properties
of the TARGET COMPANIES ENTITIES that are required to be
removed, remediated or abated under Environmental Laws, and,
to the best knowledge of VA SCHIENE, there are no storage
tanks, open or closed pits, sumps, or other containers on or
under any of the properties of the TARGET COMPANIES ENTITIES
from which any substances, materials or wastes regulated under
Environmental Laws have been released into the surrounding
environment.
(vi) Without limiting the foregoing, there is no liability to any
non-governmental third party under Environmental Laws or under
common law tort, trespass and nuisance in connection with any
release or, to the best knowledge of VA SCHIENE, threatened
release of any substances, materials or wastes regulated under
Environmental Laws into the environment as a result of or with
respect to the properties or businesses of the TARGET
COMPANIES ENTITIES. None of the TARGET COMPANIES ENTITIES has
received a regulatory notification or complaints of third
parties, including neighbors, that concern the industrial
procedures and the business activity of the TARGET COMPANIES
ENTITIES, air water pollution, the disposal of waste or noise
emission caused by these plants and it is not known to VA
SCHIENE that such notifications or complaints are intended.
<PAGE> 26
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(vii) There are no substances in the ground, ground water, or in the
air of business plants, including those coming from
neighboring premises, that have to be removed or restored due
to the Austrian Waste Disposal Act ("Abfallwirtschaftsgesetz")
or any other Environmental Laws. Until the Signing Date there
were and are no disposals or emptying or any distribution of
polluting, dangerous or toxic substances, or waste on the
surface or in the ground of the Business Premises. All such
substances were duly disposed and are not stored on the
Business Premises.
(viii) If the TARGET COMPANIES ENTITIES are obliged to restore or to
dispose waste that was transported until the Closing Date to
waste disposal sites these costs are borne by or the TARGET
COMPANIES ENTITIES. All sewage that is emitted by the TARGET
COMPANIES ENTITIES is treated in a way that the sewage and the
pollution of rivers and ground water are in accordance with
statutory provisions, regulations, regulatory conditions and
permits. Also the level of emissions arising from the
industrial procedures of the TARGET COMPANIES ENTITIES,
including the operation of the Power Plant with regard to all
steams, waste, gases, any other air polluting, noxious or
odorous substances are in material accordance with the
statutes, regulations, and regulatory provisions and
conditions, including all provisions concerning employee
protection.
9.1.10 Labor Matters
(i) Set forth on Schedule 9.1.10.i attached hereto is a list of
each of the following that is, as of the Signing Date,
sponsored, maintained or contributed to by TARGET COMPANIES
ENTITIES for the benefit of its employees :
(A) each employee benefit plan;
(B) each stock option plan, collective bargaining
agreement, bonus plan or arrangement, incentive award
plan or arrangement, severance pay plan, policy or
agreement, deferred compensation agreement or
arrangement, executive compensation or supplemental
income arrangement, consulting and employment
agreement, including without limitation those covering
employees outside of Austria.
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(ii) The TARGET COMPANIES ENTITIES have no outstanding liability
other than accrued as a current liability on its balance sheet
as of March 31, 1999 with respect to any of the items
described in clauses (A) and (B) above that are not currently
sponsored, maintained or contributed to by TARGET COMPANIES
ENTITIES, but were so sponsored, maintained or contributed to
by the TARGET COMPANIES ENTITIES within the past six years.
(iii) A complete and accurate list of current employees and managers
of TARGET COMPANIES ENTITIES, as of the Signing Date, entitled
to an annual compensation in excess of ATS 1,000,000 is
attached hereto as Schedule 9.1.10.iii and contains
information on names, commencement of employment, gross annual
salary, other fringe benefits, including pension commitments,
shares in profiteering arrangements, severance pays, accrued
vacation, periods of notice and dates of notice, applicable
national collective agreements. Except as set forth in
Schedule 9.1.10.iii no loans or other advances have been made
to such managers or employees of the TARGET COMPANIES
ENTITIES. Except as set forth in Schedule 9.1.10.iii there are
no pension, provident, superannuation or retirement benefit
funds, schemes or arrangements under which the TARGET
COMPANIES ENTITIES are contractually obliged to provide to
such managers or employees or former managers or employees or
any spouse or other dependent of any of the same, retirement
benefits of any kind (which expression shall include benefits
payable upon retirement, leaving service, death, disablement
and any other benefits which are commonly provided for under
provident or retirement schemes) apart from local statutory
schemes in Austria. All payments made to such local statutory
schemes have been fully paid when due and payable.
(iv) All wages and salaries and other remunerations to employees
and managing directors of the TARGET COMPANIES ENTITIES were
paid in full, if due, up to and including the Signing Date.
The TARGET COMPANIES ENTITIES have withheld all amounts
required by law or by contract to be withheld from the wages
or salaries of all employees of the TARGET COMPANIES ENTITIES
and the TARGET COMPANIES ENTITIES are not liable for any
arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing. In particular, but not
limited, VA SCHIENE represents and warrants to GRANT that all
social security contributions (Sozialversicherungsbeitrage)
have been regularly paid.
(v) Except as set forth on Schedule 9.1.10.v attached hereto,
there are, to the best knowledge of VA SCHIENE, no collective
bargaining agreements, collective plant
<PAGE> 28
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agreements (Betriebsvereinbarungen), social or retirement
plans or other labor union agreements or understandings to
which the TARGET COMPANIES ENTITIES are a party or by which
any of them is bound, nor are the TARGET COMPANIES ENTITIES
the subject of any proceeding asserting that it has committed
an unfair labor practice or seeking to compel it to bargain
with any labor organization as to wages or conditions. Except
as set forth on Schedule 9.1.10.v, there is no union
organization activity involving any of the employees of the
TARGET COMPANIES ENTITIES, pending or, to the best knowledge
of VA SCHIENE, threatened. There is no picketing, strikes, or
any material slowdowns, work stoppages, other job actions,
lockouts, arbitrations, grievances or other labor disputes, in
particular an unfair dismissal claim involving any of the
employees of the TARGET COMPANIES ENTITIES, pending or, to the
best knowledge of VA SCHIENE, threatened other than set forth
in Schedule 9.1.10.v. The TARGET COMPANIES ENTITIES are in
material compliance with all laws, regulations and orders
relating to the employment of labor, including but not limited
to all such laws, regulations and orders relating to wages,
hours, collective bargaining, discrimination, civil rights,
safety and health, workers' compensation and the collection
and payment of withholding and/or social security taxes and
any similar tax. Except as set forth on Schedule 9.1.10.v
there has been no mass layoff with respect to the TARGET
COMPANIES ENTITIES within the twenty-four (24) months prior to
Signing Date.
(vi) No outstanding liability has been incurred by the TARGET
COMPANIES ENTITIES for breach of any contract, compensation
for wrongful dismissal or unfair dismissal or for failure to
comply with any order for the reinstatement or re-engagement
of any employee or for any other liability arising from the
termination of any contract of employment or for services.
(vii) The TARGET COMPANIES ENTITIES have not entered into any
arrangements regarding any future variation in any contract of
employment in respect of any of their employees or any
agreement imposing an obligation on the TARGET COMPANIES
ENTITIES to increase the basis and/or rates of remuneration
and/or the provision of other benefits in kind to or on behalf
of any of their employees at any future date other than as
contemplated by the applicable collective bargaining
agreement.
(viii) There are no provisions in the employment contracts of board
members, managing directors, or employees of the TARGET
COMPANIES ENTITIES on a basis of
<PAGE> 29
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which a person receives payments or other contributions as a
result of the contemplated share sale or by which their rights
would be altered therefore.
(ix) The TARGET COMPANIES ENTITIES are not party of an agreement or
other transaction deemed to be as a transfer of an undertaking
within the sense of the directive 77/187/EWG of the European
Union.
9.1.11 Inventory
(i) The stocks of finished goods of the TARGET COMPANIES ENTITIES,
including their packaging, are of merchantable quality and fit
for the purpose for which they are ordinarily acquired.
(ii) The packaging and labeling of the stocks of finished goods is
not false or misleading or deceptive and does not materially
contravene any applicable law.
9.1.12 Intellectual Property
(i) Subject to the agreements to be concluded pursuant to Section
6.1.a, the TARGET COMPANIES ENTITIES own or are licensed or
otherwise have the right to use, all patents, patent rights,
trademarks, trademark rights, trade names, trade name rights,
service marks, service mark rights, copyrights, technology,
know-how, processes and other proprietary intellectual
property rights and computer programs which are material to
the condition (financial or otherwise) or conduct of the
business and operations of the TARGET COMPANIES ENTITIES taken
as a whole. The use of such patents, patent rights,
trademarks, trademark rights, service marks, service mark
rights, trade names, copyrights, technology, know-how,
processes and other proprietary intellectual property rights
and computer programs by the TARGET COMPANIES ENTITIES do not
infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to
any liability on the part of the TARGET COMPANIES ENTITIES.
(ii) Except for the agreements set forth in Schedule 9.1.12.ii
neither the TARGET COMPANIES ENTITIES nor VA SCHIENE is
subject to an agreement concerning confidentiality or any
other agreement restricting the free use and disclosure of
information concerning business activities of the TARGET
COMPANIES ENTITIES.
<PAGE> 30
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9.1.13 Insurance
(i) Schedule 9.1.13.i attached hereto sets forth information as of
the Signing Date hereof with respect to each insurance policy
(including policies providing property, casualty, liability,
and workers' compensation coverage, and bond and surety
arrangements) to which the TARGET COMPANIES ENTITIES are a
party, a named insured, or otherwise a named beneficiary of
coverage. With respect to each such insurance policy:
(A) the policy is in full force and effect;
(B) the TARGET COMPANIES ENTITIES are not in material
breach or default (including with respect to the
payment of premiums nor the giving of notices), and no
event has occurred which, with notice or the lapse of
time, would constitute such a material breach or
default, or permit termination, modification, or
acceleration under the policy;
(C) the policy will not be terminated or cease to have
effect as a consequence of the change in ownership of
the TARGET COMPANIES ENTITIES;
(D) no party to the policy has repudiated any provision
thereof; and
(E) the TARGET COMPANIES ENTITIES have not reached or
exceeded the policy limits for any insurance policies
in effect at any time during the past five years.
(ii) The TARGET COMPANIES ENTITIES have insurance in such amount
and covering such risks as is customary for businesses of
similar size in the business sector of the TARGET COMPANIES
ENTITIES.
9.1.14 Compliance with Laws
The TARGET COMPANIES ENTITIES hold all material required, necessary
or applicable permits, licenses, variances, exemptions, orders,
franchises and approvals of all Governmental Entities ("TARGET
COMPANIES ENTITIES' Permits"). The TARGET COMPANIES ENTITIES are in
material compliance with the terms of the TARGET COMPANIES ENTITIES'
Permits. The TARGET COMPANIES ENTITIES have
<PAGE> 31
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materially not violated or failed to comply with any statute, law,
ordinance, regulation, rule, permit or order of any federal, state or
local government, domestic or foreign, or any Governmental Authority,
any arbitration award or any judgment, decree or order of any court
or other Governmental Authority, applicable to the TARGET COMPANIES
ENTITIES or their businesses, assets or operations. Neither the
TARGET COMPANIES ENTITIES nor VA SCHIENE are aware of any reason why
any of the TARGET COMPANIES ENTITIES' Permits should be or may be
revoked or amended.
9.1.15 Brokers
No broker, investment banker or other Person is entitled to receive
from the TARGET COMPANIES ENTITIES, VA SCHIENE or the VA-Group any
investment banking, broker's, finder's or similar fee or commission
in connection with this Investment Agreement or the transactions
contemplated hereby.
9.1.16 Material Contracts and Agreements
(i) Schedule 9.1.16.i attached hereto lists the following
contracts and other agreements (written or oral) to which the
TARGET COMPANIES ENTITIES or any of its assets is a party or
subject to:
(A) Any agreement (or group of related agreements) for the
purchase or sale of raw materials, steel billets or
other goods and services in an amount in excess of ATS
20,000,000;
(B) any lease or rental of real property or personal
property providing for payments in excess of ATS 1.3
million per year to or from any Person other than
disclosed on Schedule 9.1.5.i;
(C) any agreement concerning a partnership or joint venture
or distribution or agency relationship;
(D) any agreement (or group of related agreements)
involving the creation, incurrence, assumption or
guarantee of any indebtedness for borrowed money, any
capital lease obligation or any sale and lease back
obligation in an amount in excess of ATS 10,000,000 or
which a security interest for any such obligations has
been granted;
<PAGE> 32
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(E) any material agreement concerning non-competition;
(F) any separate employment agreement providing for annual
compensation in excess of ATS 1,000,000 or providing
severance benefits outside the TARGET COMPANIES
ENTITIES' customary severance policy;
(G) any agreement under which the TARGET COMPANIES ENTITIES
have advanced or loaned any amount of money to its
directors, officers or employees outside the ordinary
course of business;
(H) any agreement not made in the ordinary course of
business not otherwise disclosed herein and that could
reasonably be expected to have a material adverse
effect on the TARGET COMPANIES ENTITIES;
(ii) All material contracts of the TARGET COMPANIES ENTITIES have
been made available to GRANT. For purposes of this provision,
material contracts shall be deemed to be all contracts of
unusual and extraordinary nature and are outside the ordinary
course of business or that should be disclosed to a
contracting party that intends to purchase a significant
participation in the TARGET COMPANIES due to their nature or
importance of the obligation.
(iii) Except as set forth on Schedule 9.1.16.iii there are no
agreements (or group of related agreements), notwithstanding
orally or written, concluded by the TARGET COMPANIES ENTITIES
with an Affiliate of the VA-Group.
(iv) Except as set forth on Schedule 9.1.16.iv there are no
material agreements which will be or are capable of being
terminated on a change of ownership of the TARGET COMPANIES.
9.1.17 Undisclosed Liabilities
Except as set forth on Schedule 9.1.17 attached hereto or as set
forth in the VASK Financial Statements, at the date of the most
recent audited financial statements of the TARGET COMPANIES, the
TARGET COMPANIES had not, and since such date the TARGET COMPANIES
have not, incurred (except in the ordinary course of business), any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise), which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on the
TARGET COMPANIES ENTITIES taken as a whole.
<PAGE> 33
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9.1.18 Year 2000 Compliance
(i) The TARGET COMPANIES ENTITIESVA SCHIENE has made all
reasonable efforts to render all of the Products and Services
of the TARGET COMPANIES ENTITIES Year 2000 Compliant. If any
of the TARGET COMPANIES ENTITIES is obligated to repair or
replace Products or Services previously provided thereby that
are not Year 2000 Compliant in order to meet its contractual
obligations, to avoid personal injury or other liability, to
avoid misrepresentation claims, or to satisfy any other
obligations or requirements, such entity of the TARGET
COMPANIES ENTITIES have repaired or replaced those Products
and Services to make them Year 2000 Compliant. TARGET
COMPANIES ENTITIES have furnished GRANT with true, correct and
complete copies of any customer agreements and other materials
and correspondence in which the TARGET COMPANIES ENTITIES have
furnished (or could be deemed to have furnished) assurances as
to the year 2000 Compliance of the Products or Services of the
TARGET COMPANIES ENTITIES.
(ii) THE TARGET COMPANIES ENTITIESVA SCHIENE has made all
reasonable efforts to render all of the Internal MIS Systems
and Facilities of the TARGET COMPANIES ENTITIES Year 2000
Compliant.
(iii) To the actual knowledge of the TARGET COMPANIES ENTITIES the
vendors of products or services to the TARGET COMPANIES
ENTITIES will continue to furnish its products or services to
the TARGET COMPANIES ENTITIES, without interruption or
material delay, on and after January 1, 2000.
(iv) The TARGET COMPANIES ENTITIES have furnished GRANT with a
true, correct and complete copy of any internal
investigations, memoranda, budget plans, forecasts or reports
concerning the Year 2000 Compliance of the products, services,
operations, systems, supplies, and facilities of the TARGET
COMPANIES ENTITIES. A list of these investigations and reports
is attached hereto as Schedule 9.1.18.iv.
9.1.19 Forced Labor
There are claims based on forced labor and related class actions
threatened against the VA-Group. VA SCHIENE hereby represents,
covenants and warrants to hold harmless and
<PAGE> 34
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indemnify GRANT, its Affiliates, successors and assigns for any
Indemnity Losses from or arising out of any such claims asserted
against the TARGET COMPANIES ENTITIES or GRANT.
9.1.20 Information
(i) All information contained in this Investment Agreement
(including the recitals) is true and accurate.
(ii) No representation, warranty or covenant contained in this
Investment Agreement and no statement contained in the
Schedules or in any Annex, certificate or other instrument
furnished or to be furnished to GRANT pursuant hereto or in
connection with the transactions contemplated hereby, contains
or will contain any untrue statement of fact, or omits or will
omit to state a fact which is necessary in order to make the
statements contained herein or therein not misleading.
(iii) All written information given to GRANT and/or its professional
advisers by VA SCHIENE, TARGET COMPANIES ENTITIES, officers
and employees and/or VA SCHIENE's professional advisers during
the negotiations prior to the Signing Date of this Investment
Agreement was when given true and accurate and there is, to
the best knowledge of VA SCHIENE, no fact, matter or
circumstance which has not been disclosed in writing to GRANT
or its professional advisers which renders any such
information untrue, inaccurate or misleading or which might
reasonably affect the willingness of GRANT to proceed with the
purchase of the Shares and/or the Limited Partnership Interest
on the terms of this Investment Agreement.
9.2 GRANT represents, covenants and warrants to VA SCHIENE as of the
Signing Date and again as of the Closing Date as follows:
9.2.1 GRANT's Good Standing and Authorization
(i) GRANT is a corporation, duly organized, validly existing and
in good standing under the laws of Delaware. No Bankruptcy
Action has been initiated against GRANT.
(ii) GRANT has the requisite corporate power and authority to enter
into this Investment Agreement and to consummate the
transactions contemplated hereby. The execution and delivery
of this Investment Agreement by GRANT and the consummation by
<PAGE> 35
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GRANT of the transactions contemplated hereby have been duly
authorized by all necessary partnership action on the part of
GRANT. This Investment Agreement has been duly and validly
executed and delivered by GRANT and constitutes a valid and
binding obligation of GRANT, enforceable against GRANT in
accordance with its terms, except that
(A) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar
laws or judicial decisions now or hereafter in effect
relating to creditor's rights generally; and
(B) the remedy of specific performance and injunctive
relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding
therefor may be brought.
(iii) The execution and delivery of this Investment Agreement by
GRANT do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof
will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both)
under any provision of
(A) the certificates of incorporation, by-laws or other
organizational documents of GRANT;
(B) subject to the governmental filings and other matters
referred to in Section 9.2.1.iv below, any judgment,
order, decree, statute, law, ordinance, rule or
regulation or arbitration award applicable to GRANT.
(iv) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental
Authority is required by or with respect to GRANT in
connection with the execution and delivery of this Investment
Agreement by GRANT or the consummation by GRANT of the
transactions contemplated hereby, except as have already been
obtained and except for the filing of premerger notification
information with the competent competition authorities.
(v) No administrative, civil or arbitral proceeding which could
hinder or prevent the execution and delivery of this
Investment Agreement by GRANT or the consummation by GRANT of
the transactions contemplated hereby are pending or, to the
best knowledge of GRANT, threatened.
<PAGE> 36
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9.2.2 Information
(i) All information contained in this Investment Agreement
(including the recitals) is true and accurate.
(ii) No representation, warranty or covenant contained in this
Investment Agreement and no statement contained in the
Schedules or in any Annex, certificate or other instrument
furnished or to be furnished to VA SCHIENE pursuant hereto or
in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of fact, or
omits or will omit to state a fact which is necessary in order
to make the statements contained herein or therein not
misleading.
(iii) All written information given to VA SCHIENE and/or its
professional advisers by GRANT, officers and employees and/or
GRANT's professional advisers during the negotiations prior to
the Signing Date of this Investment Agreement was when given
true and accurate and there is, to the best knowledge of
GRANT, no fact, matter or circumstance which has not been
disclosed in writing to VA SCHIENE or its professional
advisers which renders any such information untrue, inaccurate
or misleading or which might reasonably affect the willingness
of VA SCHIENE to proceed with the sale of the Shares and/or
the Limited Partnership Interest on the terms of this
Investment Agreement.
10. INDEMNIFICATION
10.1 Either Party shall indemnify and hold harmless the other Party, its
Affiliates, successors and assigns (each an "Indemnity Party"), from
and against and in respect of any and all losses, liabilities,
claims, damages, costs and expenses of defense thereof (including
without limitation expenses of investigation, legal or other fees or
expenses reasonably incurred in connection with and any amount paid
in settlement of or as a judgment relating to, any action, claim,
legal, administrative, governmental or other proceeding, suit,
investigation, inquiry, complaint, notice of violation or any similar
process, judgment, injunction order, directive or restrictions)
(collectively, "Indemnity Losses") to which an Indemnity Party may
become subject, from or arising out of any breach of or inaccuracy in
any of the representation, covenants, warranties or agreements set
forth herein and any failure to perform any obligations under this
Investment Agreement.
<PAGE> 37
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10.2 An Indemnity Party shall give prompt written notice to the other
Party of any claim, demand or action of a third party of which it has
knowledge and as to which an Indemnity Party may seek indemnification
hereunder; provided however, that omission to so notify the other
Party shall not relieve the other Party of the obligation to
indemnify such Indemnity Party except to the extent that such failure
to so notify shall have impaired the other Party's ability to defend
such claim or action. Upon receipt of notice of any action relating
to Indemnity Losses, both Parties shall, at their own expense,
consult on the defense of such actions.
10.3 Except for claims from the representations, covenants and warranties
set forth in Sections 9.1.1, 9.1.4, 9.1.5(i), 9.1.15, 9.1.19 and
9.2.1 of this Investment Agreement, which may be asserted without
limitation notwithstanding any otherwise applicable statute of
limitations, all claims from the representations, covenants and
warranties contained in or made pursuant to this Investment Agreement
shall survive Closing and may only be asserted in writing including a
brief statement of facts and an estimate of the Indemnity Losses
incurred within three years from the Closing Date. Claims from the
representations, covenants and warranties set forth in Section 9.1.7
of this Investment Agreement shall be precluded after a period of 6
months as of the definite final assessment or determination of the
Taxes concerned.
10.4 Claims from the representations, covenants and warranties set forth
in Section 9 of this Investment Agreement may only be asserted if
they exceed in the aggregate the total amount of ATS 5,000,000; in
case this threshold is exceeded, however, the full amounts may be
asserted. Individual claims that do not exceed the amount of ATS
100,000 may not be asserted at all and shall not be taken into
account when determining the threshold of aggregate claims as
provided above.
10.5 This Section 10 contains all remedies of the Parties with respect to
the representations, covenants and warranties set forth in Section 9
of this Investment Agreement. Withdrawal from this Investment
Agreement (Rucktritt), recession (Wandlung) and the challenge of this
Investment Agreement due to error (Irrtumsanfechtung) shall be
excluded, subject to the following provisions:
A Party's statutory claims based on fraudulent misrepresentation or
deceit or force exercised by the other Party shall not be restricted
by this Investment Agreement.
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GRANT shall be entitled to withdraw from this Investment Agreement in
the time period between the Signing Date and the Closing Date if
GRANT's actual Indemnity Losses exceed the amount of ATS 200,000,000.
10.6 VA SCHIENE shall indemnify and hold harmless each other Indemnity
Party from any and all Indemnity Losses suffered by them or allocated
to the Limited Partnership Interest arising
(i) from the claims threatened against TARGET COMPANIES by
Vallourec Mannesmann Oil & Gas France in 1998 due to alleged
unfair competition;
(ii) from the bankruptcy proceedings of INKOM Bank and APM Alloy
Pipe & Metal GmbH;
(iii) from the allocation of the loss carry forwards to VA SCHIENE
during the reorganization process, and from a letter issued by
VOEST-ALPINE SCHIENEN GmbH to the works council of VASK GmbH
in connection with an extra dividend payment in the amount of
ATS 600 million and promising to financially support
investments and programs of VASK GmbH;
from the resizing of the TARGET COMPANIES in 1999 and any related
lay-offs, in particular, but not limited to, costs for social plans;
to the extent such claims have not been provided for in the VASK
Financial Statements as of March 31, 1999.
11. MISCELLANEOUS
11.1 This Investment Agreement shall be governed by, and construed in
accordance with, the laws of Austria, without reference to or
application of any conflicts of laws.
11.2 From time to time (whether before, at or after Closing) at the
reasonable request of GRANT and without further consideration, VA
SCHIENE will execute and deliver to GRANT such other documents, and
take such other action, as GRANT may reasonably request in order to
consummate more effectively the transactions contemplated by this
Investment Agreement.
11.3 This Investment Agreement may not be assigned by any Party without
the prior written consent of the other Party. Notwithstanding the
foregoing VA SCHIENE agrees that
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GRANT may nominate and assign its obligations and rights arising from
this Investment Agreement to any Affiliate of GRANT up until the
Closing Date and any time thereafter, provided that GRANT will be
jointly and severally liable for all obligations provided for herein.
11.4 Subject to Section 11.3, this Investment Agreement shall be binding
upon and inure to the benefit of the Parties and their respective
successors, executors, administrators and permitted assigns.
11.5 Whether or not the transactions contemplated by this Investment
Agreement are consummated, all costs and expenses incurred in
connection with this Investment Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such
expenses, except
(i) transfer taxes and stamp duties that may be incurred in the
transfer of the Limited Partnership Interest and/or the
Shares; and
(ii) the notarial fees to be paid in connection with the execution
of an agreement in the form of a notarial deed with respect to
the transfer of the Shares; and
(iii) the costs arising in connection with the notification of this
Investment Agreement and the transactions contemplated hereby
to the competent Austrian commercial courts for entry into the
commercial register
shall be borne 50 % by GRANT and 50 % by VA SCHIENE.
11.6 All Parties have agreed to sign this Investment Agreement outside of
Austria. The Party breaching this obligation shall pay the amount of
stock exchange turnover tax arising from that breach.
11.7 All disputes arising out of this Investment Agreement or related to
its violation, termination or nullity shall be finally settled under
the Rules of Arbitration and Conciliation of the International
Arbitral Centre of the Austrian Federal Economic Chamber in Vienna
(Vienna Rules) by one or more arbitrators appointed in accordance
with these rules. The number of arbitrators shall be three; the
substantive law of Austria shall be applicable; the language to be
used in the arbitral proceedings shall be English.
<PAGE> 40
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11.8 This Investment Agreement may not be amended or modified, except in
writing duly and validly executed by both Parties. The compliance
with any condition or covenant set forth herein may not be waived,
except in writing duly and validly executed by GRANT and/or VA
SCHIENE.
11.9 In case any one or more of the provisions contained in this
Investment Agreement shall be invalid, illegal, or unenforceable in
any respect, the validity, legality or enforceability of the
remaining provisions contained herein shall not in any ways be
affected or impaired thereby.
11.10 This Investment Agreement, including the Annexes and Schedules
hereto, constitutes the entire agreement between the parties with
respect to the subject matter hereof. Except as expressly provided
herein, all prior agreements or understandings, if any, between the
Parties with respect to the subject matter hereof shall, upon the
execution of this Investment Agreement, be null and void.
11.11 The section headings in this Investment Agreement have been inserted
for convenience of reference only and are not, and shall not be
deemed to be a substantive portion of this Investment Agreement.
11.12 All notices, requests, demands and other communications which are
required or may be given under this Investment Agreement shall be in
writing and shall be sufficient in all respects
(i) if delivered personally or by facsimile transmission to the
telecopier number set forth below, when so delivered; or
(ii) if given by DHL or equivalent air courier service, four (4)
days after the date delivered to such courier, delivery
charges prepaid, in each case addressed as follows:
If to GRANT, to:
Grant Prideco, Inc.
1450 Lake Rubbins Drive
The Woodlands, Tx USA 77380
<PAGE> 41
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Attention: John C. Coble and Curtis W. Huff
Telephone: (281) 297 8500
Telecopier: (281) 297 8569 and (713) 297 8488
With a copy to:
Bruckhaus Westrick Heller Lober
Seilergasse 16
1010 Vienna
Austria
Attention: Jenny W.T. Power
Telephone: (++43 1) 51515 Ext. 210 or 310
Telecopier: (++43 1) 512 63 94
If to VA SCHIENE to:
VA Schiene GmbH
Kerpelystrasse 201
8700 Leoben
AUSTRIA
att.:Willibald Mautner
Telephone: (++43) 3842/202 4453
Telecopy: (++43) 3842/202 2444
With a copy to:
VOEST-ALPINE STAHL AG
Voest-Alpine-Strasse 1
4020 Linz
AUSTRIA
att: Hubert Possegger
Telephone: (++43/70/6585-9516)
Telecopy: (++43/70/6980-5581)
<PAGE> 42
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11.13 This Investment Agreement may be executed in two counterparts, one
for each Party, each of which shall be an original, but all of which
together shall constitute one and the same Investment Agreement.
11.14 No announcement or other public disclosure shall be made by a Party
without the prior written consent and approval of the other parties.
IN WITNESS WHEREOF, the parties have executed or caused to be executed this
Investment Agreement as of the date first above written
/s/ [ILLEGIBLE]
- -----------------------------------
GRANT PRIDECO, Inc.
/s/ [ILLEGIBLE]
- -----------------------------------
VOEST-ALPINE SCHIENEN GmbH & Co KG
<PAGE> 43
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ANNEX 1
"Affiliate" shall mean, with respect to any specified Person, any other Person
that, directly or indirectly, is in control of, is controlled by, controls or is
under common control with such first Person or is an officer, director, general
partner, managing member or trustee of such Person or Affiliate of such Person.
For purposes of this definition, control shall include the ownership of 50% or
more of the legal or beneficial interest in any Person or the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise;
"Austrian Waste Disposal Act" shall mean Abfallwirtschaftsgesetz, BGBl 1990/325
as amended.
"Bankruptcy Action" shall mean:
(a) Taking any action that might cause a legal entity to become insolvent; or
(b) (i) Commencing any case, proceeding or other action by or on behalf of
a legal entity under any existing or future law of any jurisdiction
relating to bankruptcy, insolvency, reorganization or relief of
debtors;
(ii) Instituting proceedings to have a legal entity adjudicated a
bankrupt or insolvent;
(iii) Consenting to, or acquiescing in, the institution of bankruptcy,
insolvency or reorganization proceedings against a legal entity;
(iv) Filing a petition or consent to a petition seeking reorganization,
arrangement, adjustment or other relief on behalf of a legal entity
of its debts under any existing or future law of any jurisdiction
relating to bankruptcy, insolvency or reorganization;
(v) Seeking or consenting to the appointment of a receiver, liquidator,
conservator, assignee, trustee, sequestrator, custodian or any
similar official
<PAGE> 44
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for a legal entity or a substantial portion of the assets or
properties of a legal entity;
(vi) Making any assignment for the benefit of a legal entity's
creditors; or
(vii) Taking any action or causing a legal entity to take any action in
furtherance of any of the foregoing.
"Business Premises" shall have the meaning assigned to such term in Section
9.1.6.i.
"Closing" shall have the meaning assigned to such term in Section 6.4 of the
Investment Agreement.
"Closing Date" shall mean 7 (seven) days after the date on which the
transactions contemplated by this Investment Agreement have been officially
cleared by the cartel Authorities, or such other date as all Parties shall agree
to in writing.
"Conditions Precedent" shall have the meaning assigned to such term in Section
6.1 of the Investment Agreement.
"Conditions Precedent II" shall have the meaning assigned to such term in
Section 6.2 of the Investment Agreement.
"Deposit" shall have the meaning assigned to such term in Section 3.6 of the
Investment Agreement.
"Dividend" shall mean the distributions or dividends, as the case may be,
attributable to GRANT'S Limited Partnership Interest in VASK GmbH & Co KG and
VASK GmbH.
"Environmental Laws" shall mean any and all applicable Laws pertaining to or
otherwise regulating the environment, natural resources or human health and
safety currently in effect.
"ERP-Funds" shall mean European Regional Project Funds.
"EURIBOR" shall mean the rate per annum calculated daily under the auspices of
the European Banking Federation ("EBF") and the European Central Bank ("ECB") on
the basis of quotes from the 57 banks selected by EBF and/or ECB (or such other
number of banks as may from time to
<PAGE> 45
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time be determined by EBF and/or ECB) and published by the information vendor
determined by EBF and/or ECB and/or selected by the bank for deposits in EURO
for a period equal to or closest to the interest period for which an interest
rate is to be determined at or about 11:00 a.m. (Frankfurt Time) expected to be
shown on Telerate page 247 on the second Business Day in Vienna before the first
day of such interest period.
"EURO" shall mean the currency as and when established pursuant to the provision
of article 109 l (4) of the Treaty establishing the European Community as
amended by the Treaty on the European Union.
"Governmental Authority" shall mean any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"GRANT" shall mean Grant Prideco, Inc. a Delaware corporation with its business
address at 1450 Lake Robbins Drive, The Woodlands, Texas 77380.
"Indemnity Party" shall have the meaning as assigned to such term in Section
10.2.
"Installment I" shall have the meaning assigned to such term in Section 3.2 of
the Investment Agreement.
"Installment II" shall have the meaning assigned to such term in Section 3.2 of
the Investment Agreement.
"Installment III" shall have the meaning assigned to such term in Section 3.2 of
the Investment Agreement.
"Installment IV" shall have the meaning assigned to such term in Section 3.2 of
the Investment Agreement.
"Internal MIS Systems" shall mean, with reference to any TARGET COMPANY Entity
any computer software and systems (including hardware, firmware, operating
system software, utilities, and applications software) used in the ordinary
course of business by or on behalf of such TARGET COMPANY Entity, as the case
may be, including payroll, accounting, billing/receivables, inventory, asset
tracking, customer service, human resources, and e-mail systems.
<PAGE> 46
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"IVM Industrieversicherungsmakler GmbH" shall mean an Austrian limited liability
company, with its principal place of business in Linz and business address
VOEST-ALPINE-Strasse 3, A-4020 Linz, registered in the commercial register of
the Higher Court of Linz under the registration number 89391 i.
"Limited Partnership Interest" shall mean 50.01% of VA SCHIENE's limited
partnership interest in VASK GmbH & Co KG, corresponding to a limited
partnership interest of ATS 123,774,750 (in words: Austrian Shillings one
hundred twenty three million and seven hundred seventy four thousand seven
hundred fifty).
"Laws" shall mean, collectively, federal, foreign, state, provincial, municipal
and local laws (including common law), statutes, ordinances, rules, regulations,
orders, determinations or other legal requirements.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, encumbrance, lien (statutory or other), charge,
claim, rights of third parties or preference, priority or other pledge agreement
or preferential arrangement of any kind or nature whatsoever, including without
limitation any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing.
"Material Adverse Effect" or "material adverse change" shall mean, when used in
connection with any Person or the TARGET COMPANY Entities, any change or effect
(or any development that, insofar as can reasonably be foreseen, is likely to
result in any change or effect) that is materially adverse to the business,
properties, assets, condition (financial or otherwise) or results of operations
of that Person and its subsidiaries, taken as a whole, or of the TARGET COMPANY
Entities, as the case may be; provided, however, a Material Adverse Effect or
material adverse change with respect to the TARGET COMPANY Entities shall not
include (i) any effect or change relating to or affecting the oil and gas
service industry as a whole, (ii) changes in national or international economic
conditions or industry conditions generally, or (iii) the loss of employees,
customers or suppliers thereby as a direct or indirect consequence of any
announcement or expectation of the transactions contemplated hereby.
"Operating Agreement" shall mean an agreement between GRANT and VA SCHIENE
defining the general rights and obligations of the shareholders of VASK GmbH and
the partners of VASK GmbH & Co KG.
"Owned" shall mean, with respect to any Person, those assets, properties,
rights, titles, interests, contracts, claims and estates owned, leased, licensed
or otherwise held by such Person, but if jointly
<PAGE> 47
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owned, leased, licensed or held with another Person, then in each such case only
to the extent of the ownership interest of the Person identified in the
Formation Agreement as the owner.
"Parties" shall mean, collectively, all parties to the Investment Agreement, and
"Party" shall mean, individually, any one of the Parties.
"Person" shall mean an individual, partnership, corporation, business trust,
limited liability company, limited liability partnership, joint stock company,
trust, unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.
"Pledge Agreement" shall have the meaning assigned to such term in Section 3.5
of the Investment Agreement.
"Power Plant" shall mean the power plant situated on the property of VASK GmbH &
Co KG and maintained by GEP Gesellschaft fur Energie und Umwelttechnische
Projekte Kleinkraftwerke und Mobilienleasing KG an Austrian limited liability
partnership.
"Products" shall mean any products offered or furnished by the TARGET COMPANY
Entities, as the case may be, or any predecessor in interest thereof, currently
or at any time in the past and any and all enhancements, upgrades,
customizations, modifications, and maintenance thereto.
"Purchase Price" shall mean ATS 400,000,000 (in words: Austrian shillings four
hundred million"), the entire compensation for the purchase and assignment of
the Limited Partnership Interest and the Shares from VA SCHIENE to GRANT.
"Purchase Price I" shall have the meaning assigned to such term in Section 3.1
of the Investment Agreement.
"Purchase Price II" shall have the meaning assigned to such term in Section 3.1
of the Investment Agreement.
"Shares" shall mean a 50% interest in VASK GmbH, corresponding to a fully paid
up nominal capital of ATS 250,000 (in words: Austrian Shillings two hundred
fifty thousand).
"Services" shall mean any services offered or furnished by the TARGET COMPANIES
Entities, as the case may be, or any predecessor in interest thereof, currently
or at any time in the past.
"Signing Date" shall mean the day the Investment Agreement is duly executed by
all Parties.
<PAGE> 48
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"Subsidiary" of a Person means any corporation, partnership or other legal
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other Persons performing
similar functions are directly or indirectly owned by such first mentioned
Person.
"Supply Agreement" shall mean an agreement between GRANT and VASK GmbH & Co KG
defining the terms and conditions for the purchase of green pipes on a long term
basis.
"TARGET COMPANIES" shall mean, collectively, VASK GmbH & Co KG and VASK GmbH.
"TARGET COMPANIES ENTITIES" shall mean, collectively the TARGET COMPANIES and
all of their Subsidiaries and representative offices or, individually, any
thereof, as interpretation may require.
"TARGET COMPANY Entities' Permits" shall have the meaning assigned to such term
in Section 9.1.14.
"Target Equity" shall have the meaning assigned to such term in Section 4.1.
"Tax" or "Taxes" shall mean all federal, state, local or foreign taxes,
assessments, duties, levies or similar charges of any kind, including, without
limitation, social security contributions and those on or measured by or
referred to as income, gross receipt, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, estimated, excise,
severance, stamp, occupation, premium, value added, property or windfall profits
taxes, customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any Governmental Authority, domestic or foreign,
whether disputed or not.
"Tax Return" shall mean any return, report, declaration, statement, claim for
refund or information return or statement required to be filed with any
Governmental Authority with respect to Taxes, or any amendment thereto,
including any schedule or attachment thereto.
"Transaction Documents" shall mean, collectively, the Investment Agreement, the
Supply Agreement and the Operating Agreement.
"VA-Group" shall mean one or more of the Affiliates of VOEST-ALPINE.
<PAGE> 49
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"VASK Financial Statements" shall have the meaning assigned to such term in
Section 9.1.2.i.
"VASK GmbH & Co KG" shall mean VOEST-ALPINE STAHLROHR KINDBERG GmbH & Co KG, an
Austrian limited partnership, with its principal place of business in Kindberg
and business address Alpine Strasse 17, 8652 Kindberg-Aumuhl, Austria,
registered in the commercial register of the Higher Court of Leoben under the
registration number 165400 k.
"VASK GmbH" shall mean VOEST-ALPINE STAHLROHR KINDBERG GmbH, an Austrian limited
liability company, with its principal place of business in Linz and business
address VOEST-Alpine-Strasse 1, 4020 Linz, Austria, registered in the commercial
register of the Higher Court of Linz under the registration number 106933 f.
"VA SCHIENE" shall mean VOEST-ALPINE SCHIENEN GmbH & Co KG, an Austrian limited
partnership, with its principal place of business in Leoben-Donawitz and
business address at Kerpelystrasse 199, registered in the commercial register of
the Higher Court of Leoben under the registration number 165399 i.
"VA SCHIENE's Bank Account" shall mean the bank account number in the name of
VA-SCHIENE notified from time to time in writing by VA SCHIENE.
"VOEST-ALPINE" shall mean VOEST-ALPINE STAHL AG, an Austrian stock corporation,
with its principal place of business in Linz and business address
VOEST-ALPINE-Strasse 1, 4020 Linz, Austria, registered in the commercial
register of the Higher Court of Linz under the registration number 662097.
"VOEST-ALPINE TUBULAR Corporation" shall mean a Texas limited liability company
bearing said name, with its principal place of business at 10260 Westheimer,
Suite 630 Houston, Texas 77042.
"Year 2000 Compliant" shall mean, with respect to any Person, that (1) the
products, services, or other item(s) at issue accurately process, provide and/or
receive all date/time data (including calculating, comparing, sequencing,
processing, and outputting) within, from, into, and between centuries (including
the twentieth and twenty-first centuries and the years 1999 and 2000), including
leap year calculations, and (2) neither the performance nor the functionality
nor provision by such Person of the products, services, and other item(s) at
issue will be affected by any dates/times prior to, on, after, or spanning
January 1, 2000. The design of the products, services, and other item(s) at
issue to ensure compliance with the foregoing warranties and representations
includes proper date/time data century recognition and recognition of 1999 and
2000, calculations
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that accommodate single century and multi-century formulae and date/time values
before, on, after, and spanning January 1, 2000, and date/time data interface
values that reflect the century, 1999, and 2000. In particular, but without
limitation, (i) no value for current date/time will cause any error,
interruption, or decreased performance in or for such product(s), service(s),
and other item(s), (ii) all manipulations of date and time related data
(including calculating, comparing, sequencing, processing, and outputting) will
produce correct results for all valid dates and times when used independently or
in combination with other products, services, and/or items, (iii) date/time
elements in interfaces and data storage will specify the century to eliminate
date ambiguity without human intervention, including leap year calculations,
(iv) where any date/time element is represented without a century, the correct
century will be unambiguous for all manipulations involving that element, (v)
authorization codes, passwords, and zaps (purge functions) will function
normally and in the same manner during, prior to, on, and after January 1, 2000,
including the manner in which they function with respect to expiration dates and
CPU serial numbers, and (vi) such Person's supply of the product(s), service(s),
and other item(s) will not be interrupted, delayed, decreased, or otherwise
affected by the advent of the year 2000.
<PAGE> 1
EXHIBIT 10.13
OPERATING AGREEMENT
by and among
Grant Prideco, Inc.
a Delaware Corporation
and
VOEST-ALPINE SCHIENEN GmbH & Co KG
an Austrian limited partnership
relating to
VOEST-ALPINE STAHLROHR KINDBERG GmbH
VOEST-ALPINE STAHLROHR KINDBERG GmbH & Co KG
dated as of July 23, 1999
<PAGE> 2
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OPERATING AGREEMENT
This Operating Agreement dated as of July 23, 1999, ("Operating Agreement"), by
and among (i) GRANT PRIDECO, Inc., a Delaware corporation with its principal
place of business in The Woodlands, Texas and business address at 1450 Lake
Robbins Drive, The Woodlands, Texas 77380, ("GRANT"), on the one hand and (ii)
VOEST-ALPINE SCHIENEN GmbH & Co KG, an Austrian limited partnership, with its
principal place of business in Leoben-Donawitz and business address at
Kerpelystrasse 199, 8704 Leoben-Donawitz, Austria, registered in the
commercial register of the Higher Court of Leoben under the registration number
165399 i ("VA SCHIENE"), on the other hand.
RECITALS
WHEREAS, VA SCHIENE is the sole limited partner of VOEST-ALPINE STAHLROHR
KINDBERG GmbH & Co KG, a limited partnership, duly organized, validly existing
and in good standing under the laws of Austria, with its principal place of
business in Kindberg and business address at Alpine Strasse 17, A-8652
Kindberg, Austria, registered in the commercial register of the Higher Court of
Leoben under the registration number 165400 k ("VASK GmbH & Co KG"), whose
registered liability amount is ATS 247,500,000 (in words: Austrian Shillings two
hundred forty-seven million five hundred thousand);
WHEREAS, VA SCHIENE is the sole shareholder of VOEST-ALPINE STAHLROHR KINDBERG
GmbH, an Austrian limited liability company, duly organized, validly existing
and in good standing under the laws of Austria, with its principal place of
business in Linz and business address at Voest-Alpine Strasse 1, 4020 Linz,
Austria, registered in the commercial register of the Higher Court of Linz under
the registration number 106933 f ("VASK GmbH"), having a nominal capital of ATS
500,000 (in words: Austrian Shillings five hundred thousand) which is fully
paid-up, being the general partner and therefore the management company of VASK
GmbH & Co KG;
WHEREAS, GRANT has concluded with VA SCHIENE an investment agreement, dated as
of April 29, 1999 ("Investment Agreement"), regarding the acquisition and
assignment of (i) 50.01 % of VA SCHIENE's limited partnership interest in VASK
GmbH & Co KG, corresponding to a limited partnership interest of ATS 123,774,750
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(in words: Austrian Shillings one hundred twenty-three million seven hundred
seventy-four thousand seven hundred fifty) and (ii) 50% of VA SCHIENE's
interest in VASK GmbH, corresponding to a fully paid-up nominal capital of ATS
250,000 (in words: Austrian Shillings two hundred fifty thousand);
WHEREAS, GRANT and VA SCHIENE have concluded a supply agreement, dated as of
July 23, 1999 ("Supply Agreement"), regarding the delivery of green pipes on a
long-term basis;
WHEREAS, GRANT and VA SCHIENE desire to establish a framework for a long-term
relationship in which a combined company could benefit both from GRANT'S
expertise in the areas of drill pipe, premium tubulars and premium connections
and VASK GmbH & Co. KG's and VASK GmbH's expertise and experience in the
manufacture of green pipes and the marketing of oil country tubular products in
the Eastern Hemisphere;
WHEREAS, GRANT and VA SCHIENE wish to conclude an agreement defining their
general rights and obligations in VASK GmbH & Co KG and VASK GmbH;
NOW THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
GRANT and VA SCHIENE (each a "Party" and together the "Parties) hereby agree as
follows:
1. DEFINITIONS
1.1 All capitalized or other defined terms used in this Operating
Agreement shall be as defined in the Investment Agreement unless the
context otherwise requires. For the purpose of this Operating
Agreement:
"Adjusted EBITDA" shall have the meaning assigned to the term in
Section 5.2.19 of this Operating Agreement;
"Adjusted Gross Margin" shall have the meaning assigned to the term
in Section 5.2.19 of this Operating Agreement;
"Auditors" shall have the meaning assigned to such term in Section
6.3 of this Operating Agreement;
<PAGE> 4
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"Available Cash" shall mean on any date of determination, the cash
and cash equivalents (i.e., investments with a maturity of one year
or less) of the Companies on hand on such date (other than capital
contributions of a partner or shareholder) less such amounts as VASK
GmbH or the management board thereof, as the case may be, shall, in
good faith, determine to be necessary to be set aside for (i) the
payment of liabilities and obligations of the Companies, contingent
or otherwise, (ii) working capital purposes and (iii) Capital Budget
Expenditures, as approved from time to time by the Parties;
"Capital Budget Expenditures" shall mean, for any period of
determination, the aggregate amount expended or to be expended by the
Companies (in any case as provided for in the Companies' annual
business plans) during such period for purchasing new or used
equipment for sale or lease during such period, including capitalized
repairs and modifications and facility repairs and modifications;
"Change of Control" shall mean the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer, in
one transaction or a series of related transactions of all or any
portion of shares of or interest in the Parties exceeding 25% to a
Competitor or Steel Competitor or any Affiliates thereof; or (ii) if
a Competitor or Steel Competitor or any Affiliates thereof shall
become the owner, directly or indirectly, beneficially or of record,
of any shares of or interest in the Parties representing more than
25% of the aggregate voting rights;
"Companies" shall mean, collectively, VASK GmbH and VASK GmbH & Co KG
or, individually, anyone thereof, as interpretation may require;
"Competitor" shall mean any Person that is directly or indirectly
engaged in the manufacture of seamless tubular goods;
"Defaulting Party" shall have the meaning assigned to such term in
Section 10.1 of this Operating Agreement;
"Directors" shall mean, collectively, the managing directors of VASK
GmbH and "Director" any one of them;
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"Entire Interest" shall have the meaning assigned to such term in
Section 9.1 of this Operating Agreement;
"Event of Default" shall have the meaning assigned to such term in
Section 10.1 of this Operating Agreement;
"Event of Withdrawal" shall have the meaning assigned to such term in
Section 10.2 of this Operating Agreement;
"Expert" shall have the meaning assigned to such term in Section
9.2.4 of this Operating Agreement;
"Gross Margin" shall mean net sales less all direct and variable
costs of production;
"IAS" shall mean International Accounting Standards according to the
International Accounting Standards Committee;
"Interest Purchase Price" shall have the meaning assigned to such
term in Section 9.2.4 of this Operating Agreement;
"Management Board" shall have the meaning assigned to such term in
Section 3.2 of this Operating Agreement;
"Market Value of the Companies" shall mean, with respect to 100% of
equity of the Companies, the price which could reasonably be expected
to be negotiated in an arm's length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither
of whom is under undue pressure or compulsion to complete the
transaction. The Market Value of the Companies shall be determined by
the Parties in good faith and in a reasonable manner. In the event
the Parties fail to reach an agreement on the Market Value of the
Companies, an Expert shall determine the Market Value of the
Companies as of the relevant time. In determining the Market Value of
the Companies, consideration shall be given to a range of analytical
methodologies, potentially including, but not limited to, the
following: net asset value, third party offers and expressions of
interests to purchase the
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Companies or the Sale Interest, comparable trading analysis,
comparable transaction analysis and discounted cash flow analysis. In
the determination of the Market Value of the Companies, the Companies
shall be valued as a going concern on a stand-alone basis without
regard to synergies that might be achieved by a particular purchaser
and without any liquidity discount. In determining the Market Value
of the Companies, no consideration should be given to the values that
are initially assigned to assets of the Companies for purchase
accounting or tax accounting purposes;
"Offer" shall have the meaning assigned to such term in Section 9.2.1
of this Operating Agreement;
"Sale Interest" shall have the meaning assigned to such term in
Section 9.2 of this Operating Agreement;
"Seller" shall have the meaning assigned to such term in Section 9.2
of this Operating Agreement;
"Supervisory Board" shall mean the supervisory board of VASK GmbH;
"Steel Competitor" shall mean any company producing steel billets or
steel, excluding, however, companies that are engaged in the
fabrication of steel products;
"Transfer" shall mean with respect to all or any part of any limited
partnership interest in VASK GmbH & Co KG or any shares in VASK GmbH,
the sale, transfer, assignment, pledge, hypothecation or other
disposition thereof; provided, however, for the purpose of clarity
that any change of control of either of the Parties or their ultimate
parent entities shall not be deemed to be a Transfer nor shall any
merger, consolidation, amalgamation, share exchange or similar
business combination unless after giving effect to such transaction
the Party is controlled by a Competitor; provided, further, however,
a distribution of the shares of GRANT by Weatherford International,
Inc. ("WFT") to WFT's stockholders shall not be deemed to be a
Transfer; and
"VASK-Group" shall have the meaning assigned to this term in Section
3.3 of this Operating Agreement.
<PAGE> 7
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1.2 Unless there is something inconsistent in the subject or the context,
words denoting the singular number only include the plural and vice
versa; wording denoting individuals include corporations and vice
versa.
1.3 Unless the context otherwise requires, a reference to a Section is to
a Section of this Operating Agreement.
1.4 The provisions of the Investment Agreement shall take precedence over
any conflicting provision of this Operating Agreement.
2. BUSINESS OF THE COMPANIES
2.1 VASK GmbH & Co KG's business shall continue to be:
(i) the manufacturing of tubes of all kind other than finished
drill pipe, in particular seamless steel tubes, and the
processing of tubes in Kindberg;
(ii) the research and development in the field of tube
technology and in the field of products referred to in
Section 2.1.(i);
(iii) the distribution of and the trade with the products
referred to in Section 2.1.(i) and carrying on of the
business of a commercial agent for the products referred to
in Section 2.1.(i); and
(iv) the carrying on of other commercial activities of all
kinds, in a subordinate extent with the entire business
activities of the limited partnership.
VASK GmbH & Co KG shall furthermore continue to be entitled to carry
on all activities and measures which are necessary or expedient to
achieve the above-listed activities and business of VASK GmbH & Co
KG.
2.2 VASK GmbH's business shall be:
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(i) the manufacturing of tubes of all kinds other than finished
drill pipe, in particular seamless steel tubes, and the
processing of tubes, in Kindberg;
(ii) research and development in the field of tube technology
and in the field of the products referred to in Section
2.2.(i);
(iii) the distribution of and the trade with the products
referred to in Section 2.2.(i) and carrying on of the
business of a commercial agent for the products referred to
in Section 2.2.(i);
(iv) the carrying on of other commercial activities of all
kinds, in a subordinate extent with the entire business
activities of the company;
(v) the participation in other companies, in particular the
participation as a general partner in VASK GmbH & Co KG;
and
(vi) the assumption of the function of a managing partner in
VASK GmbH & Co KG.
VASK GmbH shall furthermore continue to be entitled to carry on all
activities and measures which are necessary and expedient to achieve
the above-listed company activities and business.
2.3 The nature of the business and operations of the Companies shall not
be changed without the prior consent of both Parties.
3. MANAGEMENT BOARD
3.1 VASK GmbH is the sole general partner of VASK GmbH & Co KG. VASK GmbH
and its Directors are therefore also responsible for the management
and the representation of VASK GmbH & Co KG. The admittance of any
third Person as general partner of VASK GmbH & Co KG requires the
consent of both Parties.
3.2 VASK GmbH shall have two Directors (collectively also referred to as
the "Management Board"), who are from time to time to be proposed by
<PAGE> 9
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VA SCHIENE. GRANT undertakes to vote in VASK GmbH's shareholders'
meeting according to VA SCHIENE's proposal(s), except for good cause
as determined by both Parties regarding the ability of the nominated
Directors. Upon request of GRANT, the Directors shall also be removed
for good cause in accordance with applicable laws (including the
Austrian Limited Liability Company Act ("GmbHG")). It is explicitly
agreed among the Parties that a Director shall be removed if the
Director does not comply with the provisions of this Operating
Agreement. Notwithstanding the forgoing provisions, GRANT's right
pursuant to Section 16 paragraph 2 of the "GmbHG" remains unaffected.
3.3 The Directors shall conduct and manage the business and affairs of
the Companies and their subsidiaries (hereinafter also referred to as
"VASK-Group") in accordance with (i) applicable laws, (ii) VASK
GmbH's articles of association, (iii) VASK GmbH & Co KG's partnership
agreement, (iv) the by-laws, (v) the resolutions of the shareholders,
partners and Supervisory Board and (vi) the provisions set forth in
the employment contracts, if any.
3.4 VASK GmbH and VASK GmbH & Co KG shall be represented by two Directors
jointly and severally or by one Director together with an agent with
special authority ("Prokurist"). VASK GmbH and VASK GmbH & Co KG
shall also be represented by two agents with special authority, to
the extent permitted by law.
3.5 The Supervisory Board of VASK GmbH shall resolve by-laws for the
Directors in a form as attached hereto as Schedule 3.5 determining,
in particular, transactions requiring the prior consent of the
shareholders' meeting and/or the Supervisory Board.
3.6 Meetings of the Directors shall be held on a regular basis, but not
less frequently than every month. Resolutions shall be adopted by
unanimous vote. In case of a tie, the issue shall be brought before
the Supervisory Board which shall resolve the issue in a final
manner.
3.7 Each Party to this Operating Agreement agrees and undertakes with the
other to procure that:
<PAGE> 10
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3.7.1 VASK GmbH's Directors shall exercise VASK GmbH's voting right in VASK
GmbH & Co KG in accordance with shareholders' meetings instructions;
3.7.2 Within two months after the end of each business year the Companies'
annual financial statements for that year shall be prepared and
audited, if required by law, in accordance with IAS;
3.7.3 The Companies and the Directors shall keep the Parties informed of
the business of the VASK-Group and furnish them with such information
relating to the business, financial position and affairs of the
VASK-Group on a regular basis and as they may from time to time
reasonably require;
3.7.4 All confidential, non-public information provided by the VASK-Group
for the purpose of the foregoing provisions
(i) shall remain the absolute property of the VASK-Group;
(ii) may be used by the Parties and their Affiliates and
advisors for the sole purpose of monitoring and making
decisions relating to their investment in the Companies
provided that such Affiliates and advisors are subject to
the confidentiality obligations as provided in this Section
3.7.4;
(iii) shall be kept confidential; and
(iv) may not be disclosed by any Party except
(A) as may be required by law or regulation or by order of
a court of competent jurisdiction;
(B) financial information regarding the Companies may be
disclosed in the financial statements and public
reports of the Parties and their Affiliates;
(C) in connection with any legal proceedings arising out
of or relating to the Transaction Documents; and
<PAGE> 11
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(D) that each of the shareholders and partners may include
reasonable summaries of its investment in the Companies
and the financial position of the Companies in any
report and accounts or documents issued to Affiliates
of the shareholders and partners,
and each of the Parties shall procure that its directors,
officers and employees shall comply with all the provisions
of this sub-clause.
3.8 Each Party to this Operating Agreement agrees with the other to cause
the Directors to exercise their rights to ensure that the business of
the Companies is conducted in accordance with this Operating
Agreement, sound business practice and, as between the Parties to
this Operating Agreement, in good faith.
4. SUPERVISORY BOARD
4.1 The Supervisory Board shall consist of four members not including the
representatives delegated by the Companies' works council pursuant to
Sec. 110 ArbVG (the "Labour Relations Act"). The members are
appointed by the shareholder's meeting. Each Party shall each have
the right to delegate two members to the Supervisory Board. The right
to delegate includes the right to revoke and substitute the delegated
members to the Supervisory Board. The right to separate election
pursuant to Section 30b GmbHG is thereby exercised by the Parties.
Each Party undertakes to procure the appointment of the members to
the Supervisory Board delegated by the other Party. Any committee set
up by the Supervisory Board shall contain an equal number of members
delegated by each of the Parties.
4.2 The members of the Supervisory Board shall be delegated for a term
ending at the close of the shareholder's meeting that resolves on
their release from responsibility for the third business year after
their delegation, not taking into account the business year of the
delegation. Re-delegation is permissible only by the Party who
initially delegated such delegate.
4.3 For its term the Supervisory Board shall elect the Chairman and the
Deputy Chairman from among its Members. The Supervisory Board shall
elect as Chairman and Deputy Chairman the members delegated by VA
SCHIENE.
<PAGE> 12
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Unless otherwise provided in the by-laws, the articles of association
or under applicable law, resolutions shall be adopted by a simple
majority of the votes cast. The members of the Supervisory Board
delegated by GRANT and VA SCHIENE shall meet prior to the meeting of
the Supervisory Board in order to discuss each item of the agenda and
shall be bound for purposes of the Supervisory Board meeting by any
agreement reached in such pre-meeting. If those members cannot reach
an agreement in such prior meeting, they shall resolve each item of
the agenda by a simple majority of the votes cast. In case of a tie,
the vote of the Chairman (during his absence the vote of the Deputy
Chairman) shall prevail if the Companies will suffer material damage
in case no resolution would be passed. In the matters referred to in
Section 5.2, the Chairman or the Deputy Chairman shall have no tie
breaking vote. The required quorum for the pre-meeting is one member
delegated by each Party.
4.4 Members of the Supervisory Board may authorize a proxy in writing to
represent him/her at a particular meeting of the Supervisory Board or
one of its committees, who shall have the rights provided in the
GmbHG. The proxy may also be entrusted with the representation of
more than one member of the Supervisory Board and shall have the
right to present votes for each of the members of the Supervisory
Board.
4.5 The Parties shall have the right to delegate advisors from time to
time to any meeting of the Supervisory Board, provided that the other
Party is notified with sufficient time in advance of such delegation
along with a brief description of the qualifications of the advisor
delegated, in order to enable the other Party to determine in its
sole discretion whether to also delegate an advisor with similar
qualifications. The advisors shall have no voting right.
4.6 Each Party to this Operating Agreement agrees with the other to cause
the members of the Supervisory Board to exercise their rights to
ensure that the business of the Companies is conducted in accordance
with sound business practice and, as between the parties to this
Operating Agreement, in good faith.
4.7 The Parties undertake to cause that at any meeting of the Supervisory
Board or a committee at least one of its delegated members - or a
proxy - will be present. If a Party fails to comply with this
obligation, a second meeting shall be called
<PAGE> 13
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with the same agenda. Such meeting may adopt resolutions regardless
of the representation of either Party.
4.8 The Supervisory Board first appointed by the shareholders' meeting
shall adopt the Supervisory Board by-laws attached hereto as Schedule
4.8.
5. CONDUCT OF THE COMPANIES
5.1 The Parties shall at all times ensure, by the exercise of their
voting rights and powers of control in relation to the Companies,
full compliance with the provisions of this Operating Agreement so as
to give full effect to its terms.
5.2 The taking of any fundamental or material action will require the
approval of the Supervisory Board or, to the extent required by the
applicable law, the shareholders' meeting. Subject to Section 4.7
herein, both Parties must be represented at any meeting of the
shareholders or of the partners at which the following fundamental or
material actions are to be considered:
5.2.1 mergers, consolidations, amalgamations, changes to the organizational
or constituent documents of the VASK-Group;
5.2.2 sales of any capital assets having a book or market value in excess
of ATS 10 million;
5.2.3 the making of any material tax election;
5.2.4 the changing of any accounting policy or method;
5.2.5 the entering into of any contract with GRANT or VA-SCHIENE or any
Affiliate of GRANT or VA-SCHIENE (other than purchases of raw
materials in the ordinary course of business pursuant to pricing and
other arrangements previously authorized and except for those
contracts concluded in the normal course of business);
5.2.6 the incurrence of any indebtedness, other than in the normal course
of business;
<PAGE> 14
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5.2.7 the increase and/or reduction of the Companies' registered capital or
partnership contributions or the issuance of any additional equity or
rights to acquire equity in the Companies;
5.2.8 the creation of any subsidiaries or partnerships;
5.2.9 any fundamental change in the business of the Companies as described
in Sections 2.1 and 2.2 herein;
5.2.10 the purchase of any capital assets for an amount in excess of ATS 10
million that was not approved as part of the budget by both GRANT and
VA-SCHIENE;
5.2.11 any amendment to any contract or agreement with VA-SCHIENE or GRANT
other than amendments to contracts or agreements in the ordinary
course of business pursuant to pricing and other arrangements
previously authorized; provided, however, that the termination of the
Supply Agreement shall be a matter for the Management Board to decide
and shall not be subject to this section 5.2;
5.2.12 the approval of the Companies' annual financial statements and the
allocation and distribution of the Companies' profits, provided that
if the Parties fail to reach an agreement within the period of eight
(8) months after the end of the business year, the Companies' annual
financial statements and the allocation and distribution of the
Companies' profits shall be adopted as has been suggested by the
Management Board in accordance with the terms of this Agreement;
5.2.13 the calling of additional payments by GRANT and VA-SCHIENE;
5.2.14 the issuance of instructions for VASK GmbH's Management Board;
5.2.15 the determination of Available Cash;
5.2.16 an increase or decrease in the size of the Supervisory Board;
<PAGE> 15
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5.2.17 the declaration of dividends or other distributions to any of the
shareholders or partners other than is provided herein;
5.2.18 the issuance of any additional shares or other interests in either of
the Companies;
5.2.19 a decision to provide indemnification under Section 12 of the Supply
Agreement or a request for a stay or continuation of the Supply
Agreement under Section 12 of the Supply Agreement if, in each case,
(A) the earnings before interest, taxes, depreciation and
amortization of the business of VASK GmbH & Co. KG for the
immediately preceding three calendar months, excluding revenues and
income from sales under the Supply Agreement (the "Adjusted EBITDA")
is negative or (B) the average Gross Margin per metric ton of Green
Pipe to be sold under the Supply Agreement after giving effect to the
payment or potential payment by VASK GmbH & Co. KG of the U.S.
Antidumping or Countervailing Duties imposed on the Green Pipe or
preliminarily determined to be imposed on the Green Pipe ("Adjusted
Gross Margin") is less than ATS 300;
5.2.20 any amendment or modification to the articles of association or
partnership agreement, as the case may be, of the Companies;
5.2.21 the appointment or removal of the Special Sales Advisor as defined in
the Supply Agreement; or
5.2.22 the opening and closing of any representative or sales office.
5.3 Any action taken in violation of Section 5.2 shall be null and void
between the Parties, to the extent permitted by applicable law.
5.4 Each Party shall have 50% of the outstanding votes in VASK GmbH and
such portion of the outstanding votes in VASK GmbH & Co KG
corresponding to such Party's portion of the entire limited
partnership interest. Resolutions to be adopted:
<PAGE> 16
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(i) by VASK GmbH's shareholders' meeting require a simple
majority of the votes cast, unless otherwise stipulated by
law or by this Operating Agreement, the by-laws or the
articles of association; and
(ii) by VASK GmbH & Co KG's partners' meeting require an
unanimous vote.
5.5 If the Parties fail to reach an agreement with respect to fundamental
or material actions listed in Section 5.2 in the shareholders'
meeting or in the partners' meeting, the action in dispute will not
occur and the respective Company shall continue to operate in the
ordinary course.
5.6 If indemnification is provided by VASK GmbH & Co. KG pursuant to
Section 12 of the Supply Agreement, the decision to provide
indemnification in lieu of a stay or termination under the Supply
Agreement will be subject to review by the Parties every three
calendar months based on the actual Adjusted EBITDA and Adjusted
Gross Margin realized during the six month period then ended. If as a
result of such review, the Adjusted EBITDA for such period is
negative or if the Adjusted Gross Margin is less than ATS 300, GRANT
may request the Supervisory Board to cancel the indemnification and
to stay. In such case, VA SCHIENE shall cause its representatives to
vote in favor of such cancellation.
6. ACCOUNTING AND FISCAL AFFAIRS; INSPECTIONS
6.1 The Companies shall keep or cause to be kept full, complete, proper
and accurate records and books of account for the Companies. Such
records and books of account shall be:
(i) prepared and presented in accordance with IAS, consistently
applied;
(ii) maintained on the basis of accrual accounting;
(iii) adequate to provide each Party with all financial information
that may be needed by such Party or any of its Affiliates for
purposes of satisfying the financial or tax reporting
obligations of such Party or Affiliate;
<PAGE> 17
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(iv) kept at the principal office of the Companies; and
(v) open for the inspection, examination and copying by any Party
or that Party's authorized representative as often as may
reasonably be desired.
6.2 The Companies shall establish IAS accounting policies and a system of
internal controls and procedures designed to ensure that the
Companies and any of its subsidiaries keep and maintain records and
books that, in sufficient and reasonable detail, accurately and
fairly reflect all transactions of the VASK-Group.
6.3 The Companies shall continue to engage as independent auditors
("Auditors") for the Companies, if an audit is mandatorily required
by law, the firm of Grant-Thornton-Jonasch & Platzer or such other
firm of internationally recognized, independent certified public
accountants as the Parties shall mutually agree. The Auditors shall
at the end of each fiscal year
(i) audit the records and accounts of the Companies, if required
by law, and
(ii) render their opinion on the statements of financial condition
of the Companies as of the end of each fiscal year and related
statements of income and changes in financial condition for
each fiscal year.
6.4 The Companies shall furnish to each of the Parties annually, within
sixty (60) days following the end of each business year, a complete
copy of the Companies' annual financial statements audited by the
Auditors in accordance with IAS, containing statements of profit and
loss and the balance sheet for the Companies. Such statements shall
set forth the financial condition and income and expenses for the
Companies for the immediately preceding fiscal year, including
without limitation, statements of annual net operating income. In
addition, the Companies shall furnish to each of the Parties, on or
before twenty (20) days after the end of each fiscal quarter, a
quarterly report in a form reasonably acceptable to the Parties,
certified by the Companies, containing the Companies' quarterly and
year-to-date unaudited financials, prepared in accordance with IAS.
The Companies shall furnish to the Parties on a monthly basis
financial information with respect to the Companies.
<PAGE> 18
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6.5 The Companies shall furnish to each of the Parties, promptly but
within fourteen (14) days after request (or if more than fourteen
(14) days is reasonably necessary, as soon thereafter as may be
reasonably possible), such further detailed information with respect
to the Companies' financial condition, results of operations and
affairs as may be reasonably requested by any Party and that is
directly related to the properties, business or operations of the
Companies.
6.6 The Companies shall cause all tax returns and reports required to be
filed by the Companies to be prepared and timely filed with the
appropriate authorities and shall furnish to the Parties copies of
such tax returns and reports promptly after the filing of the same
upon request. The Companies shall retain all such tax returns and
reports.
6.7 In addition to the financial statements of the Companies, all other
statements and financial information provided under this Operating
Agreement shall be prepared in accordance with IAS.
6.8 Each Party shall have the right to conduct financial and operational
audits of the VASK-Group, at its own expense, and the VASK-Group, the
respective management board and the Auditors shall cooperate fully
with the auditors and representatives of the Parties in connection
therewith, including without limitation responding to any comments
and suggestions made thereby. Copies of all internal audits conducted
by a Party pursuant to this Section 6.8, and all responses of
VASK-Group and the respective management board thereto, shall be
furnished to the Parties. If in the course of any audit (or other
review) of the VASK-Group, problems are noted and the response or
action of VASK-Group made with regard thereto is deemed by a Party
not to be adequate, the Parties shall attempt to agree upon a
satisfactory resolution. If the Parties cannot agree, the dispute
shall be submitted to the Auditors, who shall attempt to propose a
satisfactory resolution.
<PAGE> 19
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7. CERTAIN RESTRICTIONS
7.1 The Parties agree and acknowledge that it is their intention to
maintain their interest in the Companies on a long term basis and
this Operating Agreement defines the general terms and obligations of
the Parties in the Companies for such long term basis. Other than
provided in Section 12 of this Operating Agreement, any termination
of this Operating Agreement shall be excluded to the extent permitted
by the applicable law. The Parties further agree not to effect a
Transfer of their interest in the Companies for a period of eight (8)
years except as provided in Sections 10 and 15 and any Transfer of a
Party's interest in the Companies before such time shall entitle the
other Party, in addition to its right of first refusal pursuant to
Section 9 of this Operating Agreement, to all damages suffered by
such Party and its Affiliates as a result of such Transfer.
7.2 No Party shall have the right to dissolve, terminate or liquidate, or
to petition a court for the dissolution, termination or liquidation
of, the Companies. No Party at any time shall have the right to
petition or to take any action to subject the Companies' assets or
any part thereof to the authority of any court or other governmental
body in connection with any bankruptcy, insolvency, receivership or
similar proceeding unless otherwise required by law.
8. DISTRIBUTION OF PROFITS
8.1 The balance-sheet profit of the Companies remaining after write-offs,
depreciation, value adjustments, formation of reserves and
provisions, including the endowment of the statutory reserve, shall
be entirely distributed to the shareholders and partners of the
Companies, as the case may be, unless otherwise provided by the
shareholders' meeting or partners' meeting. The shares in profit due
to the shareholders and partners, as the case may be, as dividends or
distributions shall be divided among them in proportion to their
contributions. It is, however, agreed among the Parties that
dividends and distributions shall be paid by the Companies only to
the extent Available Cash is available. No dividends or distributions
shall be made if the Companies are then insolvent or would thereby be
made insolvent or rendered unable to carry on their business
purposes, or if the fair value of the Companies' assets after such
distribution would be insufficient to meet its liabilities.
<PAGE> 20
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8.2 Any dividends or distributions shall be due within 14 days after the
annual financial statements of the respective business year have been
approved. No Party shall be entitled to receive any other dividends
or distributions during the business year unless otherwise agreed by
both Parties.
8.3 Any annual dividends and distributions attributable to GRANT's
interests in VASK GmbH & Co KG and VASK GmbH within the first five
business years, commencing with the business year 1999/2000, up to or
equal to Installment III due pursuant to the Investment Agreement
shall be transferred together with the dividends and distributions
attributable to VA SCHIENE to a bank account nominated by VA SCHIENE.
Any portion of the dividends or distributions attributable to GRANT
exceeding Installment III shall be transferred to a bank account
nominated by GRANT. Dividends and distributions shall be payable
within 14 (fourteen) days after the respective annual financial
statements have been approved.
9. RIGHT OF FIRST REFUSAL
9.1 GRANT and VA-SCHIENE agree that they will not at any time effect a
Transfer of the ownership of their shares in VASK GmbH and/or their
limited partnership interest in VASK GmbH & Co KG ("Entire
Interest"), otherwise than in accordance with the following
provisions of this section.
9.2 If, at any time after the 8 years term or such date when the Purchase
Price is paid in full, whichever is later, either Party ("Seller")
wishes to Transfer to a third Person its Entire Interest ("Sale
Interest"), such Transfer shall be made pursuant to following
procedures:
9.2.1 Seller shall first make an offer ("Offer") in writing to sell and
transfer the Sale Interest to the other Party, provided that such an
offer shall not be validly made unless it shall specify the name of
the third Person to whom Seller wishes to sell the Sale Interest, the
price in cash bona fide offered to be paid by the third Person for
the Sale Interest and all other terms and conditions Seller as agreed
on with the third Person. The Offer shall contain a copy of the
binding written offer from the third Person wishing to acquire the
Sale Interest, including a
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commitment that the third Person shall agree to be bound by the terms
of this Operating Agreement.
9.2.2 The Offer shall remain open for a period of 30 (thirty) days from the
date when it is served on the other Party and the other Party shall
be entitled to state its willingness to purchase all but not part of
the Sale Interest.
9.2.3 If the other Party has accepted in writing within the period pursuant
to Section 9.2.2 the Offer, Seller shall sell and transfer and the
other Party shall purchase the Sale Interest free from all Liens for
the Interest Purchase Price and on substantially the same terms and
conditions as offered by the third Person, with the exceptions of
price, parties, notices and other matters relating specifically to
the fact that the purchaser is different than the purchaser in the
Offer. Adequate security shall be agreed upon to guarantee the
payment of the Interest Purchase Price. The Parties agree to draw up
an assignment agreement for the transfer of Seller's interest in VASK
GmbH & Co KG and a notarial transfer deed for the transfer of
Seller's interest in VASK GmbH and any additional required documents
within one month from the day of receipt of the written acceptance of
the Offer on substantially the terms set forth in the Offer with the
exceptions of price, parties, notices and other matters relating
specifically to the fact that the purchaser is different than the
purchaser in the Offer. Any costs related to the consummation of this
sale shall be borne by the purchasing Party, except as may be
required by the terms of the Offer. Parties shall work together to
timely obtain all approvals, if any, required for the transfer of the
Sale Interest. The Parties shall execute the agreement(s) related to
the transfer of the Sale Interest outside of Austria.
9.2.4 The purchase price for the Sale Interest ("Interest Purchase Price")
shall be the Market Value of the Companies allocated to the Sale
Interest (based upon the percentage ownership of the Companies which
the Sale Interest represents). The Parties shall first attempt to
agree upon the Market Value of the Companies for a period of 30 days
following the date on which the Offer was communicated to the other
Party. After the expiration of such 30-day period the Market Value of
the Companies shall be determined by an internationally recognized
investment banking firm ("Expert"). The other Party shall notify
Seller forthwith after the expiration of the 30-day period of the
name of the Expert nominated by the other Party for determining the
Market Value of the
<PAGE> 22
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Companies. Seller may notify the other Party within seven (7)
business days after receipt of the name of the Expert that Seller
objects to the Expert, stating reasons for such objection. If no such
objections are timely notified, the Expert nominated by the other
Party shall be deemed to be mutually agreed upon by the Parties. If
the other Party shall have failed to nominate an Expert the Seller is
entitled to do so within 14 days. Seller shall notify the other Party
forthwith after the expiration of the 14 day period of the name of
the Expert nominated by the Seller for determining the Market Value
of the Companies. The other Party may notify Seller within seven (7)
days after receipt of the name of the Expert that the other Party
objects to the Expert, stating the reasons for the objection. In the
case of timely objections or if neither Party shall have nominated an
Expert the Parties shall undertake their best efforts to agree on an
Expert within further 14 days after (i) the other Party has been
notified of Seller's objections or (ii) in the event the other Party
failed to nominate an Expert and the Seller has made such nomination,
the Seller has been notified of the other Party's objections, as the
case may be. In the case that the Parties do not reach an agreement
on the Expert within such period, each of the Parties may request the
President of the Chamber of Public Certified Accountants in Vienna to
nominate an Expert within 2 weeks. The Expert shall determine the
Market Value of the Companies in a final and binding manner within
four (4) weeks and shall:
(i) prepare a report which
(A) sets forth such Expert's determination of the Market
Value of the Companies (which shall be a single
amount as opposed to a range); and
(B) includes work papers which indicate the basis for
and calculation of the Market Value of the
Companies; and
(ii) deliver to GRANT and VA SCHIENE a written opinion as to the
Market Value of the Companies.
The Parties shall give the Expert full access to all documents,
records and books for that purpose. The costs of the Expert shall be
borne equally by the Seller (half) and the other Party (half).
<PAGE> 23
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9.2.6 Each Party may appoint a designee which shall be an Affiliate of the
Party to exercise its right pursuant to Section 9.2 provided that the
respective Party and its designee shall be jointly and severally
liable for the performance of obligations resulting therefrom.
9.2.7 If the other Party shall have failed to accept the Offer made to it
within the period stated in Section 9.2.2, Seller is entitled to sell
the Sale Interest to the third Person stated in the Offer, provided
that such third Person shall agree to be bound by the terms of this
Operating Agreement, at a price not less than the price stated in the
Offer and on the terms and conditions substantially similar to those
stated in the Offer within 180 days after the Offer was not accepted
by the other Party or the expiration of the period pursuant to
Section 9.2.2 whichever is earlier. After the expiration of this
180-day period, the Sale Interest shall be reoffered to the other
Party pursuant to this Section 9.2.
9.3 The restrictions set forth in Section 9.2 shall not apply to any
Transfer of any part of the Entire Interest by any Party among its
Affiliates, provided that the provisions of the Operating Agreement
will continue to be applicable to the respective Affiliate after the
transfer and the transferring Party agrees to be jointly and
severally liable for all obligations provided for herein and the
respective Affiliate shall agree in writing to be bound by the
provisions of this Operating Agreement.
10. MANDATORY SELL OBLIGATION
10.1 The occurrence of any of the following events shall constitute an
"Event of Default" hereunder on the part of the Party with respect to
whom such event occurs (the "Defaulting Party"), if such default
continues without being cured for ninety (90) days after written
notice thereof by the Party not in default:
(i) a breach of GRANT's payment obligations pursuant to the
Investment Agreement;
(ii) a material breach of VA SCHIENE's indemnity obligations
pursuant to the Investment Agreement;
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(iii) a material default in the performance of or failure to comply
with any other material obligations or undertakings of a Party
contained in this Operating Agreement or the Investment
Agreement;
10.2 The occurrence of any of the following events shall constitute an
"Event of Withdrawal" hereunder on the part of the Party with respect
to whom such event occurs (also the "Defaulting Party") immediately
upon such occurrence without any requirement of notice from the other
Party or passage of time except as specifically set forth below:
(i) A Change of Control;
(ii) institution by a Party of proceedings of any nature under any
laws of Austria, the United States or of any state, whether
now existing or subsequently enacted or amended, for the
relief of debtors wherein such Party is seeking relief as
debtor;
(iii) a general assignment by a Party for the benefit of its
creditors;
(iv) the institution by a Party of a case or other proceeding under
the Austrian or United States Bankruptcy Law, as now existing
or hereafter amended or becoming effective;
(v) the institution against a Party of a case or other proceeding
with respect to it under the Austrian or United States
Bankruptcy Law, as now existing or hereafter amended or
becoming effective, which proceeding is not dismissed, stayed
or discharged within a period of 60 days after the filing
thereof or if stayed, which stay is thereafter lifted without
a contemporaneous discharge or dismissal of such proceeding;
(vi) the appointment of a receiver, custodian, trustee or like
officer, to take possession of assets having a value in excess
of US$ 25,000,000 of a Party if the pendency of said
receivership would reasonably tend to have a Material Adverse
Effect upon the performance by said Party of its obligations
under the Transactions Documents, which receivership
<PAGE> 25
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remains undischarged or unstayed for a period of 60 days from
the date of its imposition;
(vii) admission by a Party in writing of its inability to pay its
debts as they mature;
(viii) attachment, execution or other judicial seizure of all or any
substantial part of a Party's assets or of a Party's Entire
Interest, or any part thereof, such attachment, execution or
seizure being with respect to an amount not less than US
$25,000,000 and remaining undismissed, unstayed or
undischarged for a period of 60 days after the levy thereof,
if the occurrence of such attachment, execution or other
judicial seizure would reasonably tend to have a Material
Adverse Effect upon the performance by said Party of its
obligations under the Transaction Documents; provided,
however, that said attachment, execution or seizure shall not
constitute an Event of Withdrawal hereunder if said Party
posts a bond sufficient to fully satisfy the amount of such
claim or judgment within 15 days after the levy thereof and
the Party's assets are thereby released from the lien of such
attachment; or
(ix) the resignation or withdrawal of the Party from Vask GmbH & Co
KG.
10.3 Upon the occurrence of an Event of Default or an Event of Withdrawal
by any Party, the other Party may purchase the Defaulting Party's
Entire Interest at an Interest Purchase Price as defined pursuant to
Section 9.2.4; provided, however, that if the Event of Default is a
result of the breach of GRANT's payment obligations pursuant to the
Investment Agreement, the Interest Purchase Price payable by VA
SCHIENE shall not exceed ATS 400 million (provided that VA SCHIENE
may off-set any unpaid Purchase Price amounts owed by GRANT against
the Interest Purchase Price).
10.4 (a) VA SCHIENE shall be entitled to purchase GRANT's Entire Interest
from GRANT for an Interest Purchase Price determined pursuant to
Section 9.2.4 if the Supply Agreement is terminated by VASK GmbH
& Co. KG under Section 3.2 of the Supply Agreement due to a
material default by GRANT as defined in Section 3.3 of the Supply
Agreement;
<PAGE> 26
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(b) GRANT shall be entitled, at GRANT's election, to either purchase
VA SCHIENE's Entire Interest or sell to VA SCHIENE GRANT's Entire
Interest at the Interest Purchase Price determined pursuant to
Section 9.2.4 if the Supply Agreement is terminated by GRANT
under Section 3.2 of the Supply Agreement due to a continued
intentional failure by VASK GmbH & Co. KG to materially meet the
quality and specifications requirements or the delivery
requirements under the Supply Agreement.
11. CONFIDENTIALITY
Each Party to this Operating Agreement undertakes to keep
confidential and secret all confidential business and trade secrets
and/or information of which it may learn or become informed, provided
however, such obligation shall not apply to any information that (i)
is or becomes part of the public domain, (ii) is already in the
possession of the Parties or (iii) is lawfully disclosed to either of
the Parties by a third Person. This obligation shall survive the
effective termination of the Operating Agreement for a period of five
(5) years.
12. TERM OF AGREEMENT
This Operating Agreement is concluded for an indefinite term. It
shall be deemed to be terminated if and when a Party validly acquires
the Entire Interest of the other Party pursuant to Section 9 or 10.
13. NOTICES
13.1 Any notice, request or other communication to be given or made under
this Operating Agreement shall be in writing. Such notice, request or
other communication shall be deemed to have been duly given or made
when it shall be delivered by hand, air-mail, telex or telefax to the
Party to which it is required or permitted to be given or made at
such Party's address specified below or at such other address as such
Party shall have designated by notice to the party giving or making
such notice, request or other communication.
<PAGE> 27
-27-
For GRANT:
GRANT Prideco, Inc.
1450 Lake Robbins Drive
The Woodlands, Texas 77380
USA
attn: John Coble and Curtis Huff
Telephone: (281) 297-8500
Telecopy: (281) 297-8569 and
(281) 297-8488
With a copy to
BRUCKHAUS WESTRICK HELLER LOBER
Seilergasse 16
1010 VIENNA
AUSTRIA
att.: Jenny W.T. Power
Telephone (++431) 515 15-210 or 310
Telecopy (++431) 512 6394
If to VA SCHIENE to
VA Schiene GmbH
KerpelyStrasse 201
8700 Leoben
AUSTRIA
att.:Willibald Mautner
Telephone: (++43) 3842/202 4453
Telecopy: (++43) 3842/202 2444
With a copy to
VOEST-ALPINE STAHL AG
Voest-Alpine-Strasse 1
4020 Linz
<PAGE> 28
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AUSTRIA
att: Hubert Possegger
Telephone: (++43/70/6585-9516)
Telecopy: (++43/70/6980-5581)
14. RIGHTS, REMEDIES AND WAIVERS
14.1 No course of dealing and no delay in exercising, or omission to
exercise, any right, power or remedy accruing to any Party upon any
default under the Transaction Documents shall impair any such right,
power or remedy or be construed to be a waiver thereof or an
acquiescence therein; nor shall the action of any Party therein
affect or impair any right, power or remedy of the other Party in
respect of any other default.
14.2 No single or partial exercise of any right, power or remedy occurring
to any Party upon in default under the Transaction Documents shall
preclude any other or further exercise thereof or the exercise of any
other legal right.
14.3 No waiver of any right, power or remedy accruing to any Party upon
any default under the Transaction Documents shall be effective unless
given in writing by that party.
14.4 The rights or remedies provided for herein are cumulative and are not
exclusive of any other rights, powers or remedies provided by law.
14.5 The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion of any other
appropriate right or remedy.
15. SUCCESSOR AND ASSIGNMENT
Unless expressly provided in this Operating Agreement, no Party shall
transfer or assign its rights and obligations hereunder. The Parties
may transfer or assign all of the limited partnership interest in
VASK GmbH & Co KG and all of the shares of VASK GmbH to any Affiliate
provided that such Party informs
<PAGE> 29
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the other Party of the intended transfer reasonably in advance and
agrees to remain jointly and severally liable with the acquiring
Affiliate for all its obligations under this Operating Agreement. If
the transfer is made to more than one Affiliate, the Parties shall
amend this Operating Agreement to appropriately reflect the division
of that Party's interest.
16. GOVERNING LAW
This agreement shall be governed by and construed in accordance with
the substantive laws of Austria without regard to the conflict of law
rules thereof.
17. DISPUTE RESOLUTION
All disputes arising out of this Investment Agreement or related to
its violation, termination or nullity shall be finally settled under
the Rules of Arbitration and Conciliation of the International
Arbitral Centre of the Austrian Federal Economic Chamber in Vienna
(Vienna Rules) by one or more arbitrators appointed in accordance
with these rules. The number of arbitrators shall be three; the
substantive law of Austria shall be applicable; the language to be
used in the arbitral proceedings shall be English. The place of
arbitration shall be Vienna, Austria.
18. AMENDMENTS AND WAIVERS
18.1 The provisions of this Operating Agreement shall override any
provisions to the contrary in the articles of association of VASK
GmbH and the partnership agreement of VASK GmbH & Co KG from time to
time in force and in the event of any such conflict the Parties
shall, unless otherwise agreed, procure the amendment of the articles
of association or the partnership agreement to conform with this
Operating Agreement accordingly.
18.2 This Operating Agreement may only be amended or varied in writing
signed by or on behalf of each of the Parties.
<PAGE> 30
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19. HEADINGS
The headings in this Operating Agreement are inserted for convenience
only and do not affect its interpretation.
20. COUNTERPART
This Operating Agreement shall be executed in three originals with
each Party, and VASK GmbH receiving one.
Vienna, July 23, 1999
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
------------------- ----------------------------------
GRANT PRIDECO, Inc. VOEST-ALPINE SCHIENEN GmbH & Co KG
<PAGE> 31
-31-
VOEST-ALPINE STAHLROHR KINDBERG GmbH acknowledges the content of this Operating
Agreement and agrees to comply with the provisions contained therein relating to
itself.
Vienna, July 23, 1999
/s/ [ILLEGIBLE]
- ------------------------------------
VOEST-ALPINE STAHLROHR KINDBERG GmbH
<PAGE> 1
EXHIBIT 10.14
SUPPLY AGREEMENT
concluded on the date set forth below
by and between
VOEST-ALPINE STAHLROHR KINDBERG GMBH & CO KG
AN AUSTRIAN LIMITED PARTNERSHIP
AND
GRANT PRIDECO, INC.
A DELAWARE CORPORATION
DATED AS OF JULY 23, 1999
*** Denotes information that has been intentionally excluded pursuant to a
confidential information treatment request pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
<PAGE> 2
2
PREAMBLE
WHEREAS, VOEST-ALPINE STAHLROHR KINDBERG GmbH & Co KG is a limited partnership
duly organized, validly existing and in good standing under the laws of Austria,
with its principal place of business in Kindberg and business address at Alpine
Stra(beta)e 17, A-8652 Kindberg, Austria, registered in the commercial register
of the Higher Court of Leoben under the registration number 165400 k
(hereinafter referred to as "Seller"), which has been involved for many years in
the manufacture of casings and tubings; and
WHEREAS, Grant Prideco, Inc. is a company duly organized, validly existing and
in good standing under the laws of Delaware, with its principal place of
business in The Woodlands, Texas and business address at The Woodlands, Texas
77380 (hereinafter referred to as "Purchaser"), which has been involved in the
field of manufacturing of drill pipe and the processing of casings and tubings;
and
WHEREAS, Purchaser wishes to purchase and Seller wishes to supply certain pipes
as defined below;
WHEREAS, Purchaser is an affiliate of Seller and Purchaser and Seller desire, to
avoid repetitive negotiations, and to set forth the terms under which affiliated
purchases will be made, Purchaser and Seller (hereinafter also referred to as
the "Parties" and each a "Party") wish to enter into this exclusive supply
agreement (hereinafter referred to as "Supply Agreement") on a long-term basis
establishing the terms and conditions of the purchase which will be applicable
to these transactions.
NOW THEREFORE, it is agreed as follows:
1. SALE AND PURCHASE
1.1 Seller herewith grants to Purchaser the right to purchase on a worldwide
exclusive basis green pipes (hereinafter referred to as "Green Pipes")
intended for the further processing into drill pipe and other Oil Country
Tubular Goods (hereinafter referred to as "OCTG"). The sale of Green
Pipes by or on behalf of Seller to other persons requires the prior
written consent of Purchaser. If Seller sells Green Pipes to third
persons without the prior written consent of Purchaser, any such sale
shall be credited against Purchaser's Annual Minimum Purchase Obligation
pursuant to Section 2.1.
For the purposes of this Supply Agreement, Green Pipes shall mean pipes
used to manufacture drill pipe, tubing and casing, provided that plain
end casing and tubing already produced to grade
<PAGE> 3
3
and requiring only end finishing to be converted to finished OCTG are
expressly excluded from the term "Green Pipes" used in this Supply
Agreement.
1.2 Seller grants to Purchaser the right, but Purchaser shall not be obliged,
to purchase API couplings on an exclusive basis in North, Central and
South America (Green Pipes and API couplings are hereinafter collectively
referred to as the "Material").
1.3 Seller and Purchaser agree that Purchaser shall have the sole right to
sell drill pipe and drill pipe hollows in the world. The Seller shall
not, directly or indirectly, sell any drill pipe or drill pipe hollows
without the written consent of the Purchaser.
2. ANNUAL MINIMUM PURCHASE OBLIGATION
2.1 Subject to the provisions of Section 13, Purchaser shall place orders for
purchase and Seller shall sell and deliver Green Pipes in a minimum
quantity of (i) 45,000 metric tons for the 12-month period beginning on
the 60th day after the date of signing of this Supply Agreement, which is
September 21, 1999 and (ii) 60,000 metric tons for each year thereafter
("Annual Minimum Purchase Obligation"). Of the 45,000 metric tons to be
ordered pursuant to clause (i) above, at least 12,500 metric tons must be
ordered prior to December 31, 1999, of which at least 3,500 metric tons
will be for casing according to TCA specification GT-01 rev. C of Type 7
or Type 2 in the size range of 127,0 - 177,8 mm OD.
2.2 Subject to the provisions of Section 2.1 and Section 13, Purchaser shall
place orders in monthly lots of not less than 3,750 metric tons and not
more than 5,625 metric tons, with a minimum of 100 metric tons per
dimension upon individual purchase orders placed by Purchaser. The
Parties may agree from time to time that Purchaser's monthly purchase may
be less than 3,750 metric tons or in excess of 5,625 metric tons,
provided, however, that without the consent of Seller, each order shall
not deviate from the previous order by more than 2,000 metric tons.
Purchaser's failure to place orders of Green Pipe in an amount equal to
the Annual Minimum Purchase Obligation shall not constitute a default
under this Supply Agreement and Seller's only remedy for that failure
will be the right to receive the penalties provided for under Section 13
and no more.
<PAGE> 4
4
2.3 Purchaser shall be entitled to order in excess of its Annual Minimum
Purchase Obligation up to 80,000 metric tons per year. Orders exceeding
80,000 metric tons require the prior consent of Seller.
3. TERM AND TERMINATION
3.1 This Supply Agreement shall commence on the first day of the calendar
month following the signing of this Supply Agreement, and shall be
concluded for an original term of 4 years. This Supply Agreement shall
automatically be renewed for successive one year periods, unless
terminated at the end of the original term or any renewal period in
writing, subject to a six month termination period. Nine months prior to
the expiration of the original 4 year term the Parties shall meet to
negotiate terms and conditions for a renewal of the Supply Agreement.
3.2 If either Party is in material default of any of its obligations under
this Supply Agreement and such default continues unremedied for 90 days
after written notice thereof by the Party not in default, such
non-defaulting Party may cancel this Supply Agreement and/or any orders
which may be affected by such default and shall have the right, in its
sole discretion, to exercise all rights and remedies available to it
under this Supply Agreement, including but not limited to Section 13, or
to exercise such rights and remedies as provided for in other agreements
concluded between the Parties or their affiliates, including but not
limited to the Operating Agreement dated July 23, 1999 concluded between
VOEST-ALPINE SCHIENEN GmbH & Co KG and GRANT PRIDECO, Inc.
3.3 An uncured failure to pay any amounts due to Seller under this Supply
Agreement which is not contested within 90 days of submission of the
invoice therefor as provided in Section 4.3 hereof shall be considered a
material default by Purchaser in the meaning of Section 3.2.
3.4 Continued failure by Seller to materially meet the quality and
specification requirements or the delivery requirements under this Supply
Agreement or breach by Seller of the exclusivity provisions of Section
1.1 and Section 1.3 hereof shall be considered a material default by
Seller in the meaning of Section 3.2.
3.5 Furthermore, Seller may by written notice to Purchaser forthwith
terminate this Supply Agreement
(a) if bankruptcy proceedings are opened against Purchaser, or Purchaser
is insolvent; or
<PAGE> 5
5
(b) if Purchaser or an affiliated entity no longer holds any limited
partnership interest in Seller.
3.6 Furthermore, Purchaser may by written notice to Seller forthwith
terminate this Supply Agreement
(a) if bankruptcy proceedings are opened against Seller, or Seller is
insolvent; or
(b) if Purchaser or an affiliated entity no longer holds any limited
partnership interest in Seller.
3.7 (i) If an event of force majeure occurs, the affected Party shall
promptly give notice thereof to the other Party and use its best
efforts to cure or correct such event of force majeure. Seller may,
during a period of shortage or delay due to any such causes, prorate
its supply in such a manner as deemed equitable in the judgement of
Seller. The Annual Minimum Purchase Obligation and the term of this
Supply Agreement as provided in Section 3.1 herein shall be adjusted
accordingly based upon the duration of any force majeure event. If
the event of force majeure shall continue for a period of twelve
months, either Party shall have the right to forthwith terminate
this Supply Agreement.
(ii) For the purpose of the Supply Agreement "force majeure" shall mean
all circumstances which are beyond the control of a Party exercising
a normal standard of care and which prevents such Party from
complying with its contractual obligations hereunder. Subject to the
foregoing and without limiting the generality of the foregoing, the
following circumstances in particular shall be regarded as force
majeure: acts of God; hurricane, tornado; labor strike, lockout or
other industrial disturbance; war, riot, sabotage, act of public
enemy, terrorist act or gang violence; blockade; serious epidemic;
earthquake or other earth movement, flood or other natural disaster;
bomb blast or other explosion; fire; shortage of goods essential to
a Party's performance of this Agreement, or their delay by a
carrier; or, government action that prevents performance. It is
explicitly agreed among the parties that any changes in market
conditions or the institution of U.S. Antidumping and Countervailing
Duty proceedings shall (subject to the provisions of Section 12) not
be considered as force majeure events.
3.8 Any termination of this Supply Agreement will not affect any individual
purchase order which may have been issued by Purchaser prior to the date
of termination, unless stated otherwise herein. The provisions of
Sections 8, 9, 10, 11, 12, 13, 15, and 16.3 shall survive any termination
of this Supply Agreement. In case this Supply Agreement is terminated,
Purchaser shall pay within 60 (sixty) days after the date of termination
any still outstanding Purchase Price or penalty
<PAGE> 6
6
payments due to Seller. In the event this Supply Agreement is terminated
by Purchaser pursuant to this Section 3 as a result of a material default
by Seller, any penalty payments due to Seller pursuant to Section 13
accruing on or after the date of such material default shall not be paid
and shall be deemed to be forfeited by Seller.
4. PURCHASE PRICE/INVOICE
4.1 The base purchase price for the Green Pipes is ATS [***] ("Purchase
Price") and shall include European sales tax and all export taxes and
duties if applicable to Green Pipes. The Purchase Price is based on
Purchaser's specifications in Purchaser's specification No. 359 (1), rev.
O, dated May 7, 1998. To the extent there are deviations from this
specification, the Purchase Price shall be adjusted as set forth on Annex
A, to the extent provided in Annex A. Annex B sets forth length
requirements for Annex A. Deviations not contemplated by Annexes A and B
shall result in an adjustment to the Purchase Price that reflects the
differential in costs of manufacture of the product from Purchaser's
specification No. 359 (1). Purchaser shall consult with Seller on any
change in specifications and will not request specifications which Seller
cannot fulfill with commercially reasonable efforts. The Purchase Price
is calculated on the basis of C.I.F. Houston in accordance with Incoterms
1990. Upon Purchaser's request, the Green Pipes shall be delivered to a
destination port other than Houston. If any change in delivery terms
pursuant to Purchaser's request results in a higher or lower cost to
Seller, the Purchase Price shall be increased or decreased accordingly.
4.2 During the term of this Supply Agreement (including the renewal periods),
the Purchase Price shall be subject to adjustment on a semi-annual basis
(starting on the first day of the sixth calendar month following the
signing of this Supply Agreement). The adjustment shall be computed on
the basis of the average of seamless alloy casing and tubing prices as
reported by the Preston Pipe Report or any report replacing it at the
time of order placement and shall be effected for all purchase orders
given on or after the first day of the calendar month following the
issuance of such Preston Pipe Report. The basis of assessment shall be
the average of seamless alloy casing and tubing prices as reported in the
Preston Pipe Report published in January 1999 and reflecting actual
October 1998 prices. This report shall be regarded as the 100 Index. The
index figure, however, is limited to upward fluctuations of not more than
5 %, based on the 100 Index during the term of this Supply Agreement.
Downwards fluctuations may be made, but not below the 100 Index.
4.3 Invoices will be submitted by Seller to Purchaser. Invoices will
reference Purchaser's purchase order number and will contain such other
information as Purchaser may reasonably request.
<PAGE> 7
7
Purchaser shall effect payment within sixty (60) calendar days after the
vessel arrival in the port of destination or net 105 days from ocean bill
of lading date, whichever comes first. Purchaser shall pay interest on
overdue invoice payments that are not contested as provided in Section
3.3 from the due date up to the actual date of payment at the rate
determined to be three percent (3 %) per annum above the six months
EURIBOR.
4.4 The Parties may agree from time to time to set off any amount owed by
Seller to Purchaser pursuant to this Supply Agreement against any amount
owed by Purchaser to Seller pursuant to this Supply Agreement.
4.5 In the event the Green Pipe being purchased by Purchaser does not meet
the specifications and is rejected, Purchaser may elect to credit amounts
paid for that Green Pipe against other purchases or to set off against
penalties due by Purchaser pursuant to Section 13 if Seller agrees to the
rejection or if it is determined that the Green Pipe does not meet the
required specifications.
5. PURCHASE ORDERS
5.1 This Supply Agreement does not constitute a purchase order. Purchases
under this Supply Agreement shall be made with purchase orders in a form
mutually agreed upon, placed by Purchaser. The first purchase order shall
be placed within 60 days after the date of signing of this Supply
Agreement, i.e. by September 21, 1999.
5.2 Any individual purchase order shall be acknowledged by Seller. Each order
acknowledgment shall contain either Seller's confirmation of the delivery
date as requested by Purchaser or Seller's own estimated delivery date,
which shall be no later than 10 days after Purchaser's requested delivery
date. Unless otherwise agreed to by Purchaser and Seller there shall be
at least two (2) months between receipt of the purchase order and the
delivery date. For the purposes of this Supply Agreement, the date on
which material is delivered shall be the ocean bill of lading date.
5.3 If Seller is unable to furnish the total quantity as ordered by
Purchaser, Seller shall without undue delay advise Purchaser. In such an
event, Purchaser shall have the option to cancel, at no charge, within 10
days from receipt of such advice the portion of the individual purchase
order which Seller is unable to furnish and the entire amount of the
cancelled portion shall be credited against the Annual Minimum Purchase
Obligation.
<PAGE> 8
8
6. DELIVERY DATES
6.1 Seller agrees to make every reasonable effort to meet the delivery dates
specified by Purchaser in any purchase order. If Seller is late in the
delivery of Green Pipes by 14 or more days, such late shipment shall be
counted for the Purchaser's monthly orders under Section 2.1 of this
Supply Agreement for both the month in which the order was placed and the
following month. If Seller is late in the delivery of Green Pipes by one
or more months, Purchaser shall have the option to cancel, at no charge,
the portion of the individual purchase order which has not yet been
delivered and the entire amount of the cancelled portion shall be
credited against the Annual Minimum Purchase Obligation.
6.2 Delivery is C.I.F. Houston in accordance with Incoterms 1990. Purchaser
may also request, as specified in any particular purchase order, that the
delivery destination of the Material be a location other than Houston.
For the calculation of the Purchase Price, Section 4.1 of this Supply
Agreement shall apply.
7. HAZARDOUS CONDITIONS
7.1 In the event that Seller or Purchaser learns of any issue relating to a
potential safety hazard or unsafe condition in any of the Material, or is
advised of such by competent authorities of any government having
jurisdiction over such Material, it will immediately advise the other
Party by the most expeditious means of communication. The Parties shall
cooperate in communication with the public and governmental agencies and
in correcting any such condition that is found to exist.
7.2 The Parties shall consult with each other prior to making any statements
to the public or to any governmental agency concerning issues related to
the safety hazard or unsafe condition except in circumstances in which a
failure to do so would prevent the timely notification which may be
required to be given under an applicable law or regulation.
7.3 Expenses associated with the correction of a safety hazard or unsafe
condition by or associated with the Material, including reasonable
attorneys' fees, court costs, expenses, and the like, if they become
necessary, shall be borne by the Party which caused such safety hazard or
unsafe condition, subject only to any other arrangement negotiated by the
Parties in light of the particular facts and circumstances then existing.
<PAGE> 9
9
8. CONFIDENTIAL INFORMATION
The Parties understand and agree that information concerning any of the
information set forth herein is confidential to each of them and shall,
except as may otherwise be required by law, regulation or order, only be
disclosed to unaffiliated third parties, in writing or orally, upon the
specific prior written agreement of the Parties, provided, however, that
if any of such terms have previously been disclosed, for any of the
foregoing reasons, these terms shall no longer be treated as confidential
by either Party.
9. PATENTS
9.1 Each Party hereby represents to the other Party that, to the best of its
knowledge, there are no third-party patent, trade secret, or copyright
rights which would be infringed by the manufacture, use or sale of the
Material to be supplied hereunder.
9.2 Each Party will defend any suit or proceeding brought against the other
Party, any of its affiliates or their customers, based on a claim that
the manufacture, use or sale of the Material purchased hereunder
constitutes an infringement of any patent or copyright of any country or
any trade secret to the extent and only to the extent such suit or
proceeding is attributable to the actions or omissions by such Party;
provided that each Party is notified by the other Party in writing and
given authority, information, and assistance for the defense of same. If,
as a result of any such suit or proceeding, the use or sale of the
Material purchased hereunder is enjoined, both Parties shall use their
best efforts to modify any infringing Material so that it becomes
non-infringing.
10. WARRANTY
10.1 Green Pipes manufactured by Seller for Purchaser under this Supply
Agreement shall be of the kind and quality as provided in Section 1 of
this Supply Agreement and as per the specification mutually agreed by the
Parties and the applicable parts of the API standards. In case of a
conflict between the specification and the API standards, the
specification shall prevail. The review or approval by Purchaser of any
designs, engineering drawings, quality control procedures, or any other
aspect of the design and manufacture of Material hereunder shall not
relieve Seller of the responsibility for producing Material which
complies with the specification and all current local,
<PAGE> 10
10
state, and federal governmental specifications and standards existing at
the date of delivery as expressly stated and identified in the
specification. Further, Seller shall be responsible for producing
Material which is of good workmanship and performance and of merchantable
quality. Seller also warrants that it complies with all Austrian
regulations applicable to the manufacturing of Material. Seller also
shall be responsible for any mill-related defects in the Material,
including, but not limited to, laps, slugs, gouges, slivers and seams,
detected prior to or after processing.
10.2 The warranty period extends for, and warranty claims may only be asserted
in writing by Purchaser against Seller within, the first 12 months of
service of the Green Pipes or within 2 years after delivery of the Green
Pipes to Purchaser, whichever comes first. Warranty claims for corrosion
or mechanical damage may only be asserted in writing by Purchaser against
Seller within six (6) months after the Material's arrival at its port of
destination.
10.3 In case Purchaser asserts warranty claims against Seller, Seller shall
have the right to examine such Material within 30 calendar days. If any
of the delivered Material fails to meet the warranties set forth above,
Seller shall, as promptly as practicable and at its expense, repair,
replace or cause to be repaired or replaced same without undue delay. In
either case, the cost of freight and handling to return or replace the
Material shall be at the expense of Seller and the Seller shall reimburse
Purchaser for the costs of any fabrication and reasonable additional
inspection costs incurred by Purchaser in the processing of the defective
Material.
10.4 In the event that a warranty claim exists and Seller has accepted to be
responsible for the warranty claim, or is otherwise determined to be
responsible, Seller will at Purchaser's option issue credit against
future invoices or set off against due penalty payments or Seller will
pay to Purchaser the amount due within 30 days of Seller's receipt of a
debit memorandum or some other written request for payment.
10.5 Notwithstanding any provision to the contrary, the Parties may agree to
an adjustment in the Purchase Price or to a (partial) cancellation of the
respective purchase order in the event of any failure or defect in the
Material.
11. PRODUCT LIABILITY
11.1 In the event that product liability claims are asserted against Seller or
Purchaser such Party will immediately advise the other Party of such
claim by the most expeditious means of
<PAGE> 11
11
communication. The Parties shall cooperate in communication with the
public and governmental agencies with respect to such liability claim.
11.2 Each Party shall defend any suit or proceeding brought against the other
Party, any of its affiliates or their customers, based on product
liability claims for which they are responsible. Unless agreed otherwise,
until such time as responsibility has been determined, the Parties shall
bear the costs and expenses (including, but not limited to, reasonable
attorneys' fees and expenses, settlements, judgments, and court costs)
arising out of or related to product liability in the ratio of the value
added to the finished product by each Party.
11.3 In the event a product liability claim is successfully asserted against
one of the Parties, the Party which caused such defect agrees to protect,
defend, hold harmless, indemnify, and reimburse the other Party and its
distributors, dealers, affiliates, insurers, and customers during the
term of this Supply Agreement and any time thereafter for any and all
liabilities, losses, damages, costs and expenses (including, but not
limited to, reasonable attorneys' fees and expenses, settlements,
judgments, and court costs) arising out of or related to such liability,
demand, lawsuit, action or claim.
11.4 If the Party which caused such defect cannot be identified, the Parties
shall bear all liabilities, losses, damages, costs and expenses
(including, but not limited to, reasonable attorneys' fees and expenses,
overhead, settlements, judgments, and court costs) arising out of or
related to such liability, demand, lawsuit, action or claim in the ratio
of the value added to the Green Pipe by each Party.
11.5 Both Parties shall maintain, at their own expense, appropriate insurance
in the amount of at least US$ 25 million for injury, death, or property
damage. Satisfactory evidence by copy of certificate of insurance thereof
shall be submitted annually to the other Party upon the other Party's
request. Such insurance shall be carried during the term of this Supply
Agreement, including extension, and for at least three (3) years
thereafter.
12. PURCHASER'S AND SELLER'S LIABILITIES
12.1 The Parties shall consult with each other on a regular basis on
procedures on how to minimize any risk with respect to the imposition of
U.S. Antidumping or Countervailing Duties provided that such consultation
is not in violation of law and is commercially reasonable.
<PAGE> 12
12
12.2 To this end, Seller shall employ a special sales advisor ("Special Sales
Advisor"). The appointment and dismissal of said Special Sales Advisor
shall be at the recommendation of Purchaser and require the unanimous
vote of the representatives of GRANT and Voest-Alpine Schienen GmbH & Co
KG to the Supervisory Board of the general partner of the Seller. The
Special Sales Advisor shall report to the Management Board of Seller.
12.3 If, despite these measures, a proceeding or investigation is initiated
threatening to lead to the imposition of U.S. Antidumping or
Countervailing Duties on products covered by this Supply Agreement either
Party may, upon written notice to the other, request a stay on the
performance of the obligations under Sections 1, 2 and 13 under this
Supply Agreement during the proceeding or investigation not to exceed two
years; provided, however, that such Party reasonably determines that
continued sales may subject the Party or the sales to the imposition of
U.S. Antidumping or Countervailing Duties. During the period of the stay,
all rights and obligations of the Parties under the above-referenced
Sections shall cease.
12.4 At any time during the stay under Section 12.3, either Party may request
that this Supply Agreement not be stayed and that Green Pipe continue to
be imported into the U.S. provided that the requesting Party (i) agrees
to indemnify the other Party for the additional duties or payments
imposed (ii) agrees to post any required bonds and (iii) provides
adequate assurances of payment for the additional duties or payments.
12.5 In the event that actual additional duties or payments are imposed,
either Party may elect to terminate this Supply Agreement provided that
the other Party may require the Supply Agreement not be terminated as
long as such Party (i) agrees to indemnify the other Party for any
additional duties or payments imposed and (ii) provides adequate
assurances of payment for the additional duties and payments.
12.6 If a proceeding or investigation is initiated threatening to lead to the
imposition of U.S. Antidumping on Countervailing Duties with respect to
products subject to this Supply Agreement, Purchaser shall, at its
expense, defend Seller in such action. Purchaser shall be entitled to
control the defense, but Seller shall be entitled to participate in the
action.
12.7 This Section 12 provides for the exclusive remedies for any action by the
Parties that may lead to the imposition of U.S. Antidumping or
Countervailing Duties.
<PAGE> 13
13
13. PENALTY
13.1 Purchaser agrees to pay a penalty of ATS 600 for each metric ton to the
extent that purchase orders fell short of the Annual Minimum Purchase
Obligation of Purchaser required under Section 2.1 during the entire term
of this Supply Agreement. Purchaser shall pay any penalties due within 30
days following the end of the contract year during which the penalties
arose.
13.2 Any penalties paid pursuant to Section 13.1 may be applied by and repaid
to Purchaser against separate invoices for purchases in excess of the
Annual Minimum Purchase Obligation in the following year.
13.3 For calculation purposes of the penalty only, any order placed by
Purchaser which was not delivered in compliance with this Supply
Agreement, shall be deducted from the Annual Minimum Purchase Obligation.
In case this Supply Agreement is terminated, the penalty due for the last
year prior to termination pursuant to Section 13.1 shall be calculated on
a pro rata basis.
14. CURRENCY CONVERSION
All of the amounts payable under this Supply Agreement that are
denominated in ATS shall be converted to EURO at such time as Seller and
Purchaser so agree, however on April 1, 2000 at the latest.
15. DISPUTE RESOLUTION
All disputes arising out of this Supply Agreement or related to its
violation, termination or nullity shall be finally settled under the
Rules of Arbitration and Conciliation of the International Arbitral
Centre of the Austrian Federal Economic Chamber in Vienna (Vienna Rules)
by three arbitrators appointed in accordance with these rules. The
substantive law of Austria shall be applicable and the language to be
used in the arbitral proceedings shall be English. The place of
arbitration shall be Vienna, Austria.
<PAGE> 14
14
16. MISCELLANEOUS
16.1 Modifications of and amendments to this Supply Agreement shall be valid
and binding only if made in writing.
16.2 If any provision hereof becomes invalid, this shall not effect the
validity of the remaining provisions hereof.
16.3 This Supply Agreement shall be governed by and construed according to
Austrian law. The application of the United Nations Convention on
Contracts for the International Sale of Goods is expressly excluded.
16.4 The termination of this Supply Agreement shall not release either Party
from any liability, obligation, or agreement which, pursuant to any
provision of this Supply Agreement, is to survive or be performed after
such expiration or termination.
16.5 This Supply Agreement has been made in the English language and has been
executed in two originals with Seller and Purchaser receiving one each.
16.6 All notices, requests, consents and other communications hereunder shall
be made in writing and sent by registered or certified mail or by any
express mail service or courier service or by facsimile transmission
(with receipt confirmed) to the parties at the addresses and numbers
below:
If to Purchaser, to:
Grant Prideco, Inc.
1450 Lake Rubbins Drive
Two Wood Lane, Tx USA 77380
Attention: John C. Coble and Curtis W. Huff
Telephone: (281) 297 8500
Telecopier: (281) 297 8569 and (713) 297 8488
With a copy to:
Bruckhaus Westrick Heller Lober
Seilergasse 16
1010 Vienna
Austria
<PAGE> 15
15
Attention: Jenny W.T. Power
Telephone: (++43 1) 51515 Ext. 210 or 310
Telecopier: (++43 1) 512 63 94
If to Seller to:
VOEST-ALPINE STAHLROHR KINDBERG GmbH & Co KG
Alpinestrasse 17
8652 Kindberg
Austria
Attention: Hubert Wastl and Eduard Obermayer
Telephone: (++43 1) 3842/202 4453
Telecopier: (++43 1) 3842/202 2444
With a copy to:
VA Schiene GmbH
Kerpelystrasse 201
8700 Leoben
AUSTRIA
Attention: Willibald Mautner
Telephone: (++43) 3842/202 4453
Telecopier: (++43) 3842/202 2444
and a copy to:
VOEST-ALPINE STAHL AG
Voest-Alpine-Strasse 1
4020 Linz
AUSTRIA
Attention: Hubert Possegger
Telephone: (++43/70/6585-9516)
Telecopier: (++43/70/6980-5581)
<PAGE> 16
16
16.7 The subject headings of this Supply Agreement are for the convenience of
the Parties and shall not be considered in any question of interpretation
or construction of this Supply Agreement.
IN WITNESS WHEREOF, the Parties have executed or caused to be executed this
Supply Agreement as of July 23, 1999.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
------------------------- -------------------------------
Grant Prideco, Inc. VOEST-ALPINE STAHLROHR KINDBERG
GmbH & Co KG
<PAGE> 17
17
ANNEX A
[***]
<PAGE> 1
EXHIBIT 10.15
MANUFACTURING AND SALES AGREEMENT
THIS MANUFACTURING AND SALES AGREEMENT dated as of January 1, 1996, is
by and between GRANT PRIDECO, S.A., a corporation organized under the laws of
Switzerland ("Grant"), and Oil Country Tubular Limited, a company organized
under the Companies Act of India ("OCTL").
W I T N E S S E T H :
WHEREAS, Grant and its affiliates is engaged in the business
of manufacturing and selling drill pipe, premium tubing and other
tubulars;
WHEREAS, OCTL owns and operates a tubular manufacturing
facility at Narketpally, India, as more fully described in Annex A
hereto (the "OCTL Facility");
WHEREAS, Grant and OCTL wish to set forth the terms and
conditions pursuant to which OCTL will utilize the manufacturing
capacity of the OCTL Facility to manufacture tubular goods and related
products ordered by Grant and its Affiliates; and
WHEREAS, Grant and its Affiliates will purchase from OCTL, and
OCTL will sell to Grant and its Affiliates, all of the tubular goods
and related products to be manufactured at the OCTL Facility;
NOW, THEREFORE, the parties hereto covenant and agree as follows:
1. PRODUCTION.
(a) OCTL agrees for the term of this Agreement to
manufacture tubular goods and related products of the types described in Annex
B hereto (the "Products") and for the provision of coating, inspection and
other services (the "Services") for Grant and its Affiliates at the OCTL
Facility as may be requested by Grant from time to time. This provision shall
not provide Grant with any interest in the OCTL Facility except as provided
herein.
(b) OCTL shall for its own account and not as
agent manufacture and provide Products and Services on a timely basis in such
quantities and type as may be requested by Grant from time to time, and for
delivery at such locations, in accordance with purchase orders submitted to it
by Grant. The Products and Services shall be manufactured or provided in
accordance with the specifications and requirements set forth in the applicable
purchase order or otherwise fixed by Grant and shall be delivered in accordance
with the time frame established by Grant.
(c) Subject to the provisions of Section 4(c),
OCTL agrees that in consideration for the agreements made hereunder and Grant
or its Affiliates licensing technology to OCTL to manufacture products for
Grant it will not manufacture or provide goods or services of any kind at the
OCTL Facility for any Person other than Grant and its Affiliates during the
term of this Agreement without the prior consent of Grant.
(d) OCTL shall for its own account and not as
agent maintain a fully qualified, properly trained and experienced
administrative and technical staff, sufficient to perform its obligations
hereunder. All persons employed by OCTL to carry out any of its obligations
hereunder shall be and remain OCTL's employees and not thereby be or become
employees of Grant. Grant shall not be obligated to pay increased costs due to
changes in labor contracts or other employment arrangements unless specifically
agreed to by Grant.
(e) OCTL shall establish and maintain quality
control and audit procedures, programs and standards for the manufacture of the
1
<PAGE> 2
Products and Services to assure the timely manufacture of Products and Services
in compliance with specifications and requirements of Grant and for the
inspection of the Products and Services manufactured by it designed to detect
defects in materials or workmanship thereof prior to delivery of the same to
Grant. OCTL's manufacturing processes and procedures shall be in accordance
with the quality assurance programs issued by Grant from time to time to assure
quality, efficiency and timeliness in the manufacture of the Products and
Services to at least API and ISO standards.
(f) Grant and OCTL shall at least 90 days prior
to each calendar year agree on an annual budget for the following year for all
fixed and variable costs and expenses relating to the manufacture of Products
and the provision of Services. This budget shall be reviewed on a quarterly
basis. OCTL shall implement such policies and procedures relating to costs and
budget efficiency as may be suggested by Grant from time to time. Modifications
to budgeted items may be made by Grant through purchase orders specifying costs
parameters and vendor requirements for such orders.
(g) OCTL shall not agree to or commit to any
expenditures that would be required to be reimbursed by Grant not contemplated
by the current agreed budget without the prior approval of Grant.
(h) In view of the technical requirements for
the manufacture of Products and Services in accordance with required
specifications, OCTL shall select outside vendors only from a list of vendors
duly approved by Grant from time to time.
(i) OCTL shall establish production schedules
for all Products and Services to be provided for it in order to meet its
desired timetable for delivery as set forth in its purchase orders or otherwise
communicated to OCTL.
(j) In view of the technical requirements for
the manufacture of Products and Services in accordance with required
specifications, Grant shall be entitled to require the implementation of
manufacturing efficiency programs and policies with respect to the manufacture
and provision of Products and Services by OCTL to Grant.
(k) Grant shall have the right at any time and
from time to time to inspect all Products and Services at any stage of the
manufacturing process as well as all machinery and equipment used in the
manufacture of Products and the provision of Services.
(l) OCTL shall provide Grant and its Affiliates
with full access to the OCTL Facility, its officers and employees and all
information relating to the operation of the OCTL Facility. OCTL shall, and
shall cause its officers and employees to, cooperate fully with Grant to enable
Grant to assure that all Products and Services provided by OCTL meet Grant's
requirements for quality, efficiency and timeliness.
(m) In view of the technical requirements for the
manufacture of Products and Services in accordance with required
specifications, all raw materials used for the manufacture and the provision of
the Products and Services shall be sourced by OCTL from a list of vendors duly
approved by Grant from time to time.
(n) The parties hereby acknowledge that their
objective is to achieve a utilization of the OCTL Facility with the following
annual goals; (i) 15,000 metric tons of drill pipe; (ii) 10,000 metric tons of
heat treated premium tubing; (iii) 25,000 metric tons of heat treated casing;
(iv) 18,000 metric tons of casing and tubing threaded without heat treating;
(v) 1,000 threaded joints of large diameter casing; and (vi) 4,500 weld-on
connectors. The above goals shall only be considered objectives and Grant shall
have no obligation to place any minimum orders for any specific Products or
Services during any period.
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<PAGE> 3
2. OPERATIONS.
The operations of the OCTL Facility will at all times
during the term of this Agreement be managed and operated by OCTL and its
personnel.
3. PAYMENTS AND COSTS.
(a) In exchange for the provision of Services
hereunder, Grant shall pay to OCTL the sum of US$8,000,000 on the Effective
Date. These funds shall be applied toward the payment of future Services
provided to Grant based on prices to be agreed by OCTL and Grant.
(b) Until termination of this Agreement, Grant
shall pay to OCTL for Products and Services to be provided a fee of $500,000
monthly in advance, beginning on the April 1, 1996, it being understood that
not such fee shall be payable for the months of January, February and March
1996.
(c) In addition to the payments and fees
described hereinabove for Products and Services to be provided, Grant will pay
to OCTL for the Products a production fee (the "Production Charge") based on
certain levels of production and determined as follows:
(i) $300 (US) per metric ton ("MT") of unitized drill pipe
produced.
(ii) $105 (US) per MT of heat treated premium tubing produced.
(iii) $50 (US) per MT of API heat treated tubing produced.
(iv) $40 (US) per MT of heat treated casing produced.
(v) $25 (US) per MT of tubing and casing that is threaded each
year without heat treating.
(vi) $100 (US) per joint of large diameter casing (over 13 3/8"
O.D.) that is threaded at the OCTL Facility without heat treatment.
(vii) $100 (US) per weld-on connector 18 5/8" and above.
For products not set forth above or in Section 3(d), the Production Charge will
be determined mutually. The Production Charge shall be payable quarterly within
thirty (30) days after receipt of OCTL's invoice therefor. The quarterly
invoice for the Production Charge shall be accompanied by a statement of
production and a written calculation of the Production Charge.
(d) Pricing for the Services rendered by OCTL for
Grant shall be agreed upon by Grant and OCTL from time to time.
(e) As part of the purchase price for Products
and Services to be purchased by Grant, Grant will pay to OCTL amounts equal to
all actual direct cash operating costs of the OCTL Facility and the actual
direct cash production cost for goods and services provided at the OCTL
Facility after March 31, 1996 (collectively, "Section 3(e) Expenses"). The
Section 3(e) Expenses shall include (i) wages, salaries and benefits for
employees of OCTL (other than general and administrative employees not directly
associated with the operations of the OCTL Facility) working at the OCTL
Facility, (ii) all raw materials, consumables, spare parts, tools and other
similar items necessary to manufacture the Products, (iii) all utilities
charges, (iv) insurance for the OCTL Facility and its operations, (v)
maintenance, (vi) freight, (vii) custom duties and other import and export
charges net of credits received on export or otherwise and (viii) property
taxes. Depreciation, amortization and any other non-cash expenses shall not be
considered direct operating costs and shall be the sole responsibility of OCTL.
Costs estimates for all such items shall be budgeted as provided in Section 1
and be subject to Grant's approval as provided therein. OCTL shall be
3
<PAGE> 4
responsible for its own income taxes, general and administrative expenses,
wages, salaries and benefits for employees who are not involved in the
manufacture of goods at the OCTL Facility, and any other expense not directly
related to the operation of the OCTL Facility. OCTL shall invoice Grant
quarterly for the actual amounts of all Section 3(e) Expenses without any
mark-up. All goods and services provided to the OCTL Facility by OCTL or any of
its Affiliates shall be provided at cost without mark-up. Grant will be
entitled to a credit against the Section 3(e) Expenses for the allocable costs
associated with any sales by OCTL for its own account pursuant to Section 4(c).
(f) In view of the technical requirements for the
manufacture of Products and Services in accordance with required
specifications, the raw materials, consumables, spare parts, tools and similar
items necessary for OCTL to manufacture the Products and render the Services
shall be selected by Grant or one or more of its Affiliates. All such items
acquired outside India shall be imported by OCTL from vendors selected or
approved by Grant.
(g) Grant and OCTL shall agree as to all capital
expenditures and improvements to be made on the OCTL Facility to achieve
desired levels of production and quality of the Products and Services to be
sold to Grant. Unless otherwise agreed, all mutually agreed upon capital
expenditures with respect to the OCTL Facility relating to the Products and
Services to be sold to Grant shall be financed by Grant.
(h) OCTL shall retain all accounts receivable
arising from sales of products of the OCTL Facility made prior to March 31,
1996. All inventory and raw materials on hand at the OCTL Facility on March 31,
1996, will be made available for the manufacture of Products. Grant shall
reimburse OCTL as a Section 3(e) Expense the actual direct cost (excluding
interest and administrative expenses) incurred by OCTL for such inventory and
raw materials on hand within 30 days of the actual use thereof.
(i) In consideration of the commitment of OCTL to
utilize the OCTL Facility to manufacture Products and Services for Grant
pursuant to the terms hereof, unless this Agreement is earlier terminated,
Grant agrees to make the following additional payments to OCTL:
(x) if, as a result of Grant's failure to
place sufficient orders and not as a result of other
conditions such as OCTL's failure to meet production deadlines
and quality and efficiency standards, the aggregate Production
Charges paid in respect of 1997 are less than (US) $3.0
million, Grant shall pay to OCTL the amount by which the
Production Charges paid in respect of 1997 are less than (US)
$3.0 million;
(y) if, as a result of Grant's failure to
place sufficient orders and not as a result of other
conditions such as OCTL's failure to meet production deadlines
and quality and efficiency standards, the aggregate Production
Charges paid in respect of 1998 and 1997 and the amount paid
pursuant to clause (x) above are less than (US) $7 million,
Grant shall pay to OCTL the amount by which the aggregate
Production Charges in respect of 1998 and 1997 and any amount
paid pursuant to clause (x) above are less than (US) $7
million; and
(z) if, as a result of Grant's failure to
place sufficient orders and not as a result of other
conditions such as OCTL's failure to meet production deadlines
and quality and efficiency standards, the aggregate Production
Charges paid in respect of 1999, 1998 and 1997 and any
amounts paid pursuant to clauses (x) and (y) above are
less than US) $12 million, Grant shall pay to OCTL the
amount by which the aggregate Production Charges in
respect of 1999, 1998 and 1997 and any amounts paid
pursuant to clauses (x) and (y) above are less than
(US)$12 million.
4
<PAGE> 5
For purposes of this Section 3(i), OCTL shall be deemed to
have received a Production Charge for all sales made pursuant to Section 4(c)
equal to the Production Charge that would have been paid in respect of such
sales had such sales been made to Grant hereunder. Payments under this Section
3(i) shall be payable only if this Agreement shall not have been terminated
prior to the date on which the payments are due. Payments under this Section
3(i) shall be due on the date on which the Production Charge for the last
quarter of the last year included in the applicable calculation is payable.
(j) The fees and payments provided for in this
Section 3 are intended in part to compensate OCTL for the loss opportunity of
sales that it would have been able to receive absent its commitment to utilize
the OCTL Facility to manufacture Products and Services for sale to Grant.
Further, although it is contemplated that substantially all of the production
from the OCTL Facility will be sold to Grant, it is also contemplated that some
products and services will continue to be provided by OCTL to Persons other
than Grant from time to time with the prior consent of Grant. To the extent
OCTL does make sales of products and services from the OCTL Facility to any
Person other than Grant, the payments required to be paid by Grant to OCTL
under Sections 3(b) and (c) shall be reduced by an amount equal to the Gross
Profit (as defined below) realized by OCTL on such sales. For purpose of this
Section 3(i), Gross Profit shall mean the actual sales price (net of any
discounts) charged by OCTL for such sales less the sum of (i) the actual
Section 3(e) Expenses for the products and services sold and credited under
Section 3(e) and (ii) the Production Charge that would have been paid on such
sale had such sale been made to Grant.
4. PROVISION OF INFORMATION; PROTECTION OF PURCHASE;
THIRD PARTY SALES.
During the term of this Agreement:
(a) The manager of the OCTL Facility shall
cooperate and coordinate with Grant on an ongoing basis with respect to the
status of all operations at the OCTL Facility affecting the Products and
Services to be sold to Grant and the implementation of Grant's policies,
guidelines and requirements for the manufacture of Products and Services for it
under this Agreement, including the status of all purchase orders, the expenses
of the OCTL Facility and OCTL's compliance with the terms of this Agreement.
(b) In order to protect the purchase rights of
Grant under this Agreement, except for those charges existing on the OCTL
Facility currently existing, OCTL shall not grant any charge, lien or security
interest in the OCTL Facility or on any of the assets used in connection
therewith. No charge, lien or security interest shall be granted by OCTL in
any of the raw materials used for the manufacture of the Products or Services
to be sold to Grant or on the finished Products and Services. OCTL shall not
transfer, assign or otherwise convey the OCTL Facility to any Person without
the prior consent of Grant. OCTL shall not transfer the operations of the OCTL
Facility to any Person without the prior consent of Grant.
(c) Grant and OCTL agree that it is contemplated
that OCTL may from time to time with the prior consent of Grant effect sales of
products and services from the OCTL Facility to Persons other than Grant,
primarily in India ("Third Party Sales"). Any Third Party Sales must be
previously approved and consented to by Grant so as not to impair the
exclusivity and other benefits contemplated for Grant hereunder. To the extent
a Third Party Sale is effected, the payments required to be made by Grant
hereunder shall be reduced as provided in Sections 3(e) and 3(j) hereunder. No
Production Charge or fee under Section 3(d) shall be payable for Third Party
Sales. Orders existing and not completed by OCTL as of the Effective Date shall
be considered approved Third Party Sales. Outstanding tenders as of the
Effective Date which are accepted shall also be considered approved Third Party
Sales. For any sales outside India by OCTL, Grant shall act as OCTL's exclusive
distributor.
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<PAGE> 6
(d) OCTL shall (i) maintain all necessary
licenses, permits and other governmental approvals or authorizations to allow
it to carry out its obligations hereunder, and to own and operate the OCTL
Facility, (ii) comply in all material respects with all applicable laws
relating to the manufacture of the Products and the provision of the Services,
and (iii) obtain all export/import licenses and/or permits and complete other
registration requirements as may be necessary for the export of the Products
and Services and import of all raw materials used in the manufacture thereof.
(e) OCTL shall not take any action, directly or
indirectly, that could reasonably be expected to impair its ability to perform
its obligations under this Agreement or adversely affect the rights of Grant
hereunder.
5. REPRESENTATIONS AND WARRANTIES OF OCTL. OCTL represents and
warrants to Grant that the following is true and correct:
(a) INCORPORATION; AUTHORITY. OCTL is duly
organized, validly existing and in good standing under the laws of India and
has all required corporate power and authority (i) to own or lease and operate
its properties and to carry on its business at the OCTL Facility as now
conducted, and (ii) to enter into this Agreement and perform all of its
obligations hereunder.
(b) CORPORATE APPROVAL; BINDING EFFECT. OCTL has
obtained all appropriate authorizations and approvals required for the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by OCTL and constitutes the legal, valid and binding obligation of
OCTL, enforceable against OCTL in accordance with its terms. No approval of the
shareholders of OCTL is required for the execution and delivery of this
Agreement or for the performance of its obligations hereunder.
(c) TITLE TO OCTL FACILITY. Except as set forth
in Schedule 5(c) hereto, OCTL has good title to the OCTL Facility, free and
clear of all liens, pledges, charges, security interests, encumbrances or title
retention agreements of any kind or nature.
(d) LITIGATION. No claim is in process, pending
or threatened against OCTL or its directors, officers, employees, agents, or
representatives relating to the OCTL Facility. Further, OCTL does not know of
any circumstances likely to give rise to any such claim.
(e) INDUSTRIAL RELATIONS. There is no charge
pending or threatened against OCTL alleging violation of any statute or any
regulation relating to employment and employment practices or violation of any
collective bargaining agreement or alleging unlawful discrimination in
employment practices before any court or agency, relating to the OCTL Facility,
and there is no charge of or proceeding with regard to any unfair labor
practice (or any similar practice) against OCTL pending before any government,
governmental, regulatory or administrative authority, agency or commission or
any court, tribunal, or judicial or arbitral body, relating to the OCTL
Facility. There is no strike, trade or industrial dispute, slow-down or work
stoppage actually pending or threatened against OCTL. No collective bargaining
agreement or other union agreement or agreement with organized labor is
currently being negotiated or pending negotiation by OCTL except the renewal of
the agreement already entered into in the year 1992, a true and correct copy of
which has been provided to Grant. OCTL has not experienced any material work
stoppage or other material labor difficulty during the last three years.
(f) INSURANCE. Schedule 5(f) is a summary of
all the theft, fire, liability, workmen's compensation, life, property and
casualty and other insurance on the OCTL Facility owned, held by or maintained
by OCTL. All such insurance is in full force and effect, and all the premiums
due with respect thereto are currently paid. There is no claim under any such
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<PAGE> 7
policies as to which coverage has been questioned, denied or disputed by the
insurer. Nothing has been done or omitted to be done that could make any such
policy of insurance void or voidable and there are no claims outstanding,
pending or threatened or capable of arising against OCTL by any employee or
third Person in respect of any accident or injury at the OCTL Facility that are
not fully covered by insurance.
(g) INDEBTEDNESS. Schedule 5(c) sets forth a
true and correct list of all outstanding indebtedness of OCTL. Such Schedule
also sets forth a true and correct list of all agreements or undertakings by
OCTL that could restrict OCTL from operating the OCTL Facility as contemplated
in this Agreement. Except as set forth in Schedule 5(c), none of the documents
relating to any of the foregoing grants a charge, lien or other security
interest in the OCTL Facility or any goods or products or accounts receivable
relating to operations at the OCTL Facility.
(h) GOVERNMENTAL CONSENT, NON-CONTRAVENTION. No
consent, approval or authorization of or registration, designation, declaration
or filing with any governmental authority is required in connection with this
Agreement or the consummation of any other transaction contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not violate:
(i) any provision of the charter or
other organizational or constituent documents of OCTL;
(ii) any order, judgment, injunction, award
or decree of any court or local, national or other
governmental or regulatory body applicable to OCTL; or
(iii) any material contract to which OCTL is
a party.
(i) COMPLIANCE WITH LAWS. The operations of the
OCTL Facility are conducted and have been conducted in accordance with all
applicable laws, regulations and other requirements of all national
governmental authorities, and of all states, municipalities and other political
subdivisions and agencies thereof, having jurisdiction over said facility,
including, without limitation, all such laws, regulations and requirements
relating to employment, antitrust, consumer protection, currency exchange,
export controls, boycotts, health, occupational safety, pension, securities,
transactions in or relating to currency, bribery and environmental protection.
OCTL has not received any notification of any asserted failure to comply with
any such laws, rules or regulations, nor has the assertion of any such failure
been threatened against OCTL.
(j) BROKERS. No finder, broker, agent or other
intermediary has worked for or on behalf of OCTL in connection with the
negotiation or consummation of the transactions contemplated hereby.
(k) LICENSES AND PERMITS. Schedule 5(k) lists
all governmental licenses, permits and authorizations that are held or used by
OCTL to operate the OCTL Facility. Schedule 5(k) contains a brief description
of each such license, permit or authorization, the identity of the issuing
agency or authority, the license or permit number and the expiration date of
each such license, permit or authorization. Such licenses, permits and
authorizations are the only governmental licenses, permits and authorizations
currently required by OCTL for the operation of the OCTL Facility and all such
licenses, permits and authorizations are in effect as of the date hereof and
have been previously disclosed to Grant. OCTL is not aware of any circumstances
that would require Grant to obtain any governmental license, permit or
authorization in addition to the licenses, permits or authorizations disclosed
on Schedule 5(k). OCTL has complied with all conditions or requirements imposed
by such licenses, permits and authorizations, and OCTL has not received any
notice (nor has it reason to believe) that any governmental authority intends
to cancel or terminate any of such licenses, permits or authorizations or that
valid grounds for such cancellation or termination currently exist.
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<PAGE> 8
(l) ENVIRONMENTAL MATTERS.
(i) Operations of the OCTL Facility are in
full compliance with all applicable environmental laws in
effect in the jurisdiction in which the OCTL Facility is
located.
(ii) There are no circumstances or conditions
present at or arising out of the operations, properties and
assets at the OCTL Facility, which may give rise to any
environmental liabilities and costs, including, but not
limited to, any on-site or off-site disposal or other release,
discharge or emission of any pollutants or contaminants.
(iii) OCTL has not received any written or
verbal notice or claim relating to the release, discharge or
emission of any pollutants or contaminants, or to the
generation, treatment, storage or disposal of any wastes, or
otherwise relating to the protection of the environment,
resulting from the operations of the OCTL Facility.
(iv) OCTL has provided to Grant a true and
correct copy of all environmental assessments made with
respect to the OCTL Facility.
(v) OCTL has in effect all required
permits, licenses and other governmental authorizations
necessary for the operation of the OCTL Facility and
for the generation, disposal or treatment of any
pollutants or contaminants or other wastes.
(m) NO MATERIAL ADVERSE EFFECT AND CONDITION OF ASSETS.
(i) The OCTL Facility has experienced no
Material Adverse Effect, and OCTL is not aware of any Material
Adverse Effect that could result from this Agreement or the
performance by the parties of their obligations hereunder.
(ii) All fixed assets and equipment
constituting the OCTL Facility are in good working order,
condition and repair having regard to their age and usual wear
and tear and the purpose for which they are currently used.
There are no assets (tangible on intangible) necessary to
operate the OCTL Facility that are not owned by OCTL and
available at the OCTL Facility.
(n) BOOKS AND RECORDS. The books and records of OCTL relating
to the OCTL Facility, including the books of account, are complete, true and
correct in all material respects and fairly reflect the conduct of the business
of the OCTL Facility.
(o) DISCLOSURE AND NO DEFAULTS. No representation or warranty
by OCTL contained in this Agreement, and no writing, certificate, schedule,
list, report, instrument, or other document furnished to or to be
furnished to Grant pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of material
fact. The entering into and performance by OCTL of this Agreement will not,
either currently or after notice or lapse of time or both:
(i) conflict with, violate, terminate or
result in a breach of or default under any agreement, loan,
guarantee, note, permit, license, lease, grant, patent, or
other agreement or authorization, written or oral, to or by
which OCTL is a party or is bound;
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<PAGE> 9
(ii) give any Person the right to accelerate
any payments due under any indebtedness of OCTL or impose more
onerous terms or conditions on any undertaking of OCTL;
(iii) result in a violation by OCTL of any
statute, regulation, order, law ordinance or restriction;
(iv) result in a violation by OCTL of any
judgment, order or decree of any court or judicial or
quasi-judicial tribunal applicable to OCTL; or
(v) require OCTL to obtain the
authorization of any of its contracting parties, or trigger
any foreclosure, payment or other penalty, or vest
any Person with the right to exercise any rights of
first refusal or preemption with regard to ownership
of the OCTL Facility.
(p) SALES IN THE UNITED STATES. Revenues from sales of goods
and services by OCTL into or for use in the United States have, for the three
years preceding the Effective Date, been less than an aggregate total of
US$25,000,000.
6. REPRESENTATIONS AND WARRANTIES OF GRANT. Grant represents
and warrants to OCTL that the following is true and correct:
(a) ORGANIZATION AND STANDING OF GRANT. Grant is
a corporation duly organized and validly existing under the laws of
Switzerland. Grant has all required corporate power and authority to enter into
this Agreement and to perform all of its obligations hereunder.
(b) CORPORATE APPROVAL; BINDING EFFECT. Grant
has obtained all necessary authorizations and approvals from its Board of
Directors required for the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Grant and constitutes the legal, valid and
binding obligation of Grant enforceable against Grant in accordance with its
terms.
(c) NON-CONTRAVENTION. The execution, delivery
and performance by Grant of this Agreement will not result in any violation of
or be in conflict with its Certificate of Incorporation or By-Laws, or of any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to it, or be in conflict with or constitute a default
under any of the foregoing.
(d) GOVERNMENT CONSENT. No consent, approval or
authorization of or registration, designation, declaration or filing with any
governmental authority on the part of Grant is required in connection with the
consummation of any transaction contemplated hereby.
(e) BROKERS. No finder, broker, agent or other
intermediary has worked for or on behalf of Grant in connection with the
negotiation or consummation of the transactions contemplated hereby.
7. INTELLECTUAL PROPERTY AND CONFIDENTIAL INFORMATION.
(a) OCTL and Grant understand that during the
term of this Agreement certain advice, technical information, know-how and
other proprietary data and confidential information of such party or its
Affiliates may be provided to, or may come to the attention of, the other party
or its employees, agents and representatives (the "Confidential Information").
All Confidential Information of any party provided to the other party shall be
identified as such prior to delivery. OCTL and Grant understand and agree that
all such Confidential Information may be valuable and proprietary to the
9
<PAGE> 10
disclosing party and agree that it shall keep and shall cause its employees,
agents and representatives to keep, all Confidential Information of the other
party that is disclosed to it or its employees, agents or representatives
confidential and that neither it nor any of its employees, agents or
representatives will use or disclose any of such Confidential Information other
than for the purposes contemplated hereby.
(b) OCTL shall treat as secret and confidential,
and shall not, except in the performance of this Agreement, make any use
whatsoever of any and all designs, drawings, information or data furnished to
OCTL by Grant or its Affiliates hereunder. Upon completion or termination of
this Agreement, all such designs, drawings, information and data furnished to
OCTL by Grant or its Affiliates shall be returned to Grant.
(c) Grant shall treat as secret and confidential,
and shall not, except in the performance of this Agreement, make any use
whatsoever of any and all designs, drawings, information or data furnished to
Grant by OCTL or its Affiliates hereunder. Upon completion or termination of
this Agreement, all such designs, drawings, information and data furnished to
Grant by OCTL shall be returned to OCTL.
(d) Nothing in this Agreement shall be deemed to
constitute or result in an assignment of any trademarks owned or used by any
party or the Confidential Information or the creation of any equitable or other
interest therein, or to grant any right to use the trademarks owned or used by
a party or the Confidential Information except in the performance of its
obligations under this Agreement. OCTL agrees never to impugn or challenge, or
to assist in any challenge to the validity of, the trademarks of Grant or its
Affiliates, any registration thereof or their ownership thereof. Grant agrees
never to impugn or challenge, or to assist in any challenge to the validity of,
the trademarks of OCTL, any registration thereof or OCTL's ownership thereof.
All legal rights in the Products and the Confidential Information of Grant and
its Affiliates, including but not limited to all copyrights, trademark rights,
patent rights and rights in the packaging and labeling of the Products, shall
belong exclusively to Grant. All goodwill from the use of the trademarks of
Grant and its Affiliates shall inure to the benefit of Grant.
(e) In the event of breach or threatened breach
by a party or its employees or agents of the provisions of this Section, the
other party shall be entitled to an injunction or judicial order equivalent
thereto restraining the party breaching or threatening to breach this Section
or its employees or agents from using or disclosing, in whole or in part, such
Confidential Information. Nothing herein shall be construed as prohibiting any
party from pursuing any other remedies available to it for such breach or
threatened breach, including recovery of damages from the other.
(f) The obligations of the parties under this
Section shall continue in full force and effect after the termination of this
Agreement, regardless of how this Agreement is terminated.
8. WARRANTIES AND PRODUCT LIABILITY.
(a) OCTL shall warrant the Products and Services
provided by it under this Agreement in accordance with the warranty policy set
forth in Annex C hereto.
(b) To the extent commercially available at an
economic price, Grant shall obtain customary products liability insurance to
cover third party claims relating to the Products manufactured at the OCTL
Facility and purchased and sold by Grant.
9. TAXES.
OCTL shall remain the owner of the OCTL Facility for all
purposes, including taxation. All income and other similar Taxes attributable
to revenues earned from the OCTL Facility by OCTL shall be the sole
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<PAGE> 11
responsibility of OCTL. Subject to Section 3(e), Grant shall be responsible
only for reimbursement to OCTL of property Taxes and similar Taxes payable on
the value of the OCTL Facility or the assets located thereon. All other Taxes
save as expressly agreed to be borne or reimbursed by Grant herein shall be
borne by OCTL.
10. IMPORT AND EXPORT.
All goods imported into India for the OCTL Facility shall be
imported by OCTL, including the handling of all customs clearance and the
payment of all duties, freight and warehouse charges and other fees related
thereto. All such duties, freight and warehouse charges and other fees shall be
included as Section 3(e) Expenses. All export sales of Products from the OCTL
Facility shall be shipped and exported by OCTL in accordance with instructions
from Grant. OCTL shall be responsible for export clearance of all such Products
and any costs, duties, freight and warehouse charges and fees incurred in
connection therewith. All such costs, duties and fees shall be included as
Section 3(e) Expenses.
11. ASSIGNMENT RESTRICTION.
No party hereto may assign or transfer this Agreement or any
right hereunder without the prior written consent of the other party; provided,
however, Grant may assign certain of its rights and obligations to an Affiliate
of Grant provided that no assignment shall relieve Grant from its obligations
hereunder.
12. DURATION.
This Agreement shall become effective as of January 26, 1996
(the "Effective Date") and, unless earlier terminated, shall remain in force
for a period of five (5) years beginning on such date. Unless earlier
terminated at the option of Grant as provided in Section 13, after the initial
five (5) year term, this Agreement shall continue for successive terms of five
(5) years following the end of each such term.
13. TERMINATION.
(a) Grant may terminate this Agreement, with or
without cause, on an annual basis, as of any anniversary of the Effective Date,
by giving at least 90 days written notice prior to the anniversary of the
Effective Date.
(b) Except as provided in Section 13(c), OCTL may
not terminate this Agreement except in the event of a continuing material
breach of this Agreement by Grant that is not remedied within six months of
written notice of said breach to Grant by OCTL.
(c) Beginning on December 31, 2000, OCTL will
have an annual right to terminate this Agreement if Grant, solely as a result
of its failure to place sufficient orders and not as a result of other
conditions such as OCTL's failure to meet production deadlines and quality and
efficiency standards, pays less than an average of US$4 million in Production
Charges to OCTL during the three contract years immediately preceding the date
notice of termination is given; provided, however, such right of termination
shall not apply if Grant shall have paid to OCTL an amount equal to the
difference between US$12 million and the total Production Charges paid in
respect of the prior three contract year. To exercise this right of
termination, OCTL must provide Grant with written notice of its intent to
terminate this Agreement within 60 days after the date on which the last
Production Charge for the prior year is due. In the event Grant pays to OCTL
the additional funds required to maintain the continuation of this Agreement as
provided above within 90 days of such notice of intent to terminate, OCTL will
not be entitled to terminate this Agreement. If such funds are not so paid,
OCTL may terminate this Agreement after the expiration of such 90 day period.
For purposes of this Section, OCTL shall be deemed to have received a
Production Charge for all sales made pursuant to Section 4(c) equal to the
Production Charge that would have been paid in
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<PAGE> 12
respect of such sales had such sales been made to Grant hereunder. Further, any
payments under Section 3(i) or this Section 13(c) shall be considered the
payment of a Production Charge for the year for which it relates.
(d) Upon termination, all accounts will be
settled within 30 days. Grant will be entitled to receive all Products
manufactured at the OCTL Facility through the termination date and to receive
all raw materials that have been sourced by it for use at the OCTL Facility.
Alternatively, OCTL and Grant may agree upon a reimbursement by OCTL of the
costs of such items.
14. LEGAL RELATIONSHIP AND INDEMNIFICATION.
(a) The relationship of OCTL and Grant under this
Agreement shall be that of independent contractors. Neither party has, nor
shall it represent that it has, any power or authority (i) to conclude
contracts on behalf of the other party or otherwise to bind the other party, or
(ii) to assume or create any obligation, express or implied, on behalf of the
other party or in the other party's name, or in the name of any officer or
employee of the other party, or (iii) except as allowed under this Agreement,
to use or reproduce in any manner any trademark, trade name, mark or logo owned
or employed by the other party without the express prior written consent of the
other party.
(b) OCTL agrees to PROTECT, INDEMNIFY, AND SAVE
Grant HARMLESS from any and all claims, suits, actions, demands, compensation,
penalties, assessments, damages or losses of any kind or description, for
damages or injuries to person or property (including that of Grant) asserted,
received or sustained through or on account of (i) any act or omission in
connection with the work of OCTL, its employees or its agents, (ii) any default
or omission of OCTL, its employees or its agents, (iii) any breach of this
Agreement by OCTL, or (iv) except for product claims with respect to Products
and Services not covered by the warranty of OCTL, which claims shall be limited
by the warranty of OCTL, claims of any third parties claiming under, by or
through OCTL, and to reimburse any expenses, penalties or costs, including, but
not limited to, legal fees and expenses of investigation incurred by Grant in
defending any such claim, demand, suit or action. Promptly following any such
claim, OCTL agrees to apply for and seek all requisite governmental or exchange
control approvals required in relation to this provision.
(c) Grant agrees to PROTECT, INDEMNIFY, AND SAVE
OCTL HARMLESS from any and all claims, suits, actions, demands, compensation,
penalties, assessments, damages or losses of any kind or description, for
damages or injuries to person or property (including that of OCTL) asserted,
received or sustained through or on account of (i) any act or omission in
connection with the work of Grant, its employees or its agents, (ii) any
default or omission of Grant, its employees or its agents, (iii) any breach of
this Agreement by Grant, (iv) claims of any third parties claiming under, by or
through Grant, or (v) the infringement of any patent by Grant, and to reimburse
any expenses, penalties or costs, including, but not limited to, legal fees and
expenses of investigation incurred by OCTL in defending any such claim, demand,
suit or action.
(d) OCTL shall indemnify, defend and hold Grant
harmless from and against all claims or threatened claims, liabilities, losses,
damages, costs or expenses, including without limitation any and all fees
(including reasonable attorney's fees) incurred in defense of or settlement of
any such claim or threatened claim, arising out of or in any way related to the
operation or condition of the OCTL Facility prior to the Effective Date, or any
negligent act, misfeasance or nonfeasance by OCTL or any of its agents,
contractors, servants or employees. Promptly following any such claim, OCTL
agrees to apply for and seek all requisite governmental or exchange control
approvals required in relation to this provision.
(e) Grant hereby represents and warrants to OCTL,
and OCTL hereby represents and warrants to Grant, that there are no broker's or
finder's fees or commissions due and owing in connection with the transactions
contemplated hereby. Grant agrees to indemnify and hold OCTL harmless, and OCTL
agrees to indemnify and hold Grant harmless, from and against any and all
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<PAGE> 13
claims, suits, actions, demands, compensation, penalties, assessments, damages
or losses of any kind or description, including expenses and costs incurred
related thereto, legal fees and expenses of investigation incurred or required
to be paid as a result of any breach of the respective representations and
warranties contained in this paragraph.
(f) The obligations created under this Section
shall continue in full force and effect after the termination of this
Agreement, regardless of how this Agreement is terminated.
15. APPLICABLE LAW.
The validity, performance, interpretation and effect of this
Agreement except in Section 16 below shall be governed by, construed and
enforced in accordance with the laws of India.
16. ARBITRATION.
(a) Any dispute, controversy or claim arising out
of or relating to this Agreement or the breach, termination or validity hereof,
which cannot be resolved by agreement of the parties, shall be finally settled
under the Rules of Conciliation and Arbitration of the International Chamber of
Commerce (the "Rules") by one or more arbitrators. The arbitration shall be
held before one arbitrator (unless otherwise agreed by the parties) appointed
by mutual agreement of the parties. If, however, the parties cannot agree upon
an arbitrator, each shall appoint one arbitrator and the two arbitrators so
appointed shall appoint a third arbitrator. In such a case a decision of the
majority of the arbitrators shall be binding. The matters referred to review
shall be regarded as commercial. The award delivered by the arbitrators shall
be a "Foreign Award" as defined in the Foreign Awards (Recognition and
Enforcement) Act, 1961. Any such award shall not be a domestic award and shall
be governed by the New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, 1958.
(b) Unless the parties shall otherwise agree in
writing, the arbitration shall be held in London, England. The language to be
used in the arbitral proceedings shall be English. The provisions of this
Section 16 relating to arbitration shall be governed by the Laws of the United
Kingdom. The procedural law of the forum shall be applied with respect to
matters not covered by the Rules. The provisions of the Indian Arbitration Act
are expressly excluded.
(c) Any arbitration proceeding hereunder must be
instituted within one (1) year after the controversy or claim arises. Failure
to institute an arbitration proceeding within such period shall constitute an
absolute bar to the institution of any proceedings respecting such controversy
or claim, and a waiver and/or abandonment thereof.
(d) Neither party hereto shall institute an
arbitration proceeding hereunder unless, at least ninety (90) days prior
thereto, such party shall have furnished to the other party written notice of
its intent to do so and of the basis therefor in detail.
(e) Any award, order or judgment pursuant to such
arbitration shall be deemed final and binding on all parties and may be entered
or enforced in any court of competent jurisdiction. The parties agree to submit
to the jurisdiction of any such court for purposes of the enforcement of any
such award, order or judgment.
(f) Any award of damages pursuant to such
arbitration shall be included in a written decision signed by the arbitrator
(or a majority of the arbitrators) which shall state the reasons upon which the
award was based, including all the elements involved in the calculation of any
award of damages. The award of damages shall not include punitive or exemplary
damages or any damages other than or in addition to actual and compensatory
damages, but may include interest from the date of the award.
(g) Notwithstanding any provision of this
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Agreement, either party shall have the right, at any time after commencement of
any arbitration proceeding hereunder and prior to the rendering of any award,
order or judgment thereunder, to apply to the arbitrator(s) or to any court of
competent jurisdiction for injunctive or preliminary relief. No application for
injunctive or preliminary relief shall be construed to infringe this
arbitration agreement or affect the powers of the arbitrator(s).
17. NOTICES.
Any notice, transmittal of documents, correspondence or other
communication between the parties hereto shall be in writing, addressed to the
party to whom sent and transmitted prepaid either by air courier or by telex or
facsimile with signed written original to follow by air courier. All such
notices in compliance with this provision shall be deemed received by the other
party on the next business day after transmission by telex or facsimile and on
the third business day after transmission by air courier. For purposes of this
Agreement, the addresses of the parties are as follows until changed by written
notice from the party desiring to change its address to the other party:
Grant: Grant Prideco, S.A.
c/o Umbricht & Badertscher
Bahnhofstrasse 22
Postfach 4174, 8022 Zurich
Switzerland
Telephone: 011 411 211 2597
Facsimile: 011 411 221 2552
Attention: Corporate Secretary
copies to:
Energy Ventures, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas USA 77027-3415
Attention: Chief Financial Officer
and
Fulbright & Jaworski L.L.P.
1301 McKinney Street, Suite 5100
Houston, TX 77010-3095, U.S.A.
Telephone: (713) 651-5151
Facsimile: (713) 651-5246
Attention: Curtis W. Huff
OCTL: Oil Country Tubular Limited
108 Kanchanjunga
King Koti Road
Hyderabad 500 001, India
Telephone: 9140 231579
Facsimile: 9140 235617
Attention: Kamineni Suryanarayana, Managing Director
18. FORCE MAJEURE.
(a) Neither party hereto shall be responsible for
any loss or damage to the other in the event said party is unable to fulfill
the whole or any part of its obligations hereunder, or is prevented or delayed
from fulfilling the same, due to war or hostilities (whether war be declared or
not), invasion, act of foreign enemies, rebellion, revolution, insurrection,
military usurpation of power, civil war or riot, strike, lockout, commotion,
disorder, flood, tempest, earthquake, acts or omissions of any applicable
governmental, civil or military authority whether legitimate or not, or other
causes beyond the control of said party.
(b) A party affected by an event of force majeure
shall notify the other party immediately. The rights and obligations of a party
affected by any such event shall be suspended only for the duration and to the
extent of such event, and once such event ceases to exist, the rights and
obligations of the parties shall continue in full force.
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19. CERTAIN DEFINITIONS. As used herein the following terms
not otherwise defined have the following respective meanings:
"AFFILIATE" means, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"MATERIAL ADVERSE EFFECT" means any circumstance, change in, or effect on the
OCTL Facility that individually or in the aggregate: (a) has or will materially
and adversely affect the OCTL Facility, including without limitation, its
operations, condition, plant and equipment, and employee relations, or (b) has
or will materially and adversely affect the ability of Grant or OCTL to operate
the OCTL Facility in the manner in which it has been operated by OCTL.
"PERSON" means a corporation, an association, a partnership, an organization, a
business, an individual, a government or political subdivision thereof or a
governmental agency, as applicable.
"TAX" or "TAXES" means any tax imposed by any government, governmental agency
or commission, political subdivision or taxing authority wheresoever located,
including but not limited to (a) any income tax, corporation tax, transfer tax,
withholding and equalization tax due upon dividend distributions, capital gains
tax, tax on capital or net worth, value added tax, intangible tax, personal or
real property tax, inheritance tax, withholding tax, individual income tax,
social security tax, payroll tax, stamp duty, stamp duty reserve tax, or
Customs and Import Duties; (b) any other tax, charge, impost or duty similar to
any of the taxes set forth in clause (a) of this paragraph, howsoever named;
(c) any agreement to indemnify any Person for any tax, charge, impost or duty
set forth in clause (a) and (b) of this paragraph; and (d) any interest,
penalty, fine or addition to tax in connection with any tax, charge, impost or
duty set forth in clauses (a), (b) or (c) of this paragraph.
20. MISCELLANEOUS.
(a) Should any provision of this Agreement be
held unenforceable or invalid, the parties agree that such provision shall be
deemed modified to the extent necessary to render it lawful and enforceable, or
if such a modification is not possible without materially altering the
intention of the parties, then such provision shall be severed herefrom. In
such case the validity of the remaining provisions shall not be affected and
this Agreement shall be construed as if such provision were not contained
herein.
(b) All headings used herein are for convenience
of reference only, do not constitute substantive provisions of this Agreement,
and shall not be used in construing the meaning or intent of the terms and
provisions hereof.
(c) All agreements and understandings between the
parties relating to the sale and manufacture of the Products and performance of
the Services by OCTL are embodied in this Agreement. This Agreement supersedes
any previous agreements and understandings between the parties as to the
subject matter hereof and is entire in itself and not a part of any other
agreement, and no promises, covenants, or representations of any kind or nature
other than those expressly stated herein have been made to induce either party
to enter into this Agreement. All other terms and conditions, whether expressed
or implied by statute, common law, trade usage or custom are hereby excluded
and extinguished.
(d) No modification, rescission, or waiver of
this Agreement or any provision hereof shall be binding unless evidenced by an
agreement in writing, appropriately captioned on its face according to its
nature, duly executed by an authorized officer of each party. It is expressly
agreed and understood that the waiver by a party of its rights, or any portion
of its rights, under this Agreement in any particular instance or instances,
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<PAGE> 16
whether intentional or otherwise, shall not be considered as a continuing
waiver which would prevent the subsequent enforcement of such rights, or as a
waiver of any other rights hereunder.
(e) This Agreement may be executed in one or more
counterparts, and when so executed, each counterpart shall be deemed an
original and all of which shall constitute one and the same instrument.
EXECUTED AND DELIVERED on this the 27th day of January, 1996.
GRANT PRIDECO, S.A.
By: /s/ BERNARD J. DUROC-DANNER
------------------------------------------
Name: Bernard J. Duroc-Danner
---------------------------------------
Title: Director
---------------------------------------
OIL COUNTRY TUBULAR LIMITED
By: /s/ K. SURYANARAYANA
------------------------------------------
Name: K. Suryanarayana
---------------------------------------
Title: Managing Director
--------------------------------------
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March 17, 1999
MEMORANDUM OF UNDERSTANDING
1. Grant Prideco and OCTL appreciates the present market conditions and
each other's difficulties arising out of such conditions. To
tideover the difficult situation Grant Prideco and OCTL agree as
under.
2. Grant Prideco will remit an amount of USD 4.0 million, before the
week ending March 20th, 1999, which would be appropriated towards:
(a) Produce and Service Fee for
the month of March, April, May 1999 USD 1,500,000
(b) Balance Minimum Production Charge
due up to May 31, 1999 USD 1,391,184
(c) Reimbursement of 3(e) expenses
as of March 31, 1999 USD 945,354
-------------
Total USD 3,836,538
=============
3. In lieu of Grant Prideco remitting USD 4.0 million, OCTL agrees to
the proposal of eliminating the obligations of Grant Prideco under
Section 3 of Manufacturing Agreement for the period from June 1,
1999 to December 31, 1999, and to the resumption's of terms of the
Manufacturing Agreement from January 1, 2000.
4. The outstanding advance as of March 31, 999 (USD 7.491 million)
would be fully applied against purchases by Grant Prideco from
January 1, 2000 to December 31, 2002.
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EXHIBIT 10.16
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "AGREEMENT") is made as of June 19,
1998, by and among EVI Weatherford, Inc., a Delaware corporation ("EVI"),
Pridecomex Holding, S.A. de C.V., a Mexican corporation and subsidiary of EVI
("BUYER"), Tubos de Acero de Mexico S.A., a Mexican corporation ("TAMSA") and
Tamsider S.A. de C.V., a Mexican corporation ("SELLER").
RECITALS
WHEREAS, Seller owns twenty-three million thirteen thousand six hundred
and fifty-three (23,013,653) shares (the "SHARES") of common stock of TF de
Mexico, S.A. de C.V. (the "COMPANY"), which Shares constitute 92.05% of all of
the issued and outstanding shares of the capital stock of the Company;
WHEREAS, an affiliate of Buyer has leased and operated since October 1,
1993, the manufacturing assets of the Company; and
WHEREAS, Seller desires to sell, and Buyer desires to purchase the
Shares for the consideration and on the terms set forth in this Agreement.
The parties, intending to be legally bound, agree as follows:
ARTICLE 1. DEFINITIONS
Capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings set forth in Schedule 1 hereto.
ARTICLE 2. SALE AND TRANSFER OF SHARES; CLOSING
SECTION 2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing,
Seller shall sell and transfer the Shares, free and clear of all Encumbrances,
to Buyer and shall sell and transfer the Minority Interest, free and clear of
all Encumbrances, to a designee of Buyer, and Buyer shall purchase the Shares
from Seller and shall cause a designee of Buyer to purchase the Minority
Interest from Seller.
SECTION 2.2 PURCHASE PRICE; CANCELLATION OF INTERCOMPANY DEBT
(a) The aggregate purchase price (the "PURCHASE PRICE") for the Shares
and the Minority Interest shall be $48,450,000 United States Dollars, which
shall be payable by Buyer in cash at the Closing by wire transfer to Seller's
bank account to be indicated in writing to Buyer not later than the third
Business Day prior to the Closing Date. The Purchase Price for the Shares and
the Minority Interest shall be allocated between the Shares and Minority
Interest by Buyer, which shall be reasonably acceptable to Seller.
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(b) On the Closing Date, Buyer shall pay or cause the payment to Tamsa
of the Intercompany Debt by wire transfer to Tamsa's bank account to be
indicated in writing by Seller to Buyer not later than the third Business Day
prior to the Closing Date.
SECTION 2.3 CLOSING
The closing of the Contemplated Transactions provided for in this
Agreement (the "CLOSING") will take place at the offices of Seller at Campos
Eliseos 400 17th Floor, Mexico City, at 10:00 a.m. (Mexico City time) on the
date that is ten Business Days following the day on which the parties have been
notified of the Clearances. Subject to the provisions of Article 9, failure to
consummate the Contemplated Transactions provided for in this Agreement on the
date and time and at the place determined pursuant to this Section will not
result in the termination of this Agreement and will not relieve any party of
any obligation under this Agreement.
SECTION 2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Seller will deliver to Buyer:
(i) certificates representing the Shares duly endorsed to
Buyer for transfer or accompanied by duly executed powers assigning the Shares
to Buyer;
(ii) a letter signed by an attorney-in-fact of Seller
addressed to Company informing that the Shares have been transferred to Buyer
and requesting that any required registration be made to acknowledge such
transfer;
(iii) the Officer's Certificates required by Section 7.8;
(iv) certificates representing the Minority Interest duly
endorsed to Buyer for transfer or accompanied by duly executed powers assigning
the Shares to Buyer;
(v) evidence of the termination of the Management Services
Agreement and waiver of any rights by both parties under such agreement;
(vi) an opinion of Seller's counsel in the form attached
hereto as Schedule 7.7;
(vii) any resignations requested by Buyer, effective as of the
Closing Date, of the directors and officers of the Companies and revocations of
powers of attorneys from the Companies;
(viii) evidence satisfactory to the Buyer of the cancellation
of the Intercompany Debt; and
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(ix) possession of all corporate, business and accounting
records of the Companies.
(b) Buyer will deliver to Seller:
(i) evidence of the wire transfers effected pursuant to
Sections 2.2(a) and 2.2(b);
(ii) the Officer's Certificates required by Section 8.5;
and
(iii) an opinion of Buyer's counsel in the form attached
hereto as Schedule 8.4.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
OF SELLER
Seller represents and warrants to Buyer as follows:
SECTION 3.1 ORGANIZATION AND GOOD STANDING
(a) Each of the Companies is a corporation duly organized, validly
existing and in good standing under the laws of their jurisdiction of
incorporation, and has all requisite corporate power and authority to conduct
its business as currently conducted and to own, operate and lease the assets and
properties it now owns, operates or holds under lease. During the past seven
years the Companies have not done business in any foreign jurisdiction which
would have required them to be licensed in such jurisdiction.
(b) Seller has previously delivered to EVI and Buyer true and correct
copies of the Organizational Documents of each of the Companies as in effect on
the date hereof. The minute books of each of the Companies previously made
available to EVI and Buyer are complete since September 1993 and accurately
reflect all action taken since that date prior to the date of this Agreement by
its board of directors and shareholders, in their capacities as such. Seller has
also made available to EVI and Buyer all other books and corporate records
relating to the Companies to which Seller is aware.
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SECTION 3.2 AUTHORITY
Each of Seller and Tamsa has full power and authority to execute and
deliver this Agreement and, subject to the Clearances being obtained, to perform
its obligations hereunder. Seller's and Tamsa's attorneys-in-fact are duly
empowered to execute this Agreement and endorse the Shares. The execution and
delivery of this Agreement by each of Seller and Tamsa and the performance of
its obligations hereunder have been duly authorized by all necessary corporate
action on its part and no further authorization on the part of Seller and Tamsa
is necessary to authorize the execution and delivery by Seller and Tamsa of, and
the performance of its obligations under, this Agreement. This Agreement has
been duly executed and delivered by each of Seller and Tamsa and, subject to the
Clearances being obtained, constitutes a legal, valid and binding obligation of
each of Seller and Tamsa, enforceable against it in accordance with its terms,
except as such enforceability may be limited by or subject to (a) any
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditor's rights generally and (b) general principles of equity
(regardless or whether such enforceability is considered in a proceeding in
equity not law).
SECTION 3.3 NO VIOLATION OR CONFLICT; CONSENTS
(a) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with or result in a violation of (A) any
provision of the Organizational Documents of Seller or the Companies or (B) any
resolution adopted by the board of directors or the shareholders of Seller or
the Companies;
(ii) subject to the Clearances, contravene, conflict with or result
in a violation of, or give any Mexican Governmental Body or other Person the
right to challenge any of the Contemplated Transactions or to exercise any
remedy or obtain any relief under any Mexican Legal Requirement or any Mexican
Order to which the Companies or Seller, or any of the assets owned or used by
any of the Companies, may be subject;
(iii) subject to the Clearances, contravene, conflict with or
result in a violation of any of the terms or requirements of, or give any
Mexican Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate or modify, any Mexican governmental authorization that is held by the
Companies or that otherwise relates to the business of, or any of the assets
owned or used by, any of the Companies;
(iv) result in the imposition or creation of any Encumbrance upon
or with respect to the Shares, the Minority Interest or any of the assets owned
or used by the Companies;
(v) other than the Clearances, require the consent, approval,
clearance, waiver, order or authorization of any Person or Governmental Body;
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(vi) conflict with or violate any permit, concession, grant,
franchise, statute, law, rule or Legal Requirement of any Governmental Body or
any Mexican Order of any Governmental Body; or
(vii) conflict with, or result in any breach of, or default or loss
of any right under (or an event or circumstances that, with notice or the lapse
of time, or both, may result in a default), or cause or permit the acceleration
prior to maturity of any amounts owing under, any Contract or indenture,
mortgage, deed or trust, lease, or other agreement to which either of the
Companies is a party or to which the Shares, the Minority Interest or any of
their respective assets are subject;
except for violations or conflicts with respect to the matters specified in
clause (iii) that would not, individually or in the aggregate, have a material
adverse effect on the business, operations, properties, assets, or condition of
the Companies (the "COMPANY CONDITION").
(b) The execution, delivery and performance of this Agreement by Seller
will not result in the loss of any license, franchise or permit possessed by
either of the Companies or give a right of acceleration or termination to any
party to any Contract or other agreement or instrument to which either of the
Companies is a party or by which any of their respective assets are bound, or
the loss of any right or benefit under such agreement or instrument, except
where the loss of such license, franchise or permit, or the acceleration or
termination of, or the loss of any right or benefit under, such agreement or
instrument would not, individually or in the aggregate, have a material adverse
effect on the Company Condition.
SECTION 3.4 CAPITALIZATION
(a) The authorized equity securities of the Company consist of twenty
five million (25,000,000) shares of common stock, of which twenty five million
(25,000,000) shares are issued and outstanding of which 23,013,653 are owned
beneficially and of record by Seller. All of the outstanding shares of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable and were not issued in violation of any preemptive rights of any
Person. Seller is and will be on the Closing Date the record and beneficial
owner and holder of the Shares, free and clear of all Encumbrances. Upon the
purchase of the Shares as contemplated by this Agreement, buyer shall obtain
good, valid and marketable title to the Shares free and clear of all
Encumbrances. There are no outstanding options, warrants, convertible
securities, calls, rights, commitments, preemptive rights, agreements,
arrangements or understandings of any character obligating Seller or the Company
(a) to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the equity securities of the Company or any securities or
obligations convertible into or exchangeable for such shares or (b) to grant,
extend or enter into any such option, warrant, convertible security, call,
right, commitment, preemptive right, agreement, arrangement or understanding.
(b) The authorized equity securities of the Subsidiary consist of
ninety five thousand (95,000) shares of common stock, of which ninety five
thousand (95,000) shares are issued and outstanding. All of the outstanding
shares of the Subsidiary have been duly authorized and validly
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<PAGE> 6
issued and are fully paid and nonassessable and were not issued in violation of
any preemptive rights of any Person. The Company is and will be on the Closing
Date the record and beneficial owner and holder of ninety four thousand nine
hundred and sixty (94,960) shares of the Subsidiary, free and clear of all
Encumbrances. The Seller is and will be on the Closing Date the record and
beneficial owner and holder of the Minority Interest, free and clear of all
Encumbrances. Upon the purchase of the Minority Interest as contemplated by this
Agreement, Buyer shall obtain good, valid and marketable title to the Minority
Interest free and clear of all Encumbrances. There are no outstanding options,
warrants, convertible securities, calls, rights, commitments, preemptive rights,
agreements, arrangements or understandings of any character obligating the
Company, the Subsidiary or any Affiliate of the Company (a) to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the equity
securities of the Subsidiary or any securities or obligations convertible into
or exchangeable for such shares or (b) to grant, extend or enter into any such
option, warrant, convertible security, call, right, commitment, preemptive
right, agreement, arrangement or understanding. Prior to the Closing, the sole
administrator and the shareholders of Subsidiary shall have ratified all
transfers of shares of common stock of Subsidiary that may have occurred over
the past five years.
SECTION 3.5 FINANCIAL STATEMENTS
Seller has previously delivered to Buyer true and correct copies of the
audited balance sheet of the Company at December 31, 1997 and the related
statements of income and retained earnings of the Company for the year ended
December 31, 1997 (collectively the "FINANCIAL STATEMENT"), together with the
report thereon of Price Waterhouse, independent certified public accountants.
The Financial Statements and notes thereto fairly present the financial position
of the Company at the respective dates thereof and the results of operations,
and have been prepared in accordance with GAAP consistently applied. As of
December 31, 1997, neither of the Companies had any liability of any kind or
manner either direct, accrued, absolute or otherwise, which was required to be
disclosed by GAAP and which was not reflected or disclosed in the Financial
Statement. Since December 31, 1997, there has been no changes in the Companies'
method of accounting for Tax purposes or other purposes.
SECTION 3.6 BOOKS AND RECORDS
The books of account, minute books, stock record books, capital
variation books and other records of the Companies, all of which have been made
available to Buyer, are complete and correct since 1993 and have been maintained
since such date in accordance with business practices current in the United
Mexican States. The minute books of the Companies contain accurate and complete
records of all meetings held of, and corporate action taken by, the shareholders
and the boards of directors of each of the Companies since 1993. At the Closing,
all of such books and records will be in the possession of the Companies and
delivered to Buyer.
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SECTION 3.7 TITLE TO PROPERTIES
(a) The Companies have good and marketable title to, or valid and
subsisting leasehold interest in, all of the personal property which is material
to the Company Condition, free and clear of all Encumbrances.
(b) Each parcel of real estate, including all improvements thereon,
owned by the Companies, including the real property described on Schedule 3.7,
of which the Company has good and marketable title, is free and clear of any
Encumbrances and is neither subject to any Order or to be sold nor is being
condemned, expropriated or otherwise taken by any Governmental Body with or
without payment of compensation therefor, nor has any such condemnation,
expropriation or taking been proposed.
SECTION 3.8 NO UNDISCLOSED LIABILITIES
Neither of the Companies has any liabilities or obligations of any
nature whatsoever (whether known or unknown and whether absolute, accrued,
contingent, or otherwise) and no existing condition, situation or set of
circumstances that could reasonably be expected to result in such a liability
except for (i) liabilities reflected in the Financial Statements, (ii) current
liabilities incurred in the Ordinary Course of Business since the respective
dates thereof, (iii) liabilities arising from Mexican Legal Requirements
regarding the matters excluded from Seller's representations and warranties by
Section 3.16, and (iv) liabilities arising in connection with or as a result of
the use or operation of the assets of the Company by Grant Prideco, S.A. de C.V.
SECTION 3.9 MEXICAN TAXES
(a) All Tax Returns that are required to be filed on or before the date
of Closing for, by, on behalf of or with respect to the Companies have been
timely filed with the appropriate foreign, federal, state and local authorities
and all Taxes shown to be due and payable on such Tax Returns or related to such
Tax Returns have been timely paid in full.
(b) All such Tax Returns and the information and data contained therein
have been properly and accurately complied and completed, fairly present in all
material respects the information purported to be shown therein, and reflect all
material liabilities for Taxes for the periods covered by such Tax Returns.
(c) None of such Tax Returns are now under audit or examination by any
foreign, federal, state or local authority and there are no agreements, waivers
or other arrangements providing for an extension of time with respect to the
assessment or collection of any Tax or deficiency of any nature against Seller
(to the extent either of the Companies would be liable) or either of the
Companies or their respective properties, or with respect to any such Tax
Return, or any suits or other actions, proceedings, investigations or claims now
pending or threatened against Seller or either of the Companies or their
respective properties with respect to any Tax, or any matters under discussion
with a foreign, federal, state or local authority relating to any Tax, or any
claims for any additional Tax asserted by any such authority.
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<PAGE> 8
(d) All Taxes due and required to be paid by the Companies or assessed
and due and required to be paid by the Companies have been timely paid in full.
(e) All withholding Tax and Tax deposit requirements imposed on the
Companies or any of their respective properties for any and all periods prior to
and including the date hereof have, and to and including the Closing will have
been timely satisfied.
(f) The Companies have each made adequate provision for the payment in
full of any and all unpaid Taxes for any and all periods or portions thereof
ending on or before the date of the Closing.
SECTION 3.10 NO MATERIAL ADVERSE CHANGE
Since December 31, 1997, there has not been (a) any material adverse
change in the Company Condition and no event or condition has occurred or exists
that would result in such a material adverse change including (b) any Damage,
destruction or loss that has or would have a material adverse affect on the
Company Condition, (c) any change in accounting methods, principles or practices
by the Companies materially affecting the Company's assets, liabilities or
business, except insofar as may have been required by a change in GAAP, or (d)
any agreement entered into outside of the Ordinary Course of Business, in
writing or otherwise, in each case except as set forth in Schedule 3.10 hereto.
SECTION 3.11 COMPLIANCE WITH MEXICAN LEGAL REQUIREMENTS
(a) The Companies possess all required, necessary or applicable
permits, licenses, variances, exemptions, orders, franchises and approvals of
all Governmental Bodies which are in general necessary for any corporation in
Mexico, irrespective of the kind of business in which it engages, to carry on
their businesses. All applications with respect to such permits, licenses,
variances, exemptions, orders, franchises and approvals were complete and
correct in all material respects when made and Seller knows of no reason why any
of such permits, licenses, variances, exemptions, orders, franchises and
approvals would be subject to cancellation. None of the Companies has violated
or failed to comply with any Mexican Legal Requirement or Order of any
Governmental Body applicable to the Companies or their respective business,
assets or operations, which violation or failure to comply would have a material
adverse effect.
(b) Except as disclosed in Schedule 3.11, the Companies have not
received, at any time since January 1, 1995, any notice or other communication
from any Governmental Body or any other Person regarding (i) any actual,
alleged, possible or potential violation of, or failure to comply with, any
Legal Requirement, or (ii) any actual, alleged, possible, or potential
obligation on the part of the Companies to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature, which, violation,
failure or obligation would have a material adverse effect.
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SECTION 3.12 LEGAL PROCEEDINGS
(a) There is no pending (of which the Companies or Seller, as the case
may be, have received formal communication or notice) or, to the Best Knowledge
of Seller, threatened Proceedings:
(i) that has been commenced by or against either Seller or the
Companies, or any officer, director, shareholder or Affiliate thereof, or that
otherwise relates to or may materially affect the business of, or any of the
assets owned or used by, the Companies; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
To the Best Knowledge of Seller, and subject to Section 3.16
no event has occurred or circumstance exists that may give rise to or serve as a
basis for the commencement of any such Proceeding.
(b) Except for the anti-dumping order relating to oil country tubular
goods for Mexico, case number A-201-817, issued by the United States Department
of Commerce on August 11, 1995:
(i) there is no Mexican or US Order to which the Companies, or
any of the assets owned or used by any of the Companies, is subject; and
(ii) Seller is not subject to any Mexican or US Order that
relates to the business of, or any of the assets owned or used by, any of the
Companies;
which Order would have a material adverse effect on the Company Condition.
SECTION 3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Schedule 3.13 and for any changes of a general
nature that may have affected the business of the Companies (including the
condition of the financial markets and of the oil and gas industry), since the
date of the Financial Statement there has not been any:
(a) change in any of the Companies' authorized or issued capital stock;
grant of any stock option or right to purchase shares of capital stock of the
Companies; issuance of any security convertible into such capital stock; grant
of any registration rights; purchase, redemption, retirement, or other
acquisition by the Companies of any shares of any such capital stock; or
declaration, setting aside or payment of any dividend or other distribution or
payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of the Companies; or
(c) granting by Seller or either of the Companies to any executive
officer of either of the Companies of any increase in compensation, granting by
Seller or either of the Companies to any such executive officer of either of the
Companies of any increase in severance or termination pay,
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or entry by Seller or either of the Companies of any increase in severance or
termination pay, or entry by Seller or either of the Companies into any
employment, severance or termination agreement with any such executive officer.
SECTION 3.14 CONTRACTS; EMPLOYEES
(a) The Companies are not parties to , and neither of them or their
respective properties are subject to, any Contracts other than (i) the Lease
Agreement, (ii) the Contrato de Maquila between the Company and Grant TF de
Mexico, S.A. de C.V. entered into on September 30, 1993, as amended, and (iii)
the Management Services Agreement which shall be terminated on the Closing Date.
(b) Except for the Manufacture Agreement which is being entered into
concurrent with this Agreement, Seller (and any Affiliate of Seller) does not
have nor may acquire any rights under, and Seller does not have nor may become
subject to any obligation or liability under, any contract that relates to the
business of, or any of the assets owned or used by, the Companies.
(c) Neither of the Companies has any outstanding indebtedness other
than the Intercompany Debt.
(d) Since September 30, 1993, the Company has not had any employees and
Subsidiary has never had any employees.
SECTION 3.15 BROKERS OR FINDERS
No banker, broker or finder whose fees and expenses are being paid by
Seller or the Companies has acted directly or indirectly for Seller or any
Affiliate or Seller in connection with this Agreement or the Contemplated
Transactions. No other banker, broker, finder or other Person is entitled to any
broker or finder's fee or other commission in respect thereof based in any way
on agreements, arrangements or understandings made by or on behalf of Seller or
any Affiliate of Seller.
SECTION 3.16 SOLE REPRESENTATIONS
Seller does not make any representation nor give any warranty other
than those expressly made and given in this Article 3. Without limiting the
generality of the foregoing, Seller does not make any representation nor give
any warranty in relation to (i) the condition of the assets owned or leased by
the Companies, (ii) the extent to which the Companies have complied with any
applicable environmental, zoning, labor and health and safety regulations since
September 1, 1993, (iii) the compliance with Legal Requirements regarding labor
matters since September 1, 1993, and (iv) any insurance matters. Buyer has not
relied on any representations or warranties other than those expressly made and
given in this Agreement.
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ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
SECTION 4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly incorporated, validly existing, and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use.
SECTION 4.2 AUTHORITY; NO CONFLICT
(a) The execution, delivery and performance by Buyer of this Agreement
and the consummation by Buyer of the Contemplated Transactions have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly and validly executed and delivered by Buyer and
constitutes the legal, valid and binding obligation of Buyer, enforceable
against it in accordance with its terms, except to the extent that such
enforceability (a) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditor's rights generally and (b)
is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will give
any Person the right to prevent, delay, or otherwise interfere with any of the
Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any US Legal Requirement or US Order to which Buyer may be
subject; or
(iv) any Contract to which Buyer is a party or by which Buyer
may be bound;
Except for the Clearances, Buyer is not and will not be required to
obtain any consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
SECTION 4.3 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced, or to the Best
Knowledge of Buyer, threatened against Buyer that challenges, or may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions.
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SECTION 4.4 BROKERS OR FINDERS
No banker, broker, finder or other Person is entitled to any brokerage
or finder's fee or other commission in respect of this Agreement or the
Contemplated Transactions based in any way on agreements, arrangements or
understandings made by or on behalf of Buyer or any Affiliate of Buyer.
ARTICLE 5. COVENANTS OF SELLER PRIOR TO CLOSING DATE
SECTION 5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Seller will,
and will cause the Companies and its Representatives to, (a) afford Buyer and
its Representatives full and free access to the Companies' personnel,
properties, contracts, books and corporate records, and other documents and
data, (b) furnish Buyer and its Representatives with copies of all such
contracts, books and corporate records, and other existing documents and data as
Buyer may reasonably request, and (c) furnish Buyer and its Representatives with
such additional financial, operating, and other data and information as Buyer
may reasonably request.
SECTION 5.2 OPERATION OF THE BUSINESSES OF THE COMPANY
(a) Between the date of this Agreement and the Closing Date, Seller
will, and will cause the Company to, perform its obligations under the Lease
Agreement.
(b) Seller covenants and agrees that, from the date of this Agreement
until the Closing, unless Buyer shall otherwise agree in writing or as otherwise
expressly contemplated by this Agreement:
(i) the Companies shall not directly or indirectly do any of the
following: (A) issue, sell, pledge, dispose of or encumber any capital stock of
the Companies; (B) split, combine, or reclassify any outstanding capital stock,
or declare, set aside, or pay any dividend payable in cash, stock, property, or
otherwise with respect to its capital stock whether now or hereafter
outstanding; (C) redeem, purchase or acquire or offer to acquire any of its
capital stock except as may be required to cancel the registration of the
Company with the Mexican Stock Exchange; (D) acquire, agree to acquire or make
any offer to acquire for cash or other consideration, any equity interest in or
assets of any corporation, partnership, joint venture, or other entity in an
amount greater than $10,000; or (E) enter into any contract, agreement,
commitment, or arrangement with respect to any of the matters set forth in this
Section 5.2(b)(i);
(ii) Seller shall not transfer, dispose or otherwise convey any of
the Shares held by it or grant or permit there to exist any Encumbrance on the
Shares;
(iii) Tamsa, an Affiliate of the Company, shall not transfer,
dispose or otherwise convey
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any of the Minority Interest held by it or grant or permit there to exist any
Encumbrance on the Minority Interest;
(iv) the Companies shall not enter into any Contract;
(v) except pursuant to the Lease Agreement, the Companies
shall not sell, lease, mortgage, pledge, grant a Lien on or otherwise encumber
or otherwise dispose of any of their properties or assets;
(vi) the Companies shall not, directly or indirectly, incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another Person, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of the Companies, guarantee any debt securities of
another Person, or make or permit to remain outstanding any loan (other than the
Intercompany Debt), advances or capital contributions to, or investments in, any
other Person, other than to the Subsidiary; or
(vii) the Company shall not change any accounting principle
used by it.
SECTION 5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Closing Date, Seller will not, and will cause the
Companies not to, without the prior consent of Buyer, take any affirmative
action, or fail to take any reasonable action within their or its control, as a
result of which any of the changes or events listed in Section 3.13 is likely to
occur, Seller will additionally cause the Companies to refrain from undertaking
any commitment without the prior written approval of Buyer.
SECTION 5.4 COOPERATION
Seller will cooperate with Buyer in the preparation of any documents
and filings necessary to obtain the Clearances.
SECTION 5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, Seller will
promptly notify Buyer in writing if Seller or the Companies become aware of any
fact or condition that causes or constitutes a Breach of Seller's
representations and warranties as of the date of this Agreement, or if Seller or
the Companies become aware of the occurrence after the date of this Agreement of
any fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representations or
warranties had such representations or warranties been made as of the time of
occurrence or discovery of such fact or condition. Should any such fact or
condition require any change in the schedules of this Agreement if any such
schedule were dated the date of the occurrence or discovery of any such fact or
condition, Seller will promptly deliver to Buyer a supplement to the relevant
schedule specifying such change.
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SECTION 5.6 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Seller will
use its Best Efforts to cause the conditions in ARTICLE 7 that are within its
control to be satisfied.
ARTICLE 6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
SECTION 6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Buyer will
make all filings required by Legal Requirements to be made by it to consummate
the Contemplated Transactions (including all filings necessary to obtain the
Clearances). Seller shall fully cooperate with Buyer in the preparation of all
necessary documents related to such filings.
SECTION 6.2 NOTIFICATION
Between the date of this Agreement and the Closing Date, Buyer will
promptly notify Seller in writing if Buyer becomes aware of any fact or
condition that causes or constitutes a Breach of Buyer's representations and
warranties as of the date of this Agreement, or if Buyer becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representations or warranties had such representations or
warranties been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the schedules
of this Agreement if any such schedule were dated the date of the occurrence or
discovery of any such fact or condition, Buyer will promptly deliver to Seller a
supplement to the relevant schedule specifying such change.
SECTION 6.3 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Buyer will use
its Best Efforts to cause the conditions in ARTICLE 8 that are within its
control to be satisfied.
ARTICLE 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Buyer's obligations to consummate the Contemplated Transactions and to
take the other actions required to be taken by it under this Agreement at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by Buyer in writing, in
whole or in part):
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SECTION 7.1 ACCURACY OF REPRESENTATIONS
Seller's representations and warranties in this Agreement must have
been accurate in all respects as of the date of this Agreement, and must be
accurate in all respects as of the Closing Date as if made on the Closing Date,
without giving effect to any supplement to the schedules.
SECTION 7.2 SELLER'S PERFORMANCE
The covenants and obligations that Seller is required to perform or to
comply with pursuant to this Agreement at or prior to the Closing, must have
been duly performed and complied with in all material respects.
SECTION 7.3 CLEARANCES
The Clearances must have been obtained and must be in full force and
effect and no Order shall exist that prevents the performance of the Manufacture
Agreement, the Seamless Pipe Supply Agreement and the Master Technology
Agreement in a manner adverse to Buyer, EVI or its Affiliates.
SECTION 7.4 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
threatened against Seller or the Companies, or against any Affiliate of Seller,
any Order or Proceeding (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions, or (b)
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
SECTION 7.5 NO CLAIM REGARDING STOCK OWNERSHIP SALE PROCEEDS
There must not have been made or threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, or any Encumbrance
on, any stock of, or any other voting, equity, or ownership interest in, the
Companies, or (b) is entitled to all or any portion of the Purchase Price
payable for the Shares and the Minority Interest.
SECTION 7.6 TERMINATION OF MANAGEMENT SERVICES AGREEMENT
The Management Services Agreement shall have been terminated and any
rights by both parties under such agreement must have been waived. Written
evidence of such termination and waiver shall be delivered by Seller to Buyer
and EVI.
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SECTION 7.7 OPINION OF COUNSEL
EVI and Buyer shall have received an opinion of counsel to Seller and
the Companies in substantially the form attached hereto as Schedule 7.7.
SECTION 7.8 OFFICER'S CERTIFICATE
(a) EVI and Buyer shall have received from Seller and Tamsa a
certificate of Seller and Tamsa, executed on behalf of each of Seller and Tamsa
by the president or chief executive officer of Seller and Tamsa, as the case may
be, as to compliance with each of the matters set forth in Section 7.1 through
7.6; and
(b) EVI and Buyer shall have received from Seller a copy of the
resolutions of the board of directors and, if necessary, shareholders of Seller
and Subsidiary, certified by the Secretary of Seller and Subsidiary, approving
this Agreement and the Contemplated Transactions.
ARTICLE 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
Seller's obligations to consummate the Contemplated Transactions and to
take the other actions required to be taken by Seller under this Agreement at
the Closing is subject to the satisfaction, at or prior to the Closing, of each
of the following conditions (any of which may be waived by Seller in writing, in
whole or in part):
SECTION 8.1 ACCURACY OF REPRESENTATIONS
Buyer's representations and warranties in this Agreement must have been
accurate in all respects as of the date of this Agreement, and must be accurate
in all respects as of the Closing Date as if made on the Closing Date, without
giving effect to any supplement to the schedules.
SECTION 8.2 BUYER'S PERFORMANCE
The covenants and obligations that Buyer is required to perform or to
comply with pursuant to this Agreement at or prior to the Closing, must have
been duly performed and complied with in all material respects.
SECTION 8.3 CLEARANCES
The Clearances must have been obtained and must be in full force and
effect and no Order shall exist that prevents the performance of the Manufacture
Agreement, the Seamless Pipe Supply Agreement dated as of the date hereof by and
between Techint Engineering Company and Grant Prideco, Inc. and the Master
Technology License Agreement dated as of the date hereof between Grant Prideco,
Inc. and DST Distributors of Steel Tubes Limited.
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SECTION 8.4 OPINION OF COUNSEL
Seller shall have received an opinion of counsel to Buyer in
substantially the form attached hereto as Schedule 8.4.
SECTION 8.5 OFFICER'S CERTIFICATES
(a) Seller shall have received from EVI a certificate of EVI,
executed on behalf of EVI by the president or chief financial officer of EVI, as
to compliance with each of the matters set forth in Section 8.1 through 8.3.
(b) Seller shall have received from Buyer a certificate of Buyer,
executed on behalf of Buyer by the president or chief financial officer of
Buyer, as to compliance with each of the matters set forth in Sections 8.1
through 8.3.
(c) Seller shall have received from Buyer a copy of the resolutions of
the board of directors of Buyer, certified by the Secretary of Buyer, approving
this Agreement and the Contemplated Transactions.
ARTICLE 9. TERMINATION
SECTION 9.1 TERMINATION EVENTS
This Agreement may, by written notice given prior to or at the Closing,
be terminated:
(a) by either Buyer or Seller, if a material Breach of any provision of
this Agreement has been committed by the other party or has occurred and such
Breach has not been waived;
(b) (i) by Buyer if any of the conditions in Article 7 have not been
satisfied as of the Closing Date or if satisfaction of any such condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Seller, if any of the conditions in Article
8 has not been satisfied as of the Closing Date or if satisfaction of any such
condition is or becomes impossible (other than through the failure of Seller to
comply with their obligations under this Agreement) and Seller has not waived
such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before October 31,
1998, or such later date as the parties may agree upon.
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SECTION 9.2 EFFECT OF TERMINATION
Each party's right of termination under this Article 9 is in addition
to any other rights it may have under this Agreement or otherwise, and the
exercise of a right of termination will not be an election of remedies. If this
Agreement is terminated pursuant to this Article, all obligations of the parties
under this Agreement will terminate; provided, however, that if this Agreement
is terminated by a party because of the Breach of the Agreement by the other
party or because one or more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a result of the other
party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
ARTICLE 10. SURVIVAL; INDEMNIFICATION
SECTION 10.1 SURVIVAL
All representations and warranties in this Agreement shall survive the
Closing Date and shall remain in full force and effect until the last day of the
eighteenth month following the Closing Date (except that (a) the representations
and warranties set forth in Section 3.2, Section 3.4, Section 3.7, Section 3.11,
Section 3.12, Section 3.15 and Section 4.4 shall survive the Closing Date
without limitation and (b) the representation and warranty set forth in Section
3.9 shall survive until the applicable statute of limitations term expires) (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 this Article 10
hereof may be made thereon) if a written notice asserting the claim shall have
been duly given in accordance with this Article 10 within the Survival Period
with respect to such matter. All covenants and agreements contained herein shall
survive without limitation; provided, however, that such survival shall not
operate to expand the indemnification obligations set forth in this Article 10.
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 such claim may not be resolved
within the Survival Period. All representations, warranties and covenants and
agreements made by the parties shall not be affected by any investigation
heretofore or hereafter made by and on behalf of any of them and shall not be
deemed merged into any instruments or agreements delivered in connection with
this Agreement or otherwise in connection with the transactions contemplated
hereby.
SECTION 10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER
(a) Except as otherwise limited by this Article 10, Seller agrees to
indemnify, defend and hold Buyer and its successors and assigns harmless from
and against and in respect of Damages actually suffered, incurred of realized by
such party (collectively, "BUYER LOSSES"), arising out of or resulting from or
relating to:
(i) any misrepresentation, breach of warranty or breach of
any covenant or agreement made or undertaken by Seller in this Agreement,
including the Schedules hereto; and
(ii) any claim by any Person with respect to (x) a matter
involving the Companies
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that existed prior to 1993 that was not reflected in the books and records
provided to Buyer or (y) the ownership of, or rights to purchase an interest in,
either the Company or the Subsidiary to the extent such ownership is not
disclosed in Section 3.4 or (z) any defect in the due organization of either the
Company or the Subsidiary or any amendment to their Organizational Documents.
(b) Notwithstanding the foregoing, Seller's maximum aggregate liability
for Buyer Losses resulting from Seller's Breach of the representations and
warranties made in this Agreement and for the indemnification obligation set
forth in Section 10.3 shall not exceed 50% of the Purchase Price; provided,
however, that there shall be no limit to Seller's liability for Buyer Losses
resulting from Seller's Breach of the representations, warranties and covenants
made in Section 3.2, Section 3.4, Section 3.7 and Section 3.9 of this Agreement.
SECTION 10.3 ENVIRONMENTAL MATTERS
Seller shall indemnify and hold harmless Buyer against any Damage
resulting from any Environmental Claim to the extent such Environmental Claim
(a) arises out of or is based upon the acts or omissions prior to September 1,
1993 and (b) relates to a condition in the assets or properties that were
subject to the Lease Agreement that would have been regarded as a hidden defect
at such date. In addition, Seller agrees to remediate and take such other action
as may be necessary to cause the items of environmental concern in the
southwestern portion of the site described and referred to in the memorandum
dated June 18, 1998, from Eugenia Sangines' to Curtis Huff under the heading
"History of Waste Disposal" to be fully addressed and cured so that the area
identified, including both the surface and underground, and the Company and the
Subsidiary will be in compliance with all applicable Legal Requirements with
respect to the area and matters described therein and Seller shall be
responsible for and indemnify and hold Buyer harmless against any liabilities or
claims from third parties relating to such matters. For purposes of this
Section, the term "Environmental Claim" shall mean a regulatory requirement from
a Governmental Body or any allegation, notice of violation, claim, demand or
Order by Governmental Body or any Person for bodily injury (including sickness,
disease or death, whether chronic or acute), tangible or intangible property
damage, damage to the environment, nuisance, pollution, contamination or other
adverse effects on health or the environment, or for fines, penalties or
restrictions, resulting from or based upon (i) the existence or release, or
continuation of a release (including, without limitation, sudden or nonsudden,
accidental or nonaccidental leaks or spills), of, or exposure to, any noxious or
toxic substance, chemical, material, pollutant, noise or contaminant in, into or
onto the environment (including, without limitation, the air, ground, water or
any surface) at, in, or from any Company facility prior to September 1, 1993,
(ii) the health or environmental aspects of the transportation, storage,
treatment or disposal of materials either on-site or off-site in connection with
the operation of any Company facility prior to September 1, 1993; or (iii) the
violation, or alleged violation, by any Company facility prior to September 1,
1993, of any statutes, ordinances, orders, rules, regulations, permits or
licenses, whether Federal, State or Municipal laws of Ecological Equilibrium and
Environmental Protection, its Regulations, as well as all suppletory and
complementary legislation and related provisions, including other Legal
Requirements, of or from any Governmental Body, agency or court in force prior
to the date of the Lease Agreement. Buyer shall give notice to Seller prior to
the Company or the Subsidiary taking any material action with respect to an
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environmental cleanup that would reasonably be expected to raise an
Environmental Claim with respect to the property of the Company or Subsidiary
for which the Seller would be liable hereunder and shall take reasonable efforts
to agree with Seller on the terms of such action; provided, however, subject to
the foregoing, neither the Company nor Subsidiary shall be prohibited from
taking any action that may be required under any applicable Legal Requirement or
from participating in a voluntary environmental audit procedure before the
Mexican Environmental Protection Agency with the objective of obtaining a "Clean
Industry Award" if the Company or the Subsidiary deem such action, after
consultation with Seller, to be advisable.
SECTION 10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
(a) Except as otherwise limited by this Article 10, Buyer agrees to
indemnify, defend and hold Seller and its respective 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 or relating to any misrepresentation, breach of warranty or
breach of any covenant or agreement made or undertaken by Buyer in this
Agreement, including the Schedules hereto.
(b) Notwithstanding the foregoing, Buyer's maximum aggregate liability
for Buyer Losses resulting from a Breach of the representations and warranties
by Buyer in this Agreement shall not exceed 50% of the Purchase Price; provided,
however, that there shall be no limit to Buyer's liability for Seller Losses
resulting a Breach of the representations warranties and covenants made by Buyer
in Section 4.4 of this Agreement.
SECTION 10.5 LIMITATIONS ON AMOUNT--SELLER
Seller will have no liability (for indemnification or otherwise) with
respect to the matters described in Section 10.2(a) and 10.3 until the total of
all Buyer's Losses exceeds $500,000, and then only for the amount by which such
Buyer's Losses exceeds $500,000. However, this Section will not apply to any
Breach of Seller representations and warranties under Section 3.2, Section 3.4,
Section 3.7 and Section 3.9 or the agreements or covenants contained in Section
11.1 and Seller will be liable for all Buyer's Losses with respect to such
Breaches.
SECTION 10.6 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with
respect to the matters described in Section 10.4 until the total of all Seller's
Losses exceeds $500,000, and then only for the amount by which such Damages
exceeds $500,000. However, this Section will not apply to any Breach of Buyer's
representations and warranties under Section 4.2, and Buyer will be liable for
all Seller's Losses with respect to such Breaches.
SECTION 10.7 AMOUNT OF DAMAGES
The amount of any Damage for which indemnification is provided under
this Article shall
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be net of any amounts recovered or recoverable by the indemnified party under
insurance policies (except captive reinsurance or other such retention
arrangements of such party) with respect to such Damage.
SECTION 10.8 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Sections 10.2,
10.3 or 10.4 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such sections, give notice to the indemnifying party of the commencement
of such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's failure to give
such notice.
(b) If any Proceeding referred to in the preceding clause (a) is
brought against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party will be
entitled to participate in such Proceeding and, to the extent that it wishes
(unless (i) the indemnifying party is also a party to such Proceeding and the
indemnified party determines in good faith that joint representation would be
inappropriate, or (ii) the indemnifying party fails to provide reasonable
assurance to the indemnified party of its financial capacity to defend such
Proceeding and provide indemnification with respect to such Proceeding), to
assume the defense of such Proceeding with counsel satisfactory to the
indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Article for any fees of other counsel
or any other expenses with respect to the defense of such Proceeding, in each
case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Mexican Legal Requirements or US Legal
Requirements, as the case may be, or any violation of the rights of any Person
and no effect on any other claims that may be made against the indemnified
party, and (B) the sole relief provided is monetary damages that are paid in
full by the indemnifying party; and (iii) the indemnified party will have no
liability with respect to any compromise or settlement of such claims effected
without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within ten
Business days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such Proceeding or
any compromise or settlement effected by the indemnified party. In the event of
a third party claim that requires a legal response prior to such ten-day period,
the indemnifying party shall be required to advise the indemnified party no
later than two Business Days of its election to assume the defense, provided,
however, such assumption shall not be deemed an acknowledgment of liability for
the claim.
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(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its Affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) The parties hereby consent to the non-exclusive jurisdiction of any
court in which a Proceeding is brought against an aggrieved party for purposes
of any claim that such party may have under this Agreement with respect to such
Proceeding or the matters alleged therein, and agree that process may be served
on the indemnifying party with respect to such a claim anywhere in the world.
SECTION 10.9 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom indemnification is
sought.
SECTION 10.10 RELEASES
As of the Closing, Seller does hereby for itself and its Affiliates
remise, release, acquit and forever discharge the Company and the Subsidiary and
their successors and assigns (collectively, the "COMPANY RELEASED PARTIES") of
and from any and all claims, demands, liabilities, responsibilities, disputes,
causes of action and obligations of every nature whatsoever, liquidated or
unliquidated, known or unknown, matured or unmatured, fixed or contingent, which
Seller and its Affiliates now have, own or hold or have at any time previously
had, owned or held against the Company Released Parties in respect of (i) any
contract, agreement or obligation with Seller or its Affiliates that is not
listed on Schedule 10.10 hereto (it being understood that those contracts,
agreements and obligations listed on Schedule 10.10 hereto shall not be
released) or (ii) any other obligation or liability, including without
limitation all liabilities created as a result of the sole or contributory
negligence, gross negligence and willful acts of any Company Released Party,
existing as of the Closing or relating to any matter that occurred on or prior
to the Closing; provided, however, that any claims, liabilities, debts or causes
of action that may arise in the connection with the failure of any of the
parties hereto to perform any of their obligations hereunder or under any other
agreement relating to the transactions contemplated hereby or from any breaches
by any of them of any representations or warranties herein or in connection with
any of such other agreements shall not be released or discharged pursuant to
this Agreement. Seller represents and warrants that it has not previously
assigned or transferred, or purported to assign or transfer, to any Person or
entity whatsoever all or any part of the claims, demands, liabilities,
responsibilities, disputes, causes of action or obligations released in this
Section 10.7. Seller covenants and agrees that it will not assign or transfer to
any Person or entity whatsoever all or any part of the claims, demands,
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liabilities, responsibilities, disputes, causes of action or obligations
released in this Section 10.7. The parties represent and warrant to each other
that they have read and understand all of the provisions of this Agreement and
that they have been represented or advised by legal counsel and other
professional advisors in connection with the negotiation, execution and delivery
of this Agreement.
ARTICLE 11. GENERAL PROVISIONS
SECTION 11.1 COVENANT NOT TO COMPETE
As a material inducement to Buyer to purchase the Shares, effective as
of the Closing Date and for a period of five years thereafter, and except as
otherwise permitted by the Manufacture Agreement dated as of June 19, 1998 (the
"Manufacture Agreement"), by and between Tubos de Acero de Mexico S.A., Grant
Prideco, S.A. de C.V. and Grant Prideco, Inc., each of Seller and Tamsa shall
not (and each of Seller and Tamsa shall cause each of its Affiliates, including
Siderca S.A., to not) directly or indirectly, develop, produce, manufacture or
fabricate Finished Drill Pipe or Connections (as each are defined in the
Manufacture Agreement) or tool joints to be welded to Green Pipe (as defined in
the Manufacture Agreement) in any geographic market in the world. Each of Seller
and Tamsa acknowledges that a remedy at law for any breach or attempted breach
of this Section 11.1 will be inadequate and further agrees that any breach of
this Section 11.1 will result in irreparable harm to Buyer and Buyer shall, in
addition to any other remedy that may be available to it, be entitled to
specific performance and injunctive and other equitable relief in case of any
such breach or attempted breach. Each of Seller and Tamsa acknowledges that this
covenant not to compete is being provided as an inducement to Buyer to purchase
the Shares and that this Section 11.1 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 interests of Buyer. Whenever possible, each provision of this Section
11.1 shall be interpreted in such a manner as to be effective and valid under
applicable law but if any provision of this Section 11.1 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 11.1. If any provision of this Section 11.1 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 11.1 but shall be confined in its operation to the
provision of this Section 11.1 directly involved in the controversy in which
such judgment shall have been rendered. In the event that the provisions of this
Section 11.1 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. To the
extent the provisions of this Section 11.1 are judged to be invalid or
unenforceable in whole or in part, such invalidation or unenforceability shall
not affect in any manner the remaining provisions of this Agreement nor give
Buyer any right to seek reimbursement of any part of the Purchase Price nor
indemnification from Seller of any Damages suffered as a result of such
invalidation unless, in each case, such invalidation or determination of
unenforceability is a result of a challenge to the provisions of this Section
11.1 by Seller, Tamsa or any of their Affiliates or arises in connection with an
action taken by Buyer to enforce the provisions of this Section 11.1 against
Seller, Tamsa or one or more of their Affiliates.
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SECTION 11.2 RIGHT OF FIRST REFUSAL
(a) (i) Buyer agrees that for so long as the Manufacture Agreement is
in effect or for a period of 30 years from the date hereof in the event the
Manufacture Agreement is terminated by Seller by reason of a breach of Buyer of
the Manufacture Agreement, if Buyer or EVI shall elect to sell all of the stock
or all the operating assets of the Company (the "Company Business") to any
Person who is not an Affiliate of Buyer or if Buyer or EVI shall cause the
Company to be merged or consolidated with any Person other than Buyer or an
Affiliate of Buyer (each a "TF Proposed Disposition"), Buyer or EVI shall (or
shall cause any Affiliate of Buyer to which the stock or the assets of the
Company may have subsequently been transferred or conveyed, whether by asset
transfer, stock transfer, merger or otherwise) offer to Seller the right to
acquire the Company Business that is proposed to be sold on the same terms and
conditions under which Buyer, EVI or their Affiliate proposes to make such TF
Proposed Disposition.
(ii) EVI agrees that for so long as the Manufacture Agreement is in
effect or for a period of 30 years from the date hereof in the event the
Manufacture Agreement is terminated by Seller by reason of a breach of Buyer of
the Manufacture Agreement, if EVI shall elect to sell all of the stock or all
the operating assets of Grant Prideco, Inc. ("Grant") (the "Grant Business") to
any Person who is not an Affiliate of EVI or Grant or if EVI shall cause Grant
Prideco, Inc. to be merged or consolidated with any Person other than EVI or
Grant or an Affiliate of EVI or Grant (each a "Grant Proposed Disposition"), EVI
shall (or shall cause any Affiliate of EVI to which the stock or the assets of
Grant Prideco, Inc. may have subsequently been transferred or conveyed, whether
by asset transfer, stock transfer, merger or otherwise, to) offer to Seller the
right to acquire the Grant Business that is proposed to be sold on the same
terms and conditions under which EVI or its Affiliate proposes to make such
Grant Proposed Disposition.
(b) In the event of any TF Proposed Disposition or Grant Proposed
Disposition (each a "Proposed Disposition"), Buyer or EVI, as the case may be,
shall provide to Seller, at least 45 days prior to the Proposed Disposition, (i)
the general terms and conditions of the Proposed Disposition including the name
of the proposed purchaser and (ii) the documentation required to be executed by
Seller to purchase the Company Business or the Grant Business, as the case may
be, that is subject to the Proposed Disposition, which documentation shall be
the same as the documentation for the Proposed Disposition other than
information relating to the parties and conditions relating to Seller's rights
under this Agreement (the "Sale Documentation").
(c) If Seller elects to acquire the Company Business or the Grant
Business that is subject to the Proposed Disposition, Seller shall (i) notify
Buyer or EVI, as the case may be, in writing of such election by executing and
delivering to Buyer or EVI, as the case may be, the Sale Documentation (together
with any funds to be provided therewith) no later than 30 days after receipt of
such notice and (ii) subject to receipt of any necessary regulatory approvals on
the part of Buyer or EVI, as the case may be, or any of its Affiliates, close
the transaction within five days thereafter. Buyer or EVI, as the case may be,
shall, subject to the execution of a confidentiality agreement that is
substantially the same as that executed by the proposed purchaser, afford Seller
during the aforementioned period of 30 days access to the books, records,
facilities and personnel of the Company Business or the
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<PAGE> 25
Grant Business, as the case may be, in order to allow Seller to conduct the same
due diligence afforded to the proposed purchaser.
(d) The foregoing right of first refusal granted to Seller shall not
apply to (i) any merger, consolidation, share exchange, combination, sale of
stock or change in control of EVI, or any successors thereto, (ii) any transfer,
sale, conveyance, merger, consolidation, share exchange or other business
combination involving all or substantially all of EVI's assets or its
successor's, (iii) any transfer, sale, merger or conveyance of the stock of EVI
(or any successor thereto), (iv) any merger, consolidation or transfer of the
stock or assets of Buyer or Grant to any Affiliate of Buyer or to any of
Buyer's, EVI's or their Affiliates' current or future subsidiaries, (v) any
manufacturing or operating changes effected by Buyer, Grant, EVI or their
Affiliates after the Closing with respect to the Company, Company Business,
Grant or Grant Business, respectively, as long as the Company, Company Business,
Grant or Grant Business continues to be owned or operated by the Company, EVI or
any of their Affiliates, (vi) any dividend or distribution of shares of Grant
shares to the stockholders of EVI or any successor thereto, (vii) any public
sale of shares of Grant (or any successor thereto), and (viii) a disposition of
any business other than the drill pipe and tubular manufacturing and threading
operations of the Grant or the Grant Business.
(e) If a Proposed Disposition is to be effected in a manner that would
involve the receipt by EVI, Buyer or any of its Affiliates of a security of
another Person (a "Third Party Security"), Seller shall be required to deliver
to EVI or Buyer, as the case may be, in lieu of the delivery of the Third Party
Security, cash in an amount equal to the sum of (i) the fair market value of the
Thirty Party Security to be received based on the opinion of an internationally
recognized investment banking firm to be selected by EVI or Buyer and (ii) an
amount sufficient to compensate EVI, Buyer or its Affiliate for any additional
taxes that may be required to be paid by them by virtue of receiving cash in
lieu of the Third Party Security with such amount to be determined and certified
by EVI's outside independent auditors (which shall be an internationally
recognized accounting firm).
(f) The rights provided under this Section 11.2 shall be considered
personal rights of Seller and may not, directly or indirectly, be transferred,
assigned or otherwise conveyed by Seller by contract, operation of law or
otherwise to any third party (other than an Affiliate of Seller and Tamsa for so
long and only for so long as such party is an Affiliate of Seller or Tamsa) and
any breach or attempted breach by Seller shall terminate any further obligations
of Buyer and its Affiliates under this Section 11.2. To assure compliance with
this provision, EVI shall have a right to reacquire the Grant Business or the
Company Business, as the case may be, if at any time within two years following
the purchase of the Grant Business or the Company Business by Buyer, Buyer
proposes to sell or otherwise dispose of the Grant Business or the Company
Business to a Person that is not an Affiliate of Buyer. The purchase price at
which EVI shall be entitled to purchase the Grant Business or the Company
Business shall be the same price at which the Grant Business or the Company
Business was sold to Buyer, subject to any reductions in such price as a result
of any dividends, distributions or other payments made or assets disposed of by
Buyer subsequent to such purchase.
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SECTION 11.3 GUARANTEE
Tamsa hereby unconditionally and irrevocably guarantees to discharge,
jointly and severally with Seller, without deduction, set-off, or counterclaim,
other than those rights available to Seller under this Agreement, (i) all of
Seller's obligations to Buyer arising from this Agreement and (ii) all costs and
expenses incurred by Buyer in connection with the enforcement of this guarantee
in whole or in part, including (without prejudice to the generality of the
foregoing) the reasonable legal costs and disbursements relating thereto.
SECTION 11.4 EXPENSES
Whether or not the Contemplated Transactions are consummated, other
than as expressly provided for herein, each of the parties hereto shall pay the
fees and expenses of its respective counsel, accountants and other experts, and
all other expenses incurred by such party incident to the negotiation,
preparation and execution of this Agreement and the consummation of the
Contemplated Transactions.
SECTION 11.5 PUBLIC ANNOUNCEMENTS
Subject to such disclosures as may be required by law or applicable
regulation, any public announcement or similar publicity with respect to this
Agreement or the Contemplated Transactions will be issued, if at all, at such
time and in such manner as the parties mutually agree considering their
respective statutory obligations.
SECTION 11.6 CONFIDENTIALITY
(a) Between the date of this Agreement and the Closing Date, Buyer and
Seller will maintain in confidence, and will cause the directors, officers,
employees, agents, and advisors of Buyer and the Companies to maintain in
confidence, any written, oral, or other information obtained in confidence from
another party or the Companies in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by
legal proceedings.
(b) If the Contemplated Transactions are not consummated, each party
will return or destroy as much of such written information as the other party
may reasonably request.
SECTION 11.7 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the
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<PAGE> 27
appropriate addresses and telecopier numbers set forth below (or to such other
addresses and telecopier numbers as a party may designate by notice to the other
parties):
if to Seller to:
Felix Todd Pinero
Edificio Parque Reforma
Campos Eliseos 400, piso 17
Colonia Chapultepec Polanco
(11560) Mexico D.F., Mexico
Facsimile: (525) 282-9966
Confirm: (525) 282-9912
with copies to:
Cristian J. P. Mitrani
Leandro N. Alem 1067, piso 25
1001 Buenos Aires, Argentina
Facsimile: (541) 310-1045
Confirm: (541) 318-2389
if to Buyer, to:
Grant Prideco, Inc. and EVI Weatherford, Inc.
5 Post Oak Park, Suite 1760
Houston, Texas 77027
Attention: Curtis W. Huff
Facsimile: (713) 297-8488
Confirm: (713) 297-8400
SECTION 11.8 DISPUTE RESOLUTION
All disputes, controversies or claims arising out or in connection with
this Agreement including any questions as to the existence, validity,
termination, discharge, breach or enforceability of this Agreement and of this
arbitration clause shall be finally settled by three arbitrators appointed in
accordance with the arbitration rules of the International Chamber of Commerce
in force at the date of the request for arbitration. For such purpose, Buyer and
EVI shall be considered a single party and Seller and Tamsa shall be considered
a single party. The arbitration shall be held in Houston, Texas. The arbitration
proceedings shall be carried out in the English language. The award rendered in
any arbitration commenced hereunder shall be final and conclusive and judgement
thereon may be entered in any court having jurisdiction for its enforcement.
Neither party shall appeal to any court from the decision of the arbitration
panel. In addition, neither party shall have any right to commence or maintain
any suit or legal proceeding concerning a dispute hereunder until the dispute
has been determined in accordance with the arbitration procedure provided for
herein and then only for enforcement of the award rendered in such arbitration.
Pending settlement of any dispute, the parties shall abide by their obligations
under this Agreement without prejudice to a final adjustment in accordance with
an award rendered in an arbitration settling such dispute.
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SECTION 11.9 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
SECTION 11.10 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
SECTION 11.11 SCHEDULES
(a) The disclosures in the schedules, and those in any supplement
thereto, relate only to the representations and warranties in the section of the
Agreement to which they expressly relate and not to any other representation or
warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the
body of this Agreement and those in the schedules (other than an exception
expressly set forth as such in the schedules with respect to a specifically
identified representation or warranty), the statements in the body of this
Agreement will control.
SECTION 11.12 ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties; provided, however, that the parties may
freely assign their rights and/or obligations under this Agreement to an
Affiliate, subject to remaining liable for their obligations hereunder.
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SECTION 11.13 SEVERABILITY
Any provision of this Agreement that is determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable shall be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal or unenforceable, so long as the material purposes of this Agreement can
be determined and effectuated. Should any provision of this Agreement be so
declared invalid, illegal or unenforceable, the Parties shall agree on a valid
provision to substitute it.
SECTION 11.14 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Article" or "Section" or "Articles" or "Sections" refer to the corresponding
Article or Sections of this Agreement. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
SECTION 11.15 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
SECTION 11.16 GOVERNING LAW
This Agreement will be governed by the laws of New York State without
regard to conflicts of laws principles; except that the legal transfer of the
Shares and Minority Interest shall be governed by the laws of Mexico.
SECTION 11.17 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
SECTION 11.18 ENTIRE AGREEMENT
This Agreement, including the Schedules, constitutes the entire
Agreement between the parties with respect to the subject matter hereof and
supersedes any existing agreements between them whether oral or written. The
terms of this Agreement shall only be amended, modified or supplemented as set
forth herein or in a writing signed by or on behalf of all the parties.
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<PAGE> 30
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
EVI WEATHERFORD, INC.
By: John Coble
Senior Vice President
PRIDECOMEX HOLDING, S.A. DE C.V.
By: John Coble
Authorized Signatory
TUBOS DE ACERO DE MEXICO, S.A.
By: Felix Todd - Cristian Mitrani
Attorneys-in-fact
TAMSIDER S.A. DE C.V.
By: Felix Todd - Cristian Mitrani
Attorneys-in-fact
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<PAGE> 31
SCHEDULE 1
DEFINITIONS
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
through the ownership of voting securities or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"BEST EFFORTS" means the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to ensure that such result is achieved
as reasonably expeditiously as possible; provided, however, that an obligation
to use Best Efforts under this Agreement does not require the Person subject to
that obligation to take actions that would result in an adverse change in the
benefits to such Person under this Agreement and the Contemplated Transactions.
"BEST KNOWLEDGE", when referred to a Person, means the knowledge of such Person
obtained during the course of such Person's duties and activities and after due
inquiry of and consultation with the directors and executive officers of the
Companies or Buyer, as the case may be.
"BREACH", a "Breach" of a representation, warranty, covenant, obligation or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"BUSINESS DAY", means any day of the week on which banks are open for business
in New York, New York and Mexico City.
"BUYER", as defined in the first paragraph of this Agreement.
"BUYER LOSSES", as defined in Section 10.2.
"CLEARANCES", means decisions by the Comision Federal de Competencia and the
Comision de Nacional Inversiones Extranjeras authorizing the parties to
consummate the transaction herein agreed.
"CLOSING", as defined in Section 2.3.
"CLOSING DATE", means the date and time as of which the Closing actually takes
place.
"COMPANIES", means the Company and the Subsidiary.
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"COMPANY", means T.F. de Mexico, S.A. de C.V.
"COMPANY CONDITION", as defined in Section 3.3.
"COMPANY RELEASED PARTIES", as defined in Section 10.10.
"CONTEMPLATED TRANSACTIONS", means all of the transactions contemplated by this
Agreement, including: (a) the sale of the Shares by Seller to Buyer; (b) the
sale of the Minority Interest by an Affiliate of Seller to a designee of Buyer;
(c) the payment of the Purchase Price and the Intercompany Debt by Buyer; (d)
the performance by Buyer and Seller of their respective covenants and
obligations under this Agreement; and (e) Buyer's acquisition and ownership of
the Shares and exercise of control over the Companies.
"CONTRACT", means any agreement, contract, arrangement, commitment,
understanding, indenture, note, instrument, lease, mortgage, franchise, license,
obligation, promise, or undertaking , whether express or implied, oral or
written, to which a Person is a party or bound or to which its properties or
assets are subject.
"DAMAGES", means any and all liabilities, losses, damages, demands, assessments,
claims, costs and expenses (including interest, awards, judgments, penalties,
settlements, fines, costs or remediation, diminutions in value, costs and
expenses incurred in connection with investigating and defending any claims or
causes of action (including, without limitation, attorneys' fee and expenses and
all fees and expenses of consultants and other professionals)):
"ENCUMBRANCE", means any charge, claim, mortgage, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership or other rights of any third Person of any nature whatsoever.
"FINANCIAL STATEMENTS", as defined in Section 3.5.
"GAAP", means generally accepted accounting principles in the United Mexican
States, applied on a consistent basis throughout periods covered by the
Financial Statements.
"GOVERNMENTAL BODY", means 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, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature of or pertaining to the
governments of the United Mexican States.
"INTERCOMPANY DEBT", means the sum of 1,550,000 United States Dollars owed by
the Company to Compania Mersin de Panama, which sum shall be paid by Tamsa on
its due date, thus becoming creditor of the Company for such amount.
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"LEASE AGREEMENT", means the Contrato de Arrendamiento, entered into by the
Company, as lessor, and TF de Mexico, S.A. de C.V., as lessee, on September 30,
1993, as amended.
"LEGAL REQUIREMENT", means any Mexican federal, state, local or municipal or
other administrative order, constitution, law, ordinance, principle of common
law, rule, regulation, statute or treaty in force in the United Mexican States.
"MANAGEMENT SERVICES AGREEMENT", means the agreement between the Company and
Tubos de Acero de Mexico S.A., an Affiliate of Seller, for the provision by the
latter to the former of certain administrative and corporate services.
"MANUFACTURE AGREEMENT", as defined in Section 11.1.
"MINORITY INTEREST", means forty (40) shares issued by the Subsidiary.
"ORDER", means any award, decision, injunction, judgment, order, ruling,
subpoena or verdict entered, issued, made or rendered by any Governmental Body.
"ORDINARY COURSE OF BUSINESS" an action taken by a Person will be deemed to have
been taken in the "Ordinary Course of Business" only if: (a) such action is
consistent with the past practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person; (b) such action is
not required to be authorized by the board of directors of such Person (or by
any Person or group of Persons exercising similar authority) and is not required
to be specifically authorized by the parent company (if any) of such Person; and
(c) such action is similar in nature and magnitude to actions customarily taken,
without any authorization by the board of directors (or by any Person or group
of Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as
such Person.
"ORGANIZATIONAL DOCUMENTS", means (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"PERSON", means any individual, business, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PROCEEDING", means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative,
procedural or informal) commenced, brought, conducted or heard by or before, or
otherwise involving, any Governmental Body.
"PURCHASE PRICE", means the price set forth in Section 2.2(a).
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"REPRESENTATIVE", means with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants and financial advisors.
"SELLER", as defined in the first paragraph of this Agreement.
"SELLER LOSSES", as defined in Section 10.4
"SHARES", as defined in the Recitals of this Agreement.
"SUBSIDIARY", means Inmobiliaria Industrial de Veracruz, S.A. de C.V.
"SURVIVAL PERIOD", as defined in Section 10.1
"TAMSA", means Tubos de Acero de Mexico S.A.
"TAX" and "TAXES", means all Mexican, U.S. and other state, local, municipal,
international, 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, profits 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 interests, penalties, additions to tax, fines or
other additional amounts imposed thereon or related thereto but excluding any
taxes, charges, fees, duties, levies, imposts, customs or other assessments that
are payable by Grant Prideco, S.A. de C.V. pursuant to the Lease.
"TAX RETURN", means any return (including any information return), declaration,
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"$", means United States Dollars.
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<PAGE> 1
EXHIBIT 10.17
GRANT PRIDECO, INC.
DST DISTRIBUTORS OF STEEL TUBES LIMITED
MASTER TECHNOLOGY LICENSE AGREEMENT
[***] Denotes information intentionally omitted pursuant to a
confidential information treatment request pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
This Agreement dated as of June 19, 1998, is by and between Grant
Prideco, Inc., a corporation organized and existing under the laws of Delaware,
U.S.A., having its principal place of business at 363 North Sam Houston Parkway
East, Suite 1660, Houston, Texas 77060-2409, U.S.A. (hereinafter "GRANT"), and
DST Distributors of Steel Tubes Limited, a corporation organized and existing
under the laws of Princedom of Liechtenstein, having its offices at Prafadant 11
949 Vaduz, Princedom of Lichtenstein (hereinafter "LICENSEE"):
WHEREAS, Grant is the owner of various U.S. and foreign patents
described on Schedule "A" hereto (the "GRANT PATENTS") and has the right to
license technical information and know-how, in each case, relating to the
Threading and Reconstruction of Atlas Bradford Oil Field Connections for
Products and Accessory Equipment (the "TECHNOLOGY");
WHEREAS, Grant is the owner of and has the right to license certain
trademarks, commercial names and other such designations listed in Schedule "B"
to this Agreement used in connection with the manufacture and sale of Atlas
Bradford Connections (hereinafter "LICENSED TRADEMARKS");
WHEREAS, Licensee is a company jointly owned by Dalmine
S.p.A.("DALMINE"), Siderca S.A. ("SIDERCA"), and Tubos de Acero de Mexico
("TAMSA"), all of which are major producers of seamless steel pipe for the oil
and gas drilling industry, highly recognized suppliers of oil country tubular
goods and services to major oil companies, who have developed proprietary
products besides production of API and API Plus tubular goods and threads, and
have several premium connection licenses from third parties and affiliated
companies;
WHEREAS, Siderca currently possesses only short term rights regarding
Technology and Licensee, on behalf of its Affiliates, is desirous of obtaining
Technology, Patents and Trademark licenses on a long term basis and receiving
Technical Assistance from Grant for use by its Affiliates and other
Sub-Licensees in order to supply its customers with a more predictable and
complete range of oil country tubular good (OCTG) products; and
WHEREAS, Grant is willing to grant technology, patent and trademark
licenses and to provide technical assistance to Licensee under certain
conditions;
NOW THEREFORE, in consideration of the premises and of the covenants
and undertakings of the parties herein below, the sufficiency of which is hereby
acknowledged, Grant and Licensee agree as follows:
<PAGE> 2
ARTICLE 1. DEFINITIONS
Unless otherwise defined or the context otherwise requires, capitalized
terms shall have the meanings ascribed to them in Schedule "C".
ARTICLE 2. LICENSE
SECTION 2.1 GRANT OF LICENSE BY GRANT
Grant hereby grants to Licensee, subject to the terms of this
Agreement, the following licenses:
(a) An exclusive license (with the right to sub-license as provided
herein) under Technology and Patents to Thread, Reconstruct and to sell Atlas
Bradford Oil Field Connections on (i) full length carbon steel Products having
9% or less Cr in the Exclusive Territory and (ii) full length Products of all
grades in Mexico and its offshore waters and territories.
(b) A non-exclusive license (with the right to sub-license as provided
herein) under Technology and Patents to Thread, Reconstruct and to sell Atlas
Bradford Oil Field Connections on full length Products of all grades in the
Non-Exclusive Territory (it being understood that the non-exclusive nature of
this license does not render non-exclusive the license granted under Section
2.1(a)).
(c) An exclusive license (with the right to sub-license as provided
herein) under Technology and Patents to Thread, Reconstruct and sell Accessory
Equipment with Atlas Bradford Connections (i) of carbon steel of 9% or less Cr
in the Exclusive Territory and (ii) of all grades in Mexico and its offshore
waters and territories.
(d) A non-exclusive license (with the right to sub-license as provided
herein) under Technology and Patents to Thread and Reconstruct Accessory
Equipment with Atlas Bradford Connections and to sell Atlas Bradford Connections
on Accessory Equipment of all grades in the Non-Exclusive Territory (it being
understood that the non-exclusive nature of this license does not render
non-exclusive the license granted under Section 2.1(c)).
(e) A non-exclusive license to use Trademarks in association with Atlas
Bradford Oil Field Connections on Products and Accessory Equipment that have
been Threaded or Reconstructed and sold by Licensee or its Sub-Licensees
pursuant to this Agreement.
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Schedule 2.1 sets forth in summary form the licenses granted by this
Agreement.
SECTION 2.2 RESTRICTED USE
(a) Licensee and its Sub-Licensees shall have no right or license to
use Technology, Patents or Trademarks for any purpose other than the Threading,
Reconstruction, use and sale of Atlas Bradford Oil Field Connections on Products
and Accessory Equipment in strict accord with the terms and conditions of this
Agreement. Licensee shall also restrict its customers (other than end users who
may purchase Products and Accessory Equipment for their use) from reselling in
the Grant Territory (other than Canada) or for use in the Grant Territory (other
than Canada) Products or Accessory Equipment that has been Threaded,
Reconstructed or sold by Licensee or its Sub-Licensees.
(b) Licensee and its Sub-Licensees shall notify its distributors,
agents and significant international customers that (i) Grant has granted
Licensee the exclusive licenses to the Atlas Bradford Connections contemplated
under this Agreement, but has retained its rights to the Atlas Bradford
Connections in the Grant Territory, (ii) except for customers who are end users
who are purchasing for their own use, no Products Threaded with Atlas Bradford
Oil Field Connections sold or provided by Licensee or its Sub-Licensees may be
resold or used in the Grant Territory (other than Canada), (iii) if the customer
desires Atlas Bradford Oil Field Connections for use in the Grant Territory
(except Canada), Licensee recommends that it should seek those Connections from
Grant and (iv) if the customer who is an end user purchases any Atlas Bradford
Oil Field Connections for ultimate use in the Grant Territory (except Canada),
the customer is requested by Licensee to advise Licensee of the sale or use.
Licensee and Grant further agree that while Licensee will not make any sale of a
Product with an Atlas Bradford Oil Field Connection to a customer that is an end
user if it has actual knowledge that the sale to the end user of the Atlas
Bradford Oil Field Connection is specifically intended to be resold or used in
the Grant Territory (except Canada), neither Licensee nor any of its Affiliates
or Sub-Licensees shall be required to make prior inquiry from a customer that is
an end user of the Product or Accessory Equipment and not engaged in the resell
or distribution of Products or Accessory Equipment regarding any order received
by it with respect to the territory in which the Atlas Bradford Connection is to
be sold or used and may rely solely on the purchase order and other
communications received at the time the order is placed. Licensee and its
Sub-Licensees further shall not be deemed to have actual knowledge that an order
is for sale in or use in the Grant Territory (except Canada) solely by reason of
Grant advising Licensee that it believes the order is for sale in or use in the
Grant Territory (except Canada).
(c) Licensee and its Sub-Licensees shall have no rights to Thread or
Reconstruct Connections on Products or Accessory Equipment or to sell or ship
Atlas Bradford Oil Field Connections on Products or Accessory Equipment
incorporating Technology, Patents or Trademarks to persons located in the United
States or its offshore waters or territories or any country or other location in
which it would be unlawful for a licensee of Grant to do so or for which an
export license is required by any applicable governmental entity absent the
receipt of such license or any applicable governmental approvals. Upon
Licensee's request, Grant shall, at Licensee's sole cost, give reasonable
assistance to support Licensee's efforts to obtain any required approvals.
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(d ) In recognition of the licenses being granted to Licensee hereunder
and Licensee's rights in the Exclusive Territory, Grant agrees that after the
Effective Date and during the term of this Agreement neither it nor any of its
Affiliates will quote or sell for delivery or use in the Exclusive Territory any
Atlas Bradford Oil Field Connections on Products of carbon steel having 9% or
less Cr except as expressly permitted herein.
(e) In recognition of the rights to the Technology and Patents being
retained by Grant and its Affiliates in the Grant Territory, Licensee agrees
that except as expressly permitted under Section 2.2(b), neither it nor any of
its Affiliates will quote or sell for delivery or use in the United States of
America or its offshore waters or territories any Atlas Bradford Oil Field
Connections on any Products.
SECTION 2.3 EXTENT OF EXCLUSIVE LICENSES
The licenses granted hereunder shall not restrict or prohibit the
following:
(a) Subject to Section 17.1 the rights of any existing licensee of
Grant to use Technology, Patents or Trademarks.
(b) The use or resale within the Territories of Atlas Bradford
Connections on Products or Accessory Equipment sold by Grant or its licensees,
distributors or Affiliates prior to the Effective Date or after the Effective
Date to the extent not in violation of this Agreement.
(c) Any repair or replacement of Atlas Bradford Connections on Products
or Accessory Equipment sold by Grant or its distributors or Affiliates prior to
the Effective Date or after the Effective Date to the extent not in violation of
this Agreement.
(d) The Threading, Reconstruction, sale or distribution of Connections
(other than Atlas Bradford Connections) on Products or Accessory Equipment.
(e) The completion of any outstanding orders or bids by Grant or its
Affiliates described on Schedule 2.3(e) hereto and any other orders that are
scheduled to be completed within two months after the Effective Date; provided,
however, Grant shall provide to Licensee prior to the Effective Date a schedule
setting forth all orders that are scheduled to be completed by it within two
months following the Effective Date.
(f) The Threading or Reconstruction of full-length Products and
Accessory Equipment by or on behalf of Grant or any of its Affiliates in any
country for export into any territory where Grant has the right to sell Products
and Accessory Equipment under this Agreement; provided, however, that prior to
engaging in or contracting for the Threading or Reconstruction of Atlas Bradford
Oil Field Connections in the Exclusive Territory pursuant to this Section
2.3(f), Grant shall give Licensee a reasonable opportunity to provide to Grant
such Threading and Reconstruction of Atlas Bradford Oil Field Connections in the
Exclusive Territory for import into the territories where Grant has a right to
sell Products and Accessory Equipment at a cost to Grant equal to or less than
the cost that would have been incurred by Grant to do the Threading and
Reconstruction of the Atlas Bradford Oil Field Connections in the Exclusive
Territory itself or through another third party.
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(g) Any Distribution Sales (other than Distribution Sales that are
subject to the restriction agreed to in Section 2.4(f)) and any International
Company Sales made by Grant, Grant Affiliates or Grant Licensees; provided,
however, that Grant shall (i) notify its distributors, agents and significant
international customers that it has granted the rights granted hereunder in the
Exclusive Territory and request such distributors, agents and customers to
inform Grant of any sales or shipments made to the Exclusive Territory (other
than the Home Territories) by such persons of Products or Accessory Equipment
containing Atlas Bradford Oil Field Connections that were sold to them by Grant
or Grant Licensees after the Effective Date and (ii) require any new Grant
Licensees to inform Grant of any sales or shipments of Products or Accessory
Equipment containing Atlas Bradford Oil Field Connections made to the Exclusive
Territory (other than the Home Territories) pursuant to Distribution Sales or
International Company Sales made by such Grant Licensees after the Effective
Date as contemplated in (i) above. From and after the Effective Date, Grant
agrees to convey such information to Licensee each quarter and pay Licensee the
commissions required under Section 2.8. The notice to distributors, agents and
customers under this Section 2.3(g) shall state that (i) Grant has granted
Licensee the exclusive licenses to the Atlas Bradford Connections contemplated
under this Agreement, (ii) if the customer desires Atlas Bradford Oil Field
Connections for use in the Exclusive Territories (other than the Home
Territories), Grant recommends that it should seek those Connections from
Licensee and (iii) if the customer ultimately sells any Atlas Bradford Oil Field
Connections for use in the Exclusive Territories, the customer is requested by
Grant to advise Grant of the sale so that Grant may pay the Licensee the
commissions to be paid by it under this Agreement.
(h) Any activity by Grant or its Affiliates involving the marketing,
sale or distribution of any Oil Field Connections (other than the Atlas Bradford
Connections) on Products or Accessory Equipment in the Exclusive Territory as
long as Grant or such Affiliate does not Thread or Reconstruct the Products or
Accessory Equipment in question, is merely a licensee of anothercompany that has
Threaded or Reconstructed the Connections on the Product or item of Accessory
Equipment and no use is made of the Patents, Technology or Trademark.
(i) The Threading, Reconstruction or sale in any Territory of
Connections (other than Atlas Bradford Connections) on Products or Accessory
Equipment pursuant to licenses from a person that is not Affiliated with Grant.
(j) The manufacture, repair, distribution and sale of Products, Product
components and Accessory Equipment to the extent such Products and Product
components and Accessory Equipment are sold by Grant or its Affiliates prior to
the Threading of Atlas Bradford Connections thereon.
(k) The use or resale by a customer or distributor (other than the
resale by a distributor of a Product that is Threaded with an Atlas Bradford
Connection to the Home Territories or for use in the Home Territories or an item
of Designated Accessory Equipment with an Atlas Bradford Oil Field Connection in
Mexico or for use in Mexico) of any tubular or other product (including
Accessory Equipment) which have been Threaded or Reconstructed by any Person;
provided, however, the provisions of this Section 2.3(k) will not limit Grant's
obligation to pay the commissions under Section 2.8 for any sales for which a
commission would otherwise be payable.
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(l) Any use or exploitation of the XL Technology or other technology to
which Grant or any of its affiliates may have a right to utilize or exploit.
(m) The rental of any Accessory Equipment with Atlas Bradford
Connections or the provision of well services for customers in any Territory by
any party.
(n) The Threading, Reconstruction and sale of Atlas Bradford
Connections on Accessory Equipment (other than an item of Designated Accessory
Equipment that is to be sold or used in Mexico) by Grant or Grant Affiliates or
their respective licensees as long as (i) the Threading and Reconstruction is
conducted in the Grant Territory, (ii) information as to all sales of such
Accessory Equipment in the Exclusive Territory by Grant, its Affiliates,
distributors and agents is provided to Licensee on a quarterly basis, (iii)
Grant and its Affiliates shall be responsible for all service with respect to
such Accessory Equipment, and (iv) Grant pays to Licensee the commissions
required on such sales as provided in Section 2.8.
SECTION 2.4 GRANT UNDERTAKINGS; DISTRIBUTION SALES
(a) Except as otherwise permitted by Sections 2.1 and 2.3 of this
Agreement, Grant and its Affiliates shall not Thread, Reconstruct or sell Atlas
Bradford Oil Field Connections on Products having 9% or less Cr for use in any
part of the Territories.
(b) (i) Except as otherwise permitted by Sections 2.1 and 2.3 of this
Agreement, Grant and its Affiliates shall not grant any rights to any Person to
Thread, Reconstruct or sell Atlas Bradford Oil Field Connections on Products or
Accessory Equipment having 9% or less Cr with Technology, Patents or Trademarks
in the Exclusive Territory.
(ii) Except as otherwise permitted by Sections 2.1, 2.3 and 2.8,
Grant and its Affiliates shall not grant to any Person any rights to
Thread, Reconstruct or sell Atlas Bradford Oil Field Connections on
Products having 9% or less Cr inside of the Grant Territory for use in
any part of the Exclusive Territories.
(iii) Except as otherwise permitted by Sections 2.1, 2.3 and 2.8,
Grant and its Affiliates shall not grant to any Person any right to
Thread, Reconstruct or sell Atlas Bradford Oil Field Connections on
Products or Designated Accessory Equipment in Mexico or in the Grant
Territory for use in Mexico.
(iv) Future licenses of Atlas Bradford Oil Field Connections by
Grant entered into after the Effective Date and during the term of
this Agreement shall provide that Licensee
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is a third party beneficiary for the enforcement of the restrictions
hereunder relating to the Exclusive Territories.
(c) Grant will take the actions required by Article 17 in connection
with all existing Grant licenses for Threading, Reconstructing and sale of Atlas
Bradford Oil Field Connections on Products and Accessory Equipment having 9% or
less Cr or of all grades in relation to Mexico.
(d) Except for export into the Grant Territory and as otherwise
permitted by this Agreement, during the life of this Agreement, Grant shall not
grant any rights to any Person to Thread or Reconstruct Atlas Bradford Oil Field
Connections on full length Products or to sell such Atlas Bradford Oil Field
Connections on full length Products of carbon steel having 9% or less Cr in the
Exclusive Territory.
(e) Licensee agrees that Grant has granted to Oil Country Tubular
Limited (AOCTL") a non-exclusive license to Thread, Reconstruct and sell Atlas
Bradford Oil Field Connections on Products and Accessory Equipment manufactured
under the Manufacturing Agreement between OCTL and Grant Prideco S.A., an
affiliate of Grant. Grant agrees that after the Effective Date and during the
term of this Agreement it will not consent to the manufacture of Products at the
OCTL facility in India except for sale and use in India. Licensee hereby
consents to the use by OCTL of such license and OCTL's manufacture and sale of
Products and Accessory Equipment with Atlas Bradford Oil Field Connections in
India.
(f) In consideration of the undertakings made by Licensee in Section
2.2, Licensee and Grant agree as follows:
(i) Grant and its Affiliates shall restrict their customers
(other than end users who may purchase for their own use) from
reselling (a) Products of carbon steel of 9% or less Cr with Atlas
Bradford Oil Field Connections that have been Threaded by Grant or its
Affiliates after the Effective Date into the Home Territories or for
use in the Home Territories and (b) Products and Designated Accessory
Equipment of all grades with Atlas Bradford Oil Field Connections that
have been Threaded by Grant and its Affiliates after the Effective in
Mexico or for use in Mexico. Except for sales of (a) Products of
carbon steel of 9% or less Cr with Atlas Bradford Oil Field
Connections that have been Threaded by Grant or its Affiliates after
the Effective in the Home Territories or for use in the Home
Territories and (b) Products and Designated Accessory Equipment of all
grades with Atlas Bradford Oil Field Connections that have been
Threaded by Grant and its Affiliates after the Effective in Mexico or
for use in Mexico, which shall be restricted as provided in the
preceding sentence, agents and distributors of Grant and its
Affiliates shall not be required to restrict their sales of Atlas
Bradford Oil Field Connections or Products and Accessory Equipment
acquired by them to the Grant Territory and that such distributors
shall, subject to such restrictions as Grant may from time itself and
in its sole discretion impose, be free to make such sales without any
claim from Licensee and its Affiliates and Sub-Licensees for
infringement or claim that the distributor does not have the right to
make such sales. In this regard, Licensee acknowledges that, except
for sales of (a) Products of carbon steel of 9% or less Cr with Atlas
Bradford Oil Field Connections that have been Threaded by Grant or its
Affiliates after the Effective in the Home Territories or for use in
the Home Territories and (b) Products and Designated Accessory
Equipment of all grades with Atlas Bradford Oil Field Connections that
have been Threaded by Grant and its Affiliates after the
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Effective in Mexico or for use in Mexico, which shall be restricted as
provided in the first sentence of Section 2.4(f)(i), it shall have no
rights against any distributor for sales of Atlas Bradford Connections
or Products and Accessory Equipment with Atlas Bradford Connections in
the Exclusive Territory or against any end user or other customer for
the use or resale thereof and that Licensee's remedy for any such
sales shall be the right to receive commissions pursuant to Section
2.8. The commissions payable under Section 2.8 by Grant shall not be
in lieu of any other remedy that Licensee may have for sales made by
Grant in the Home Territories in violation of this Agreement.
(ii) That while Grant agrees that it will not make any
Distribution Sale if it has actual knowledge that the sale of the
Atlas Bradford Oil Field Connection is specifically intended to be
sold or used in the Exclusive Territory, except for sales of (a)
Products of carbon steel of 9% or less Cr with Atlas Bradford Oil
Field Connections that have been Threaded by Grant or its Affiliates
after the Effective in the Home Territories or for use in the Home
Territories and (b) Products and Designated Accessory Equipment of all
grades with Atlas Bradford Oil Field Connections that have been
Threaded by Grant and its Affiliates after the Effective in Mexico or
for use in Mexico, which shall be restricted as provided in the first
sentence of Section 2.4(f)(i), neither Grant nor any of its Affiliates
or Sub-Licensees shall be required to make prior inquiry regarding any
order received by it with respect to the territory in which the Atlas
Bradford Connection is to be sold or used and may rely solely on the
purchase order and other communications received at the time the order
is placed. Grant further shall not be deemed to have actual knowledge
that an order is for sale in or use in the Exclusive Territory solely
by reason of Licensee advising Grant that it believes the order is for
sale in or use in the Exclusive Territory.
(iii) Grant agrees that it will not grant any licenses for
Atlas Bradford Oil Field Connections to any United States domestic steel mill
that would permit that mill to sell (a) Products of carbon steel of carbon steel
of 9% or less Cr with Atlas Bradford Oil Field Connections in the Exclusive
Territory or the Grant Territory for use in the Exclusive Territory or (b)
Products or Designated Accessory Equipment with Atlas Bradford Oil Field
Connection in Mexico or for use in Mexico.
SECTION 2.5 LICENSEE SUB-LICENSES
Licensee may grant sub-licenses to third parties with respect to its
rights hereunder subject to the following conditions:
(a) Sub-Licenses
Except for Affiliates of Licensee, no Sub-Licensee of Licensee or its
Affiliates shall be engaged or propose to be engaged in the business of the
Threading or Reconstruction of Connections for Products or Accessory Equipment
within the Grant Territory unless assurances reasonably satisfactory to Grant
are provided that such Sub-Licensee will not be able to utilize the Technology
and Patents in a manner that would adversely affect Grant; provided, however, no
Sub-Licensee shall have any rights under the Technology and Patents to Thread,
Reconstruct or sell Atlas Bradford Oil Field Connections in the Grant Territory
(other than Canada). Each Sub-Licensee (other than Affiliates of Licensee and
Sub-Licensees engaged solely in the Threading of Connections of
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Accessory Equipment) shall be required to be approved by Grant in advance, which
approval shall not be unreasonably withheld.
(b) Type of Sub-Licenses
Each sub-license from Licensee shall be "non-exclusive" and
"non-assignable" (other than the sub-licenses that may be granted to Affiliates
of Licensee). No Sub-Licensee of Licensee shall have the right to sub-license
its rights other than to the customer for use.
(c) Form of Sub-Licenses
Each sub-license from Licensee shall be in a form consistent with the
terms of this Agreement and that shall be submitted to Grant for prior approval
(which approval shall be deemed granted if Grant does not object to its terms
within 15 days from its submission). Licensee shall not be required to submit to
Grant any sub-license agreement which is substantially similar to a standard
form approved by Grant; provided, however that an executed copy of each
sub-license from Licensee shall be provided to Grant promptly following the
execution thereof. Each sub-license shall provide that Grant is a third party
beneficiary.
(d) Royalty Payments
Any royalty payments that may be agreed with Sub-Licensees (including
payments for the procurement of Tooling and Gauges) shall be for the benefit of
Licensee.
(e) Enforcement
Licensee shall be fully responsible for any breach of the licenses
granted hereunder by a Sub-Licensee that is an Affiliate of Licensee. Licensee
shall otherwise not be a guarantor for any Sub-Licensee and therefore the breach
of the terms of the sub-license by a Sub-Licensee which is not an Affiliate of
Licensee or the failure to obtain from any such Sub-Licensee the performance of
obligations under the sub-license shall not entitle Grant to regard Licensee as
being in breach of its obligations hereunder nor to terminate this Agreement so
long as Licensee continues to exercise and enforce its rights under the
sub-license or terminates, in accordance with its terms, the relevant
sub-license. Grant shall not be required to seek remedies against a Sub-Licensee
that is an Affiliate of Licensee and may act directly against Licensee for any
breach of any such Affiliate. The failure of a Sub-Licensee that is an Affiliate
of Licensee to comply with the terms of this Agreement shall entitle Grant to
regard Licensee as being in breach of its obligations hereunder and to terminate
this Agreement as provided in Section 10.4.
(f) Duration
The longest duration of any sub-license from Licensee shall be one day
shorter than the effective term of this Agreement according to whether it
expires or is previously terminated; provided that if this Agreement is
terminated prior to its initial term any Sub-Licensee which is not an Affiliate
of Licensee may upon termination apply directly to Grant for the adoption of the
sub-
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license directly whereupon Grant shall, if the Sub-Licensee is not an
Affiliate of Licensee nor is in default and there are no other legal impediments
to such adoption, adopt the same.
(g) Sub-License to Citra Tubindo
(i) Licensee shall assume the license with P.T. Citra Tubindo
("CITRA TUBINDO") attached hereto as Schedule "D" (the ACITRA
LICENSE"). Citra Tubindo may not grant sub-licensees of its rights,
except to H-Tech or an Affiliate of Citra Tubindo. Licensee may not
terminate the Citra License without the prior written consent of Grant
(other than as a result of an uncured material breach thereof), which
may be withheld by Grant in its sole discretion, and shall allow the
Citra License to be extended from time to time as requested by Grant.
In addition, Grant shall have the right to consent to the right of
Citra Tubindo to Thread and sell Atlas Bradford Oil Field Connections
under the Citra License in other territories; provided, however, Grant
agrees that it will not consent to the right of Citra Tubindo to
Thread or Reconstruct Atlas Bradford Oil Field Connections in
Argentina, Columbia, Italy, Mexico and Venezuela.
(ii) Licensee agrees that Citra Grant Prideco Limited, an
affiliate of Grant (ACITRA GRANT"), has been appointed a distributor
of Products and Accessory Equipment with Atlas Bradford Oil Field
Connections that have been Threaded or Reconstructed by Citra Tubindo
and its Affiliates pursuant to the Citra License in the territories
described therein. Licensee further agrees that the Citra License
shall continue in effect and not be required to be terminated and that
Citra Grant shall be entitled to continue to distribute Products and
Accessory Equipment that have been Threaded or Reconstructed by Citra
Tubindo and its sub-licensees.
(h) Sub-License Grant Prideco Limited
Licensee undertakes to grant to Grant Prideco Limited a non-exclusive
sub-license to Thread, Reconstruct and sell Accessory Equipment and to
Reconstruct Products with Atlas Bradford Connections within the North Sea
theater on customary terms and conditions to be agreed upon in good faith
between Grant Prideco Limited and Licensee recognizing Grant Prideco Limited's
current use of the technology. The license shall be subject to a royalty fee of
4% of the price paid to Grant Prideco Limited for the Atlas Bradford Connections
sold or provided by Grant Prideco Limited subsequent to the Effective Date and
during the term of such sub-license. In addition, Licensee agrees that it and
its Affiliates will offer to Grant Prideco Limited the opportunity to Thread any
full length Products with Atlas Bradford Connections within the North Sea
theatre as long as Grant Prideco Limited is able to provide such Threads at a
price to Licensee and its Affiliates equal to or less than the price at which a
Sub-Licensee of Licensee could provide such services. Licensee may not terminate
Grant Prideco Limited's Sub-License without the prior written consent of Grant
(other than as a result of an uncured material breach thereof), which may be
withheld by Grant in its sole discretion.
(i) Licensees to Grant and its Affiliates
Licensee agrees to grant to Grant or any of its Affiliates a
non-exclusive license under the Technology and Patents to Thread, Reconstruct
and sell Atlas Bradford Oil Field Connections on Accessory Equipment in the
Exclusive Territory to the extent Grant or such Affiliate enters into a
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sub-license agreement with Licensee and pays all required royalties thereunder
to Licensee; provided, Licensee shall not be obligated to license Grant or its
Affiliates if Licensee determines in its reasonable good faith that the granting
of such license would not be economically or commercially advantageous to
Licensee.
SECTION 2.6 PATENT INFRINGEMENT
(a) Grant covenants not to bring suit against Licensee or any of its
Sub-Licensees for infringement of any Patent arising from Licensee's and its
Sub-Licensee's performance in strict accord with this Agreement.
(b) Any claims for any infringement of Technology, Patents or
Trademarks shall belong solely to Grant and any recoveries with respect thereto
shall belong to Grant except to the extent such recoveries solely and
specifically relate to an infringement of the Technology or Patents for Threaded
or Reconstructed Atlas Bradford Oil Field Connections on full length Products in
the Licensee Territories for which an exclusive license has been granted to
Licensee in such territories, in which case such recoveries shall belong to
Licensee to the extent of its interest. Licensee shall be primarily responsible
for the defense of any infringement claims with respect to Technology, Patents
or Trademarks in the Licensee Territories for which an exclusive license has
been granted to Licensee to the extent the claim relates to the Exclusive
Territories; provided, however, in the event Licensee does not diligently
enforce its rights under Technology, Patents and Trademarks in the Exclusive
Territory, then, upon written notice to Licensee, Grant may enforce those
rights. Grant shall also have the exclusive right to defend any claims for
infringement in Grant Territory and a right to participate at its expense in any
actions in the Exclusive Territory. Licensee, however, shall have no right to
bring any action with respect to any infringement for the Technology, Patents or
Trademarks without the prior written consent of Grant, which shall not be
unreasonably withheld. Grant shall be entitled to participate in such actions.
Licensee shall not be entitled to take any action that would adversely affect
the right or validity of any of Technology or Trademarks without the prior
consent of Grant, which may be withheld in its sole and absolute discretion.
(c) In the event Grant enters into any settlement with respect to any
infringement claim with respect to Technology, Patents or Trademarks, Grant
agrees that it will not release or extinguish any rights of Licensee to the
Technology, Patents or Trademarks for use in the Exclusive Territory.
SECTION 2.7 USE OF PRODUCTS BY END USERS
Use of Products and Accessory Equipment by end users (drilling
contractors, oil companies and other similar users) is not restricted by this
Agreement and such end users may use and transfer such Products and Accessory
Equipment freely throughout the world without restriction hereunder. Grant or
Licensee, as the case may be, however, may be subject to commissions on such use
and transfer under Section 2.3(g) or to any other applicable remedy for
transactions made in violation of the provisions of this Agreement.
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SECTION 2.8 COMMISSIONS
(a) In consideration of the undertakings made by Licensee hereunder,
Grant agrees to pay to Licensee the following commissions:
[***]
(iii) The foregoing commissions shall only be applicable to
Products sold after the Effective Date and only for those
Products and Accessory Equipment that are sold or shipped during
the term of this Agreement for consumption in the Exclusive
Territory. Grant agrees to provide to Licensee a report within 60
days following the end of each calendar quarter setting forth a
list of all sales or shipments of Products and Accessory
Equipment of carbon steel of 9% or less Cr (and in the case of
Mexico Products and Accessory Equipment of all grades) containing
Atlas Bradford Oil Field Connections made into the Exclusive
Territory by Grant's and its Affiliates' distributors, agents and
customers during the quarter. Such report shall be based on
information provided to Grant and Grant Affiliates and Grant
licensees from such distributors, agents and customers, the Grant
licensees and any other data known to Grant and Grant Affiliates.
Licensee shall be entitled to object to such report and if it is
able to demonstrate that sales or shipments of Products of carbon
steel of 9% or less Cr containing Atlas Bradford Oil Field
Connections were made after the Effective Date in the Exclusive
Territory by Grant, the Grant Affiliates or Grant Licensees
(other than Licensee, its Sub-Licensees, Citra Tubindo, OCTL or
Citra Grant), Grant will be required to pay a commission with
respect to such sales.
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(iv) Grant shall pay any required commission contemporaneous
with the delivery of the report under Section 2.8(a)(iii) and
will be entitled to a credit against the commission payable
pursuant to this Section 2.8(a) for (x) all actual documented
expenses incurred by Grant in providing Licensee support for
Products and Accessory Equipment sold by it, Grant Affiliates and
their distributors, agents and customers in the Exclusive
Territory and (y) any commissions payable to Grant under Section
2.8(b).
(v) The commissions payable by Grant under this Section
2.8(a) shall not be in lieu of any other rights that Licensee may
have against Grant or any distributor or customer of Grant for
any sales of Atlas Bradford Oil Field Connections into the Home
Territories or for use in the Home Territories in violation of
this Agreement; provided, however, that a breach by a distributor
or customer of Grant of the resell or use restrictions required
under this Agreement shall not be considered a breach by Grant
under this Agreement and Licensee shall be entitled to take
action against a distributor or customer that acts in violation
of the resell and use restrictions contained herein; provided
further, however, that if a distributor or customer of Grant
violates the resell or use restrictions required under this
Agreement, Grant shall be obligated to pay to Licensee all
profits realized by Grant from such distributor or customer on
the sale of such Product and Atlas Bradford Oil Field Connection
that was resold by the distributor or customer in violation of
such restrictions.
(b) Although Licensee and its Affiliates shall be restricted from
making any sales of Atlas Bradford Oil Field Connections in the Grant Territory
(excluding Canada) and shall be required to restrict sales by customers (other
than customers who are end users that are purchasing for their own use and not
for resale), in recognition of Grant's retained rights to the Technology and
Patents, Licensee agrees to pay to Grant the following commissions:
[***]
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after the Effective Date and during the term of this Agreement,
then the commission payable will be based on Licensee's or its
Affiliates' then existing price list for such Atlas Bradford Oil
Field Connections.
(iii) The foregoing commission shall only be applicable to
Products sold after the Effective Date and only for those
Products that are sold or shipped during the term of this
Agreement for consumption in the Grant Territory (excluding
Canada). Licensee agrees to provide to Grant a report within 60
days following the end of each calendar quarter setting forth a
list of all sales or shipments of Products containing Atlas
Bradford Oil Field Connections made into the Grant Territory
(excluding Canada) by Licensee's and its Affiliates'
distributors, agents and customers during the quarter. Such
report shall be based on information provided to Licensee and
Licensee Affiliates and Licensee's sub-licensees from such
distributors, agents and customers, the Licensee's sub-licensees
and any other data known to Licensee and Licensee's sub-licensee
Affiliates. Grant shall be entitled to object to such report and
if it is able to demonstrate that sales or shipments of Products
of Accessory Equipment containing Atlas Bradford Oil Field
Connections were made after the Effective Date in the Grant
Territory (other than Canada) by Licensee, Licensee Affiliates
and Licensee's Sub-Licensees (other than Grant, Grant's
Affiliates, OCTL, Citra Tubindo or Citra Grant).
(iv) Licensee shall pay any required commission
contemporaneous with the delivery of the report under Section
2.8(b)(iii) and will be entitled to a credit against the
commission payable pursuant to this Section 2.8(b) for any
commissions payable to Licensee under Section 2.8(a).
(v) The commissions payable by Licensee under this Section
2.8(a) shall not be in lieu of any other rights that Grant may
have against Licensee or any distributor or customer of Licensee
for any sales of Atlas Bradford Oil Field Connections into the
Grant Territory (other than Canada) or for use in the Grant
Territory (other than Canada) in violation of this Agreement;
provided, however, that a breach by a distributor orcustomer of
Licensee of the resell or use restrictions required under this
Agreement shall not be considered a breach by Licensee under this
Agreement and Grant shall be entitled to take action against a
distributor or customer that acts in violation of the resell and
use restrictions contained herein; provided further, however,
that if a distributor or customer of Licensee or its
Sub-Licensees or its Affiliates violates the resell or use
restrictions required under this Agreement, Licensee shall be
obligated to pay to Grant all profits realized by Licensee or its
Affiliates from such distributor or customer on the sale of such
Product and Atlas Bradford Oil Field Connection that was resold
by the distributor or customer in violation of such restrictions.
(c) (i) Except as provided in Section 2.8(a)(v), commissions payable by
Grant and its Affiliates shall be limited to the sales price of the Atlas
Bradford Oil Field Connections as determined above and shall be net of discounts
and not include taxes, shipping, delivery,
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insurance and other similar charges or the price of Products or
Accessory Equipment on which the Atlas Bradford Oil Field
Connection is threaded. No commissions shall be payable by Grant
or its Affiliates under this Section 2.8 in respect of Atlas
Bradford Connections on Products or Accessory Equipment sold by
(i) a sub-licensee of Licensee or (ii) OCTL, Citra Tubindo or
Citra Grant to the extent otherwise permitted by the Agreement.
(ii) Except as provided in Section 2.8(b)(v), commissions
payable by Licensee and its Affiliates shall be limited to the
sales price of the Atlas Bradford Oil Field Connections as
determined above and shall be net of discounts and not include
taxes, shipping, delivery, insurance and other similar charges or
the price of Products or Accessory Equipment on which the Atlas
Bradford Oil Field Connection is threaded. No commissions shall
be payable under this Section 2.8 in respect of Atlas Bradford
Connections on Products or Accessory Equipment sold by (i) Grant
or its licensees (other than Licensee and its Affiliates and
Sub-Licensees) or distributors in respect to sales that were made
by Grant or (ii) OCTL, Citra Tubindo or Citra Grant.
(d) All commissions payable by Grant required under this Section 2.8
shall be paid to an account in the United States designated by Licensee from
time to time. All commissions payable by Licensee under this Section 2.8 shall
be paid to an account in the United States designated by Grant from time to
time. All commissions provided for hereunder shall be subject to any applicable
withholding or other similar taxes.
ARTICLE 3. CONFIDENTIAL INFORMATION
SECTION 3.1 DELIVERY OF PROPRIETARY DOCUMENTATION
Grant will, during the term of this Agreement, provide Licensee with
access to Proprietary Documentation relating to Grant Technology and Grant
Patents. Licensee agrees to refrain from: copying or abridging such Proprietary
Documentation; providing such Proprietary Documentation or copies thereof to any
third party (other than as necessary to allow Sub-Licensees to exercise their
rights and perform their obligations under the Sub-Licenses and subject to
appropriate confidentiality agreements for the benefit of Grant); or using such
Proprietary Documentation for any purpose other than performance under this
Agreement. Licensee agrees to promptly return all Proprietary Documentation
relating to the Grant Technology, including all copies and abridgments thereof,
to Grant upon termination of this Agreement.
SECTION 3.2 EXCHANGE OF CONFIDENTIAL INFORMATION
During the term of this Agreement, each party to this Agreement may or
will receive, directly or indirectly from the other party or from licensees or
Sub-Licensees, information which the other party, the licensees or the
Sub-Licensees, as the case may be, consider confidential ("CONFIDENTIAL
INFORMATION"). Confidential Information may be received in tangible form, or may
be received visually or orally. The receiving party agrees to hold in strict
confidence, and not to disclose to third
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parties, or use for any purpose other than performance under this Agreement any
Confidential Information which the receiving party receives from the disclosing
party in tangible form, marked "Confidential", or receives visually or orally
and with confirmation in writing as confidential by the disclosing party.
Further, the receiving party agrees to refrain from disclosing the disclosing
party's Confidential Information to any Person or party, except employees and
subcontractors of the receiving party who have a need to know the Confidential
Information in order for the receiving party to perform and receive its full
benefit under this Agreement and who have agreed in writing to maintain the
confidentiality of Confidential Information. The receiving party agrees to
promptly return all documentation and other tangible things embodying the
disclosing party's Confidential Information which are in the possession of or
under the control of the receiving party, upon termination of this Agreement for
any reason.
The above obligations of confidentiality and non-use of Confidential
Information apply both during the term of this Agreement and thereafter.
However, these obligations of confidentiality and non-use shall not apply to any
information which:
(a) was known to the receiving party, as shown by suitable evidence, at
the time the information was received from the disclosing party and who is not
subject to an obligation of confidentiality to the disclosing party; or
(b) is available, or becomes available to the public through no fault
of the receiving party, its Affiliates, licensees, Sub-Licensees or agents; or
(c) is disclosed to the receiving party by a third party who is not
subject to an obligation of confidentiality to the disclosing party; or
(d) is required by a final, unappealable order of any court or
government agency having competent jurisdiction over the information; or
(e) is independently developed by any of the parties without reference
to Confidential Information.
ARTICLE 4. MARKING PRODUCTS
SECTION 4.1 OBLIGATION TO MARK
Licensee agrees to mark each Product or item of Accessory Equipment on
which an Atlas Bradford Connection is Threaded or Reconstructed by Licensee
pursuant to this Agreement with marks showing:
(i) the Atlas Bradford Connection was Threaded or
Reconstructed by Licensee under license from Grant;
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(ii) the appropriate Grant Trademark(s) for the Atlas
Bradford Connection; and
(iii) the appropriate patent number or reference to patent
numbers.
SECTION 4.2 USE OF TRADEMARKS
(a) Licensee agrees to use Grant Trademarks only in conjunction with
Atlas Bradford Connections Threaded or Reconstructed by Licensee or its
Sub-Licensees at their facilities in the Licensee Territories pursuant to this
Agreement and in literature and advertising as approved in advance by Grant
which approval shall not be unreasonably withheld and deemed granted if Grant
does not object in writing to it within thirty (30) days of the written
submission to it for approval. All goodwill relating to the Grant Trademarks
shall belong exclusively to Grant and in the event of a termination of this
Agreement and Licensee's or its Sub-Licensees' rights with respect to the Grant
Trademarks, no payment shall be due or payable to Licensee or its Sub-Licensees.
Licensee has no license, either by grant or inference, to use Grant Trademarks,
except as specifically allowed under this Agreement. Use by Licensee of Grant
Trademarks shall inure solely to the benefit of Grant. Licensee agrees to
refrain from using or seeking registration of any trademark or trade name the
same or confusingly similar to Grant Trademarks, both during the term of this
Agreement and thereafter.
(b) Subject to the reimbursement of all costs relating thereto,
Licensee may designate where Trademarks and Patents are to be filed in the
Licensee Territories (other than Canada). (c) Grant will be responsible for the
filing and registration of all Trademarks and Patents worldwide. Licensee will
pay prosecution and maintenance fees (including legal and agency costs) of such
Trademarks and Patents in the Exclusive Territory.
ARTICLE 5. NEW TECHNOLOGY; TECHNOLOGY AND TECHNICAL
ASSISTANCE; SALES AND MARKETING
SECTION 5.1 OBLIGATION TO PROVIDE BUSINESS AND TECHNICAL INFORMATION
Grant agrees to make available to Licensee promptly following the
execution of this Agreement (at Licensee's cost) business and technical
information which, in accord with industry practice is required to Thread or
Reconstruct Atlas Bradford Oil Field Connections on Products and Accessory
Equipment as contemplated under this Agreement and which Grant has available.
Technical information shall include, as required, drawings, inspection manuals,
gauging manuals, Grant standards and specifications of quality and performance
of Atlas Bradford Oil Field Connections on Products and Accessory Equipment and
manufacturing processes and procedures. Technical information shall be in the
English language and shall use the English system of weights and measures (e.g.,
inches, feet, pounds, gallons, etc.). Once such information is initially
provided, Grant shall be required to supplement the same on a reasonable
frequency and Licensee shall reimburse for the reasonable costs incurred by
Grant in providing such supplements.
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SECTION 5.2 TOOLING AND GAUGES
Licensee shall procure from reputable international suppliers, on a
royalty free basis to Grant, the Tooling and Gauges required for Threading and
Reconstruction of Atlas Bradford Connections on Products and Accessory Equipment
by Licensee and its Sub-Licensees pursuant to the licenses granted hereunder to
it. Grant shall provide Licensee at Grant's cost plus 20% with the necessary
drawings and specifications. Licensee shall require Sub-Licensees to follow
procedural rules issued by Grant relating to the Patents and Technology
requiring calibration, verification, service or verification of Gauges against
master Gauges held by Licensee. Licensee master Gauges shall in turn be verified
against Grant's master Gauges. Licensee may also purchase Gauges from Grant upon
terms and conditions prevailing in the market at the time of the sale. Licensee
shall be entitled to purchase Gauges from third parties.
SECTION 5.3 RIGHT TO INSPECT GAUGES
Grant shall have the right, but not the obligation, to periodically
inspect all Gauges used by Licensee and its Sub-Licensees in connection with the
Threading and Reconstruction of Atlas Bradford Connections on Products and
Accessory Equipment using the Technology or Patents, upon Grant giving five (5)
days prior written notice to Licensee. Grant will provide Licensee with
procedures to determine from inspection of such Gauges when recalibration is
necessary. Licensee shall be responsible for calibration of such Gauges of
Licensee and of those Sub-Licensees which are Affiliates of Licensee. Each
Sub-Licensee of Licensee shall be responsible under the terms of the Sub-License
Agreement with such Sub-Licensee for the calibration of its Gauges.
SECTION 5.4 TRAINING OF PERSONNEL
Licensee may, from time to time, at its own expense send a reasonable
number of Licensee or its Sub-Licensees employees to Grant's facilities for a
reasonable period of time, for the purpose of receiving technical assistance and
studying methods employed by Grant in the Threading and Reconstruction of Atlas
Bradford Oil Field Connections on Products and Accessory Equipment. The time
schedule and number of employees will be mutually agreed between Grant and
Licensee. Such employees will be given access to Grant's facilities to the
extent necessary for such purpose. Licensee shall indemnify and hold Grant
harmless from any claim, award, or damages arising from injury, sickness or
death of such employees, including the injury, sickness or death resulting from
the sole or contributory negligence of Grant, its employees, officers or agents.
Licensee shall pay all salaries or wages, and all expenses of Licensee's
representatives sent to Grant's facilities and shall pay Grant a fee of $200.00
per person for each day of training, subject to an annual increase (effective
for training provided from January 1, 1999) equal to the annual change in the
United States Producers Price Index occurred during the preceding year;
provided, however, that no payment shall be due by the Licensee for the initial
training provided in Houston for five days and for up to ten Licensee employees
during one year from the Effective Date of this Agreement.
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SECTION 5.5 AVAILABILITY OF SPECIALISTS
At the request of Licensee, Grant shall provide technical specialists
to consult with Licensee concerning Threading and Reconstruction of Atlas
Bradford Oil Field Connections on Products and Accessory Equipment, and assist
Licensee or Sub-Licensees, as the case may be, with problems which may arise.
Should Licensee or a Sub-Licensee require the services of technical specialists
at any place other than Grant?s manufacturing facility at Navasota, Texas, USA,
Grant shall be entitled to be paid the amount of all reasonable travel and
living expense for the technical specialist provided at Grant?s then current
daily rate, (present daily rate is $500.00 and shall be increased by no more
than 5% in any one year), for each day a technical specialist is away from his
home office. Provision of technical specialists shall depend upon availability.
Grant shall indemnify and hold Licensee and Sub-Licensees, as the case may be,
harmless from any claim, award or damages arising from injury, sickness or death
of Grant technical specialists resulting from the sole or contributory
negligence of Licensee or Sub-Licensee, as the case may be, their employees,
officers or agents.
SECTION 5.6 PROVISION OF FIELD SERVICE
In the event a customer of Licensee requests field service with respect
to Atlas Bradford Oil Field Connections Threaded or Reconstructed using Patents
or Technology within the Territories, Licensee shall either provide such
services with the technical specialists/field service personnel of its
Affiliates or request Grant to provide such service, in which case Grant may,
but shall not be obligated to, provide such services at its then current charges
for such services. In the event the customer requests field services from Grant
with respect to Atlas Bradford Oil Field Connections Threaded or Reconstructed
using Patents or Technology within the Territories (other than Canada and the
jurisdictions in which Grant Prideco Limited has licenses), Grant will inform
its customer that Licensee provides field services through its Affiliates.
SECTION 5.7 CHANGES IN DESIGNS, STANDARDS, SPECIFICATIONS AND PROCESSES
Grant reserves the right to make any changes in the design, standards,
specifications, or Threading processes, for Atlas Bradford Oil Field
Connections, Tooling and Gauges. Grant shall, when such items are first utilized
on a regular commercial basis, for fees equal to Grant's cost plus 20%, make
available to Licensee with new drawings, specifications, Manual revisions,
updated drawings, etc., for the Threading or Reconstruction of Atlas Bradford
Oil Field Connections on Products and Accessory Equipment under this Agreement
in accordance with Grant's then current standards and specifications of quality
and performance. Prior to such time, Grant shall have no obligation to provide
the same; provided, however, it is understood that such fees shall not be
payable for the cost of the technological improvements or changes made in the
design, specifications or Threading processes that were not initiated or
requested by Licensee and will be limited to the cost of making available such
matters.
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SECTION 5.8 LICENSEE IMPROVEMENTS
In the event that Licensee or any of its Sub-Licensees shall develop
any modifications or improvements in the design or manufacture of Atlas Bradford
Oil Field Connections using Patents or Technology during the term of this
Agreement, Licensee shall communicate such modifications or improvements to
Grant and hereby grants a royalty-free non-exclusive license to Grant to make,
use and sell Atlas Bradford Oil Field Connections on Products and Accessory
Equipment incorporating such technology under terms and conditions similar to
those provided in this Agreement, including territory and limitation of use, and
only for as long as Licensee is allowed to use the Patents and Technology,
except in the case of termination of this Agreement under Section 10.5, in which
case such license would have the same duration as that of the patents, if any,
disclosed under that license or would be in force for so long as the know-how
disclosed under that license remained confidential and secret.
SECTION 5.9 MAINTENANCE OF INFORMATION, GAUGES AND TOOLING
Licensee and its Sub-Licensees shall be responsible for the maintenance
of all Grant Proprietary Documentation, Confidential Information and Tooling
provided to them. This includes proper storage, inventory, and protection as
deemed necessary and as directed by Grant. Further, Licensee agrees to follow
all procedures established by Grant and applied generally to all licensees,
concerning the maintenance and inventory of manuals, drawings, other Proprietary
Documentation, and Gauges of Grant and further agrees that repair or replacement
of abused damaged or lost manuals, drawings, and Gauges will be charged to
Licensee, normal wear and tear excepted.
SECTION 5.10 BREACH OF MAINTENANCE AND NON DISCLOSURE OBLIGATION
The parties agree that if any Proprietary Documentation relating to the
disclosing party, Confidential Information, Technology or Gauges, in whole or in
part, or any reproduction of same, is found outside the receiving party's
possession (other than the possession by a Sub-Licensee of Licensee) without
prior written consent of the disclosing party in a manner that would reasonably
lead to believe that the receiving party has materially breached its obligations
hereunder, then the disclosing party has, in addition to its other legal
remedies, the right to terminate this Agreement in accordance with Section 10.5.
Each of Grant and Licensee shall also be entitled to seek injunctive relief for
a breach of this section without the necessity of proving irreparable harm and
without posting bond.
SECTION 5.11 RESEARCH AND DEVELOPMENT
(a) In the event Grant or any of its Affiliates develop any New Grant
Connections Licensee may request that the patents, technology and trademarks for
the New Grant Connections be added to the technology, patents and trademarks
licensed to Licensee hereunder subject to the rights of any co-inventors or
owners. In such case, a license of the patents, technology and trademarks
subject to the rights of any co-inventors or owners for the New Connections
shall be granted subject to the Licensee reimbursing Grant an amount equal to
50% of the actual documented costs, including internal costs, associated with
the investment, development and testing thereof and
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the payment of any transfer or sub-license fees and payments of royalties for
third parties. Once such costs are paid, subject to the rights of other owners,
the license for the patents and technology for the New Grant Connections shall
be deemed to be fully paid and subject to the terms hereof, including
exclusivity, territory and field of use and be included within the definitions
of Technology, Patents, and Trademarks. Notwithstanding the foregoing, Grant or
any of its Affiliates may seek and obtain a license of patents and technology
relating to Connections from an unAffiliated third party without an obligation
to license the same under this Agreement. The foregoing shall also not apply to
XL Technology.
(b) In the event Grant or any Affiliate thereof acquires patents or
technology through an asset or stock purchase, merger or other transaction
(excluding a transaction under which patents or technology or other rights are
acquired pursuant to a license) for any New Grant Connections, Licensee may
request that such patents, technology and trademarks for the New Grant
Connections be added to the patents, technology and trademarks licensed to such
party hereunder. In such case, subject to any limitations or restrictions
relating to such patents, technology and trademarks prior to the date on which
such patents and technology are acquired and the payment of any transfer or
sub-license fees, payments or royalties that would be payable to any
unAffiliated third party, a license of the patents, technology and trademarks
for the New Grant Connections shall be granted subject to the Licensee
reimbursing Grant for the New Grant Connections an amount equal to 50% of the
allocated cost to Grant of the patents, technology and trademarks relating to
the New Grant Connections to be licensed. Once such costs are paid, the license
for the patents, technology and trademarks for the New Grant Connections shall
be deemed to be fully paid and subject to the terms hereof, including
exclusivity, territory and use and be included within the definition of
Technology, Patents, and Trademarks. Notwithstanding the foregoing, Grant or any
of its Affiliates may seek and obtain a license of patents and technology
relating to Connections from an unAffiliated third party without an obligation
to license the same under this Agreement. The foregoing shall also not apply to
XL Technology.
(c) Contemporaneous herewith, EVI, as the controlling Affiliate of
Grant, and Dalmine, Siderca and Tamsa, as Affiliates of Licensee, have executed
an agreement (the "Affiliates Agreement") to be bound by the provisions of this
Agreement to the extent there are obligations of Grant's and Licensee's
Affiliates. Any breach of the Affiliate Agreement shall be considered a breach
of this Agreement by the party affiliated with the breaching party.
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SECTION 5.12 INFORMATION TO CUSTOMERS
Grant and the Licensee agree to inform their customers of this
Agreement pursuant to a general notice and/or press release to be mutually
agreed by them. Such notice shall include a notice to distributors that (i) the
distributors of Grant shall be restricted from reselling Products with Atlas
Bradford Oil Field Connections sold by Grant to the distributor after the
Effective Date in the Home Territories or knowingly for use in the Home
Territories and (ii) the distributors of License and its Sub-Licensees shall be
restricted from reselling Products with Atlas Bradford Oil Field Connections
sold to the distributor after the Effective Date in the Grant Territory (other
than Canada) or knowingly for use in the Grant Territory (other than Canada).
SECTION 5.13 SALES LITERATURE
Grant agrees to assist Licensee, at Licensee's expense, in the
preparation of any sales literature used by Licensee or Sub-Licensees pursuant
to this Agreement. Licensee shall obtain Grant's prior written approval on all
sales literature for Atlas Bradford Connections threaded or reconstructed with
Patents or Technology (which approval shall not be unreasonably withheld) before
literature is distributed. Grant's approval shall be deemed granted whenever
Grant does not object to the proposed literature within 15 days of the written
request for approval made by Licensee.
ARTICLE 6. PRODUCT QUALITY AND PERFORMANCE
SECTION 6.1 COMPLIANCE OBLIGATIONS
Licensee understands that the safety of Atlas Bradford Connections and
protection of Trademarks are primary reasons for maintaining the quality and
performance of the licensed Atlas Bradford Connections. In this regard Licensee
agrees at all times to provide trained personnel and operate its facilities in
the manner necessary to Thread or Reconstruct Atlas Bradford Oil Field
Connections on Products and Accessory Equipment in accordance with Technology
and Patents and in strict conformance to the specifications and standards of
quality employed by Grant for products the same or similar to Atlas Bradford
Connections. Licensee further agrees to ensure that all manufacturing
procedures, finishing and gauging practices set forth in the aforementioned
Technology and Patents shall be strictly adhered to by Licensee. Any changes in
manufacturing procedures, such as threading, finishing and gauging shall be made
only with Grant's written consent. In the event any Atlas Bradford Connections
utilizing Patents and Technology that are Threaded or Reconstructed by Licensee
fail to comply with Grant's standards and specifications of quality, Licensee
shall refrain from marking any non-complying connections with any Trademark
called for in Article 4. To assure compliance with this provision, Grant shall
make available to Licensee on an ongoing basis Grant's current specifications
and standards for finishing.
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SECTION 6.2 RECORDS
Licensee shall record and maintain, in a reasonable manner, data sheets
containing measurements on each and every Atlas Bradford Connection Threaded and
Reconstructed by Licensee pursuant to this Agreement. Said data sheets shall be
available for Grant's auditor review and shall be retained by Licensee for a
period of five (5) years following the Threading or Reconstruction of the
licensed Atlas Bradford Connections.
SECTION 6.3 QUALITY PROBLEMS
Licensee and Grant shall cooperate to resolve problems Licensee or its
Sub-Licensees may have in complying with Atlas Bradford Connection standards and
specifications of quality. In the event Atlas Bradford Connections that are
Threaded or Reconstructed by Licensee or its Sub-Licensees utilizing the
licenses from Grant fail to comply with Grant standards and specifications of
quality, then Licensee and its Sub-Licensees, as the case may be, shall refrain
from marketing or selling such non-conforming Atlas Bradford Connections until
such time as the problems causing such non conformance are solved.
SECTION 6.4 COVENANT NOT TO MARK NON PERFORMING PRODUCTS
Licensee shall not place any Trademark on any product which does not
comply with Grant standards and specifications of quality for its licensed Atlas
Bradford Connections. To assure compliance with this provision, Grant shall make
available to Licensee on an ongoing basis Grant's current specifications and
standards for finishing.
ARTICLE 7. EFFECTIVE DATE; CONSIDERATION
(a) This Agreement shall become effective if and only if the purchase
by Pridecomex Holding, S.A. de C.V. of the stock of TF de Mexico, S.A. de C.V.
pursuant to the Stock Purchase Agreement dated as of the Effective Date between
EVI Weatherford, Inc., Pridecomex Holding, S.A. de C.V., Tamsa and Tamsider S.A.
de C.V. is consummated.. If such purchase is not consummated prior to October
31, 1998, this Agreement shall be terminated and void. Until this Agreement
becomes effective, Grant and its Affiliates shall have no obligations and will
not be restricted by the provisions of this Agreement.
(b) The licenses granted hereunder by Grant are being provided in
consideration for the agreements hereunder and other agreements that are being
entered into with Affiliates of Licensee.
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ARTICLE 8. WARRANTY
SECTION 8.1 WARRANTY
(a) Grant represents and warrants to Licensee that except as set forth
in Schedule 8.1(a), Grant is not currently aware of any claims by third parties
that the Technology infringes upon or violates the rights of any third party in
the Exclusive Territory.
(b) GRANT WARRANTS THAT THE TECHNOLOGY SUPPLIED TO LICENSEE PURSUANT TO
THIS AGREEMENT SHALL, IF PROPERLY APPLIED UNDER CIRCUMSTANCES EQUIVALENT AT
GRANT'S MANUFACTURING OPERATIONS, WILL PERMIT THE LICENSEE TO THREAD ATLAS
BRADFORD CONNECTIONS OF THE SAME KIND AND NATURE THREADED BY GRANT AT ITS
FACILITIES, PROVIDED, HOWEVER, NO REPRESENTATION OR WARRANTY IS MADE OR GIVEN AS
TO THE SUITABILITY OF THE TECHNOLOGY TO THREAD PRODUCTS IN ANY MANNER DIFFERENT
THAN THAT CONDUCTED BY GRANT. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE PATENTS,
TECHNOLOGY AND TRADEMARKS TO BE LICENSED UNDER THIS AGREEMENT ARE BEING LICENSED
WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND OR NATURE, INCLUDING TITLE,
DESIGN, PERFORMANCE, FITNESS FOR A PARTICULAR PURPOSE, ABSENCE OF DEFECTS,
LATENT OR OTHERWISE, INFRINGEMENT OR MERCHANTABILITY. IT BEING UNDERSTOOD THAT
THE LICENSES GRANTED HEREUNDER ARE BEING PROVIDED STRICTLY ON AN "AS IS" WHERE
IS BASIS. GRANT'S SOLE OBLIGATION TO LICENSEE UNDER THIS WARRANTY IS LIMITED TO
REPLACEMENT OF NON-CONFORMING TECHNOLOGY.
SECTION 8.2 EXCLUSION OF TOOLING
Licensee is aware that Tooling, including threadform inserts, groove
tools, Teflon seal rings, and thread protectors supplied by Grant for each Atlas
Bradford Oil Field Connection for Products and Accessory Equipment which
Licensee Threads or Reconstructs pursuant to this Agreement may not be of
Grant's manufacture. Accordingly, Licensee agrees that Grant shall not be
warrantor with respect to any threadform inserts, groove tools, Teflon seal
rings, thread protectors or other Tooling which Licensee may purchase directly
from any vendor. Licensee shall be responsible for the inspection of said
Tooling from any of such vendors.
SECTION 8.3 WARRANTY TO CUSTOMERS
Whenever market practice may allow it, Licensee agrees to use
reasonable efforts, and to require its Sub-Licensees to use reasonable efforts,
to limit their warranty of all Atlas Bradford Oil Field Connections on Products
and Accessory Equipment Threaded or Reconstructed by it or its Sub-Licensees
pursuant to this Agreement to the terms stated in Schedule "E".
ARTICLE 9. INDEMNITY
Without prejudice to Grant's obligations under Section 8.1, Licensee
hereby agrees to indemnify, defend and hold Grant, its Affiliates and their
respective officers, directors, employees, agent, stockholders and controlling
persons and their respective successors and assigns harmless
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from and against in respect of any and all liabilities, losses, damages,
demands, assessments, claims, costs and expenses (including interest, awards,
judgments, penalties, settlements, fines, diminutions in value, cost 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)) actually
suffered, incurred or realized by such party arising out of or resulting from or
relating to the use of the Technology, Patents or Trademarks by Licensee or any
of its Affiliates, the Threading, the Reconstruction, sale or use of any Atlas
Bradford Oil Field Connections on Products or Accessory Equipment Threaded,
Reconstructed, sold or used by the Licensee or any of its Affiliates or for any
breach of any covenant or agreement by Licensee hereunder or its Affiliates
under the Affiliates Agreement.
ARTICLE 10. TERM AND TERMINATION
SECTION 10.1 DURATION
This Agreement shall become effective and the rights herein granted
shall commence from the Effective Date and continue in effect until December 31,
2027 and thereafter for successive three (3) year periods unless notice of
termination is given on or prior to December 31, 2026 or one (1) year prior to
the expiration of any subsequent extension. Grant, however, agrees that from the
date hereof until the earlier of the Effective Date and the date on which the
Stock Purchase Agreement dated as of June 19, 1998, between EVI Weatherford,
Inc., Pridecomex Holding, S.A. de C.V., Tubos de Acero de Mexico S.A. and
Tamsider S.A. de C.V. is terminated pursuant to its terms prior to the Effective
Date, it will not (i) grant any new licenses or amend or renew any existing
licenses to Thread, Reconstruct or sell in the Exclusive Territory or inside of
the Grant Territory foruse in the Exclusive Territory, Atlas Bradford Oil Field
Connections on Products or Accessory Equipment of carbon steel of 9% or less Cr
unless such licenses are (x) entered into in the ordinary course of business,
(y) may be terminated without liability to Licensee on at least six months
notice and may be assigned to Licensee and (z) non-exclusive, (ii) take similar
action with respect to licenses as described in clause (i) (subject to the same
exceptions) with respect to Products or Accessory Equipment of all grades in
Mexico or for use in Mexico and (iii) take any action that would be prohibited
under the last sentence of Section 2.5(g)(i) had this Agreement been judged in
effect.
Whenever notice of termination is given during the remaining life of
this Agreement, Licensee or Grant, as the case may be, and any of its
Sub-Licensees shall (a) be entitled to complete the work as scheduled with their
customers on any orders requiring Products or Accessory Equipment placed prior
to the termination notice, irrespective of the agreed time for performance and
(b) may accept new orders for Threading or Reconstruction of Atlas Bradford
Connections on Products or Accessory Equipment derived from quotations dated
before the last day of the relevant period on which termination becomes
effective, as contemplated in this Agreement, provided that such Atlas Bradford
Connections are shipped not later than ninety (90) days from the last day of the
life of this Agreement. Notwithstanding the foregoing, nothing in this Agreement
shall be construed to provide for a license or other rights to use or employ
technology or patents inany jurisdiction in which such license or grant of
rights would not be lawful and the term of any license granted hereunder with
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respect to any patent in any jurisdiction shall not extend beyond the expiration
date of such patent in such jurisdiction.
SECTION 10.2 SURVIVING OBLIGATIONS
Neither party shall be relieved of its continuing obligations upon
termination of this Agreement. In this regard, subject to the provisions of this
Agreement:
(a) The parties shall abide by their continuing obligations of
confidentiality and non-use of Confidential Information, and shall, on the day
of termination, return all Confidential Information, including all copies
thereof, which are in their possession or under their control.
(b) Licensee shall promptly return to Grant all Grant Gauges, Tooling,
Proprietary Documentation, Technology and Confidential Information, including
all copies thereof, which are in the possession or under control of Licensee.
(c) Licensee and Grant shall abide by their obligations and indemnity
under this Agreement.
SECTION 10.3 INSOLVENCY
In the event Licensee, its successors or assigns shall become bankrupt
or insolvent, or enter into a composition with creditors, or if a receiver shall
be appointed, or if any petition or application for reorganization be filed by
or against it, then this Agreement may be terminated by Grant. However, Licensee
shall not be thereby discharged from any liability to Grant for any amounts due
at the time of termination or from antecedent liability and the licenses to
Grant shall continue in effect without impairment.
SECTION 10.4 MANUFACTURE OF PRODUCTS IN VIOLATION OF AGREEMENT
If Licensee or any of the Sub-Licensees that is an Affiliate of the
Licensee Threads, Reconstructs or sells any Atlas Bradford Connections on
Products or Accessory Equipment in violation of the terms and provisions of this
Agreement or uses or applies Technology, Patents or Trademarks in association
with products of a type other than those licensed under this Agreement, Grant
shall, upon 120 days written notice, be entitled to terminate the licenses
granted by it under this Agreement; provided, however if such breach is cured
within such time period Grant may not terminate the licenses; provided further,
however, that if Licensee or any Sub-Licensee that is an Affiliate of Licensee
within 18 months thereafter again violate the terms and conditions of this
Agreement, Grant may, upon written notice, immediately terminate all licenses
granted by it hereunder without any cure period. Licensee shall also be liable
to Grant for all damages of every nature resulting from such violations of this
Agreement or the Affiliates Agreement by Licensee's Affiliates, and further,
Licensee agrees that it shall be subject to an injunction of the appropriate
court against any further such violations without the requirement to prove an
inadequate remedy at law or obligation to post bond or similar security.
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SECTION 10.5 BREACH OF OTHER OBLIGATIONS
If either party shall fail to observe or perform any of its material
promises, agreements, or undertakings under this Agreement or a party's
Affiliate fails to observe any of its material promises, agreements or
undertakings under the Affiliates Agreement, and fails to remedy any such breach
within one hundred and twenty (120) days of notice to do so from the other
party, then the aggrieved party may, upon expiration of the one hundred and
twenty (120) days notice period, give written notice of termination of the
licenses granted by such party under this Agreement either forthwith or at a
future date designated by the aggrieved party. The parties agree that, without
prejudice to any indemnification rights they may be entitled to, the party in
breach of its obligations shall be subject to an injunction of the appropriate
court against any further such violations without the requirement to prove an
inadequate remedy at law or obligation to post bond or similar security.
ARTICLE 11. NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
certified mail, return receipt requested, or (c) when received by the addressee,
if sent by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
<TABLE>
<CAPTION>
GRANT LICENSEE
<S> <C>
Attention: Rich DeLange Attention: Pedro Minaudo
Grant Prideco, Inc. Simini 250
P.O. Box 60865 2804 Campana, Provincia de Buenos Aires
Houston, TX 77025-0865 Argentina
Facsimile No.: 281 774 4535 Facsimile No.: (54489) 3-3227
with a copy to: John C. Coble Telephone No.:
Facsimile No.: 281 774 4569
Telephone No.: 281 774 4505
and copy to:
Curtis W. Huff Cristian J. P. Mitrani
EVI Weatherford, Inc. Leandro N. Alem 1067, piso 25
5 Post Oak Park, Suite 1760 1001 Buenos Aires
Houston, TX 77027 Argentina
Facsimile No.: (713) 297-8488 Facsimile No.: (541) 310-1045
Telephone No.: (713) 297-8400 Telephone No.: (541) 318-2389
</TABLE>
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ARTICLE 12. GOVERNMENTAL APPROVAL
SECTION 12.1 US EXPORT CONTROL REGULATIONS
Grant's obligations under this Agreement are subject to the export
control regulations of the government of the United States of America, the
European Union and other applicable governments. Compliance of the parties with
such export control Regulations is a condition of this Agreement. Nothing
contained in this Agreement shall be deemed to have granted any rights contrary
to such laws or Regulations.
SECTION 12.2 REGISTRATION OF AGREEMENT
Promptly upon execution and delivery of this Agreement, Licensee shall
register, if required, this Agreement in the appropriate departments, agencies,
and/or offices of government within the Territories, and shall gain all
necessary approvals as may be required by law in the Territories.
SECTION 12.3 COOPERATION TO OBTAIN APPROVALS AND LICENSES
Grant and Licensee shall cooperate in obtaining any approvals or
licenses which may be required in connection with the implementation of any
portion of this Agreement.
ARTICLE 13. FORCE MAJEURE
If performance of this Agreement or of any obligation under this
Agreement, except payment of moneys due and maintaining information and
documents in confidence, is prevented, restricted or interfered with by acts of
government, war, rebellion, riot, labor unrest, unavailability of materials,
Acts of God, or any other force, act or condition beyond the reasonable control
of the parties ("Force Majeure"), the party affected by Force Majeure shall be
excused from such performance to the extent of such prevention, restriction or
interference, provided that the party so affected promptly notifies the other
party of the Force Majeure condition, uses its best efforts to avoid or remove
the Force Majeure condition, and continues performance under this Agreement with
utmost dispatch when such Force Majeure condition is removed. In the event a
Force Majeure condition results in suspension of performance under this
Agreement for a continuous period of one year or more, the party not affected by
the Force Majeure condition may terminate this agreement by giving the affected
party written notice of termination.
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ARTICLE 14. GOVERNING LAW; CONSTRUCTION
SECTION 14.1 GOVERNING LAW
This Agreement shall be deemed made pursuant to, and shall be governed
by the laws of the State of New York, except the conflict of laws provisions
thereof.
SECTION 14.2 SEVERABILITY
Both parties expressly agree that it is not the intention of either
party to violate any public policy, statue or common law; and if any
provision(s) of this Agreement shall be held to be invalid, illegal or
unenforceable, in whole or in part, in any jurisdiction within which the
Agreement is to be performed, or if any appropriate government agency or
authority shall require the parties to delete any provision of this Agreement,
such invalidity, illegality, enforceability or deletion shall not impair or
affect the remaining provisions of this Agreement, so long as the material
purposes of this Agreement can be determined and effectuated. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal,
unenforceable or deleted provisions by valid provisions, the effect of which
comes as close as legally possible to the intention of the parties upon entering
into this Agreement.
SECTION 14.3 NON WAIVER
The failure of one party hereto to enforce at any time any of the
provisions of this Agreement, or exercise any rights or any elections herein
provided, shall in no way be considered to be a waiver of such provisions,
rights or elections or in any way to affect the validity of this Agreement. The
exercise by said party of any rights or any elections under the terms of this
Agreement shall not preclude or prejudice said party from exercising the same or
any other rights or elections it may have under this Agreement.
ARTICLE 15. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
parties, their successors and assigns, provided that the assignor shall remain
liable to the other party for the obligations arising under this Agreement.
Notwithstanding the foregoing Licensee may not assign its rights, directly or
indirectly, by merger, sale of assets, conversion or a change in control of
Licensee, to any person or entity that directly or through an Affiliate Threads,
Reconstructs or sells Connections on Products and Accessory Equipment in the
Grant Territory. Further any such assignment shall, at the election of Grant, be
void or result in an immediate termination of the licenses granted hereunder to
Licensee.
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<PAGE> 30
ARTICLE 16. SETTLEMENT OF DISPUTES
If, during the term of this Agreement or after its termination,
disputes, controversies, claims or differences arising out or relating to this
Agreement (including any questions as to the existence, validity, termination,
discharge, breach or enforceability of this Agreement and of this arbitration
clause), arise between Grant and Licensee, the parties shall take every
reasonable effort to negotiate an amicable settlement. In the event the parties
are unable to reach a settlement within thirty (30) days after notice by any of
the parties is given to the other party acknowledging the existence of a dispute
to be solved in accordance with the provisions of this section, then either
party may request arbitration pursuant to the then current rules of the
International Chamber of Commerce domiciled in Paris for arbitration in
accordance with the rules of said organization. Each party shall appoint one
arbitrator of its choice, and the two appointed arbitrators shall appoint a
third arbitrator. A decision agreed to by at least two of the arbitrators shall
be the decision of the Arbitration proceeding. In the event either party fails
to appoint an arbitrator or in the event no agreement is reached between the two
arbitrators as to the appointment of the third arbitrator in accordance with the
foregoing provisions, such arbitrator or arbitrators shall be appointed, upon
application of the interested party, by the Court of Arbitration of the
International Chamber of Commerce. Unless the parties agree otherwise, the site
of the arbitration shall be New York, New York. Arbitration proceedings shall be
conducted in the English language. Any decision or award of the arbitrators
shall be based solely on the provisions of this Agreement, provided, however,
that to the extent that the subject matter for the decision or award is not
provided for in such provisions, the decision or award shall be based upon the
controlling law of this Agreement, excluding the conflicts of laws provisions
thereof. The arbitrators shall not be requested nor shall they have the power to
render any decision or award except in accordance with the preceding sentence.
The award rendered in any arbitration commenced hereunder shall be final and
conclusive and judgment thereon may be entered in any court having jurisdiction
for its enforcement. Neither party shall appeal to any court from the decision
of the arbitration panel. In addition, except for injunctive relief in aid of
arbitration, neither party shall have any right to commence or maintain any suit
or legal proceeding concerning a dispute hereunder until the dispute has been
determined in accordance with the arbitration procedure provided for herein and
then only for enforcement of the award rendered in such arbitration. Pending
settlement of any dispute, the parties shall abide by their obligations under
this Agreement without prejudice to a final adjustment in accordance with an
award rendered in an arbitration settling such dispute. A party may be entitled
to receive injunctive relief from a court of competent jurisdiction in aid of
arbitration.
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<PAGE> 31
ARTICLE 17. MISCELLANEOUS
SECTION 17.1 EXISTING LICENSES
(a) Non Renewal and Termination
(i) Except as provided herein, including without limitation
Grant's rights to make Distribution Sales and International Company Sales and
the rights of customers and distributors as provided in Sections 2.3 and 2.8,
Grant shall refrain from renewing and shall promptly terminate or assign all
licenses with respect to the Technology and Patents granted to other Persons for
the Threading, Reconstruction of Atlas Bradford Oil Field Connections on
Products or Accessory Equipment outside of the Grant Territory; provided,
however, Grant will not be obligated to terminate any license under conditions
where Grant would suffer financial loss unless Licensee indemnifies Grant for
any such loss in a manner satisfactory to Grant.
(ii) Except as provided herein, including without limitation
Grant's rights to make Distribution Sales and International Company Sales and
the rights of customers and distributors as provided in Sections 2.3 and 2.8,
Grant shall refrain from renewing and shall promptly terminate all licenses with
respect to the Technology and Patents granted to other Persons for Threading,
Reconstruction or sale of Atlas Bradford Oil Field Connections on Products
within the Grant Territory but only with respect to the Threading,
Reconstruction or sale of Atlas Bradford Oil Field Connections on Products for
use outside of such territory.
(iii) The foregoing provisions of this Section 17.1 shall not
apply to any licenses relating to the sale of Atlas Bradford Oil Field
Connections by any distributor located in the Grant Territory (other than any
United States steel mill) or any use licenses granted to customers and end
users.
(iv) Grant agrees to provide to Licensee within two weeks from
the date hereof a list, together with copies thereof, of all licenses currently
existing and in effect granted by Grant with respect to the right to Thread,
Reconstruct or sell Atlas Bradford Oil Field Connections on Products and
Accessory Equipment in the Exclusive Territory and in the Grant Territory for
use in the Exclusive Territory excluding (i) licenses to sell granted to
distributors, (ii) rights of customers and end users to use and resale Products
and Accessory Equipment and (iii) those licenses that may be terminated by Grant
prior to the Effective Date.
(b) Amendment
Grant shall use reasonable efforts to have its current licenses with
other Persons to be amended in order to avoid any conflict with this Agreement.
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<PAGE> 32
(c) Information and Evidence of Performance
Upon Licensee's request Grant shall disclose to Licensee the material
license terms of all of its existing licenses related to the Exclusive
Territories covering the Threading, Reconstruction or sale of Atlas Bradford Oil
Field Connections on Products and Accessory Equipment and shall give reasonable
evidence of having complied with the undertakings made in the preceding
subsections (a) and (b).
(d) Exception
The obligations of Grant set forth in this Section 17.1 shall not apply
to (i) the rights of any distributor, customer or end user, (ii) the Citra
License, (iii) the rights of OCTL described herein and (iv) the rights of Citra
Grant described herein.
SECTION 17.2 ENTIRE AGREEMENT
This Agreement contains the entire Agreement between the parties
applying to the matters herein contained and has been entered into relying only
upon the provisions contained herein and not upon any other representation by
either of the parties. This Agreement supersedes all representations, agreement,
statements and understandings whether written or oral, relating to such matters
made prior to execution of this Agreement. This Agreement can only be amended by
an agreement in writing executed by all the parties hereto. This Agreement may
not be modified, supplemented, explained or waived except as agreed to in a
writing executed by both parties.
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<PAGE> 33
SECTION 17.3 HEADINGS
The headings used in this Agreement are inserted for convenience and
identification only, and are not intended to describe, interpret, define, or
limit the scope, extent or intention of this Agreement or any provision hereof.
SECTION 17.4 CHOICE OF LANGUAGE
This Agreement has been prepared in English and, notwithstanding any
translation of this Agreement into any other language, the English version of
this Agreement shall control in all respects.
SECTION 17.5 NO PARTNERSHIPS
Nothing contained in this Agreement shall be construed to constitute a
partnership or other similar relationship between Grant, Licensee or any of
their respective Affiliates nor to confer any fiduciary or similar relationship
between Grant, Licensee or any of their respective Affiliates.
IN WITNESS WHEREOF, each party has caused this Agreement in multiple
original to be subscribed by duly authorized representative on the Effective
Date.
GRANT PRIDECO, INC. DST DISTRIBUTORS OF STEEL
TUBES LIMITED
By: /s/ [Illegible] By: /s/ [Illegible]
-------------------------- ------------------------------
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<PAGE> 34
GRANT PRIDECO, INC.
DST DISTRIBUTORS OF STEEL TUBES LIMITED
MASTER TECHNOLOGY LICENSE AGREEMENT
SCHEDULE "C"
DEFINITIONS
"ACCESSORY EQUIPMENT" means crossovers, connectors, pup joints, liner hangers,
landing nipples, packers, packer stringers, end line pressure control equipment,
safety valves, gas lift valve mandrels, lift plugs, lift caps, hydrostatic test
plugs, hydrostatic test caps, handling plugs, handling caps, discharge head
hangers, float shoes, float guides, float collars, flow couplings collars blast
joints, tubing anchors, side pocket mandrels, couplings and similar equipment.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. Dalmine, Siderca and Tamsa and their respective Affiliates and
successors and assigns shall be deemed Affiliates of Licensee. OCTL, Citra
Tubindo and Citra Grant, and any entity controlled by them, shall not be
considered Affiliates of Grant.
"ATLAS BRADFORD CONNECTIONS" mean the current line of Atlas Bradford Connections
described in Exhibit A and any additions or modifications made to that product
line in the future.
"ATLAS BRADFORD OIL FIELD CONNECTIONS" mean Oil Field Connections that utilize
an Atlas Bradford Connection.
"CONNECTIONS" mean premium connections for Products and Accessory Equipment and
shall specifically exclude API and similar connections.
"DESIGNATED ACCESSORY EQUIPMENT" means crossovers, couplings and pup joints.
"DISTRIBUTION SALES" means any sale in the Grant Territory to a distributor
or agent of Grant or any of its Affiliates or Grant Licensees of any Atlas
Bradford Oil Field Connections on Products that have been Threaded or
Reconstructed to the extent that such Atlas Bradford Oil Field Connection is
sold to such distributor for its inventory as long as Grant or the Grant
Affiliate, as the case may be, is not advised by the distributor or agent that
the Product to which such Atlas Bradford Connection is placed is destined for
use in a part of the Exclusive Territories; provided that a Distribution Sale
shall not include a sale of a Product with an Atlas Bradford Oil Field
Connection
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that is to be resold by the distributor in the Home Territories or the sale of
an item of Designated Accessory Equipment with an Atlas Bradford Oil Field
Connection that is to be resold in Mexico.
"EFFECTIVE DATE" means the date on which the purchase by Pridecomex Holding,
S.A. de C.V. of the stock of TF de Mexico, S.A. de C.V. pursuant to the Stock
Purchase Agreement dated as of June 19, 1998, between EVI Weatherford, Inc.,
Pridecomex Holding, S.A. de C.V., Tamsa and Tamsider S.A. de C.V. is
consummated.
"EXCLUSIVE TERRITORY" means the world except Canada and the United States of
America and their respective offshore waters (including any country or
jurisdiction that may in the future lie within such areas).
"GAUGES", with respect to a party, means such party's proprietary gauges and
gauge tools necessary for the other party to Thread or Reconstruct Atlas
Bradford Connections on Products and Accessory Equipment pursuant to the
licenses granted hereunder to it.
"GRANT" means Grant Prideco, Inc.
"GRANT LICENSEES" means any Person to whom Grant or a Grant Affiliate has
licensed rights to Thread, Reconstruct and/or sell Atlas Bradford Oil Field
Connections on Products or Accessory Equipment in accordance with this
Agreement.
"GRANT TERRITORY" means the United States of America, Canada and their
respective offshore waters and territories (including any country or
jurisdiction that may in the future lie within the current territorial
boundaries of the United States of America, Canada and its respective offshore
waters and territories).
"HOME TERRITORY" means Mexico, Argentina and Italy and their respective offshore
waters and territories (including any country or jurisdiction that may in the
future lie within the current territorial bodies of Mexico, Argentina and Italy
and their respective offshore waters and territories).
"INTERNATIONAL COMPANY SALES" means any sale in the Grant Territory of Atlas
Bradford Connections that have been Threaded or Reconstructed on a Product or an
item of Accessory Equipment for an international contractor or exploration and
development company or similar entity that may purchase Products and Accessory
Equipment with Atlas Bradford Connections for use within its own organization
without reference to a specific location nor knowledge by Grant or the Affiliate
of Grant, as the case may be, of such specific locations.
"LICENSEE" means DST Distributors of Steel Tubes Limited.
"NEW GRANT CONNECTIONS" means any newly designed or acquired Oil Field
Connections for carbon and chromium steel Products and Accessory Equipment in
which Grant or its Affiliates may acquire an interest in the future excluding
any XL Technology or any Connection the rights to
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<PAGE> 36
Thread, Reconstruct or sale are acquired pursuant to a license to Grant or one
or more of its Affiliates.
"NON-EXCLUSIVE TERRITORY" means the world, excluding the United States of
America and its offshore waters and territories (including any country or
jurisdiction that may in the future lie within such areas).
"OIL FIELD CONNECTIONS" mean Connections for (i) carbon and chromium steel
tubular Products having an outside diameter of less than 20" and designed for
the production of crude oil and (ii) Accessory Equipment; provided "Oil Field
Connections" shall specifically exclude (a) API and similar connections, (b)
Connections utilizing XL Technology and (c) Connections used for marine Products
and drill pipe. Chromium steel shall include, but not be limited to, 13% Cr,
Super 13% Cr, 22% Cr, Duplex and Super Duplex. "Products" shall not include
connections for tubular components and Accessory Equipment made of titanium,
graphite, nickel, nickel steel, composite materials, bimetallic lined, or other
non-carbon steel materials.
"PATENTS" means all patents and patent applications relating to the Threading or
Reconstruction of Atlas Bradford Oil Field Connections on Products and Accessory
Equipment described in Schedule "A" and future patents and patent applications
to the extent added as provided in this Agreement.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PRODUCTS" mean tubular products, excluding drill pipe.
"PROPRIETARY DOCUMENTATION" means any drawing or document, in either
man-readable or machine-readable form, or any tangible thing which is the
property of the parties, including without limitation all price lists, discount
sheets, customer lists, supplier lists, quotations, analytical data, market
data, engineering data, drawings, computer software, manuals, specifications,
standards, designs, methods, procedures, techniques, formulations, instruments,
and other business and technical information in tangible form which are the
property of either of the parties.
"RECONSTRUCT" means recutting a worn or damaged thread for Atlas Bradford
Connections on Products and Accessory Equipment.
"TECHNOLOGY" means all current (and future to the extent provided in this
Agreement) technical information which Grant has the right to license in the
Licensee Territories and which is reasonably necessary for Licensee to Thread or
Reconstruct Atlas Bradford Oil Field Connections on Products and Accessory
Equipment, including Grant data, methods, procedures, specifications, standards,
drawings, know how, manuals, Proprietary Documentation and Confidential
Information. Notwithstanding the foregoing, Technology shall not include any XL
Technology.
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<PAGE> 37
"TERRITORIES" means the Exclusive Territory and the Non-Exclusive Territory.
"THREAD" and "THREADING" means the processes of cutting threads embodying the
technology and patents licensed hereunder.
"TOOLING" means tooling and accessories made to a party's specification (either
by a party hereto or any other Person) for use in Threading or Reconstruction of
Atlas Bradford Connections on Products or Accessory Equipment in accordance with
a party's technology or patents, including without limitation thread form
inserts, groove tools, Teflon seal rings, thread protectors.
"TRADEMARKS" means those current trademarks and trade names listed in Schedule
"B" and any future trademarks and trade names that may identify Atlas Bradford
Connections which are or may be the subject of a license under this Agreement,
both registered and unregistered.
"XL TECHNOLOGY" means the technology, patents and other intellectual property
currently owned or utilized by XLS Systems, Inc. or to which XLS Systems, Inc.
and its subsidiaries has a right or license to use or exploit, including all
technology relating to the Connections currently Threaded and Reconstructed by
it and the technology, patents and know-how licensed to or by it under its
license agreement with Hydril Company.
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<PAGE> 1
EXHIBIT 10.18
AGREEMENT
This Agreement is being entered into by and between Tubos de Acero de
Mexico ("Tamsa"), Tamsider S.A. de C.V. ("Tamsider"), DST Distributors of Steel
Tubes Limited ("DST"), Techint Engineering Company ("Techint"), Weatherford
International, Inc., formerly known as EVI Weatherford, Inc. ("Weatherford"),
Grant Prideco, Inc. ("Grant"), Pridecomex Holding, S.A. de C.V. ("Pridecomex")
and Grant Prideco, S.A. de C.V. ("Grant Mexico") in connection with the
following agreements (collectively, the "Agreements"):
1. Stock Purchase Agreement dated as of June 19, 1998, by and among
Weatherford, Pridecomex, Tamsa and Tamsider (the "Stock Purchase Agreement");
and
2. Master Technology License Agreement dated June 19, 1998, by and
between Grant and DST (the "Technology License Agreement").
Unless otherwise defined herein, all capitalized terms shall have the
meaning assigned to such terms in Stock Purchase Agreement.
Each of Tamsa, Tamsider, DST, Techint, Weatherford, Grant, Pridecomex
and Grant Mexico hereby agree as follows:
1. In lieu of the payment of the Purchase Price in cash by Pridecomex
at Closing pursuant to Section 2.2(a) of the Stock Purchase Agreement,
Pridecomex will execute and deliver to Tamsider a promissory note, in the form
attached hereto as Exhibit A (the "Note"), in the amount of the Purchase Price.
2. To secure the payment of the Note by Pridecomex, Weatherford agrees
to execute and deliver to Tamsider a guarantee in the form attached hereto as
Exhibit B (the "Guarantee").
3. Pridecomex will pay to Tamsa the amount of the Intercompany Debt on
the Closing Date pursuant to Section 2.3(b) of the Stock Purchase Agreement.
4. On the Closing Date, Tamsider will deliver the Shares and the
Minority Interest (collectively, the "TF Shares") to Pridecomex and its designee
(the "Designee") in exchange for the delivery of the Note by Pridecomex and the
Guarantee by Weatherford. Simultaneously, Tamsider, Pridecomex, Weatherford and
Banamex will execute a trust agreement or fideicomiso, whereby Banamex will hold
the TF Shares in trust as security for the payment of the Note. Pridecomex
agrees to, and will cause the Designee to, endorse the TF Shares and deliver
them to Banamex pursuant to the fideicomiso. The fideicomiso will be in a form
that is reasonably acceptable to Weatherford and will contain the following
terms, among others:
(i) While the TF Shares remain subject to the fideicomiso,
Banamex will vote the TF Shares pursuant to instructions provided by
Pridecomex, except in connection with
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<PAGE> 2
any decision that would change the corporate structure of TF de Mexico,
S.A. de C.V. ("TF"), such as a merger, spin-off or dissolution. The
board of directors of TF shall be composed of Pridecomex nominees and
at least one person nominated by Tamsa. The Tamsa nominee shall be
notified of all board meetings at least five days in advance.
(ii) Banamex shall deliver the TF Shares out of the
fideicomiso to Pridecomex upon evidence provided by Pridecomex that the
Note has been paid in full. Upon payment in full, the member of the
board appointed by Tamsa shall either immediately resign or be removed
as a director of TF.
(iii) If Pridecomex or Weatherford fails to pay the Note when
due, Tamsider shall, upon ten days prior written notice to Weatherford,
at any time after such date and for so long as the Note shall not have
been paid, be entitled to: (a) enforce its rights under the Note and/or
the Guarantee, (b) request Banamex to deliver the TF Shares to Tamsider
upon surrender of the Note and a written release of Tamsider's rights
under the Guarantee, or (c) require Banamex to sell the TF Shares and
pay Tamsider any amounts received for the TF Shares.
5. For purposes of the Stock Purchase Agreement, the Closing of the
Contemplated Transactions will take place on November 23, 1998, and the Closing
Date will be November 23, 1998.
6. For purposes of the Technology License Agreement, the definition of
Accessory Equipment in Schedule C is hereby amended and restated to read in its
entirety as follows:
"ACCESSORY EQUIPMENT" means thread protectors, crossovers,
connectors, pup joints, liner hangers, landing nipples,
packers, packer stringers, end line pressure control
equipment, safety valves, gas lift valve mandrels, lift plugs,
lift caps, hydrostatic test plugs, hydrostatic test caps,
handling plugs, handling caps, discharge head hangers, float
shoes, float guides, float collars, flow couplings collars
blast joints, tubing anchors, side pocket mandrels, couplings
and similar equipment.
7. Pridecomex covenants and agrees that until all principal and accrued
and unpaid interest under the Note are repaid in full, Pridecomex shall (and
shall cause each of the Companies and the Designee to), unless Tamsider shall
otherwise agree in writing, perform the following covenants:
(i) the Companies shall not directly or indirectly do any of
the following: (A) issue, sell, pledge, dispose of or encumber any
capital stock of the Companies; (B) split, combine, or reclassify any
outstanding capital stock, or declare, set aside, or pay any dividend
payable in cash, stock, property, or otherwise with respect to its
capital stock whether now or hereafter outstanding; (C) redeem,
purchase or acquire
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or offer to acquire any of its capital stock except as may be required
to cancel the registration of TF with the Mexican Stock Exchange; (D)
except as provided in (C) above, acquire, agree to acquire or make any
offer to acquire for cash or other consideration, any equity interest
in or assets of any corporation, partnership, joint venture or other
entity in an amount greater than $10,000; or (E) enter into any
contract, agreement, commitment, or arrangement with respect to any of
the matters set forth in this Section 7(i);
(ii) Pridecomex shall not transfer, dispose or otherwise
convey any of the Shares held by it or grant or permit there to exist
any encumbrance on the Shares;
(iii) the Designee shall not transfer, dispose or otherwise
convey any of the Minority Interest held by it or grant or permit there
to exist any encumbrance on the Minority Interest;
(iv) except for agreements in amounts less than $100,000 in
the aggregate outstanding at any one time and as provided in (i)(C) and
(i)(D) above, the Companies shall not enter into any Contract;
(v) except pursuant to the Lease Agreement, the Companies
shall not sell, lease, mortgage, pledge, grant a lien on or otherwise
encumber or otherwise dispose of any of their properties or assets;
(vi) the Companies shall not, directly or indirectly, incur
any indebtedness for borrowed money or guarantee any such indebtedness
of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Companies, guarantee
any debt securities of another person, or make or permit to remain
outstanding any loan (other than the Intercompany Debt), advances or
capital contributions to, or investments in, any other person, other
than to the Subsidiary;
(vii) neither Pridecomex, Designee nor the Companies shall
permit to occur any event described in clauses (a)-(c) of Section 3.13
of the Stock Purchase Agreement;
(viii) TF will comply with all applicable laws, including
timely compliance with all tax obligations, except where non-compliance
would not have a material adverse effect on the financial condition,
operations, business prospects or business of TF and its subsidiaries,
taken as a whole;
(ix) TF will not modify or amend the Lease Agreement in any
manner adverse to Tamsa or Tamsider and will hire no personnel.
8. Any breach by Weatherford, Pridecomex, Grant or Grant Mexico of any
of their
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respective covenants and agreements in Section 7 of this Agreement shall not
constitute a breach of or default under the Guarantee or the Note. Each of
Weatherford, Pridecomex, Grant or Grant Mexico agree to indemnify Tamsa,
Tamsider, DST and Techint for any losses or damages as a result of any such
breaches if Tamsider exercises its rights under Section 4(iii) hereof following
a default under the Note.
9. Tamsider and Tamsa represent and warrant to Weatherford and
Pridecomex that the payment of interest under the Note and the Guarantee is not
subject to any present income, stamp or other taxes, levies, imposts, duties,
charges, fees, deductions or withholdings under any Mexican Legal Requirements.
Tamsider and Tamsa agree to indemnify Weatherford and Pridecomex for any losses
or damages suffered by Weatherford or Pridecomex as a result of a breach of the
foregoing representation.
10. The provisions of Section 11.6 and 11.8 of the Stock Purchase
Agreement apply to this Agreement.
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IN WITNESS WHEREOF, the undersigned have executed and delivered
this Agreement effective as of November 12, 1998.
TUBOS DE ACERO DE MEXICO, S.A.
By: Christian Mitrani
Attorney in fact
TAMSIDER S.A. DE C.V.
By: Christian Mitrani
Attorney in fact
DST DISTRIBUTORS OF STEEL TUBES LIMITED
By: Christian Mitrani
Attorney in fact
TECHINT ENGINEERING COMPANY
By: Christian Mitrani
Attorney in fact
WEATHERFORD INTERNATIONAL, INC.
By: Curtis Huff
Senior Vice President
GRANT PRIDECO, INC.
By: Curtis Huff
Senior Vice President
PRIDECOMEX HOLDING, S.A. DE C.V.
By: Curtis Huff
Vice President
GRANT PRIDECO, S.A. DE C.V.
By: Curtis Huff
Vice President
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EXHIBIT 10.19
AGREEMENT
This Agreement is entered into by and between Tubos de Acero de Mexico
("Tamsa"), Tamsider S.A. de C.V. ("Tamsider"), Weatherford International, Inc.,
formerly known as EVI Weatherford, Inc. ("Weatherford"), and Pridecomex Holding,
S.A. de C.V. ("Pridecomex") in connection with the Stock Purchase Agreement
dated as of June 19, 1998, as amended, by and among Weatherford, Pridecomex,
Tamsa and Tamsider (the "Stock Purchase Agreement").
Unless otherwise defined herein, all capitalized terms shall have the
meaning assigned to such terms in Stock Purchase Agreement.
Each of Tamsa, Tamsider, Weatherford and Pridecomex hereby agree that,
in accordance with Section 2.2(b) of the Stock Purchase Agreement, at the
Closing, Weatherford will purchase from Tamsa, and Tamsa will convey to
Weatherford free and clear of all Encumbrances, the Intercompany Debt in
exchange for the payment by Weatherford of US$1,550,000 by wire transfer. Tamsa
represents and warrants that it is the sole owner of the Intercompany Debt and
that upon Weatherford's purchase of the Intercompany Debt, Weatherford shall be
the owner of the Intercompany Debt free and clear of all Encumbrances.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement effective as of December 1, 1998.
TUBOS DE ACERO DE MEXICO, S.A.
By: Felix Todd - Cristian Mitrani
Attorneys-in-fact
TAMSIDER S.A. DE C.V.
By: Felix Todd - Cristian Mitrani
Attorneys-in-fact
WEATHERFORD INTERNATIONAL, INC.
By: Curtis W. Huff
Senior Vice President
PRIDECOMEX HOLDING, S.A. DE C.V.
By: Curtis W. Huff
Vice President
