<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SIERRA WELL SERVICE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 1389 75-2441819
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
406 NORTH BIG SPRING
MIDLAND, TEXAS 79701
(915) 570-0829
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
KENNETH V. HUSEMAN
PRESIDENT
406 NORTH BIG SPRING
MIDLAND, TEXAS 79701
(915) 570-0829
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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<S> <C>
ANDREWS & KURTH L.L.P. VINSON & ELKINS L.L.P.
600 TRAVIS, SUITE 4200 2300 FIRST CITY TOWER
HOUSTON, TEXAS 77002 1001 FANNIN
(713) 220-4200 HOUSTON, TEXAS 77002
ATTN: ROBERT V. JEWELL (713) 758-2222
ATTN: JEFFERY B. FLOYD
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
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<S> <C> <C>
Common Stock(3)......................................... $60,375,000 $15,939
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</TABLE>
(1) Includes common stock issuable upon exercise of the underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(3) Includes preferred share purchase rights associated with the common stock.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
[INSIDE COVER]
[PICTURES OF WELL SERVICING RIGS, FLUID SERVICE TRUCKS]
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
SIERRA MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION -- MARCH 23, 2000
PROSPECTUS
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Shares
[LOGO] SIERRA WELL SERVICE, INC.
Common Stock
</TABLE>
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Sierra Well Service, Inc. is offering shares of its common stock in
an initial public offering. Prior to this offering, there has been no public
market for Sierra's common stock.
Sierra provides a range of well site services to oil and gas drilling and
production companies through its fleet of well servicing rigs and fluid services
equipment. Sierra operates the third largest fleet of well servicing rigs in the
United States.
It is anticipated that the public offering price will be between $ and
$ per share. Application will be made to include the shares of Sierra for
quotation in the Nasdaq National Market under the symbol "SRVC".
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Per Share Total
<S> <C> <C>
Public offering price................................. $ $
Underwriting discounts and commissions................ $ $
Proceeds, before expenses, to Sierra.................. $ $
</TABLE>
SEE "RISK FACTORS" ON PAGES 7 TO 11 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF SIERRA.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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The underwriters may, under certain circumstances, purchase up to
additional shares from Sierra at the public offering price, less underwriting
discounts and commissions. Delivery and payment for the shares will be on
, 2000.
PRUDENTIAL SECURITIES
JOHNSON RICE & COMPANY L.L.C.
SIMMONS & COMPANY
INTERNATIONAL
, 2000
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 1
Risk Factors.......................... 7
Forward-Looking Statements............ 11
The Company........................... 12
Use of Proceeds....................... 14
Dividend Policy....................... 14
Dilution.............................. 15
Capitalization........................ 16
Selected Consolidated Financial
Data................................ 17
Industry Overview..................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 29
</TABLE>
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PAGE
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Management............................ 38
Certain Relationships and Related
Party Transactions.................. 42
Principal Stockholders................ 43
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 49
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Available Information................. 53
Index to Consolidated Financial
Statements.......................... F-1
Appendix A -- Glossary of Terms....... A-1
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If you are not familiar with some of the oil and gas industry terms used in
this prospectus, please read our Glossary of Terms included as Appendix A to
this prospectus.
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front cover of
this prospectus.
-ii-
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
investors should consider before investing in the common stock of Sierra. All
numbers of shares and per share amounts assume a 445-for-1 stock split to be
effective immediately prior to this offering. You should read the entire
prospectus carefully.
SIERRA
We provide a range of well site services to oil and gas drilling and
producing companies through our fleet of well servicing rigs and fluid service
trucks and related equipment. These services include well maintenance, workover
and fluid handling services, which are fundamental to the drilling and
production of a well throughout its life cycle. We believe we have the third
largest fleet of well servicing rigs in the United States, with 141 well
servicing rigs, including rigs we will acquire upon completion of this offering.
Our operations are concentrated in the major United States oil and gas producing
regions of Texas, New Mexico, Oklahoma and Louisiana.
We have actively participated in the consolidation of the fragmented well
service industry by acquiring smaller regional competitors. Between January 1996
and April 1998, we acquired businesses and equipment in 16 separate
transactions, increasing our revenues from $4.4 million in 1995 to $37.3 million
in 1999. Upon completion of this offering we will acquire five additional
businesses and the stock of a sixth corporation with four inactive rigs.
Our business is substantially influenced by prevailing oil and gas prices.
As oil and gas prices fell in late 1997 through early 1999, our activity levels
also declined. Our activity levels have recently improved from the low levels
experienced in early 1999, as oil and gas prices have improved. For instance,
the utilization rate of our well servicing rigs increased from a three year low
of 49% in the first quarter of 1999, when the price of oil was below $10 per
barrel, to 88% in February 2000, as the price of oil exceeded $30 per barrel.
Despite the recovery during 1999, our EBITDA or earnings before net interest
expense, income taxes, depreciation and amortization, decreased from $4.1
million in 1998 to $2.1 million in 1999. As a result of improving industry
conditions, our EBITDA has increased from $386,000 in the first quarter of 1999
to $ million in the first quarter of 2000. We believe that even in a moderate
oil and gas price environment, demand for our services will continue to escalate
as oil and gas producers return to their historical levels of well maintenance
activity and capital spending.
INDUSTRY
Following several years of growth, the well service industry endured a
substantial decrease in activity during the period from late 1997 through early
1999. With the recovery of oil and gas prices, oilfield spending began to
accelerate during the second half of 1999. These trends are evidenced by the
changes in the well servicing rig utilization rate as reported by Guiberson, a
division of Halliburton, which declined from a peak of 77% in July 1997 to a low
of 50% in February 1999 and has since increased to a rate of 68% in January
2000.
The well servicing business has historically been comprised of a large
number of small local companies, several multi-regional contractors and even
fewer large national companies. Since 1990 and particularly during 1996 and
1997, the industry has substantially consolidated. Two national companies
currently own a combined 2,123 rigs or 57% of the industry's fleet. Although not
as large as these companies, our fleet of 141 rigs is substantially larger than
our other competitors in the well servicing business. We believe that no other
company currently owns more than 50 rigs.
The fluid services business is comprised of small, locally focused
companies, with a few larger regional companies in each market. There are
currently no companies that have a dominant position on a nationwide basis. We
believe that drilling activity drives the demand for our fluid services. The
Baker
<PAGE> 6
Hughes Domestic Land Drilling Rig Count declined from 881 rigs in September 1997
to 380 rigs in April 1999 and has since increased to 630 rigs in February 2000.
OUR BUSINESS SEGMENTS
During 1999, our well servicing segment and fluid services segment
represented approximately 66% and 34% of our revenues, respectively. The
services in each of these segments are used throughout the life cycle of oil and
gas wells.
Our well servicing business is performed with well servicing rigs. A well
servicing rig facilitates most procedures performed on existing oil and gas
wells and is used to hoist equipment and tools into and out of the well bore in
connection with:
- new well completions;
- well maintenance;
- workovers, including horizontal re-completions; and
- plugging and abandonment services.
Our fluid services business includes an integrated mix of liquids handling
services:
- fresh water and brine water sales from company-owned wells;
- fluid transportation to and from drilling and workover locations;
- fluid storage tank rentals;
- produced salt water transportation for disposal; and
- oilfield fluid disposal well operation.
BUSINESS STRATEGY
We believe we have become a leader in our markets by establishing a
reputation for high quality equipment and well-trained crews that operate within
stringent safety guidelines. Our business strategy is designed to take advantage
of those strengths and capture growth opportunities within the well service
industry.
PROVIDE COMPLEMENTARY WELL SITE SERVICES. Our ability to provide
complementary services allows our customers to use fewer service providers,
reducing our customers' administrative costs and simplifying their logistics. A
customer typically begins a new maintenance or workover project by securing
access to a well servicing rig. As a result, our rigs are often the first
equipment to arrive at the well site for a job and the last to leave. A project
may then lead to the need for fluid handling or other services. In addition to
the convenience provided to the customer, our complementary well site services
give us a competitive advantage over companies that offer fewer services. The
additional services allow us to generate more business from existing customers,
increase our operating margins and allocate our overhead costs over a larger
revenue base.
GROW THROUGH SELECTIVE ACQUISITIONS. We intend to expand our existing
businesses and add new services through the acquisition of additional well
service companies and equipment. Numerous acquisition candidates exist, and we
believe we are well positioned to take advantage of these opportunities. We
intend to pursue our acquisition strategy while maintaining a conservative
capital structure. We seek to acquire businesses with strong customer
relationships, well-maintained equipment and experienced and skilled personnel.
Our objectives for this acquisition strategy are:
- to improve profitability by increasing the breadth of services we offer
at the well site;
- to minimize operating and administrative costs;
- to deploy equipment more efficiently;
- to increase our marketing effectiveness; and
- to achieve market leadership in our core areas.
2
<PAGE> 7
FOCUS ON AREAS OF HIGHEST CONCENTRATION OF ONSHORE DOMESTIC OIL AND GAS
PRODUCTION. Onshore oil and gas production in the United States is highly
concentrated in Texas, New Mexico, Oklahoma and Louisiana. In 1998, these states
accounted for over 58% and 71% of United States onshore oil and gas production,
respectively, excluding Alaska. We believe that each of our operating regions
provides us with significant opportunities for internal growth, diversification
of services and growth through acquisitions due to the following attributes:
- densely drilled reservoirs, providing a large market for our maintenance
services;
- further development potential, requiring additional capital spending by
our customers; and
- proximity to one another, allowing for efficient deployment of our
assets.
OPERATE AND MARKET THROUGH LOCAL MANAGEMENT. We believe that our
decentralized operating management is consistent with the regional nature of the
well service industry. Well service purchase decisions are typically made on a
local level. Because our managers live and work in these areas and are directly
responsible for all aspects of their area's performance, we believe our
organization is more responsive to our customers' needs than our competitors
with more centralized operations. Moreover, we believe that the autonomy offered
by our local management strategy is attractive to potential sellers of well
service companies and their employees who may consider joining our management
team. Our decentralized operations are supported by our corporate office in
Midland, Texas, which monitors operating performance on a daily basis and
provides risk management and financial controls.
RECENT ACQUISITIONS
During the last quarter of 1999 and the first quarter of 2000, we entered
into definitive agreements, all of which are contingent upon the consummation of
this offering, to acquire five local well service businesses and the stock of a
sixth corporation with four inactive rigs. In these acquisitions, we have agreed
to pay an aggregate of approximately $14.5 million in cash, as adjusted for the
net financial assets of the acquired businesses at the closing of this offering,
and $4.3 million in notes or warrants that are convertible or exchangeable into
shares of our common stock valued at the initial public offering price, for an
aggregate purchase price of $18.8 million. These acquisitions will add 50 well
servicing rigs, 51 fluid service trucks, six support trucks, 38 fluid storage
tanks, three salt water disposal wells and two fresh and brine water stations to
our business.
HOW TO CONTACT SIERRA
Our principal executive offices are located at 406 North Big Spring,
Midland, Texas 79701, and our telephone number is (915) 570-0829.
3
<PAGE> 8
THE OFFERING
Shares offered by Sierra(1)............. shares
Total shares outstanding after this
offering(1)(2)(3)....................... shares
Use of proceeds......................... We will use the net proceeds from
the offering:
- to pay the cash portion of the
purchase price of pending
acquisitions;
- to repay the principal plus
accrued interest of our
Subordinated Notes due 2004;
- to redeem our Series A Cumulative
Preferred Stock plus accrued
dividends to the date of
redemption; and
- to pay remaining expenses in
connection with the foregoing and
for general corporate purposes.
Proposed Nasdaq National Market
symbol.................................. SRVC
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(1) Does not include up to shares of common stock that the
underwriters may purchase if they exercise their over-allotment option.
(2) Includes shares that will be issued upon conversion of the Series B
Convertible Preferred Stock.
(3) Includes and assumes the issuance of an estimated shares of common
stock (based on an assumed initial offering price of $ per share) that
may be issued upon conversion of notes or warrants issuable in connection
with acquisitions that are contingent on the closing of this offering.
RISK FACTORS
You should consider the risk factors before investing in our common stock
and the impact from various events that could adversely affect our business.
4
<PAGE> 9
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following sets forth our summary historical and pro forma financial and
operating data for the periods indicated. The pro forma income statements and
other financial data give effect to this offering and five acquisitions that
will be completed with the net proceeds from this offering as if they had
occurred on January 1, 1999. The pro forma consolidated balance sheet data gives
effect to these five acquisitions and to this offering as if each had been
completed on December 31, 1999. The acquisition of Harrison Well Service, Inc.
has been excluded from the pro forma data because that business is inactive. The
pro forma income statement and other financial data set forth below are not
necessarily indicative of the results that actually would have been achieved had
these transactions been completed as of January 1, 1999, or that may be achieved
in the future. This table is derived from, should be read in conjunction with,
and is qualified in its entirety by reference to our historical and pro forma
financial statements and the accompanying notes included elsewhere in this
prospectus. The amounts in the table below, other than per share data, are in
thousands.
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PRO FORMA
YEAR
YEAR ENDED DECEMBER 31, ENDED
----------------------------- DECEMBER 31,
1997 1998 1999 1999
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<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Well servicing.................................. $20,920 $ 26,687 $ 24,453 $ 33,206
Fluid services.................................. 5,214 18,632 12,878 19,925
------- -------- -------- --------
Total revenues.................................... 26,134 45,319 37,331 53,131
Costs and expenses:
Well servicing.................................. 16,534 21,640 20,164 25,557
Fluid services.................................. 3,469 13,009 9,613 14,812
General and administrative...................... 2,785 5,471 5,229 8,537
Depreciation and amortization................... 2,931 8,624 6,747 8,670
Impairment of long lived assets................. -- 22,671 -- --
------- -------- -------- --------
Operating income (loss)........................... 415 (26,096) (4,422) (4,445)
Net interest expense.............................. (1,423) (6,903) (5,965) (3,905)
Loss on sale of assets............................ (30) (93) (301) (104)
Other (income) expense............................ 11 (974) 45 75
------- -------- -------- --------
Loss before income taxes.......................... (1,027) (34,066) (10,643) (8,379)
Deferred income tax benefit (expense)............. 230 5,770 (2,328) (3,029)
------- -------- -------- --------
Net loss.......................................... $ (797) $(28,296) $(12,971) $(11,408)
======= ======== ======== ========
Loss per share.................................... $ (0.65) $ (14.55) $ (6.78)
OTHER FINANCIAL DATA:
EBITDA(1)......................................... $ 3,327 $ 4,132 $ 2,069 $ 4,196
Capital expenditures:
Acquisitions, net of cash acquired.............. 56,076 1,800 --
Property and equipment, net..................... 6,499 2,126 1,077
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
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PRO
ACTUAL FORMA
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,062 $ 3,438
Working capital............................................. 1,675 6,276
Net property and equipment.................................. 31,186 44,998
Total assets................................................ 46,861 73,883
Total long-term debt........................................ 50,371 28,051
Total stockholders' equity (deficit)........................ (13,030) 31,319
</TABLE>
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(1) EBITDA means net income before net interest expense, income taxes,
depreciation and amortization, and impairment charges. EBITDA should not be
considered as an alternative to net income, income (loss) before income
taxes, cash flows from operating activities or any other measure of
financial performance presented in accordance with generally accepted
accounting principles. EBITDA is not intended to represent cash flow.
5
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SUMMARY OPERATING DATA
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YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
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WELL SERVICING
Weighted average number of rigs............................. 51.2 87.6 89.7
Billed rig hours(1)......................................... 133,716 174,200 168,927
Rig utilization rate(2)..................................... 90.7% 69.1% 65.4%
Revenue per rig hour........................................ $156.45 $153.20 $144.76
Operating margin per rig hour............................... $32.80 $28.97 $25.39
Operating margin............................................ 21.0% 18.9% 17.5%
FLUID SERVICES
Weighted average number of fluid service trucks(3).......... 21.8 103.8 97.7
Revenue per fluid service truck per quarter:
Transportation and disposal............................... $41,573 $31,516 $26,183
Fluid storage tank rentals................................ 7,341 4,606 2,519
Fluid sales and other..................................... 10,803 8,773 4,259
-------- -------- --------
Total.................................................. $59,718 $44,896 $32,961
Operating margin per fluid service truck per quarter........ $19,978 $13,550 $8,356
Operating margin............................................ 33.5% 30.2% 25.4%
</TABLE>
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(1) We charge our customers on an hourly basis. This data reflects actual billed
hours.
(2) Full utilization is based on a 55-hour work week per rig.
(3) Fluid services trucks includes vacuum, transport, hot oil and kill trucks
but excludes support trucks.
6
<PAGE> 11
RISK FACTORS
Investing in our common stock will provide you with equity ownership in
Sierra. As a Sierra stockholder, you will be subject to the risks inherent in
our business. The performance of your shares will reflect the performance of our
business relative to, among other things, competition, market conditions and
general economic and industry conditions. You should carefully consider the
following factors in addition to the other information in this prospectus before
deciding to invest in shares of our common stock.
RISKS RELATED TO OUR BUSINESS
A DECLINE IN OR SUBSTANTIAL VOLATILITY OF OIL AND GAS PRICES COULD
ADVERSELY AFFECT THE DEMAND FOR OUR SERVICES.
Prices for oil and gas historically have been extremely volatile and are
expected to continue to be volatile. For example, oil prices fell to
approximately $10 per barrel in early 1999 and have recently exceeded $30 per
barrel. Price volatility affects the spending patterns of our customers and the
ability of oil and gas companies to raise capital. Current levels of oil and gas
activities may decline, resulting in decreased demand for our services. A
decline in oil or gas prices below historic levels or a reduction in drilling
activities could materially adversely affect the demand for our services and our
results of operations.
OUR BUSINESS DEPENDS ON THE OIL AND GAS INDUSTRY. CONDITIONS IN OUR MARKETS
MAY BE ADVERSELY AFFECTED BY INDUSTRY CONDITIONS THAT ARE BEYOND OUR
CONTROL.
Industry conditions are influenced by numerous factors over which we have
no control, such as the supply of and demand for oil and gas, domestic and
worldwide economic conditions, political instability in oil producing countries
and merger and divestiture activity among oil and gas producers. The volatility
of the oil and gas industry and the consequent impact on exploration activity
could adversely impact the level of drilling and workover activity by some of
our customers. This reduction may cause a decline in the demand for our services
or adversely affect the price of our services. In addition, the discovery rate
of new oil and gas reserves in our market areas may also have an impact on our
business, even in an environment of stronger oil and gas prices. We cannot
predict either the future level of demand for our services or future conditions
of the well service industry.
WE EXPERIENCED OPERATING LOSSES IN 1998 AND 1999, AND THIS TREND MAY
CONTINUE.
We suffered operating losses of $26.1 million and $4.4 million in 1998 and
1999, respectively, largely because of the decline in activity by oil and gas
drilling and producing companies caused in response to lower oil and gas prices.
Operating losses in 1998 included a $22.7 million write-down principally in the
value of assets used in our fluid services business as conditions in the
industry weakened. The volatility underlying the oil and gas industry prevents
us from accurately predicting future operating conditions and results, and we
could continue to have losses.
WE MAY NOT BE ABLE TO GROW SUCCESSFULLY THROUGH FUTURE ACQUISITIONS OR
SUCCESSFULLY MANAGE FUTURE GROWTH, AND WE MAY NOT BE ABLE TO EFFECTIVELY
INTEGRATE THE BUSINESSES WE DO ACQUIRE.
Our business strategy includes growth through the acquisition of other
businesses. We may not be able to continue to identify attractive acquisition
opportunities or successfully acquire identified targets. In addition, we may
not be successful in integrating our current or future acquisitions into our
existing operations. This integration may result in unforeseen operational
difficulties or require a disproportionate amount of our management's attention.
Furthermore, competition for acquisition opportunities may escalate, increasing
our cost of making further acquisitions or causing us to refrain from making
additional acquisitions.
WE MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE, WHICH MAY NOT BE AVAILABLE
TO US.
We may need to raise additional funds through public or private debt or
equity financing. Adequate funds may not be available when needed or may not be
available on favorable terms. If we raise additional funds by issuing equity
securities, dilution to existing stockholders may result. If funding is
insufficient at
7
<PAGE> 12
any time in the future, we may be unable to fund acquisitions, take
advantage of business opportunities or respond to competitive pressures, any of
which could harm our business. Our future capital requirements primarily depend
upon the occurrence, timing, size and success of any acquisition.
COMPETITION WITHIN THE WELL SERVICE INDUSTRY MAY ADVERSELY AFFECT OUR
ABILITY TO MARKET OUR SERVICES.
The well service industry is highly competitive and fragmented and includes
numerous small companies capable of competing effectively on a local basis as
well as several large companies, such as Key Energy Services, Inc. and Pool Well
Services Co., that possess substantially greater financial and other resources
than we do. These greater resources could allow those competitors to compete
more effectively than we can. The number of rigs available continues to exceed
demand, resulting in active price competition. Many contracts are awarded on a
bid basis, which further increases competition based on price.
WE HAVE EXPERIENCED A HIGH EMPLOYEE TURNOVER RATE IN THE PAST. ANY
DIFFICULTY WE EXPERIENCE REPLACING OR ADDING WORKERS COULD ADVERSELY AFFECT
OUR BUSINESS.
We may not be able to find enough skilled workers to meet our needs. Our
business activity historically decreases or increases with the price of oil and
gas. Beginning in the last quarter of 1997, the price of oil and gas fell to
very low levels. In turn, our business activity levels declined. We were unable
to maintain our current employment level and an industry-wide downsizing caused
oilfield workers to look for and secure work in other industries and locations.
With the return of higher oil and gas prices, our activity level has increased.
Although we have been able to procure workers to meet our current needs, as a
result of the employment migration away from our industry, we may have problems
finding enough skilled and unskilled laborers in the future, which could limit
our growth.
With a reduced pool of workers, it is possible that we will have to raise
wage rates to attract workers from other fields and to retain or expand our
current work force. If we are not able to increase our service rates to our
customers to compensate for wage rate increases, this could diminish our
profitability.
Other factors may also inhibit our ability to find enough workers to meet
our employment needs. Our services require skilled workers who can perform
physically demanding work. As a result of the volatility of the industry and the
demanding nature of the work, workers may choose to pursue employment in fields
that offer a more desirable work environment at wage rates that are competitive
with ours. We believe that our success is dependent upon our ability to continue
to employ and retain skilled technical personnel. Our inability to employ or
retain skilled technical personnel generally could have a material adverse
effect on our operations.
OUR SUCCESS DEPENDS ON KEY MEMBERS OF OUR MANAGEMENT, THE LOSS OF WHOM
COULD DISRUPT OUR BUSINESS OPERATIONS.
We depend to a large extent on the services of some of our executive
officers and directors. The loss of the services of any of Kenneth V. Huseman,
Dub W. Harrison or Charles W. Swift could disrupt our operations. We have
entered into employment agreements with Messrs. Huseman, Harrison and Swift that
contain non-compete provisions. Notwithstanding these agreements, we may not be
able to retain our executive officers and may not be able to enforce the
non-compete provisions in the employment agreements. We maintain key person life
insurance on the life of Mr. Huseman; nevertheless, the death or disability of
Mr. Huseman may still adversely affect our operations, and the proceeds from the
insurance policy may not be sufficient to cover our losses.
OUR OPERATIONS ARE SUBJECT TO INHERENT RISKS THAT ARE BEYOND OUR CONTROL,
AND THESE RISKS MAY NOT BE FULLY COVERED UNDER OUR INSURANCE POLICIES.
Our operations are subject to hazards inherent in the oil and gas industry,
such as accidents, blowouts, explosions, craterings, fires and oil spills. These
conditions can cause:
- personal injury or loss of life;
- damage to or destruction of property, equipment and the environment; and
8
<PAGE> 13
- suspension of operations.
In addition, claims for loss of oil and gas production and damage to
formations can occur in the well service industry. Litigation arising from a
catastrophic occurrence at a location where our equipment and services are being
used may result in us being named as a defendant in lawsuits asserting large
claims.
We maintain insurance coverage that we believe to be customary in the
industry against these hazards. However, we may not be able to maintain adequate
insurance in the future at rates we consider reasonable. In addition, our
insurance is subject to coverage limits and some policies exclude coverage for
damages resulting from environmental contamination. The occurrence of a
significant event or adverse claim in excess of the insurance coverage that we
maintain or that is not covered by insurance could have a materially adverse
effect on our financial condition and results of operations.
WE ARE SUBJECT TO FEDERAL, STATE AND LOCAL REGULATION REGARDING ISSUES OF
HEALTH, SAFETY AND PROTECTION OF THE ENVIRONMENT. UNDER THESE REGULATIONS,
WE MAY BECOME LIABLE FOR PENALTIES, DAMAGES OR COSTS OF REMEDIATION. ANY
CHANGES IN LAWS AND GOVERNMENT REGULATIONS COULD INCREASE OUR COSTS OF
DOING BUSINESS.
Our operations are subject to federal, state and local laws and regulations
relating to protection of natural resources and the environment, health and
safety, waste management, and transportation of waste and other materials. Our
fluid services segment includes disposal operations into injection wells that
pose some risks of environmental liability. Although we monitor the injection
well process, leakage from the wells to surface or subsurface soils, surface
water or groundwater could occur. Liability under these laws and regulations
could result in cancellation of well operations, fines and penalties,
expenditures for remediation, and liability for property damages and personal
injuries. Sanctions for noncompliance with applicable environmental laws and
regulations also may include assessment of administrative, civil and criminal
penalties, revocation of permits and issuance of corrective action orders.
Laws protecting the environment generally have become more stringent over
time and are expected to continue to do so, which could lead to material costs
for future environmental compliance and remediation in the future. The
modification or interpretation of existing laws or regulations, or the adoption
of new laws or regulations could curtail exploratory or developmental drilling
for oil and gas and could limit well services opportunities. Some environmental
laws and regulations may impose strict liability, which means that in some
situations we could be exposed to liability as a result of our conduct that was
lawful at the time it occurred or conduct of, or conditions caused by, prior
operators or other third parties. Clean-up costs and other damages arising as a
result of environmental laws, and costs associated with changes in environmental
laws and regulations could be substantial and could have a material adverse
effect on our financial condition.
Under the Comprehensive Environmental Response, Compensation and Liability
Act, referred to as "CERCLA" in this prospectus, and related state laws and
regulations, joint and several liability can be imposed without regard to fault
or the legality of the original conduct on certain classes of persons that
contributed to the release of a "hazardous substance" into the environment.
Under CERCLA, we may be liable for the costs of cleaning up the hazardous
substances that have been released into the environment and for damages to
natural resources. In addition, it is not uncommon for the neighboring land
owners and other third parties to file claims for personal injury, property
damage and recovery of response costs.
Changes in federal and state environmental laws and regulations may also
negatively impact oil and gas exploration and production companies, which in
turn could have a material adverse effect on us. For example, while we currently
do not handle large amounts of hazardous wastes (which are subject to regulation
under the federal Resource Conservation and Recovery Act) in connection with our
operations, legislation has been proposed from time to time in Congress that
would reclassify oil and gas production wastes as Resource Conservation and
Recovery Act hazardous wastes. If enacted, this legislation could dramatically
increase operating costs for domestic oil and gas companies and this could
reduce the market for our services by making many wells and/or oilfields
uneconomical to operate.
9
<PAGE> 14
ONE PRINCIPAL STOCKHOLDER CAN INFLUENCE THE CORPORATE AND MANAGEMENT
POLICIES OF OUR COMPANY.
After giving effect to this offering, H. H. Wommack, III, our Chairman of
the Board and Chairman of the Board, President and Chief Executive Officer of
Southwest Royalties Holdings, Inc. and Southwest Royalties, Inc., will
effectively control approximately % of the outstanding common stock on a pro
forma basis, or % if the underwriters exercise their over-allotment option in
full. Therefore, Mr. Wommack will continue to have the ability to substantially
influence all decisions made by Sierra. Additionally, Mr. Wommack's control
could have a negative impact on any future takeover attempts. Please read
"Principal Stockholders and Ownership by Management."
RISKS RELATED TO THIS OFFERING
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND OUR STOCK
PRICE MAY FLUCTUATE.
There has not been a public market for our common stock. We do not know the
extent to which investor interest in Sierra will lead to the development of a
trading market for the common stock or how the common stock will trade in the
future. Investors may not be able to resell their shares at or above the initial
public offering price.
The price at which the common stock will trade depends upon a number of
factors, including our historical and anticipated operating results, general
market and economic conditions and factors listed under "Forward-Looking
Statements," some of which are beyond our ability to control. Several factors
could cause the market price of the common stock to fluctuate substantially.
These factors include:
- quarterly fluctuations in our financial and operating results;
- developments affecting us, our customers, the markets in which we compete
or the well service industry;
- announcements by competitors; and
- recommendations by analysts.
In addition, the stock market has from time to time experienced extreme
price and volume fluctuations. These broad market fluctuations may adversely
affect the market price of our common stock.
SHARES ARE RESTRICTED FROM IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET
IN THE NEAR FUTURE. THIS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO
DROP SIGNIFICANTLY.
After this offering, we will have outstanding shares of common
stock. This includes the shares we are selling in this offering, or
shares if the underwriters exercise their over-allotment option in full, of
which shares may be resold in the public market immediately. The
remaining 2,888,507 shares of our total outstanding common stock will become
available for resale in the public market as shown in the chart below.
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them or are perceived by the market
as intending to sell them.
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR RESALE
NUMBER OF SHARES INTO PUBLIC MARKET
- ---------------- -------------------------------
<C> <S>
2,859,566 180 days after the date of this prospectus due to a lock-up
agreement these stockholders have with Prudential Securities
Incorporated. However, Prudential Securities Incorporated
can waive this restriction at any time and without notice.
28,941 Between 180 and 365 days after the date of this prospectus
due to the requirements of the federal securities laws.
</TABLE>
PURCHASERS OF COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
Purchasers of our common stock in this offering will experience an
immediate and substantial dilution of $ per share in the net tangible book
value per share of common stock from the initial public
10
<PAGE> 15
offering price. Assuming an initial public offering price of $ per share of
common stock, our pro forma net tangible book value as of December 31, 1999
after giving effect to this offering would be $ per share. Please read
"Dilution."
OUR CERTIFICATE OF INCORPORATION AND BYLAWS CONTAIN PROVISIONS THAT COULD
DISCOURAGE A TAKEOVER.
Our certificate of incorporation authorizes our Board of Directors to issue
preferred stock without stockholder approval. If our Board of Directors elects
to issue preferred stock, it could be more difficult for a third party to
acquire us. In addition, some provisions of the certificate of incorporation and
bylaws could make it more difficult for a third party to acquire control of us,
even if this change of control would be beneficial to stockholders, including:
- a staggered board of directors;
- limitations on the removal of directors;
- a rights agreement;
- no stockholder action by written consent; and
- limitations on stockholder proposals at meetings of stockholders.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting the financial condition of
our business. These forward-looking statements are subject to a number of risks,
uncertainties and assumptions about Sierra, including, among other things, the
risk factors discussed in this prospectus and:
- the volatility of prices and activity in the oil and gas industry;
- demand for well servicing and fluid services;
- hazards inherent in the oil and gas industry such as accidents, blowouts,
explosions, craterings, fires and spills or leaks;
- general economic, market or business conditions;
- the nature or lack of business opportunities, including acquisitions,
that may be presented to and pursued by us;
- changes in laws or regulations; and
- other factors, most of which are beyond our control.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to Sierra, our business or our management, are
intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-looking
statements.
11
<PAGE> 16
THE COMPANY
BACKGROUND
We were originally incorporated in Delaware in 1992 as a subsidiary of
Southwest Royalties, Inc., a Delaware corporation engaged in the oil and gas
business. We initially provided plugging and abandonment services primarily to
Southwest Royalties. As we acquired more equipment, we became a stand-alone
business. In July 1997, Southwest Royalties Holdings, Inc., a Delaware
corporation, was formed to serve as a holding company for Sierra, Southwest
Royalties and other affiliates. Southwest Royalties Holdings and its affiliates
currently own approximately 67% of our common stock and will own approximately
% of our common stock after the closing of this offering.
Since our formation, we have grown primarily through acquisitions,
purchasing businesses and equipment in 16 separate transactions between January
1996 and April 1998. Primarily through these acquisitions, our revenues have
grown from $4.4 million in 1995 to $37.3 million in 1999. In order to finance
some of these acquisitions, we issued $22 million of common stock in two private
transactions and borrowed $54.4 million from Joint Energy Development
Investments II Limited Partnership, referred to as "JEDI II" in this prospectus.
This indebtedness was restructured in March 1999 into a senior and subordinated
credit facility with $49.4 million outstanding and three classes of preferred
stock issued to JEDI II.
CURRENT ACQUISITIONS
We entered into definitive agreements to acquire five businesses and the
stock purchase of a sixth corporation with four inactive rigs during the last
quarter of 1999 and the first quarter of 2000. Each of these acquisitions is
contingent upon the consummation of this offering. Each acquisition provides for
payment in both cash and notes or warrants that are convertible or exchangeable
for an aggregate of approximately shares of our common stock (based upon an
estimated initial public offering price of $ per share). Other than Trinity
Services, which is an asset purchase rather than a stock purchase, the cash
portion of each acquisition will be adjusted to reflect the net financial assets
of the acquired company as of the acquisition date. Net financial assets is
defined as net working capital minus long-term debt, including leases.
Turn Around Trucking, Inc.
- Purchase Price -- approximately $6.5 million, of which $5.2 million is
payable in cash and $1.3 million is payable in a note that will be
converted within 45 days after the completion of this offering into
shares of our common stock valued at the initial public offering price;
the note accrues interest at a floating rate equal to the prime rate.
- Principal Assets -- 32 fluid service trucks, 2 support trucks, 38 fluid
service tanks, 2 salt water disposal wells and related equipment
- Operating Region -- South Texas
12
<PAGE> 17
Sundown Operating, Inc.
- Purchase Price -- approximately $5.2 million, of which $4.2 million is
payable in cash and $1.0 million is payable in a note that will be
convertible, at the holder's option, into shares of our common stock
valued at the initial public offering price; the note matures on the one
year anniversary of the closing of this offering and accrues interest at
a floating rate equal to the prime rate.
- Principal Assets -- 26 well servicing rigs and related equipment
- Operating Region -- northern Permian Basin
Eunice Well Servicing Co., Inc.
- Purchase Price -- approximately $2.1 million, of which $1.7 million is
payable in cash and $400,000 is payable in a note that will be
convertible, at the holder's option, into shares of our common stock
valued at the initial public offering price; the note matures on the one
year anniversary of the closing of this offering and accrues interest at
a floating rate equal to the prime rate.
- Principal Assets -- 10 well servicing rigs and related equipment
- Operating Region -- western Permian Basin
Gold Star Service Company, Inc.
- Purchase Price -- approximately $1.85 million, of which $1.25 million is
payable in cash and $600,000 is payable in a note that will be converted
within 45 days after the completion of this offering into shares of our
common stock valued at the initial public offering price; the note
accrues interest at a floating rate equal to the prime rate.
- Principal Assets -- 19 fluid service trucks, 4 support trucks, 1 salt
water disposal well, 2 fresh and brine water stations and related
equipment
- Operating Region -- western Permian Basin
Trinity Services
- Purchase Price -- approximately $1.94 million, of which $1.6 million is
payable in cash and $250,000 is payable in a note and a related warrant,
valued at $89,000, that will be exercisable, at the holder's option, into
shares of our common stock valued at the initial public offering price.
The holder has the option to offset any indebtedness under the note
against the exercise price of the warrant. The note matures 15 months
after the closing of this offering and accrues interest at a floating
rate equal to the prime rate. The warrant expires on the later of (1) 18
months after the closing of this offering or (2) one year after the note
is repaid in full.
- Principal Assets -- 10 well servicing rigs and related equipment
- Operating Region -- South Texas
Harrison Well Service, Inc.
- Purchase Price -- approximately $1.225 million, of which $600,000 is
payable in cash and $625,000 is payable in a note that will be converted
within 45 days after the completion of this offering into shares of our
common stock valued at the initial public offering price; the note
accrues interest at a floating rate equal to the prime rate.
- Principal Assets -- 4 well servicing rigs and related equipment
- Operating Region -- northern Permian Basin
13
<PAGE> 18
USE OF PROCEEDS
The net proceeds to Sierra from this offering are estimated to be
approximately $48.8 million, or $56.1 million if the underwriters exercise their
over-allotment option in full, assuming an initial public offering price of $
per share and after deducting underwriting discounts and commissions and
estimated offering expenses. We plan to use the net proceeds from this offering
as follows:
- $14.5 million as the cash consideration to acquire the businesses and
assets described under "The Company -- Current Acquisitions;"
- $25.0 million to repay existing Subordinated Notes due 2004, plus accrued
interest to the date of repayment, which was $1.5 million as of December
31, 1999, held by ENA CLO I Holding Company I L.P., as assignee from JEDI
II, referred to as Holding Co. I in this prospectus;
- $5.3 million to redeem the Series A Cumulative Preferred Stock, plus
accrued dividends to the date of redemption, held by JEDI II; and
- $2.5 million for expenses in connection with the foregoing and for
general corporate purposes.
After completion of this offering, we will have $24.4 million aggregate
principal amount of Senior Notes due 2004 held by Holding Co. I. JEDI II and
Enron North America Corp. transferred the Senior Notes to Holding Co. I in
December 1999 in connection with a securitization transaction in which Holding
Co. I acquired a pool of financial assets including the Senior Notes from Enron
North America Corp., JEDI II, and other affiliates of Enron North America Corp.
Substantially all of the economic interest in Holding Co. I and its assets is
owned by parties that are unrelated to Enron North America Corp., JEDI II and
their affiliates. Enron North America Corp. manages the assets of Holding Co. I,
including the Senior Notes, pursuant to an asset management and servicing
agreement with Holding Co. I. The general partner of JEDI II is an indirect
wholly owned subsidiary of Enron Corp. The limited partners of JEDI II are
CalPERS and an indirect wholly owned subsidiary of Enron Corp. We intend to
enter into a new senior credit facility prior to the completion of this offering
to refinance this senior debt. Please read "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Certain Relationships and Related Party Transactions" and
"Principal Stockholder and Ownership by Management."
Pursuant to the terms of the Series B Preferred Stock and the Series C
Preferred Stock, and as we have agreed with the holders of this stock,
immediately after the redemption of the Series A Preferred Stock, the
outstanding shares of Series B Preferred Stock will be converted into 833,556
shares of common stock and, upon the payment of $1,000 to JEDI II, the share of
Series C Preferred Stock will be canceled. Accordingly, there will be no
outstanding shares of Series A, Series B or Series C Preferred Stock or
Subordinated Notes after the closing of this offering.
DIVIDEND POLICY
We have not declared or paid any dividends on our common stock, and we do
not currently anticipate declaring or paying any dividends on our common stock
in the near future. We currently intend to retain all future earnings to fund
the development and growth of our business. The declaration and payment of any
future dividends will be at the discretion of our board of directors and will
depend on our results of operations, financial condition, capital requirements
and other factors deemed relevant by our board of directors.
14
<PAGE> 19
DILUTION
Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the net tangible book value per share of the common
stock from the initial public offering price. Adjusted net tangible book value
per share represents the amount of the total tangible assets less our total
liabilities, divided by the number of shares of common stock outstanding
assuming the conversion of the Series B Convertible Preferred Stock and
including the shares issued to our Chief Executive Officer. At December 31,
1999, we had an adjusted net tangible book value of $(18.9) million or $(6.54)
per share of common stock. After giving effect to the sale of shares
of common stock in this offering at an assumed initial public offering price of
$ per share and after the deduction of underwriting discounts and
commissions and estimated offering expenses, the pro forma net tangible book
value at December 31, 1999 would have been $ million or $ per
share. This represents an immediate increase in such net tangible book value of
per share to existing stockholders and an immediate and substantial
dilution of $ per share to new investors purchasing common stock in this
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price....................... $
Adjusted net tangible book value as of December 31,
1999................................................... $(6.54)
Increase attributable to new investors.................... $
Pro forma net tangible book value after this offering....... $
------
Dilution in pro forma net tangible book value to new
investors................................................. $
======
</TABLE>
The following table summarizes, on the pro forma basis set forth above as
of December 31, 1999, the differences between existing stockholders and new
investors in this offering with respect to the number of shares of common stock
purchased from us, the total consideration paid to us and the average
consideration paid per share (before the deduction of underwriting discounts and
commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders........... 2,894,293 % $24,320,000 % $8.40
New Investors................... % %
--------- ---- ----------- ---- -----
Total................. 100% $ 100%
========= ==== =========== ==== =====
</TABLE>
15
<PAGE> 20
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of Sierra at December 31, 1999, (1) on an actual basis (giving
effect to the filing of our Restated Certificate of Incorporation and a
445-for-1 stock split) and (2) pro forma for the acquisitions to be completed
upon completion of this offering, the conversion of the Series B Convertible
Preferred Stock into common stock as of December 31, 1999 and as adjusted to
give effect to this offering and the application of the estimated net proceeds
from this offering as set forth under "Use of Proceeds." The information was
derived from and is qualified by reference to our financial statements included
elsewhere in this prospectus. This information should be read in conjunction
with these financial statements, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Use of Proceeds" and "Unaudited
Consolidated Pro Forma Financial Statements" included elsewhere in this
prospectus. The amounts in the table below, other than share data, are in
thousands.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
-------- --------------
<S> <C> <C>
Cash and cash equivalents................................... $ 1,062 $
======== ========
Total debt, including current portion:
Notes payable:
Senior Notes due 2004.................................. $ 24,408 $ 24,408
Subordinated Notes due 2004............................ 26,535 0
Other debt and obligations under capital leases........... 592 5,832
-------- --------
Total debt, including current portion............. 51,535 30,240
Stockholders' equity:
Series A Cumulative Preferred Stock, $10,000 par value,
1,000 shares authorized, 530.45 shares issued and
outstanding; 0 shares issued and outstanding pro forma,
as adjusted............................................ 5,305 --
Series B Convertible Preferred Stock, $1 par value, 1,000
shares authorized, 1,000 shares issued and outstanding;
0 shares issued and outstanding pro forma, as
adjusted............................................... 1 --
Series C Convertible Preferred Stock, $1,000 par value,
one share authorized, one share issued and outstanding;
0 shares issued and outstanding, pro forma, as
adjusted............................................... 1 --
Common stock, $.01 par value, 25,000,000 shares
authorized, 1,985,488 shares issued and outstanding;
25,000,000 authorized, shares issued and
outstanding pro forma, as adjusted..................... 20
Paid-in capital........................................... 24,829
Retained earnings (deficit)............................... (43,186) (44,474)
-------- --------
Total stockholders' equity........................ (13,030)
-------- --------
Total capitalization.............................. $ 39,567 $
======== ========
</TABLE>
- ---------------
(1) Does not include the acquisition of Harrison because that business is
inactive. We have entered into a definitive agreement to purchase Harrison
for approximately $1.225 million, of which $600,000 is payable in cash and
$625,000 is payable in a note that will be converted into shares of our
common stock valued at the initial public offering price.
16
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected historical and pro forma financial
information of Sierra for the periods shown. The pro forma income statement and
other financial data reflects the offering and five acquisitions that will be
completed with the estimated net proceeds from this offering from the sale of
shares at $ per share as if they had occurred on January 1, 1999. The pro
forma consolidated balance sheet data gives effect to these five acquisitions
and to this offering as if each had been completed on December 31, 1999. The
acquisition of Harrison Well Services, Inc. has been excluded from the pro forma
data because that business is inactive. The pro forma income statement and other
financial data set forth below is not necessarily indicative of the results that
actually would have been achieved had these transactions been completed as of
January 1, 1999, or that may be achieved in the future. The following
information should be read in conjunction with "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," our
Financial Statements and the Unaudited Pro Forma Combined Financial Statements
included elsewhere in this prospectus. The amounts in the table below, other
than per share data, are in thousands.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
----------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
------ ------ ------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Well servicing............................ $4,436 $8,273 $20,920 $ 26,687 $ 24,453 $ 33,206
Fluid services............................ -- -- 5,214 18,632 12,878 19,925
------ ------ ------- -------- -------- --------
Total revenues............................ 4,436 8,273 26,134 45,319 37,331 53,131
Costs and expenses:
Well servicing.......................... 3,299 6,145 16,534 21,640 20,164 25,557
Fluid services.......................... -- -- 3,469 13,009 9,613 14,812
General and administrative.............. 866 1,771 2,785 5,471 5,229 8,537
Depreciation and amortization........... 448 863 2,931 8,624 6,747 8,670
Impairment of long lived assets......... -- -- -- 22,671 -- --
Operating income.......................... (177) (506) 415 (26,096) (4,422) (4,445)
Net interest expense...................... (70) (71) (1,423) (6,903) (5,965) (3,905)
Gain (loss) on sale of assets............. (1) (31) (30) (93) (301) (104)
Other (income) expenses................... -- -- 11 (974) 45 75
------ ------ ------- -------- -------- --------
Income (loss) before income taxes......... (248) (608) (1,027) (34,066) (10,643) (8,379)
Deferred income tax benefit (expense)..... 80 160 230 5,770 (2,328) (3,029)
------ ------ ------- -------- -------- --------
Preferred dividends....................... -- -- -- -- 0
Net income (loss)......................... $ (168) $ (448) $ (797) $(28,296) $(12,971) $(11,408)
====== ====== ======= ======== ======== ========
Net income (loss) per share............... $(0.37) $(0.66) $ (0.65) $ (14.55) $ (6.78) $
OTHER FINANCIAL DATA:
EBITDA(1)................................. $ 270 $ 326 $ 3,327 $ 4,132 $ 2,069 $ 4,196
Capital expenditures:
Acquisitions, net of cash acquired...... -- -- 56,076 1,800 --
Property and equipment, net............. 1,316 3,071 6,499 2,126 1,077
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------
PRO FORMA,
1995 1996 1997 1998 1999 1999
------ ------ ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 38 $ 561 $ 6,537 $ 2,846 $ 1,062 $ 3,438
Net property and equipment................... 2,020 4,651 46,163 35,634 31,186 44,998
Total assets................................. 2,993 6,585 87,119 53,327 46,861 73,883
Total long-term debt......................... 32 980 52,480 54,664 50,371 28,051
Total stockholders' equity (deficit)......... 234 6,585 23,360 (4,936) (13,030) 31,319
</TABLE>
- ---------------
(1) EBITDA means net income before net interest expense, income taxes,
depreciation and amortization, and impairment charges. EBITDA should not be
considered as an alternative to net income, income (loss) before income
taxes, cash flows from operating activities or any other measure of
financial performance presented in accordance with generally accepted
accounting principles. EBITDA is not intended to represent cash flow.
17
<PAGE> 22
INDUSTRY OVERVIEW
INDUSTRY CONDITIONS
The decline in oil and gas prices from late 1997 through early 1999 led to
a substantial decrease in activity in the well service industry. However,
increases in oil and gas prices since early 1999 have led to a rebound in
oilfield activity as oil and gas producers have increased their maintenance
activity and capital spending. This activity has translated into increased
demand for workover services. The Guiberson Well Service Rig Count, which is
indicative of activity in the well service industry, reflects this trend. In
conjunction with lower oil prices, the Guiberson Well Service Rig Count declined
from a peak of 3,766 active rigs in July 1997 to a low of 1904 active rigs in
February 1999 and, as oil prices have increased, has since recovered to 2,550
active rigs in January 2000.
[BAKER HUGHES CHART]
In addition to their initial drilling and completion, most oil and gas
wells will also require workover services during their productive lives.
Drilling and workover services are typically part of the capital spending
projects of oil and gas producers and are normally costly and time intensive.
The return on these expenditures must exceed the producer's investment
parameters before they are approved. Because a significant portion of a well's
total production typically occurs in the first few years of production, near
term expectations for oil and gas prices and the level of price volatility are
the primary drivers of those projects. As prices recover and appear to stabilize
above the producers' investment parameters, new projects are initiated.
18
<PAGE> 23
The Baker Hughes Land Drilling Rig Count is a direct indicator of capital
spending in the oil and gas industry and an indirect indicator of demand for
fluid services. As oil prices decreased from late 1997 through early 1999, the
Baker Hughes Land Drilling Rig Count declined from 881 rigs in September 1997 to
380 rigs in April 1999. With the increase in oil prices since early 1999, the
rig count has recovered to 630 rigs at the end of February 2000.
[BAKER HUGHES CHART]
COMPETITION AND MARKET
Well Servicing
During the late 1970's, substantial new rig construction increased the
total well servicing rig fleet. Over the last 20 years, the domestic well
servicing fleet has declined substantially and the industry has experienced
considerable consolidation. The excess capacity of rigs that has existed in the
industry since the early 1980s has been reduced due to the lack of new rig
construction, retirements due to mechanical problems, casualties and exports to
foreign markets. We do not believe hourly rates currently charged for well
servicing justify new rig construction.
The industry has historically been comprised of a large number of small
local contractors, several multi-regional contractors and even fewer large
national contractors. However, recent consolidation, particularly during 1996
and 1997, has changed this competitive landscape. The industry consolidation
affected companies of all sizes but mostly eliminated the larger regional
companies.
Based on the membership directory of the Association of Energy Servicing
Companies and publicly available information, management estimates that in 1990
the industry was comprised of 301 contractors that owned approximately 3,846
well servicing rigs. Of these, three national companies controlled 1,249 rigs or
approximately 32% of the total membership's fleet. No other contractor owned
more than 100 rigs. Thirty companies owned fleets of 20 to 99 rigs representing
960 rigs or 25% of the industry's fleet, and the remaining 1,637 rigs or 43%
were owned by 268 contractors.
We believe that by the end of 1999 the industry had consolidated to
approximately 155 contractors that currently own approximately 3,730 rigs. Two
national companies, Key Energy Services, Inc and Pool Well Services Co., own a
combined 2,123 rigs or 57% of the industry's fleet. We believe we have the third
largest fleet with 141 rigs, including rigs that we will acquire upon completion
of this offering. We believe no other company owns more than 50 rigs and a total
of approximately 152 companies own the remaining 1,466 rigs or 39% of the fleet.
According to the Guiberson Well Service Rig Count, the total available well
servicing rigs in the industry peaked at 8,063 in 1982, declined to 5,733 rigs
in 1990 and currently stands at 3,730 rigs as of January 2000. Management
believes that the actual number that may be put into use without significant
19
<PAGE> 24
capital expenditures may be as much as 20% below these estimates. The well
servicing industry utilization rate bottomed at 50% in February 1999 with 1,904
of 3,775 rigs working. Industry utilization has since recovered to 68% in
January 2000 with 2,550 of 3,730 rigs working. The average number of rigs
working in 1997 was 3,507 or 94% of the rigs currently available. Should
activity levels return to 1997 levels, availability of rigs may become
constrained, particularly in certain markets.
[DRESSER CHART]
- ---------------
* Reflects Guiberson's periodic, industry-wide rig census. A rig is defined as
available if it is capable of being on location with a crew, within 48 hours,
with $25,000 or less of capital expenditures.
Fluid Services
Competitors in the fluid services industry are mostly small, regionally
focused companies. There are currently no companies that have a dominant
position on a nationwide basis. The level of activity in the fluid services
industry is comprised of a relatively stable demand for services for the
maintenance of producing wells and a highly variable demand for services used in
the drilling and completion of new wells. As a result, the level of land
drilling activity significantly affects the level of activity in the fluid
services industry. While there are no industry wide statistics, the Baker Hughes
Land Drilling Rig Count is an indirect indication of demand for fluid services.
20
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our growth strategy has emphasized increasing the breadth of services
offered at the well site and expanding our market presence through acquisitions.
In implementing this strategy we have purchased businesses and equipment in 16
separate transactions from January 1996 to April 1998. We believe this growth
through acquisitions makes comparisons between certain periods not directly
applicable. In addition, our industry experienced a significant downturn in
activity from late 1997 through mid-1999 and has since begun to rebound as oil
and gas prices have recovered.
WELL SERVICING
Revenues in our well servicing segment are derived from maintenance,
workover, completion and plugging and abandonment services. We provide
maintenance-related services as part of the normal, periodic upkeep of producing
oil and gas wells. While these services represent a relatively consistent
component of our business, they generally have lower operating margins. Workover
and completion services are more profitable than maintenance work, but the
demand for these services fluctuates more with the overall activity level in the
industry. Our plugging and abandonment services have become a smaller part of
our business but continue to produce consistent operating margins with stable
demand.
We charge our customers for services on an hourly basis at rates that are
determined by the type of service and equipment required, market conditions in
the region in which the rig operates, the ancillary equipment provided on the
rig and the necessary personnel. We measure our activity levels by the total
number of hours worked by all of the rigs in our fleet. We monitor our fleet
utilization levels, with full utilization deemed to be 55 hours per week per
rig. Through acquisitions of smaller contractors, our fleet has increased from
only 27 rigs at the beginning of 1997 to 141 rigs, including rigs we will
acquire upon completion of this offering.
The following is an analysis of our well servicing operations for each of
the quarters in the three years ended December 31, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------------------- ------------------------------------- -----------------
QUARTER ENDING QUARTER ENDING QUARTER ENDING
------------------------------------- ------------------------------------- -----------------
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31 3/31 6/30
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WELL SERVICING:
Weighted average number
of rigs.............. 27.3 40.0 56.4 81.1 84.0 88.2 89.0 89.0 89.0 89.0
Billed rig hours....... 15,936 25,588 40,340 51,852 51,954 46,652 41,304 34,290 31,454 36,798
Rig utilization rate... 81.1% 88.8% 99.3% 88.8% 85.9% 73.5% 64.5% 53.5% 49.1% 57.4%
Revenue per rig hour... $191.29 $160.05 $156.09 $144.25 $148.03 $149.77 $156.71 $161.46 $150.37 $148.44
Operating cost per rig
hour................. $159.37 $132.10 $123.33 $108.75 $117.21 $116.87 $131.73 $135.85 $124.45 $125.33
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating margin per
rig hour............. $ 31.92 $ 27.95 $ 32.76 $ 35.50 $ 30.82 $ 32.90 $ 24.98 $ 25.61 $ 25.92 $ 23.11
Operating margin....... 16.7% 17.5% 21.0% 24.6% 20.8% 22.0% 15.9% 15.9% 17.2% 15.6%
<CAPTION>
1999
-----------------
QUARTER ENDING
-----------------
9/30 12/31
------- -------
<S> <C> <C>
WELL SERVICING:
Weighted average number
of rigs.............. 89.0 91.9
Billed rig hours....... 48,393 52,282
Rig utilization rate... 75.5% 79.0%
Revenue per rig hour... $140.79 $142.46
Operating cost per rig
hour................. $117.71 $113.65
------- -------
Operating margin per
rig hour............. $ 23.08 $ 28.81
Operating margin....... 16.4% 20.2%
</TABLE>
The extremely low oil prices experienced from late 1997 through mid-1999
and low gas prices experienced during mid-1998 through mid-1999 significantly
reduced demand for our well servicing rigs as many wells were shut in when
mechanical problems developed and oil and gas producers restricted their capital
spending for new drilling and workovers. Our full-fleet average utilization rate
declined from an average of 99.3% in the third quarter of 1997 to 49.1% in the
first quarter of 1999. Our well servicing business has since improved
significantly with the rebound in oil and gas prices and the increase in the
level of oilfield activity. Our well servicing rig utilization rate was 79.0% in
the fourth quarter of 1999. This increase has been primarily the result of
higher levels of regular maintenance work in addition to oil and gas producers
attempting to rapidly and economically improve production to take advantage of
higher oil and gas prices.
21
<PAGE> 26
As drilling and maintenance activity and, therefore our utilization,
declined from late 1997 until mid-1999, our hourly rates also declined in
response to attempts by well servicing companies to protect market share amidst
shrinking demand for well servicing rigs. Our operating margins declined
significantly during this period, as operating costs could not be reduced
concurrently with the reduced utilization and lower rates. Our average revenue
rates and operating margins declined from $156 per rig hour and 21.0%,
respectively, in the third quarter of 1997 to $141 per rig hour and 16.4% in the
third quarter of 1999. Our market has steadily improved since mid-1999, and we
implemented price increases in October 1999 with little market resistance. This
led to an increase in our average revenue rates and operating margins to $142
per rig hour and 20.2% in the fourth quarter of 1999. The combination of higher
overall utilization, improved prices and operating margins has led to higher
well servicing operating profits.
FLUID SERVICES
Revenues in our fluid services segment are derived through the sale,
transportation, storage and disposal of fluids used in the drilling, production
and maintenance of oil and gas wells. The fluid services segment has a base
level of business consisting of transporting and disposing of salt water
produced as a by-product of the production of oil and gas. These services are
necessary for our customers and generally have a stable demand but typically
produce lower relative operating margins than other parts of our fluid services
segment. Our services for completion and workover projects are generally the
most profitable part of our fluid services segment. These projects typically
require fresh or brine water for making drilling mud, circulating fluids or frac
fluids used during a job. These fluids require storage tanks and more frequent
hauling and disposal. Because we can provide a full complement of fluid sales,
trucking, storage and disposal required on most drilling and workover projects,
the add-on services associated with increased drilling and workover activity
generate higher margin contributions. The higher margins are due to the
relatively small incremental labor costs associated with providing these
services in addition to our base fluid services segment.
Our fluid services revenues are driven by the number of working fluid
service trucks in our fleet as well as the amount of add-on services required by
our customers. We have increased our fluid service truck fleet through the
acquisition of smaller operators. We started this business segment at the
beginning of 1997 and we now have a total of 148 fluid service trucks, including
trucks acquired with the proceeds from this offering.
The following is an analysis of our fluid services operations for each of
the quarters in the three years ended December 31, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------------------- ------------------------------------- -----------------
QUARTER ENDING QUARTER ENDING QUARTER ENDING
------------------------------------- ------------------------------------- -----------------
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31 3/31 6/30
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FLUID SERVICES:
Weighted average number
of fluid service
trucks............... 3.7 8.7 18.0 56.9 105.7 106.0 103.0 100.3 99.0 97.7
REVENUE PER FLUID
SERVICE TRUCK:
Transportation and
disposal............. $36,028 $46,713 $34,343 $43,435 $39,106 $32,233 $28,169 $26,198 $22,377 $22,866
Fluid storage tank
rentals.............. 4,041 3,705 4,281 9,080 6,480 5,112 3,276 3,462 1,951 2,374
Fluid sales and
other................ 6,438 9,086 6,891 12,588 10,906 10,162 7,659 6,201 3,141 3,766
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total................ $46,507 $59,504 $45,515 $65,103 $56,492 $47,507 $39,104 $35,861 $27,469 $29,006
Operating cost per
fluid service
truck................ 30,578 37,796 28,892 44,064 37,083 31,463 29,749 26,815 20,376 21,558
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating margin per
fluid service
truck................ 15,929 21,708 16,623 21,038 19,409 16,044 9,355 9,047 7,093 7,448
Operating margin....... 34.2% 36.5% 36.5% 32.3% 34.4% 33.8% 23.9% 25.2% 25.8% 25.7%
<CAPTION>
1999
-----------------
QUARTER ENDING
-----------------
9/30 12/31
------- -------
<S> <C> <C>
FLUID SERVICES:
Weighted average number
of fluid service
trucks............... 97.0 97.0
REVENUE PER FLUID
SERVICE TRUCK:
Transportation and
disposal............. $26,480 $33,111
Fluid storage tank
rentals.............. 2,412 3,351
Fluid sales and
other................ 4,122 6,034
------- -------
Total................ $33,014 $42,496
Operating cost per
fluid service
truck................ 26,143 30,451
------- -------
Operating margin per
fluid service
truck................ 6,871 12,045
Operating margin....... 20.8% 28.3%
</TABLE>
22
<PAGE> 27
We gauge activity levels in our fluid services segment based on revenues
and operating margin per fluid service truck. Reduced capital spending by oil
and gas producers from late 1997 through early 1999 affected our fluid services
segment more significantly than our well servicing segment. Our fluid services
average quarterly revenues and operating margin in the fourth quarter of 1997
were $65,102 per fluid service truck and 32.3%, respectively. In the first
quarter of 1999, our revenues and operating margin were $27,469 per fluid
service truck and 25.8%, respectively. This decline in profitability resulted
from lower tank rental revenues and fluid sales revenues and lower overall
levels of business activity in base fluid services. Increased oilfield activity
since mid-1999 has led to a recovery in our fluid services segment, but
aggressive competition has prevented price increases from being implemented.
Tank rental and fluid sales have shown modest price increases indicating an
increase in drilling and workover activity. In the fourth quarter of 1999, our
average quarterly revenues and operating margin increased to $42,496 per fluid
service truck and 28.3%, respectively.
OPERATING COSTS
Our operating costs are comprised primarily of labor and maintenance costs.
Labor costs generally are variable and are incurred only while a well servicing
rig is operating or while fluid services are being provided. With a reduced pool
of workers, it is possible that we will have to raise wage rates to attract
workers from other fields and retain or expand our current work force. We
believe we will be able to increase our service rates to our customers to
compensate for wage rate increases. We also incur costs to employ personnel to
sell and supervise our services and perform maintenance on our fleet which are
not directly tied to our level of business activity. Compensation for our
administrative personnel in regional operating yards and in our corporate office
are accounted for as general and administrative expenses. Insurance costs are
generally a fixed cost and relate to the number of active rigs, trucks and other
equipment in our fleet, our employee payroll and our safety record.
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues. Revenues decreased 18% to $37.3 million in 1999 from $45.3
million in 1998. This decrease in revenues was primarily attributable to a
severe decline in oil prices, resulting in reduced oilfield service activity. We
operated 92 well servicing rigs and 97 fluid service trucks at December 31, 1999
compared to 89 and 99, respectively, at the end of 1998.
Well servicing revenues decreased 8% to $24.4 million in 1999 from $26.7
million in 1998. Revenues for the four quarters of 1999 were $4.7 million, $5.5
million, $6.8 million and $7.4 million, respectively. Revenues for the four
quarters of 1998 were $7.7 million, $7.0 million, $6.5 million and $5.5 million,
respectively. For the year ended December 31, 1999, our average rig utilization
was 65.4% and our average revenue per rig hour was $145 as compared to 69.1% and
$153, respectively, for the year ended December 31, 1998. Depressed oil prices
and the corresponding reduction in well service activity caused a decrease in
both rig utilization and pricing. As a result, revenues declined throughout 1998
and into early 1999. Revenues increased during the last three quarters of 1999
due to an increase in oil prices, which resulted in increased utilization of our
rigs.
Fluid services revenues decreased 31% to $12.9 million in 1999 from $18.6
million in 1998. Revenues for the four quarters of 1999 were $2.7 million, $2.9
million, $3.2 million and $4.1 million, respectively. Revenues for the four
quarters of 1998 were $6.0 million, $5.0 million, $4.0 million and $3.6 million,
respectively. We categorize truck revenues into three components which include
transportation and disposal revenues directly earned by each fluid service
truck, the revenues per fluid service truck generated by fluid storage tank
rental, and the revenues per fluid service truck generated by fluid sales and
other services. For the year ended December 31, 1999, our total average
quarterly revenues per fluid service truck were $32,961, comprised of $26,183
for transportation and other services, $2,519 for fluid storage tank rentals and
$4,259 for fluid sales and other services. This compares to total average
quarterly revenues of $44,895 for the year ended December 31, 1998, comprised of
$31,516 for transportation and disposal services, $4,606 for fluid storage tank
rentals and $8,773 for fluid sales and other services. Transportation
23
<PAGE> 28
and disposal revenues per fluid service truck decreased throughout 1998 and
early 1999 and then increased during the last nine months of 1999, which
corresponded to the fall and subsequent rise of oil prices. Fluid storage tank
rental, fluid sales and other revenues also declined with falling oil prices but
have risen more slowly than transportation and disposal fluid service truck
revenues as oil prices have risen. These two sources of revenues have
historically fluctuated based on the drilling rig count and are expected to
increase as a reflection of higher oil prices.
Operating Expenses. Operating expenses, which principally consist of labor,
maintenance and fuel expenses, decreased 14% to $29.8 million in 1999 from $34.6
million in 1998. Operating expenses as a percentage of revenues increased from
76% in 1998 to 80% in 1999. The increase was due to certain fixed costs that
remained in 1999 despite the overall business decline and due to the cost of
putting inactive equipment back into service in the last two quarters of 1999.
Operating expenses for the well servicing segment decreased 7% to $20.2
million in 1999 from $21.6 million in 1998. Well servicing expenses for the four
quarters of 1999 were $3.9 million, $4.6 million, $5.7 million and $6.0 million,
respectively. Well servicing expenses for the four quarters of 1998 were $6.1
million, $5.5 million, $5.4 million and $4.6 million, respectively. Operating
margins for the four quarters of 1999 were 17.2%, 15.6%, 16.4% and 20.2%
compared to 20.8%, 22.0%, 15.9% and 15.9% for the same periods in 1998. We
estimate that $700,000 in expenses were incurred in the well servicing segment
in the last two quarters of 1999 to put inactive rigs and related equipment back
into working condition.
Operating expenses for the fluid services segment decreased 26% to $9.6
million in 1999 from $13.0 million in 1998. Fluid services expenses for the four
quarters of 1999 were $2.0 million, $2.1 million, $2.5 million $3.0 million,
respectively. Fluid services expenses for the four quarters of 1998 were $3.9
million, $3.3 million, $3.1 million and $2.7 million, respectively. Operating
margins for the four quarters of 1999 were 25.8%, 25.7%, 20.8% and 28.3%
compared to 34.4%, 33.8%, 23.9% and 25.2% for the same periods in 1998. We
estimate that $115,000 in expenses were incurred in the fluid services segment
in the last two quarters of 1999 to put inactive trucks and related equipment
back into working condition and to relocate trucks into areas where their
utilization would be higher.
General and Administrative Expenses. General and administrative expenses
decreased 4% to $5.2 million in 1999 from $5.5 million in 1998. This primarily
reflects cost cutting measures taken after we hired a new chief executive
officer in early 1999. As a percentage of revenues, general and administrative
expenses increased from 12% in 1998 to 14% in 1999 as we had certain fixed
general and administrative expenses that remained relatively constant as
revenues declined in 1999 due to depressed oil prices. These cost cutting
measures would have resulted in a net savings of general and administrative
salaries expenses of an additional $125,000 if they had been in effect for the
entire year.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses decreased 22% to $6.7 million in 1999 from $8.6 million in 1998. The
decrease in depreciation from 1998 to 1999 was due to a $22.7 million write-down
of assets that occurred at the end of 1998. Only one small acquisition was made
in early 1998 compared to none in 1999 and capital spending was held to minimal
levels due to depressed oil prices, resulting in virtually no increase in
depreciation in 1999 due to capital spending.
Interest Expense. Interest expense for the year ended December 31, 1999
decreased 15% to $6.1 million in 1999 from $7.2 million in 1998. The decrease
was due to a decrease in long-term debt as a result of a refinancing in March
1999 and a decrease in amortization of debt issuance costs.
Net Loss. Our net loss decreased 54% to $13.0 million in 1999 from $28.3
million in 1998. This decrease was primarily due to a $22.7 million asset
impairment charge incurred at the end of 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Revenues increased 73% to $45.3 million in 1998 from $26.1
million in 1997. Well servicing revenues increased 28% to $26.7 million in 1998
from $20.9 million in 1997. Fluid services revenues increased 257% to $18.6
million in 1998 from $5.2 million in 1997. Revenues increased in 1998
24
<PAGE> 29
primarily because of several acquisitions in late 1997. We operated 89 well
servicing rigs and 99 fluid service trucks at the end of 1998 compared to 84 and
107 respectively at the end of 1997.
In our well servicing segment, rig utilization decreased from 88.8% in the
last quarter of 1997 to 53.5% in the last quarter of 1998 due to a decrease in
oil prices. Even with lower utilization in 1998, our well servicing revenues
increased in 1998 because of the increase in the number of rigs we owned
throughout 1998 compared to 1997. The full service plugging and abandonment
portion of our well servicing segment typically has higher revenues and expenses
per rig hour and a lower percentage of operating margin than our other well
servicing operations. This portion of our business has remained relatively
stable with six rigs operating in this area in both 1997 and 1998. As other well
servicing rigs were added, the relatively lower hourly rates of these rigs
caused a downward trend in both revenues and expenses hourly rates in 1997 and
part of 1998. At the same time, the higher direct margins associated with these
additional well servicing rigs caused an upward trend in operating margin
percentages, with margins increasing from 23.2% in the first quarter of 1997 to
24.5% in the second quarter of 1998. Margin decreases in the last half of 1998
were due to the downturn in business related to declining oil prices.
We began our fluid services business in 1997 through several acquisitions,
most of which occurred in the fourth quarter of 1997. As a result, quarterly
comparisons of 1998 to 1997 and comparison of our segmented data are not
directly applicable. The decline in oil prices and industry activity decreased
our total quarter revenues for fluid service trucks throughout 1998 from $65,102
in the last quarter of 1997 to $35,862 in the last quarter of 1998. Fluid
services revenues would have also declined in 1998 if we had not had more trucks
available due to acquisitions.
Operating Expenses. Operating expenses increased 73% to $34.6 million in
1998 from $20.0 million in 1997. Well servicing expenses increased 31% to $21.6
million in 1998 from $16.5 million in 1997. Fluid services expenses increased
275% to $13.0 million in 1998 from $3.5 million in 1997. The change was
primarily due to several acquisitions in both business segments. Operating
expenses as a percentage of revenues was 76.5% in both 1997 and 1998. We believe
that operating expenses would have been higher in 1997 than in 1998 if an equal
amount of equipment had been available for both years due to higher equipment
utilization in 1997 prior to the decline in oil prices.
General and Administrative Expenses. General and administrative expenses
increased 96% to $5.5 million in 1998 from $2.8 million in 1997. This increase
was due primarily to increased staffing and other administrative costs to
accommodate our growth through acquisitions. As a percentage of revenues,
general and administrative expenses increased from 10.7% in 1997 to 12.1% in
1998, as we had certain fixed general and administrative expenses that remained
relatively constant as revenues disproportionately declined in 1998 due to the
lower oil prices.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses increased 194% to $8.6 million in 1998 from $2.9 million in 1997. This
increase was attributable primarily to the impact of the additional equipment
that we were depreciating as a result of acquisitions.
Impairment Charges. At December 31, 1998, we recorded an impairment loss on
our well servicing rigs and equipment, water stations and related goodwill of
approximately $.4 million, $7.4 million and $14.9 million, respectively, for a
total impairment of approximately $22.7 million. In determining if an impairment
loss was indicated, we projected future cash flows through the estimated life of
each asset, for each of our well servicing rigs and by region for our fluid
service trucks and water stations, based on estimated utilization rates, hours,
revenues and expenses, generally increasing utilization rates based on our
expectations, but using constant hourly rates charged to our customers. If an
impairment was indicated, the carrying value of the asset plus the related
goodwill was reduced to the estimated fair market value, based upon a recent
appraisal.
Interest Expense. Interest expense increased 375% to $7.2 million in 1998
from $1.5 million in 1997. This increase was attributable to additional
borrowings incurred to finance acquisitions.
Net Loss. Our net loss increased to $28.3 million in 1998 from $0.8 million
in 1997, primarily due to the $22.7 million asset impairment charge incurred at
the end of 1998.
25
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
Funding for our business activities has historically been provided by
operating cash flows, bank borrowings and private sales of equity.
Net Cash Provided by (Used in) Operating Activities. Net cash provided by
(used in) operating activities from our operations was ($55,000), ($996,000) and
$865,000 for 1997, 1998 and 1999, respectively. Growth from well service
acquisitions increased net cash, but was offset by increased working capital
needs associated with acquisitions. Net cash was also affected by an increase in
well service rates through 1997 followed by decreases in rates and utilization
in 1998 and 1999.
Net Cash Used in Investing Activities. Net cash used in investing
activities by Sierra was $62.8 million, $3.9 million and $970,000 for 1997, 1998
and 1999, respectively. Acquisitions were the primary uses of funds. We expect
to continue to make acquisitions, subject to available financing. During the
last quarter of 1999 and the first quarter of 2000, we entered into definitive
agreements, all of which are contingent upon the consummation of this offering,
to acquire five local well services businesses and the stock of a sixth
corporation with four inactive rigs for an aggregate cash purchase price of
approximately $14.5 million, as adjusted for the net financial assets at the
closing of this offering, plus $4.3 million in notes or warrants that are
convertible or exchangeable into shares of our common stock.
Net Cash Provided by (Used in) Financing Activities. Net cash provided by
our financing activities was $68.9 million and $1.2 million for 1997 and 1998,
respectively. Private equity issuances and acquisition related borrowings were
the primary sources of funds. Cash used in financing activities for our
operations for the year ended December 31, 1999 was $1.7 million, consisting
primarily of $.5 million in repayment of long-term debt, $.1 million in
preferred dividends and $1.1 million paid in deferred loan costs.
At December 31, 1999, we had net working capital of $1.7 million.
On March 31, 1999, Sierra entered into three securities purchase
agreements, referred to collectively as the "Credit Facility" in this
prospectus, that provided $54.4 million in borrowings and issuances of preferred
stock. The proceeds of this Credit Facility were used to retire Senior Secured
Increasing Rate Notes due 1999 issued under a previous facility from JEDI II.
The Credit Facility is comprised of a Senior Credit Facility, a Senior
Subordinated Credit Facility and three classes of preferred stock, as follows:
The senior notes under the Senior Credit Facility have a principal balance
of $24.4 million with quarterly interest payable at a rate per year of 250
basis points above the six month London Interbank Offered Rate beginning
March 31, 1999. Holding Co. I has deferred the interest payable on March
31, 2000 until the earlier of the closing of this offering or June 30,
2000. All outstanding principal and accrued and unpaid interest is due and
payable in full on June 30, 2004. The principal is payable quarterly in the
amount of approximately $872,000 beginning September 30, 2000, based on a
seven year amortization of principal beginning June 30, 2000 and a final
balloon payment due on June 30, 2004 for the remaining unpaid balance.
Holding Co. I has agreed to reduce the principal payable on September 30,
2000 and December 31, 2000 to approximately $436,000 on each payment date
from approximately $872,000 provided that we repay the difference between
the amortized amounts due and the amounts paid on each of these dates on or
before March 31, 2001.
The subordinated notes under the Senior Subordinated Credit Facility will
be repaid with the net proceeds of this offering. These subordinated notes
have a principal balance of $25 million with quarterly interest payable at
a rate of 10% per year beginning March 31, 1999. Sierra may choose to defer
interest payments through September 29, 2001, at a rate of 12% per year.
Sierra deferred the quarterly interest payments due September 30, 1999 and
December 31, 1999. Accrued interest outstanding as of December 31, 1999 was
$1.5 million. All deferred interest payments, together with interest on
these payments, is due on September 30, 2001. All principal and accrued and
unpaid interest is due and payable in full on June 30, 2004.
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JEDI II initially was issued 500 shares of Series A Cumulative Preferred
Stock, $10,000 par value per share ($5,000,000), with a dividend payable
quarterly of 10% per year. Sierra may choose to pay dividends in kind on
the Series A Preferred at a rate of 12% per year. Sierra paid the dividends
due September 30, 1999 and December 31, 1999 in kind. Accordingly, the
number of shares of Series A Cumulative Preferred stock owned by JEDI II as
of December 31, 1999 was 530.45.
Sierra may redeem all of the shares of Series A Preferred at any time, at a
redemption price of $10,000 per share, together with accrued and unpaid
dividends to the date of redemption; provided, however, that in accordance
with the Senior Subordinated Credit Facility, Sierra is not entitled to
redeem shares of Series A Preferred unless and until all outstanding
principal and accrued and unpaid interest under the subordinated notes has
been paid in full. The Series A Preferred will be redeemed with the net
proceeds of this offering.
JEDI II owns 1,000 shares of Series B Convertible Preferred Stock, $1 par
value per share, with dividends payable only if dividends are paid on
Sierra's common stock. The number of shares of the common stock into which
the Series B Preferred is convertible varies based upon the timing of the
repayment in full of the Series A Preferred. Assuming the repayment of the
Series A Preferred prior to June 30, 2000 with the proceeds of this
offering, the Series B Preferred will be converted into shares of
common stock.
JEDI II also owns one share of Series C Convertible Preferred Stock, $1,000
par value, with dividends payable only if dividends are paid on Sierra's
common stock. The number of shares of common stock into which the Series C
Preferred is convertible varies based upon the timing of the redemption of
the Series A Preferred. Assuming the repayment of the Series A Preferred
prior to June 30, 2000 with the net proceeds of this offering, the Series C
Preferred will not be convertible into any shares of Sierra's common stock.
Upon completion of this offering, the Series C Preferred will be canceled
in exchange for the payment of $1,000.
The senior notes and subordinated notes contain covenants that, among other
actions, restrict dividends, investments and the sale of assets. Additionally,
the covenants require Sierra to maintain a fixed charge coverage ratio, as
defined, of at least 1:1 for each quarter beginning June 30, 2000. Holding Co. I
recently waived various breaches of the covenants resulting from the offering,
the acquisitions, certain related party transactions and the capital
expenditures made by Sierra in 1999.
The exchange of the Credit Facility in satisfaction of the previous
facility from JEDI II was accounted for as a troubled debt restructuring with no
associated gain or loss. At March 31, 1999, Sierra was experiencing significant
negative cash flow, oil prices were at historic lows and well service and
drilling rig activity was trending toward a historic low. The common equity was
burdened by approximately $49.4 million in debt and $5 million in preferred
equity and had a negative book value, leading to the conclusion that the common
equity had nominal value at that date. Sierra recorded the preferred stock
component of the Credit Facility at an estimated fair value of $5 million, as
estimated considering the liquidation preference associated with the preferred
stock and the nominal value of the common stock conversion provisions.
In addition, and directly as a result of the exchange described above,
Sierra's net operating loss carryforwards for federal income taxes were
effectively reduced to zero at March 31, 1999 under Section 382 of the Internal
Revenue Code. Deferred tax assets related to operating loss carryforwards
existing at December 31, 1999 arose from losses occurring subsequent to March
31, 1999.
Stock Compensation
At March 31, 1999, Sierra issued 40,520 shares of common stock to its new
Chief Executive Officer. The value of these shares was charged to compensation
expense. However, as discussed in the preceding paragraph, the common stock had
nominal, if any, value at that date. Consequently, nominal compensation of
approximately $100 was recorded in 1999.
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Liquidity
We believe that cash flow from operations, when combined with the net
proceeds from this offering and availability under a new credit facility, which
we will to enter into prior to the completion of this offering, will be
sufficient for planned operating, capital expenditure and debt service
requirements. We intend to finance our acquisition strategy through borrowings
under our new credit facility, cash flow from operations and the issuance of
additional equity.
Recent Accounting Pronouncements -- In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities", which
establishes standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. FAS 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. It establishes conditions under which a derivative may be
designated as a hedge, and establishes standards for reporting changes in the
fair value of a derivative. FAS 133, as amended by FAS 137, is required to be
implemented for all fiscal quarters of all fiscal years beginning after June 15,
2000. Early adoption is permitted. Sierra has not completed the evaluation of
the potential effects of implementing FAS 133.
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<PAGE> 33
BUSINESS
GENERAL
We are a leading provider of well site services that are fundamental to the
drilling and maintenance of oil and gas wells. Our well servicing business is
performed with well servicing rigs. A well servicing rig facilitates most
procedures performed on existing oil and gas wells and is used to hoist
equipment and tools into and out of the well bore in connection with:
- new well completions;
- well maintenance;
- workovers, including horizontal re-completions; and
- plugging and abandonment services.
Our fluid services business utilizes fluid service trucks, including
vacuum, transport, kill and hot oil trucks, fluid storage tanks, including frac
and test tanks, and fresh water and brine water wells. Fluid services include:
- fresh water and brine water sales from company-owned wells;
- fluids transportation to and from drilling and workover locations;
- fluid storage tank rentals;
- produced salt water transportation for disposal; and
- oilfield fluid disposal well operation.
We have operations in the major United States oil and gas producing regions
of Texas, New Mexico, Oklahoma and Louisiana. We began our operations in West
Texas in 1992 and subsequently expanded to eastern New Mexico, East Texas, South
Texas and Oklahoma.
BUSINESS STRATEGY
We believe we have become a leader in our markets by establishing a
reputation for high quality equipment and well-trained crews that operate within
stringent safety guidelines. Our business strategy is designed to take advantage
of those strengths and capture growth opportunities within the well service
industry.
PROVIDE COMPLEMENTARY WELL SITE SERVICES. Our ability to provide
complementary services allows our customers to use fewer service providers,
reducing our customers' administrative costs and simplifying their logistics. A
customer typically begins a new maintenance or workover project by securing
access to a well servicing rig. As a result, our rigs are often the first
equipment to arrive at the well site for a job and the last to leave. A project
may then lead to the need for fluid handling or other services. In addition to
the convenience provided to the customer, our complementary well site services
give us a competitive advantage over companies that offer fewer services. The
additional services allow us to generate more business from existing customers,
increase our operating margins and allocate our overhead costs over a larger
revenue base.
GROW THROUGH SELECTIVE ACQUISITIONS. We intend to expand our existing
businesses and add new services through the acquisition of additional well
service companies and equipment. Numerous acquisition candidates exist, and we
believe we are well positioned to take advantage of these opportunities. We
intend to pursue our acquisition strategy while maintaining a conservative
capital structure. We seek to acquire businesses with strong customer
relationships, well-maintained equipment and experienced and skilled personnel.
Our objectives for this acquisition strategy are:
- to improve profitability by increasing the breadth of services we offer
at the well site;
- to minimize operating and administrative costs;
- to deploy equipment more efficiently;
- to increase our marketing effectiveness; and
- to achieve market leadership in our core areas.
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<PAGE> 34
FOCUS ON AREAS OF HIGHEST CONCENTRATION OF ONSHORE DOMESTIC OIL AND GAS
PRODUCTION. Onshore oil and gas production in the United States is highly
concentrated in Texas, New Mexico, Oklahoma and Louisiana. In 1998, these states
accounted for over 58% and 71% of the United States onshore oil and gas
production, respectively, excluding Alaska. We estimate there are more than
150,000 oil wells and 50,000 gas wells within our market areas, all of which
require periodic maintenance throughout their productive life. We believe that
each of our operating regions provides us with significant opportunities for
internal growth, diversification of services and growth through acquisitions due
to the following attributes:
- densely drilled reservoirs, providing a large market for our maintenance
services;
- further development potential, requiring additional capital spending by
our customers; and
- proximity to one another, allowing for efficient deployment of our
assets.
OPERATE AND MARKET THROUGH LOCAL MANAGEMENT. We believe that our
decentralized operating management is consistent with the regional nature of the
well service industry. Well service purchase decisions are typically made on a
local level. Because our managers live and work in these areas and are directly
responsible for all aspects of their area's performance, we believe our
organization is more responsive to our customers' needs than our competitors
with more centralized operations. Moreover, we believe that the autonomy offered
by our local management strategy is attractive to potential sellers of well
service companies and their employees who may consider joining our management
team. Our decentralized operations are supported by our corporate office in
Midland, Texas, which monitors operating performance on a daily basis and
provides risk management and financial controls.
OVERVIEW OF SERVICES
We provide well site services to a variety of customers ranging from small
local oil and gas producers to large major oil companies. During 1999, we
provided services to more than 1,000 customers, the largest of which accounted
for less than 7% of our total revenues.
Well Servicing Segment
During 1999, our well servicing segment represented approximately 66% of
our revenue. This business segment encompasses a range of services performed
with a well servicing rig, which is also commonly referred to as a workover rig,
and ancillary equipment. Our rigs and personnel perform the work required to
return the well to production or facilitate the work of other oilfield service
companies such as acidizing, fracturing, cementing, wireline logging,
directional drilling and fishing services. Much of the work performed by other
oilfield service companies could not be completed without a well servicing rig
preparing the well in advance, providing the means for hoisting equipment and
tools into and out of the well bore and then returning the well to production.
As a result, our rigs are often the first to arrive at the well site for a job
and the last to leave.
Our well servicing business offers a broad range of services, including
well maintenance, workover, new well completion and plugging and abandonment
services. We generally charge our customers an hourly rate for our well
services, which varies based on a number of considerations including market
conditions in each region, the type of rig, the amount of ancillary equipment
required and the necessary personnel.
Including rigs that we will acquire upon completion of this offering, our
fleet includes 141 well servicing rigs. Three of these rigs are held under
capital leases with a purchase option. Pro forma for the offering, we operate
from 18 facilities in Texas, New Mexico and Oklahoma, most of which are used
jointly for both our business segments. Our rigs are mobile units that generally
operate within a radius of approximately 75 to 100 miles from their respective
bases. With the average age of our rigs at approximately 20 years, we believe
that we own one of the newest fleets in the industry. The following
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<PAGE> 35
table sets forth the location, characteristics and number of the 141 well
servicing rigs operated by us, including acquisitions made with the proceeds
from this offering:
<TABLE>
<CAPTION>
OPERATING REGION
------------------------------------------------
EAST TEXAS/
RATED PERMIAN NORTH SOUTH
RIG TYPE CAPACITY BASIN LOUISIANA TEXAS OKLAHOMA TOTAL
- -------- -------------- ------- ----------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Swab............................. N/A 2 -- 10 2 14
Light Duty....................... < 100 tons 33 1 3 -- 37
Medium Duty...................... 100-125 tons 61 8 2 7 78
Heavy Duty....................... > 125 tons 12 -- -- -- 12
--- -- -- -- ---
Total by Market............... 108 9 15 9 141
</TABLE>
Maintenance
Regular maintenance on oil wells is generally required throughout the life
of a well to ensure efficient and continuous operation. We believe regular
maintenance comprises the largest portion of our work in this business segment.
We provide well servicing rigs, equipment and crews for these maintenance
services. Maintenance services are often performed on a series of wells in
proximity to each other and typically require less than 48 hours per well. These
services consist of routine mechanical repairs necessary to maintain production
from the wells, such as repairing inoperable pumping equipment in an oil well or
replacing defective tubing in a gas well, and removing debris such as sand and
paraffin from the well. Other services include pulling the rods, tubing, pumps
and other downhole equipment out of the well bore to identify and repair a
production problem. These downhole equipment failures are typically caused by
the repetitive pumping action of an oil well. Corrosion, water cut, grade of
oil, sand production and other factors can also result in frequent failures of
downhole equipment. Few gas wells have mechanical pumping systems in the well
bore, and, as a result, regular maintenance work on gas wells in our markets is
not a significant part of our business.
The need for these services does not directly depend on the level of
drilling activity, although it is somewhat impacted by short-term fluctuations
in oil and gas prices. Our demand for maintenance services is affected by
changes in the total number of producing oil and gas wells in our geographic
service areas. Accordingly, maintenance services generally experiences
relatively stable demand. Maintenance work, however, typically generates low
operating margins due to the limited need for auxiliary equipment and related
services. This is also the most competitive portion of the well servicing market
due to the use of lighter rigs and smaller crews.
Our regular well maintenance services involve relatively low cost, short
duration jobs which are part of normal well operating costs. Demand for well
maintenance is driven primarily by the production requirements of the local oil
or gas fields and, to a lesser degree, the actual prices received for oil and
gas. Well operators cannot delay all maintenance work without a significant
impact on production. Operators may, however, choose to temporarily shut in
producing wells when oil or gas prices are too low to justify additional
expenditures, including maintenance.
Workover
In addition to periodic maintenance, producing oil and gas wells
occasionally require major repairs or modifications called "workovers," which
are typically more complex and more time consuming than maintenance operations.
Workover services include extensions of existing wells to drain new formations
either through recompletion to behind pipe zones, deepening wellbores to new
zones or the drilling of lateral wellbores to improve reservoir drainage
patterns. In less extensive workovers, our rigs are used to set plugs and
perform recompletions or to drill out plugs and packers in existing wellbores to
access previously bypassed productive zones. Our workover rigs are also used to
convert producing wells to injection wells during enhanced recovery operations.
Workovers also include major subsurface repairs such as casing repair or
replacement, recovery or replacement of tubing and removal of foreign objects in
the wellbore.
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These extensive workover operations are normally performed by a workover rig
with additional specialized auxiliary equipment, which may include rotary
drilling equipment, mud pumps, mud tanks and blowout preventers, depending upon
the particular type of workover operation. Most of our workover rigs are
designed and equipped to perform complex workover operations. A workover may
require a few days to several weeks. The demand for workover services is
sensitive to oil and gas producers' intermediate and long term expectations for
oil and gas prices. As oil and gas prices increase, the level of workover
activity tends to increase as oil and gas producers seek to increase output, by
enhancing the efficiency of their wells.
New Well Completion
New well completion services involve the preparation of newly drilled wells
for production. The completion process may involve selectively perforating the
well casing to access behind-pipe zones, stimulating and testing these zones and
installing the production string and other downhole equipment. We provide well
servicing rigs to assist in this completion process. Newly drilled wells are
frequently completed by well servicing rigs to minimize the use of higher cost
drilling rigs in the completion process. The completion process typically
requires a few days to several weeks, depending on the nature and type of the
completion, and generally requires additional auxiliary equipment. Accordingly,
completion services require less well-to-well mobilization of equipment and
generally provide higher operating margins than regular maintenance work. The
demand for completion services is directly related to drilling activity levels,
which are sensitive to expectations relating to and changes in oil and gas
prices.
Plugging and Abandonment
Well servicing rigs are also used in the process of permanently closing oil
and gas wells no longer capable of producing in economic quantities at the end
of their productive life. Plugging and abandonment work can be performed with a
standard well servicing rig along with wireline and cementing equipment;
however, this service is typically provided by companies that specialize in
plugging and abandonment work. Many well operators bid this work on a "turnkey"
basis, requiring the service company to perform the entire job, including
handling the salvage of equipment as part of the compensation received, and
complying with state regulatory requirements. The plugging and abandonment
market can provide favorable operating margins and is less sensitive to oil and
gas pricing than drilling and workover activity since well operators must plug a
well in accordance with state regulations when it is no longer productive. We
currently have five rigs equipped to perform full service plugging and
abandonment services in our Permian Basin region. This operation has the
equipment and expertise to handle most plugging and abandonment jobs in the
market and competes for projects many of our well servicing competitors find too
difficult to manage. We also perform plugging and abandonment work throughout
our operations in conjunction with equipment provided by other service
companies.
Fluid Services Segment
During 1999, our fluid services segment represented approximately 34% of
our revenue. This segment includes an integrated mix of liquids handling
services, employing fluid service trucks, fluid storage tanks, Enviro-Vat system
rentals, salt water disposal wells and fresh and brine water stations. Our
breadth of capabilities in this business segment provides us with a competitive
advantage as a one-stop source for our customers. Many of our competitors in
this segment can provide some, but not all, of the equipment and services
required by customers, requiring them to use several companies to meet their
requirements and increasing their administrative burden.
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The following table sets forth the type, number and location of the fluid
services equipment we operated as of December 31, 1999, including acquisitions
made with the proceeds from this offering:
<TABLE>
<CAPTION>
FLUID SALT WATER FRESH AND
SERVICES SUPPORT DISPOSAL BRINE WATER FLUID STORAGE ENVIRO-VAT
OPERATING REGION TRUCKS TRUCKS WELLS STATIONS TANKS SYSTEMS
- ---------------- -------- ------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Permian Basin....................... 95 34 8 54 253 79
East Texas and North Louisiana...... 21 2 3 -- 61 4
South Texas......................... 32 3 2 -- 38 3
Oklahoma............................ -- -- -- -- -- 4
--- -- -- -- --- --
Total..................... 148 39 13 54 352 90
</TABLE>
We believe regular maintenance work comprises about 50% of our activity in
this business segment. As in our well servicing segment, our fluid services
segment has a base level of business volume related to the regular maintenance
of oil and gas wells. Most oil and gas fields produce residual salt water in
conjunction with the oil or gas produced. Fluid service trucks pick up this
fluid from tank batteries at the well site and transport it to a salt water
disposal well for injection. Our "hot oil" trucks are used to remove paraffin, a
by-product of oil production in many fields, from the well bore. If paraffin is
left untreated, it will inhibit production. This regular maintenance work must
be performed if a well is to remain active. We have salt water disposal wells in
most of our markets that allows us to compete effectively for this regular
maintenance work. While relatively stable, this activity typically generates low
operating margins. This is due to competition from numerous fluid service
companies that also own salt water disposal wells or have access to public or
oil and gas well operator-owned salt water disposal wells. Also, because the
disposal of salt water is a significant part of the operating costs of a well,
many oil and gas producers conduct a competitive bid process to select a service
provider.
We provide a full array of fluid sales, transportation, storage and
disposal services required on most workover, drilling and completion projects.
Workover, drilling and completion services also provides the opportunity for
higher operating margins from tank rentals and fluid sales. Drilling and
workover jobs typically require fresh water for drilling mud or circulating
fluid used during the job. Completion and workover procedures often also require
large volumes of fresh water for fracturing operations, a process of stimulating
a well hydraulically to increase production. Spent mud and flowback fluids are
required to be transported from the well site to a disposal well.
Fluid Services Trucks. We own and operate 148 fluid service trucks. A fluid
service truck is a bobtail or tractor/trailer truck with a fluid hauling
capacity of up to 130 55-gallon barrels. Each fluid service truck is equipped to
pump fluids from or into wells, pits, tanks and other storage facilities. The
majority of our fluid service trucks are also used to transport water to fill
frac tanks on well locations, including frac tanks provided by us and others, to
transport produced salt water to disposal wells, including injection wells owned
and operated by us, and to transport drilling and completion fluids to and from
well locations. In conjunction with the rental of our frac tanks, we generally
use our fluid service trucks to transport water for use in fracturing
operations. Following completion of fracturing operations, our fluid service
trucks are used to transport the flowback produced as a result of the fracturing
operations from the well site to disposal wells. Fluid services trucks are
generally provided to oilfield operators within a 50-mile radius of our nearest
yard.
Support Trucks. Our support trucks are used to move our fluid storage tanks
and other equipment to and from the job sites of our customers.
Salt Water Disposal Well Services. We own disposal wells that are permitted
to dispose of salt water and incidental non-hazardous oil and gas wastes. Our
transport trucks frequently transport fluids that are disposed of in the salt
water disposal wells. The disposal wells have injection capacities ranging up to
3,500 barrels per day. Our salt water disposal wells are strategically located
in close proximity to our customers' producing wells. Most oil and gas wells
produce varying amounts of salt water throughout their productive lives. In
Texas and New Mexico, oil and gas wastes and salt water produced from oil and
gas
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wells are required by law to be disposed of in authorized facilities, including
permitted salt water disposal wells. Injection wells are licensed by state
authorities and are completed in permeable formations below the fresh water
table. We maintain separators at each of our disposal wells permitting us to
salvage residual crude oil, which is later sold for our account.
Fresh and Brine Water Stations. Our network of fresh and brine water
stations include fresh water wells and brine mixing stations which are used to
supply water necessary for the drilling and completion of oil and gas wells. Our
strategic locations, in combination with our other fluids handling services,
gives us competitive advantage over other service providers and expands our
customer base.
Fluid Storage Tanks. Our fluid storage tanks can store up to 500 barrels of
fluid and are used by oilfield operators to store various fluids at the well
site, including water, brine, drilling mud and acid for frac jobs, flowback,
temporary production and mud storage. We transport the tanks on our trucks to
well locations which are usually within a 50-mile radius of our nearest yard.
Frac tanks are used during all phases of the life of a producing well. We
generally rent fluid services tanks at daily rates for a minimum of three days.
A typical fracturing operation can be completed within four days using 10 to 40
frac tanks.
Enviro-Vat System Rentals. The Enviro-Vat system is a unitized,
trailer-mounted system that connects to the wellhead to catch small oil and
other liquid spills that occur during regular maintenance, workover and
completion activities.
PROPERTIES
Our principal executive offices are located at 406 North Big Spring,
Midland, Texas 79701. Pro forma for our pending acquisitions, we will conduct
our business from 18 area offices, ten of which we own and eight of which we
lease. Each office typically includes a yard, administrative office and
maintenance facility. Of our 18 area offices, 14 are located in Texas, two are
in Oklahoma and two are in New Mexico. One area office provides fluid handling
services, three area offices provide well servicing and the remaining 14 area
offices provide both. We believe that our leased and owned properties are
adequate for our current needs.
CUSTOMERS
We serve numerous major and independent oil and gas companies that are
active in the areas in which we operate. During 1999, we provided services to
more than 1,000 customers, the largest of which accounted for less than 7% of
our total revenues. The majority of our business is with independent oil and gas
companies. Our area managers maintain relationships with customers whose
operating decisions are made in the field. Management expects that as major oil
and gas companies continue their retreat from our operating regions, existing
relationships with independent oil and gas companies will result in increased
business activity for the Company.
OPERATING RISKS AND INSURANCE
Our operations are subject to hazards inherent in the oil and gas industry,
such as accidents, blowouts, explosions, craterings, fires and oil spills, that
can cause:
- personal injury or loss of life;
- damage or destruction of property, equipment, the environment and marine
life; and
- suspension of operations.
In addition, claims for loss of oil and gas production and damage to
formations can occur in the workover business. If a serious accident was to
occur at a location where our equipment and services are being used, it could
result in our being named as a defendant in lawsuits asserting large claims.
Because our business involves the transportation of heavy equipment and
materials, we may also experience traffic accidents which may result in spills,
property damage and personal injury.
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Despite our efforts to maintain high safety standards, we from time to time
have suffered accidents in the past and anticipate that we could experience
accidents in the future. In addition to the property and personal losses from
these accidents, the frequency and severity of these incidents affect our
operating costs and insurability, and our relationship with customers, employees
and regulatory agencies. Any significant increase in the frequency or severity
of these incidents, or the general level of compensation awards, could adversely
affect the cost of, or our ability to obtain, workers' compensation and other
forms of insurance, and could have other material adverse effects on our
financial condition and results of operations.
Although we maintain insurance coverage of types and amounts that we
believe to be customary in the industry, we are not fully insured against all
risks, either because insurance is not available or because of the high premium
costs. We do maintain physical damage, employer's liability, pollution, cargo,
umbrella, comprehensive commercial general liability and workers' compensation
insurance. There can be no assurance, however, that any insurance obtained by us
will be adequate to cover any losses or liabilities, or that this insurance will
continue to be available or available on terms which are acceptable to us.
Liabilities for which we are not insured, or which exceed the policy limits of
our applicable insurance, could have a materially adverse effect on us.
COMPETITION
The well service industry is highly competitive and fragmented and includes
a number of small companies capable of competing effectively on a local basis
and several large companies which possess substantially greater financial and
other resources than we do. Pool Well Services, a subsidiary of Nabors
Industries, Inc., and Key Energy Service, both provide well servicing and
liquids handling services and are the largest companies in the domestic well
services market. Pool and Key operate in multiple geographic regions and
currently have significantly more domestic well servicing rigs than we do. We
have numerous regional competitors for each of the services we provide. We
believe that we are competitive in terms of pricing, performance, equipment,
safety, availability of equipment to meet customer needs and availability of
experienced, skilled personnel in those areas in which we operate. Excess
capacity in the well service industry resulted in severe price competition
throughout much of the past decade. We expect competition and pricing pressures
to continue for the near future.
SAFETY PROGRAM
In the well service industry, an important competitive factor in
establishing and maintaining long-term customer relationships is having an
experienced and skilled work force. In recent years, many of our larger
customers have placed an emphasis not only on pricing, but also on safety
records and quality management systems of contractors. We believe that these
factors will gain further importance in the future. We have directed substantial
resources toward employee safety and quality management training programs as
well as our employee review process. While our efforts in these areas are not
unique, many competitors, particularly small contractors, have not undertaken
similar training programs for their employees.
ENVIRONMENTAL REGULATION
Extensive federal, state and local laws regulating the discharge of
materials into the environment or otherwise relating to health and safety or the
protection of the environment affect our business. Numerous governmental
departments issue regulations to implement and enforce these laws, which are
often difficult and costly to comply with. Failure to comply with these laws and
regulations often carries substantial administrative, civil and even criminal
penalties. Some laws and regulations relating to protection of the environment
may, in some circumstances, impose strict liability for environmental
contamination, rendering a person liable for environmental damages and cleanup
costs without regard to negligence or fault on the part of that person. Strict
adherence with these regulatory requirements increases our cost of doing
business and consequently affects our profitability. We believe that we are in
substantial compliance with current applicable environmental laws and
regulations and that continued compliance with existing requirements will not
have a material adverse impact on our operations. However, environmental laws
and
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regulations have been subject to frequent changes over the years, and the
imposition of more stringent requirements could have a materially adverse effect
upon our capital expenditures, earnings or our competitive position.
The Comprehensive Environmental Response, Compensation and Liability Act,
referred to as "CERCLA" in this prospectus, and comparable state laws impose
liability, without regard to fault on some classes of persons that are
considered to be responsible for the release of a hazardous substance into the
environment. These persons include the current or former owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of hazardous substances. Under CERCLA,
these persons may be subject to joint and several liability for the costs of
investigating and cleaning up hazardous substances that have been released into
the environment, for damages to natural resources and for the costs of some
health studies. In addition, companies that incur liability frequently also
confront additional claims because it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage
allegedly caused by hazardous substances or other pollutants released into the
environment from a polluted site.
We generate non-hazardous and hazardous solid wastes that are subject to
the requirements of the federal Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976, referred to as "RCRA" in this
prospectus, and comparable state statutes. Our operations generate minimal
quantities of hazardous wastes because RCRA currently excludes drilling fluids,
produced waters and other wastes associated with the exploration, development or
production of oil and gas from regulation as hazardous waste. Disposal of wastes
from oil and gas exploration, development and production that are non-hazardous
wastes is usually regulated under state law. Other wastes handled at exploration
and production sites or used in the course of providing well services may not
fall within this exclusion from RCRA and may be regulated as hazardous waste. In
addition, stricter standards for waste handling and disposal may be imposed on
the oil and gas industry in the future. For instance, from time to time
legislation has been proposed in Congress that would revoke or alter the current
exclusion of exploration, development and production wastes from the RCRA
definition of "hazardous wastes" thereby potentially subjecting these wastes to
more stringent handling, disposal and cleanup requirements. If this legislation
were enacted it could have a significant adverse impact on our operating costs,
as well as the oil and gas industry and well servicing industry in general.
Our operations are also subject to the Clean Air Act and comparable state
and local requirements. Amendments to the Clean Air Act were adopted in 1990 and
contain provisions that may result in the gradual imposition of some pollution
control requirements with respect to air emissions from our operations. We may
be required to incur capital expenditures in the next several years for air
pollution control equipment in connection with obtaining and maintaining
operating permits and approvals for air emissions. However, we do not believe
our operations will be materially adversely affected by any of these
requirements, and the requirements are not expected to be any more burdensome to
us than to other similarly situated companies involved in well services
activities. Our operations are also subject to the federal Clean Water Act and
analogous state laws. Pursuant to the requirements of the Clean Water Act, the
Environmental Protection Agency has adopted regulations concerning discharges of
storm water runoff. This program requires covered facilities to obtain
individual permits, participate in a group permit or seek coverage under an
Environmental Protection Agency general permit. Some of our properties may
require permits for discharges of storm water runoff and, as part of our overall
evaluation of our current operations, we are applying for stormwater discharge
permit coverage and updating stormwater discharge management practices at some
of our facilities. We believe that we will be able to obtain, or be included
under, these permits, where necessary, and make minor modifications to existing
facilities and operations that would not have a material effect on us.
The federal Clean Water Act and the federal Oil Pollution Act of 1990,
which contains numerous requirements relating to the prevention of and response
to oil spills into waters of the United States, require some owners or operators
of facilities that store or otherwise handle oil to prepare and implement spill
prevention, control, countermeasure and response plans relating to the possible
discharge of oil into surface waters. We believe we are in substantial
compliance with these regulations.
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<PAGE> 41
We have acquired leasehold or ownership interests in a number of properties
that, in some instances, have been previously operated as oil and gas related
service yards by third parties not under our control. Service yards are
generally used as staging areas for rigs and equipment when not in use, and
there is the possibility that repair and maintenance activities on these rigs
and equipment or storage of wellbore fluids at these yards during these prior
years may have resulted in the release of petroleum hydrocarbons or other wastes
on or under these properties. These properties and any wastes released thereon
may be subject to CERCLA, RCRA, and analogous state laws. Notwithstanding our
lack of control over properties operated by others, any failure by us to comply
with applicable environmental regulations may, in certain circumstances,
adversely impact upon our operations.
Our underground injection operations are subject to the federal Safe
Drinking Water Act, as well as analogous state and local laws and regulations.
Pursuant to Part C of the Safe Drinking Water Act, the United States
Environmental Protection Agency established the Underground Injection Control
program, which established the minimum program requirements for state and local
programs regulating underground injection activities. The Underground Injection
Control program includes requirements for permitting, testing, monitoring,
record keeping and reporting of injection well activities, as well as a
prohibition against the migration of fluid containing any contaminant into
underground sources of drinking water. Although we monitor the injection process
of our wells, any leakage from the subsurface portions of the injection wells
could cause degradation of fresh groundwater resources, potentially resulting in
cancellation of operations of the well, issuance of fines and penalties from
governmental agencies, expenditures for remediation of the affected resource and
liability to third parties for property damages and personal injuries. In
addition, our sales of residual crude oil collected as part of the saltwater
injection process could impose liability on us in the event the entity to which
the oil was transferred fails to manage the material in accordance with
applicable environmental health and safety laws.
We maintain insurance against some risks associated with underground
contamination that may occur as a result of well service activities. However,
this insurance is limited to activities at the wellsite and there can be no
assurance that this insurance will continue to be available or that this
insurance will be available at premium levels that justify its purchase. The
occurrence of a significant event not fully insured or indemnified against could
have a materially adverse effect on our financial condition and operations.
We are also subject to the requirements of the Federal Occupational Safety
and Health Act and comparable state statutes that regulate the protection of the
health and safety of workers. In addition, the Federal Occupational Safety and
Health Act hazard communication standard requires that information be maintained
about hazardous materials used or produced in operations and that this
information be provided to employees, state and local government authorities and
citizens. We believe that our operations are in substantial compliance with the
Federal Occupational Safety and Health Act requirements, including general
industry standards, record keeping requirements, and monitoring of occupational
exposure to regulated substances.
EMPLOYEES
As of December 31, 1999, we employed approximately 646 people, with
approximately 85% employed on an hourly basis. Our future success will depend
partially on our ability to attract, retain and motivate qualified personnel. We
are not a party to any collective bargaining agreements and we consider our
relations with our employees to be satisfactory.
LEGAL PROCEEDINGS
From time to time, we are a party to litigation or other legal proceedings
that we consider to be a part of the ordinary course of our business. We are not
involved currently in any legal proceedings that could reasonably be expected to
have a material adverse effect on our financial condition or results of
operations.
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<PAGE> 42
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The directors, executive officers and other key employees of Sierra and
their respective ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
H. H. Wommack, III(1)................. 44 Director and Chairman of the Board
Kenneth V. Huseman.................... 47 President, Chief Executive Officer and
Vice Chairman
Ronald T. McClung..................... 49 Chief Financial Officer
Dub W. Harrison....................... 42 Vice President - Regional Operations
Charles W. Swift...................... 51 Vice President - Permian Basin
William M. Kerr, Jr.(1) .............. 42 Director
Paul L. Morris(2)..................... 58 Director
William J. Myers(1)(2)................ 63 Director
J. Steven Person...................... 41 Director
Clifford A. Strozier(2)............... 70 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Set forth below is the description of the backgrounds of the directors,
executive officers and other key employees of Sierra.
H. H. WOMMACK, III has served as Chairman of the Board and a Director of
Sierra since its inception in 1992. Mr. Wommack has served as Chairman of the
Board, President, Chief Executive Officer and a Director of Southwest Royalties
Holdings since it was formed in July 1997 and of Southwest Royalties since its
founding in 1983. Prior to the formation of Southwest Royalties, Mr. Wommack was
a self-employed independent oil and gas producer.
KENNETH V. HUSEMAN became President and Chief Executive Officer and Vice
Chairman in April 1999. Prior to joining Sierra, Mr. Huseman was the Chief
Operating Officer of Key Energy Services, Inc. from August 1996 until April 1999
and Executive Vice President from March 1996 until August 1996. Mr. Huseman was
the Mid-Continent Regional President of WellTech from August 1993 until March
1996 and Vice President and Mid-Continent Regional Manager from April 1993 until
August 1993. Mr. Huseman was employed by Pool Energy Services Co. from January
1978 until April 1993 in financial and operations management positions including
responsibility for well servicing and drilling operations throughout the United
States.
RONALD T. MCCLUNG joined Sierra in September 1999 as Chief Financial
Officer. Mr. McClung was formerly employed by Key Energy Services Co. from March
1998 through August 1999 in Division and Corporate Controller positions.
Previously, he was employed with Robinson, Burdette, Martin and Cowan, LLP
(formerly Coopers & Lybrand L.L.P.) and KPMG for five and three years,
respectively. Mr. McClung holds a CPA certification.
DUB W. HARRISON serves as Vice President of Equipment and Maintenance. Mr.
Harrison previously managed Sierra's East and South Texas operations. From 1987
to 1995, Mr. Harrison was an area manager for Pool Energy Services Co. with
responsibilities for all aspects of well services and liquids handling services.
Mr. Harrison also served as equipment superintendent and as a safety
representative for Pool Energy Services.
CHARLES W. SWIFT serves as Vice President of Regional Operations. Mr. Swift
previously served as Division Manager of Sierra from July 1997 and managed
operations for the Southeast Permian Basin. From 1986 to 1997, Mr. Swift was a
general partner of S&N Well Servicing, Ltd. of Midland, Texas,
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<PAGE> 43
which was acquired by Sierra in July 1997. Prior to founding S&N Well Servicing,
Ltd., Mr. Swift served in various capacities in the well servicing industry for
over 15 years.
WILLIAM M. KERR, JR. became a director of Sierra in March 2000. Mr. Kerr
was formerly an Advisory Director from May 1999 until March 2000. Mr. Kerr
previously served as a Director of Sierra from January 1998. Mr. Kerr has been a
partner of the law firm of Kerr & Ward, LLP since its founding in 1995. From
1982 until 1995, Mr. Kerr practiced law with the firm of Kerr, Fitz-Gerald &
Kerr.
PAUL L. MORRIS became a director of Sierra in March 2000. Mr. Morris was
formerly an Advisory Director of Sierra from May 1999 until March 2000. Mr.
Morris previously served as a Director of Sierra from January 1998. Since 1988,
Mr. Morris has served as President and Chief Executive Officer of Wagner &
Brown, Ltd., an oil and gas company headquartered in Midland, Texas. Mr. Morris
previously served as President and Chief Executive Officer of Banner Energy,
Inc., Vice President of Columbia Gas Development Corporation and in various
other capacities in the oil and gas industry.
WILLIAM J. MYERS became a director of Sierra in March 2000. Mr. Myers also
serves as a director of both Bonus Resource Services Corp., a public well
service company in Canada, and Diamond Products International, a diamond bit
manufacturer in Houston, Texas. Prior to retiring in January 1999, Mr. Myers
served as Group Vice President of Pool Energy Services for 11 years.
J. STEVEN PERSON became a director of Sierra in March 2000. Mr. Person has
served as Vice President of Marketing for Southwest Royalties Holding since its
formation in July 1997. In addition, Mr. Person has served as Vice President of
Marketing for Southwest Royalties since 1989 and as Vice President of Marketing
for Midland Red Oak Reality since 1996.
CLIFFORD A. STROZIER became a director of Sierra in March 2000. Prior to
joining Sierra, Mr. Strozier was President of Jet-Lube, Inc., a speciality
lubricant manufacturer headquartered in Houston, Texas, from 1990 until his
retirement in 1995. Mr. Strozier previously served as Director of Domestic
Marketing and Vice President of Contracts and Marketing for Pool Well Servicing
Co.
BOARD CLASSES
Our board of directors is divided into three classes. The directors serve
staggered three-year terms. The terms of the directors of each class expire at
the annual meetings of stockholders to be held in 2001 (Class I), 2002 (Class
II) and 2003 (Class III). At each annual meeting of stockholders, one class of
directors will be elected for a full term of three years to succeed that class
of directors whose terms are expiring. The current classification of directors
is as follows:
- Class I -- Messrs. Person and Strozier
- Class II -- Messrs. Huseman and Kerr
- Class III -- Messrs. Wommack, Morris and Myers
COMMITTEES
Our audit committee consists of Messrs. Morris, Myers, and Strozier, each
of whom is a non-employee director. The audit committee meets separately with
representatives of our independent auditors and with representatives of senior
management in performing its functions. The audit committee reviews the general
scope of the audit function, matters relating to our internal control systems,
our policies with respect to conflicts of interest, changes in accounting
policies and other matters related to accounting and reporting functions.
Our compensation committee consists of Messrs. Wommack, Huseman and Myers,
each of whom is a non-employee director. The compensation committee administers
our 2000 Stock Plan, and in this capacity makes all option grants or awards to
our employees, including executive officers, under the plan. In addition, the
compensation committee is responsible for making recommendations to the board of
directors
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<PAGE> 44
with respect to the compensation of our chief executive officer and our other
executive officers and for establishing compensation and employee benefit
policies.
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes all compensation earned by Sierra's Chief
Executive Officer. No executive officer had total annual salary and bonuses
exceeding $100,000 for services rendered in all capacities to Sierra during the
year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
YEAR ENDED DECEMBER 31, -------------------------
1999 SECURITIES
------------------------ UNDERLYING ALL OTHER
SALARY BONUS OPTIONS(2) COMPENSATION
--------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Kenneth V. Huseman........................... $180,930 $50,000 0 $8,701
</TABLE>
- ---------------
(1) Mr. Huseman became an employee of Sierra effective May 1, 1999. Under the
terms of his employment agreement, Mr. Huseman is entitled to the
compensation described under "-- Employment Agreements" below.
(2) For information concerning the aggregate holdings of restricted stock by Mr.
Huseman, see "-- Employment Agreements."
COMPENSATION OF DIRECTORS
Directors who are our employees do not receive a retainer or fees for
service on the board or any committees. We pay non-employee members of the board
for their service as directors. Directors who are not employees receive a
quarterly fee of $1,500 and a fee of $750 for attendance at each meeting of the
board. In addition, pursuant to the 2000 Stock Plan, immediately following
completion of this offering, each then non-employee director will receive, on
that date, a stock option to purchase 10,000 shares of our common stock at the
market price on the date of grant. Beginning with the regular annual meeting of
stockholders in 2001, and on each annual meeting after that, each then serving
non-employee director will receive a stock option to purchase 1,000 shares of
common stock. Directors are reimbursed for reasonable out-of-pocket expenses
incurred in attending meetings of the board or committees and for other
reasonable expenses related to the performance of their duties as directors.
STOCK PLAN
Sierra's 2000 Stock Plan was adopted by the Board of Directors of Sierra
and approved by Sierra's stockholders in March 2000. The stock plan permits the
granting of any or all of the following types of awards:
- stock options;
- restricted stock;
- performance units;
- automatic director options;
- phantom shares;
- other stock-based awards;
- bonus stock; and
- cash tax rights.
All officers and employees of, and any consultants to, Sierra or any affiliate
of Sierra will be eligible for participation in all of the above listed awards
under the stock plan. The non-employee directors of Sierra will receive
automatic grants of director options under the stock plan (as described above)
and also be eligible for participation in the above listed awards.
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<PAGE> 45
The number of shares with respect to which awards may be granted under the
2000 Stock Plan is equal to 10% of the number of shares outstanding at the date
of any grant not to exceed 2,000,000 shares, and an aggregate of up to 2,000,000
shares of common stock have been authorized and reserved for issuance pursuant
to the stock plan. As of the date of this prospectus, no options to purchase
shares of common stock have been granted under the stock plan. Under this stock
plan, each non-employee director immediately following the closing of this
offering will automatically receive an option to purchase 10,000 shares at the
initial public offering price. In addition, each non-employee director will
automatically receive an option to purchase 1,000 shares of common stock
immediately after each annual meeting of stockholders beginning in 2001 while
this stock plan is in effect. The stock plan is administered by the compensation
committee of Sierra's board of directors. The compensation committee will select
the participants who will receive awards, determine the type and terms of the
awards to be granted and interpret and administer the stock plan. No awards may
be granted under the stock plan after March 21, 2010.
STOCK OPTION GRANTS
No stock options have been granted as of December 31, 1999.
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Mr. Huseman through April
30, 2004 with a minimum annual salary of $250,000 and an annual bonus ranging
from $50,000 to $250,000 based on the level of performance objectives achieved
by us. Pursuant to the agreement, Mr. Huseman has received a grant of 40,522
shares of stock in 1999. Pursuant to this agreement, as amended, Mr. Huseman has
received additional grants during 2000 of an additional 17,364 shares that are
subject to forfeiture if shares are not issued to JEDI II and 57,885 shares of
restricted stock that will vest on anniversaries of his employment commencement
date or earlier upon certain qualified terminations of his employment, 17,364
shares of which are also subject to forfeiture if shares are not issued to JEDI
II. In addition, upon a qualified termination of employment Mr. Huseman's base
salary would be continued for the remainder of the term or for 36 months,
whichever is less. However, if a qualifying termination were to occur following
a change of control of Sierra, the above severance amount would be paid a lump
sum.
We have also entered into employment agreements with Ronald T. McClung, Dub
W. Harrison and Charles W. Swift, other officers through March 21, 2003.
Pursuant to these agreements, if the officer's employment is terminated for
certain reasons, he would be entitled to a lump sum severance payment equal to
his annual salary payable for the remainder of the term or for six months,
whichever is less, or 18 months in the event of a change of control of Sierra.
INDEMNIFICATION AGREEMENTS
We intend to enter into indemnification agreements with some of our
directors and officers pursuant to which we will indemnify such persons against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred as a result of the fact that such person, in his or her
capacity as a director or officer, is made or threatened to be made a party to
any suit or proceeding. Such persons will be indemnified to the fullest extent
now or hereafter permitted by the General Corporation Law of the State of
Delaware. The indemnification agreements will also provide for the advancement
of expenses to such directors and officers in connection with any such suit or
proceeding.
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<PAGE> 46
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The descriptions set forth below do not purport to be complete and are
qualified in their entirety by reference to the applicable agreements.
On September 1, 1997, we, along with Southwest Royalties, entered into an
agreement whereby Southwest Royalties agreed to provide us with administrative
services, including accounting, bookkeeping, tax preparation and banking and
disbursement services for $12,000 monthly. This service agreement was terminated
December 31, 1999. We performed services for Southwest Royalties based on prices
we believe to be comparable to prices charged in the region. Fees paid to us by
Southwest Royalties for these services were $508,000, $906,000 and $1,010,000
for the years ended 1997, 1998 and 1999, respectively.
Effective January 1996, a subsidiary of Southwest Royalties began
performing computer services for us for $7,500 per month. This agreement is
terminable by either party within 30 days and is on terms management believes
are no less favorable to Sierra than prevailing market rates.
William M. Kerr, Jr., a director of Sierra since January 1, 1998, is a
partner in the law firm of Kerr & Ward, LLP. During 1998 and 1999, Sierra paid
Kerr & Ward, LLP approximately $112,383 and $64,105, respectively, in fees for
legal services performed. Management believes that the fees paid were no less
favorable to Sierra than prevailing market rates for these services.
We lease three well service rigs from Permian Basin Acquisition Group for
$11,000 per month, with an option to purchase the rigs for the lesser of (1) the
fair market value or (2) $180,000 per rig. Permian Basin Acquisition Group is
owned by H.H. Wommack, III, Ken Huseman, Bill Coggin and Steve Person.
Approximately $31.8 million of the net proceeds from this offering will be
paid to Holding Co. I and JEDI II as a repayment of Subordinated Notes due 2004
and the redemption of Series A Cumulative Preferred Stock. JEDI II currently
beneficially owns approximately 28.8% of our outstanding common stock and will
own approximately % of our outstanding common stock upon the completion of
this offering. Please read "Use of Proceeds" and "Principal Stockholders and
Ownership by Management."
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<PAGE> 47
PRINCIPAL STOCKHOLDERS
The following tables set forth information with respect to the beneficial
ownership of the common stock of Sierra as of March 21, 2000, giving effect to
the conversion of Series B Preferred Stock owned by JEDI II, by each person who
is known by Sierra to own beneficially 5% or more of the common stock, by our
named executive officer, our directors and by all of our executive officers and
directors as a group. Unless otherwise indicated, the address of each
stockholder listed below is Southwest Royalties Building, 407 N. Big Spring,
Midland, TX 79701-4326.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF PERCENT OF
COMMON CLASS BEFORE CLASS AFTER
NAME OF BENEFICIAL OWNER STOCK OFFERING OFFERING
- ------------------------ --------- ------------ -----------
<S> <C> <C> <C>
Southwest Royalties Holdings, Inc.(1)....................... 1,931,616 66.7%
Southwest Partners II, L.P.(2).............................. 478,691 16.5
Southwest Partners III, L.P.(3)............................. 892,225 30.8
Joint Energy Development Investments II Limited
Partnership(4)............................................ 833,556 28.8
c/o Enron Corp.
1400 Smith Street
Houston, TX 77002
H. H. Wommack, III(5)(6).................................... 1,934,116
Kenneth V. Huseman(7)....................................... 115,771 4.0
William M. Kerr, Jr.(6)..................................... 2,500 * *
Paul L. Morris(6)........................................... 2,500 * *
William J. Myers(6)......................................... 2,500 * *
J. Steven Person(6)......................................... 2,500 * *
Clifford Strozier(6)........................................ 2,500 * *
Directors and Executive Officers as a Group (10
persons)(8)............................................... 2,062,387 73.8%
</TABLE>
- ---------------
* Less than one percent.
(1) Southwest Royalties, Inc. a wholly-owned subsidiary of Southwest Royalties
Holdings, controls the vote of all shares owned by Southwest Partners II and
Southwest Partners III as general partner of each of the two partnerships.
Southwest Royalties Holdings directly owns 560,700 shares, or 19.4% of total
shares outstanding and indirectly beneficially owns an additional 1,370,916
shares, or 47.3% of total shares outstanding through Southwest Royalties.
The number of beneficially owned shares and percentage of class listed above
reflect this control. The stockholders of Southwest Royalties Holdings who
beneficially own 5% or more of the common stock of Southwest Royalties
Holdings are H. H. Wommack, III and George H. Jewell, who own 72.9% and 5.7%
of its common stock, respectively.
(2) Southwest Royalties owns 15% of the partnership interests in Southwest
Partners II as the general partner. No other person owns 5% or more of the
partnership interests.
(3) Southwest Royalties owns 15% of the partnership interests in Southwest
Partners III as the general partner. No other person owns 5% or more of the
partnership interests.
(4) Reflects the redemption of Series A Cumulative Preferred Stock with the
proceeds of this offering prior to June 30, 2000. JEDI II holds 1,000 shares
of Series B Convertible Preferred Stock. The shares of Series B Convertible
Preferred Stock are convertible into fully paid and non-assessable shares of
common stock, and JEDI II has agreed to the conversion of these shares
effective upon the completion of this offering into 833,556 shares of common
stock and the cancellation of the Series C Convertible Preferred Stock upon
payment of $1,000. The general partner of JEDI II is an indirect wholly
owned subsidiary of Enron Corp. Enron is the holding company of an
integrated natural gas and electricity group headquartered in Houston,
Texas. The limited partners of JEDI II are CalPERS and an indirect wholly
owned subsidiary of Enron. CalPERS is the largest public pension system in
the United States and is headquartered in Sacramento, California.
(5) Reflects the beneficial ownership of H. H. Wommack, III, the majority
shareholder of Southwest Royalties Holdings and the intercompany
relationships discussed in footnotes 1, 2 and 3 above.
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<PAGE> 48
(6) Includes 2,500 shares issuable within 60 days of , 2000 pursuant to
options that will be granted under the 2000 Stock Plan upon completion of
this offering. The exercise price for these options will be the initial
public offering price.
(7) Includes 34,728 shares of common issued but subject to vesting and
forfeiture pursuant to Mr. Huseman's employment agreement, as amended.
Includes shares issuable within 60 days of , 2000
pursuant to options that will be granted under the 2000 Stock Plan upon
completion of this offering. The exercise price for these options will be
the initial public offering price.
(8) Includes shares issuable within 60 days of , 2000
pursuant to options that will be granted under the 2000 Stock Plan upon
completion of this offering. The exercise price for these options will be
the initial public offering price.
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<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
Immediately prior to the closing of the offering, we will file our Amended
and Restated Certificate of Incorporation which will, among other things,
increase our number of authorized shares of common stock to 25,000,000. In
addition, we will effect a 445-for-1 stock split in the form of a stock dividend
to our existing stockholders and we will issue preferred share purchase rights
to our existing stockholders. Shares of common stock issued in this offering
will reflect the stock split and will have preferred share purchase rights
attached.
The following description of capital stock gives effect to the stock split,
the issuance of the preferred share purchase rights, the redemption of Series A
Cumulative Preferred Stock, the conversion of the Series B Convertible Preferred
Stock and the cancellation of the Series C Convertible Preferred Stock.
The authorized capital stock of Sierra consists of:
- 25,000,000 shares of common stock, $0.01 par value;
- 1,000 shares of Series A Cumulative Preferred Stock, $10,000 liquidation
preference;
- 1,000 shares of Series B Convertible Preferred Stock, $1 liquidation
preference;
- one share of Series C Convertible Preferred Stock, $1,000 liquidation
preference; and
- shares of Series One Junior Participating Preferred Stock, $.01
par value.
Immediately prior to the offering, shares of common stock were
outstanding. Five Hundred shares of Series A Cumulative Preferred Stock and one
share of Series C Convertible Preferred Stock have been issued but will be
redeemed or cancelled upon the completion of this offering, and 1,000 shares of
Series B Convertible Preferred Stock will be converted into an aggregate of
833,556 shares of common stock.
The following summarizes the material provisions of our capital stock and
important provisions of our certificate of incorporation and bylaws. This
summary is qualified by our certificate of incorporation and bylaws, copies of
which have been filed as exhibits to the registration statement of which this
prospectus is a part and by the provisions of applicable law.
COMMON STOCK
Following the offering, shares of common stock will be issued and
outstanding. Holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Because holders of common stock do
not have cumulative voting rights, the holders of a majority of the shares of
common stock can elect all of the members of the board of directors standing for
election. The holders of common stock are entitled to receive dividends as may
be declared by the board of directors. However, no dividends may be paid or
declared until all of the Series A Cumulative Preferred Stock has been redeemed.
The common stock is entitled to receive pro rata all of the assets of Sierra
available for distribution to its stockholders. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and non-assessable.
PREFERRED STOCK
Subject to the provisions of the certificate of incorporation and
limitations prescribed by law, the board of directors has the authority to issue
up to 5,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions of the preferred stock,
including dividend rights, dividend rates, conversion rates, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of the series, which may be
superior to those of the common stock, without further vote or action by the
stockholders. There will be no shares of Series A Cumulative Preferred Stock,
Series B Convertible Preferred Stock or Series C
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<PAGE> 50
Convertible Preferred Stock outstanding upon the closing of the offering, and
Sierra has no present plans to issue any additional preferred stock.
One of the effects of undesignated preferred stock may be to enable the
board of directors to render more difficult or to discourage an attempt to
obtain control of Sierra by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of Sierra's management. The
issuance of shares of the preferred stock pursuant to the board of directors'
authority described above may adversely affect the rights of the holders of
common stock. For example, preferred stock issued by Sierra may rank prior to
the common stock as to dividend rights, liquidation preference or both, may have
full or limited voting rights and may be convertible into shares of common
stock. Accordingly, the issuance of shares of preferred stock may discourage
bids for the common stock or may otherwise adversely affect the market price of
the common stock.
DESCRIPTION OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Written Consent of Stockholders
Our certificate of incorporation and bylaws provide that any action
required or permitted to be taken by our stockholders must be taken at a duly
called meeting of stockholders and not by written consent.
Amendment of the Bylaws
Under Delaware law, the power to adopt, amend or repeal bylaws is conferred
upon the stockholders. A corporation may, however, in its certificate of
incorporation also confer upon the board of directors the power to adopt, amend
or repeal its bylaws. Our charter and bylaws grant our board the power to adopt,
amend and repeal our bylaws at any regular or special meeting of the board on
the affirmative vote of a majority of the directors then in office. Our
stockholders may adopt, amend or repeal our bylaws but only at any regular or
special meeting of stockholders by the holders of not less than 66 2/3% of the
voting power of all outstanding voting stock.
Special Meetings of Stockholders
Our bylaws preclude the ability of our stockholders to call special
meetings of stockholders.
Other Limitations on Stockholder Actions
Advance notice is required for stockholders to nominate directors or to
submit proposals for consideration at meetings of stockholders. In addition, the
ability of our stockholders to remove directors without cause is precluded.
Classified Board
Only one of three classes of directors is elected each year. See
"Management -- Classified Board."
Limitation of Liability of Officers and Directors
Our certificate of incorporation provides that no director shall be
personally liable to Sierra or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability as follows:
- for any breach of the director's duty of loyalty to Sierra or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of laws;
- for unlawful payment of a dividend or unlawful stock purchase or stock
redemption; and
- for any transaction from which the director derived an improper personal
benefit.
The effect of these provisions is to eliminate the rights of Sierra and its
stockholders, through stockholders' derivative suits on behalf of Sierra, to
recover monetary damages against a director or breach
46
<PAGE> 51
of fiduciary duty as a director, including breaches resulting from grossly
negligent behavior, except in the situations described above.
Business Combination Under Delaware Law
We are subject to Delaware's anti-takeover law, which is Section 203 of the
Delaware General Corporation Law. This law provides that specified persons who,
together with affiliates and associates, own, or within three years did own, 15%
or more of the outstanding voting stock of a corporation may not engaged in
certain business combinations with the corporation for a period of three years
after the date on which the person became an interested stockholder. The law
does not include interested stockholders prior to the time our common stock is
listed on the Nasdaq National Market. The law defines the term "business
combination" to encompass a wide variety of transactions with or caused by an
interested stockholder, including mergers, asset sales and other transactions in
which the interested stockholder receives or could receive a benefit on other
than a pro rata basis with other stockholders. This provision has an
anti-takeover effect with respect to transactions not approved in advance by our
Board of Directors, including discouraging takeover attempts that might result
in a premium over the market price for the shares of our common stock. With
approval of our stockholders, we could amend our Certificate of Incorporation in
the future to elect not to be governed by the anti-takeover law. This election
would be effective 12 months after the adoption of the amendment and would not
apply to any business combination between Sierra and any person who became an
interested stockholder of Sierra on or before the adoption of the amendment.
RIGHTS TO PURCHASE PREFERRED STOCK
On , 2000, our board declared a dividend of one preferred share
purchase right for each outstanding share of common stock held of record on
, 2000. It also approved the further issuance of rights with respect
to all shares of common stock that we issue after that date and prior to the
rights becoming exercisable. The rights were issued under a rights agreement
between our company and , as rights agent. When the rights become
exercisable, each right will entitle the registered holder to purchase from us
one one-hundredth of a share of Series One Preferred Stock at a price of $70.00
in cash, subject to adjustment. Until the occurrence of specified events, the
rights:
- are not exercisable;
- will be evidenced by the certificates for our common stock; and
- will not be transferable apart from our common stock.
Detachment of Rights; Exercise. The rights are currently attached to all
certificates representing outstanding shares of common stock and no separate
right certificates have been distributed. The rights will separate from the
common stock on a distribution date, which will occur upon the earlier of:
- ten business days following the public announcement that a person or
group, other than exempt persons, has acquired beneficial ownership of
15% or more of our outstanding voting securities; or
- ten business days following the commencement or announcement of an
intention to commence a tender offer or exchange offer, which, if
completed, would result in the beneficial ownership by a person or group,
other than exempt persons, of 15% or more of our outstanding voting
securities.
The rights are not exercisable until the distribution date. As soon as
practicable following the distribution date, separate certificates evidencing
the rights will be mailed to holders of record of our common stock as of the
close of business on the distribution date. After mailing, the separate
certificates alone will evidence the rights.
If a person or group, other than exempt persons, were to acquire 15% or
more of our voting securities, each right then outstanding would become a right
to buy that number of shares of common stock that at the time of the acquisition
of 15% or more of our voting securities would have a market value of two times
47
<PAGE> 52
the exercise price of the right. Rights beneficially owned by the acquiring
person or group would, however, become null and void.
If, following the occurrence of a distribution date, we were acquired in a
merger or other business combination transaction, the rights agreement requires
that the documents relating to the business combination must contain provisions
relating to the rights. Those documents must provide that, after the merger or
other business combination, each holder of a right would have the right to
receive, upon exercise at the then current exercise price, that number of shares
of common stock of the acquiring company that at the time would have a market
value of two times the exercise price of the right.
Exempt persons under the rights agreement include (1) Sierra and its
subsidiaries, (2) H.H. Womack, III, his spouse, heirs and their affiliates, (3)
Southwest Royalties Holdings, Inc., Southwest Partners II, L.P. and Southwest
Partners III, L.P. and their affiliates and associates, and (4) JEDI II so long
as JEDI II does not own in excess of 15% of the shares of common stock
then-outstanding.
Antidilution and Other Adjustments. The number of shares or fractions of
Series One Preferred Stock or other securities or property issuable upon
exercise of the rights, and the purchase price payable, are subject to customary
adjustments from time to time to prevent dilution. The number of outstanding
rights and the number of shares or fractions of Series One Preferred Stock
issuable upon exercise of each right are also subject to adjustment if any of
the following events occurs prior to the distribution date:
- a stock dividend on our common stock payable in our common stock; or
- any subdivision, consolidation or combination of our common stock.
Exchange Option. At any time after the acquisition by a person or group,
other than an exempt person, of beneficial ownership of 15% or more but less
than 50% of our outstanding voting securities, our board may, at its option,
issue common stock in mandatory redemption of all or part of the rights. Any
rights owned by the acquiring person or group would become null and void. The
redemption must be at an exchange ratio of one share of our common stock for
each two shares of our common stock for which each right is then exercisable,
subject to adjustment.
Redemption of Rights. At any time prior to the first public announcement
that a person or group has become the beneficial owner of 15% or more of our
outstanding voting securities, our board may redeem all but not less than all
the then outstanding rights at a price of $.01 per right. The redemption of the
rights may be made effective at the time, on the basis and with the conditions
that the board may establish. Immediately after our board's decision to redeem
the rights, the right to exercise the rights will terminate and the only right
of the holders of rights will be to receive the redemption price.
Expiration; Amendment of Rights. The rights will expire on , 2010
unless earlier extended, redeemed or exchanged. Our board may amend the terms of
the rights without the consent of the holders of the rights. This includes
amendments to extend the expiration date of the rights, and, if a distribution
date has not occurred, to extend the period during which the rights may be
redeemed. After the first public announcement that a person or group, other than
an exempt person, has become the beneficial owner of 15% or more of our
outstanding voting securities, no amendment may materially and adversely affect
the interests of holders of the rights.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement dated as of March 31, 1999,
Sierra granted to JEDI II the right to require Sierra to register shares of our
common stock. JEDI II may require Sierra to register shares of common stock on
up to three occasions after the completion of an initial public offering. In
addition, JEDI II may require Sierra to include shares of common stock in a
registration statement filed by Sierra other than on Forms S-4 or S-8 or any
successor forms. The rights of JEDI II will terminate whenever the shares
covered by this agreement may be sold pursuant to Rule 144(k) or JEDI II has
disposed of these shares pursuant to a registration statement or Rule 144.
48
<PAGE> 53
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is of New
York.
LISTING
Application will be made to include the shares of Sierra for quotation in
the Nasdaq National Market under the symbol "SRVC".
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that these sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, shares of common stock will be outstanding, or
shares if the underwriters exercise their over-allotment option in full.
Of these shares, the shares sold in this offering, or shares if
the underwriters exercise their over-allotment option in full, will be freely
tradable without restriction under the Securities Act except for any shares
purchased by one of our "affiliates" as defined in Rule 144 under the Securities
Act. A total of 2,894,293 shares will be "restricted securities" within the
meaning of Rule 144 under the Securities Act or subject to lock-up arrangements.
An aggregate of 2,888,507 of these shares will become available for resale in
the public market as shown in the chart below:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR RESALE
NUMBER OF SHARES INTO PUBLIC MARKET
- ----------------- -------------------------------
<C> <S>
2,859,566 180 days after the date of this prospectus due to a lock-up
agreement these stockholders have with Prudential Securities
Incorporated; however, Prudential Securities Incorporated
can waive this restriction at any time and without notice.
28,941 Between 181 and 365 days after the date of this prospectus
due to the requirements of the federal securities laws.
</TABLE>
The restricted securities generally may not be sold unless they are
registered under the Securities Act or are sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144 under the Securities
Act.
Our officers and directors and all stockholders have entered into lock-up
agreements under which we and they agree not to offer or sell any shares of
common stock or securities convertible into or exchangeable or exercisable for
shares of common stock for a period of 180 days from the date of this prospectus
without the prior written consent of Prudential Securities Incorporated, on
behalf of the underwriters. Prudential Securities Incorporated may, at any time
and without notice, waive any of the terms of these lock-up agreements specified
in the underwriting agreement. Following the lock-up period, these shares will
not be eligible for sale in the public market without registration under the
Securities Act unless these sales meet the conditions and restrictions of Rule
144 as described below.
As restrictions on resale end, the market price of our common stock could
drop significantly if the holders of these restricted shares sell them, or are
perceived by the market as intending to sell them.
49
<PAGE> 54
RULE 144
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
- 1% of the then outstanding shares of common stock; and
- the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks immediately preceding the
date on which the notice of the sale on Form 144 is filed with the
Securities Exchange Commission.
Sales under Rule 144 are also subject to other provisions relating to
notice and manner of sale and the availability of current public information
about us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an "affiliate," is
entitled to see the shares without complying with the manner of sale, public
information, volume limitation or notice provision of Rule 144.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement dated as of March 31, 1999,
Sierra granted to JEDI II the right to require Sierra to register shares of our
common stock. JEDI II may require Sierra to register shares of common stock on
up to three occasions after the completion of an initial public offering. In
addition, JEDI II may require Sierra to include shares of common stock in a
registration statement filed by Sierra other than on Forms S-4 or S-8 or any
successor forms. The rights of JEDI II will terminate whenever the shares
covered by this agreement may be sold pursuant to Rule 144(k) or JEDI II has
disposed of these shares pursuant to a registration statement or Rule 144.
Upon completion of this offering, shares of our common stock will be
subject to stock options, of which shares will be immediately exercisable.
Additional shares of our common stock will be reserved for issuance under our
stock option plan as described under "Management -- Executive
Compensation -- Stock Option Plans."
50
<PAGE> 55
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below, for whom Prudential Securities Incorporated, Johnson Rice & Company
L.L.C. and Simmons & Company International are acting as representatives. We are
obligated to sell and the underwriters are obligated to purchase, all of the
shares offered on the cover page of this prospectus, if any are purchased.
Subject to certain conditions of the underwriting agreement, each underwriter
has severally agreed to purchase the shares indicated opposite its name:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
UNDERWRITERS ---------
<S> <C>
Prudential Securities Incorporated..........................
Johnson Rice & Company L.L.C................................
Simmons & Company International.............................
---------
Total..................................................
=========
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, an over-allotment option to purchase up
to additional shares from us. If any additional shares are purchased, the
underwriters will severally purchase the shares in the same proportion as per
the table above.
The representatives of the underwriters have advised us that the shares
will be offered to the public at the offering price indicated on the cover page
of this prospectus. The underwriters may allow to selected dealers a concession
not in excess of $ per share and such dealers may reallow a concession not
in excess of $ per share to certain other dealers. After the shares are
released for sale to the public, the representatives may change the offering
price and the concessions.
We have agreed to pay to the underwriters the following fees, assuming both
no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares:
<TABLE>
<CAPTION>
TOTAL FEES
--------------------------------------------------------
FEE PER WITHOUT EXERCISE OF FULL EXERCISE OF
SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
-------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by us.............................. $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $ in expenses
for this offering. We and Southwest Royalties Holdings have agreed to indemnify
the underwriters against certain liabilities, including liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make in respect of these liabilities.
We, our officers and directors and all stockholders of Sierra have entered
into lock-up agreements pursuant to which we and they have agreed not to offer
or sell any shares of common stick or securities convertible into or
exchangeable or exercisable for shares of common stock for a period of 180 days
from the date of this prospectus without the prior written consent of Prudential
Securities Incorporated, on behalf of the underwriters. Prudential Securities
Incorporated may, at any time and without notice, waive the terms of these
lock-up agreements specified in the underwriting agreement.
51
<PAGE> 56
Prior to this offering, there has been no public market for the common
stock of our Company. The public offering price, negotiated between us, and the
representatives, is based upon various factors such as our financial and
operating history and conditions, its prospects, the prospects for the industry
we are in and prevailing market conditions.
Prudential Securities Incorporated, on behalf of the underwriters, may
engage in the following activities in accordance with applicable securities
rules:
- Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities Incorporated may elect to reduce
this short position by exercising some or all of the over-allotment
option.
- Stabilizing and short cover stabilizing bids to purchase the shares are
permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market.
- Penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
These activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
- the Public Offers of Securities Regulations 1995;
- the Financial Services Act 1986; and
- the Financial Services Act 1986, (Investment Advertisements) (Exemptions)
Order 1996 (as amended).
Prudential Securities Incorporated facilitates the marketing of new issued
online through its PrudentialSecurities.com division. Clients of Prudential
Advisor(SM), a full service brokerage firm program, may view offering terms and
a prospectus online and place orders through their financial advisors.
We have asked the underwriters to reserve shares for sale at the same
offering price directly to our officers, directors, employees and other business
affiliates or related third parties. The number of shares available for sale to
the general public in the offering will be reduced to the extent such persons
purchase the reserved shares.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for us by Andrews & Kurth L.L.P., Houston, Texas and passed upon
for the underwriters by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
Sierra's financial statements as of December 31, 1998 and 1999, and for
each of the years in the three year period ended December 31, 1999 have been
included herein and in the registration statement in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
52
<PAGE> 57
AVAILABLE INFORMATION
We have filed a registration statement on Form S-1 to register with the SEC
the common stock offered by this prospectus. This prospectus is a part of that
registration statement. As allowed by SEC rules, this prospectus does not
contain all of the information contained in the registration statement or the
exhibits to the registration statement.
We are subject to the informational requirements of the Securities Exchange
Act of 1934. Accordingly, we will file annual, quarterly and current reports,
proxy statements, and other information with the SEC. The public may read and
copy any reports, statements, or other information that we file at the SEC's
public reference room at Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549. The public may obtain information on the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "http://www.sec.gov."
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Sierra Well Service, Inc.
Attention:
406 North Big Spring
Midland, Texas 79701
(915) 570-0829
You should rely on the information contained in this prospectus and any
prospectus supplement. We have not authorized anyone to provide you with
information that is different from what is contained in this prospectus.
You should not assume that the information contained in this prospectus or
any prospectus supplement is accurate as of any date other than the date on the
front of those documents, and neither the delivery of this prospectus or any
prospectus supplement to you nor the issuance of stock under them will create
any implication to the contrary.
53
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Combined Financial Statements of Sierra
Well Service, Inc. ....................................... F1-1
Unaudited Pro Forma Combined Balance Sheet as of December
31, 1999............................................... F1-2
Unaudited Pro Forma Combined Statement of Operations for
the year ended December 31, 1999....................... F1-3
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F1-4
Financial Statements of Sierra Well Service, Inc.
Independent Auditors' Report.............................. F2-1
Balance Sheets at December 31, 1998 and 1999.............. F2-2
Statements of Operations for the years ended December 31,
1997, 1998 and 1999.................................... F2-3
Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999....................... F2-4
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999.................................... F2-5
Notes to Financial Statements............................. F2-6
</TABLE>
F-1
<PAGE> 59
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Our unaudited pro forma combined balance sheet has been prepared to give
effect to the acquisitions of Turn Around Trucking, Inc., Trinity Services,
Sundown Operating, Inc., Eunice Well Servicing Co., Inc., and Gold Star Service
Company, Inc., which are collectively referred to as the Acquisitions, and to
the issuance of shares of common stock in an initial public offering
and the application of proceeds therefrom as if these transactions had occurred
on December 31, 1999. Our unaudited pro forma combined statement of operations
has been prepared to give effect to the Acquisitions and to the issuance of
shares of common stock in an initial public offering and the
application of the proceeds thereof as if these transactions had occurred on
January 1, 1999. The acquisition of Harrison Well Service, Inc. has not been
reflected in these pro forma financial statements because that business is
inactive.
Future results may vary significantly from the results reflected in the
accompanying unaudited pro forma combined financial statements because of, among
other factors, changes in product and service prices and future acquisitions.
The unaudited pro forma adjustments relative to the Acquisitions are based
upon preliminary estimates. We do not believe that the actual adjustments will
differ significantly from these preliminary estimates. The unaudited pro forma
adjustments related to the anticipated initial public offering are based on
preliminary estimates of the number of shares of common stock to be sold and the
price to be received for each share. The estimates of these amounts may vary
significantly and, therefore, the net proceeds available from the offering may
be significantly different than anticipated herein.
The unaudited pro forma combined financial statements should be read in
conjunction with our financial statements and those of the Acquisitions included
elsewhere herein.
F1-1
<PAGE> 60
SIERRA WELL SERVICE, INC.
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
TURN
SIERRA WELL AROUND TRINITY EUNICE GOLD STAR SUNDOWN
SERVICE, INC. TRUCKING SERVICES WELL SERVICING SERVICE OPERATING
------------- -------- -------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................. $ 1,062 $ 354 $ 55 $ 38 $ 78 $ 1,144
Trade accounts receivable, net of
allowance............................... 7,477 1,166 110 595 297 716
Accounts receivable -- related party...... 73 737
Inventories............................... 144 32 -- 5 20 48
Deferred tax asset-current................ -- 82
Other assets.............................. 215 412 4 61 9 1
-------- ------ ---- ------ ------ -------
Total current assets................ 8,971 1,964 169 699 404 2,728
PROPERTY AND EQUIPMENT, NET................. 31,186 2,715 180 904 764 1,401
OTHER ASSETS
Deferred loan costs, net of
amortization............................ 494 -- -- 20 -- --
Goodwill, net of amortization............. 4,633 -- -- -- -- --
Other receivable -- related party......... -- -- -- -- -- 295
Other..................................... 1,577 -- -- 60 4 234
-------- ------ ---- ------ ------ -------
Total other assets.................. 6,704 -- -- 80 4 529
-------- ------ ---- ------ ------ -------
TOTAL ASSETS................................ $ 46,861 $4,679 $349 $1,683 $1,172 $ 4,658
======== ====== ==== ====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......... $ 1,164 $ 727 $235 $ 252 $ 46 $ --
Accounts payable.......................... 4,281 306 2 99 35 102
Accounts payable -- related party......... 49 -- -- -- -- --
Accrued expenses.......................... 1,698 -- -- 30 47 312
Deferred tax liability -- current......... 104 -- -- -- -- --
-------- ------ ---- ------ ------ -------
Total current liabilities........... 7,296 1,033 237 381 128 414
LONG-TERM DEBT.............................. 50,371 1,752 34 813 -- --
DEFERRED TAX LIABILITY -- NON CURRENT....... 2,224 542 55 31
STOCKHOLDERS' EQUITY:
Preferred stock........................... 5,307 -- -- -- -- --
Common stock.............................. 20 1 5 1 3
Additional paid-in capital................ 24,829 9 24 2,563
Treasury stock............................ (8) (2,566)
Deferred compensation.....................
Accumulated earnings (deficit)............ (43,186) 1,342 78 492 964 4,213
-------- ------ ---- ------ ------ -------
Total stockholders' equity.......... (13,030) 1,352 78 489 989 4,213
-------- ------ ---- ------ ------ -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................... $ 46,861 $4,679 $349 $1,683 $1,172 $ 4,658
======== ====== ==== ====== ====== =======
<CAPTION>
PRO FORMA
ADJUSTMENTS
DEBIT (CREDIT) PRO FORMA
-------------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................. $(15,279)(1) $ 3,438
15,986(3)
Trade accounts receivable, net of
allowance............................... (110)(1) 10,251
Accounts receivable -- related party...... 810
Inventories............................... 249
Deferred tax asset-current................ 82
Other assets.............................. (4)(1) 698
--------
Total current assets................ 15,528
PROPERTY AND EQUIPMENT, NET................. 7,848(1) 44,998
OTHER ASSETS
Deferred loan costs, net of
amortization............................ (20)(1) 247
(247)(3)
Goodwill, net of amortization............. 6,107(1) 10,740
Other receivable -- related party......... 295
Other..................................... 200(1) 2,075
--------
Total other assets.................. 13,357
--------
TOTAL ASSETS................................ $ 73,883
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......... 235(1) $ 2,189
Accounts payable.......................... 2(1) 4,823
Accounts payable -- related party......... 49
Accrued expenses.......................... 2,087
Deferred tax liability -- current......... 104
--------
Total current liabilities........... 9,252
LONG-TERM DEBT.............................. 26,535(3) 28,051
(1,616)(1)
DEFERRED TAX LIABILITY -- NON CURRENT....... (2,495)(1) 5,261
86(3)
STOCKHOLDERS' EQUITY:
Preferred stock........................... 5,306(3) --
1(4)
Common stock.............................. 8(1) 66
(1)(2)
(35)(3)
(8)(4)
Additional paid-in capital................ 609(1) 75,727
(1,128)(2)
(47,790)(3)
7(4)
Treasury stock............................ (2,574)(1)
Deferred compensation..................... 807(2) (807)
Accumulated earnings (deficit)............ 7,089(1) (43,667)
322(2)
159(3)
--------
Total stockholders' equity.......... 31,319
--------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................... $ 73,883
========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements
F1-2
<PAGE> 61
SIERRA WELL SERVICE, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIERRA WELL TURN AROUND TRINITY EUNICE GOLD STAR SUNDOWN
SERVICE, INC. TRUCKING SERVICES WELL SERVICING SERVICE OPERATING
------------- ----------- -------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Well servicing......................... 24,453 $ -- $1,148 $2,094 $ -- $5,653
Fluid services......................... 12,878 5,288 1,759 --
-------- ------ ------ ------ ------ ------
37,331 5,288 1,148 2,094 1,759 5,653
EXPENSES
Well servicing......................... 20,164 -- 501 1,645 -- 3,269
Fluid services......................... 9,613 3,608 -- -- 1,591 --
General and administrative............. 5,229 1,160 275 391 1,321
Depreciation and amortization.......... 6,747 504 52 260 114 300
-------- ------ ------ ------ ------ ------
41,753 5,272 828 2,296 1,705 4,890
OPERATING INCOME (LOSS).................. (4,422) 16 320 (202) 54 763
OTHER INCOME (EXPENSE)
Interest income........................ 100 37 3 105
Interest expense....................... (6,065) (219) (24) (123) (9)
Gain (loss) on sale of assets.......... (301) 82 (2) 117
Other, net............................. 45 (6) 1 16 18 1
-------- ------ ------ ------ ------ ------
(6,221) (106) (25) 13 9 106
INCOME (LOSS) BEFORE INCOME TAXES........ (10,643) (90) 295 (189) 63 869
Income tax (expense) benefit........... (2,328) 23 30 36 (329)
-------- ------ ------ ------ ------ ------
NET INCOME (LOSS)........................ (12,971) (67) $ 295 $ (159) $ 99 $ 540
-------- ------ ------ ------ ------ ------
PREFERRED STOCK DIVIDENDS................ 430
-------- ------ ------ ------ ------ ------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS........................... $(13,401) $ (67) $ 295 $ (159) $ 99 $ 540
======== ====== ====== ====== ====== ======
NET LOSS PER SHARE....................... $ (6.78)
=============
<CAPTION>
PRO FORMA
ADJUSTMENTS
DEBIT (CREDIT) PRO FORMA
-------------- ---------
<S> <C> <C>
REVENUES
Well servicing......................... $ 142(6) $ 33,206
Fluid services......................... 19,925
--------
53,131
EXPENSES
Well servicing......................... (22)(6) 25,557
Fluid services......................... 14,812
General and administrative............. 161(7) 8,537
Depreciation and amortization.......... 693(5) 8,670
--------
57,576
OPERATING INCOME (LOSS).................. (4,445)
OTHER INCOME (EXPENSE)
Interest income........................ 245
Interest expense....................... 144(8) (4,150)
(2,434)(9)
Gain (loss) on sale of assets.......... (104)
Other, net............................. 75
--------
(3,934)
INCOME (LOSS) BEFORE INCOME TAXES........ (8,379)
Income tax (expense) benefit........... 461(10) (3,029)
--------
NET INCOME (LOSS)........................ (11,408)
--------
PREFERRED STOCK DIVIDENDS................ (430)(4) --
--------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS........................... $(11,408)
========
NET LOSS PER SHARE....................... $
=========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements
F1-3
<PAGE> 62
SIERRA WELL SERVICE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma combined balance sheet has been prepared to give
effect to the acquisitions of Turn Around Trucking, Inc., Trinity Services,
Sundown Operating Inc., Eunice Well Servicing Co., Inc., and Gold Star Service
Company, Inc., which are collectively referred to as the Acquisitions, and to
the issuance of shares of common stock in an initial public offering
and the application of proceeds therefrom as if the Acquisitions and the
offering had occurred on December 31, 1999. The unaudited pro forma combined
statement of operations has been prepared to give effect to the Acquisitions,
and to the issuance of shares of common stock in an initial public
offering and the application of the proceeds therefrom based on an estimated
initial public offering price of per share as if the Acquisitions and the
offering had occurred on January 1, 1999.
2. PRO FORMA ADJUSTMENTS
(1) To record the Acquisitions using the purchase method of accounting.
The following table details the acquisition entry:
<TABLE>
<CAPTION>
EUNICE
TURN AROUND TRINITY WELL GOLD STAR SUNDOWN
TRUCKING SERVICES SERVICING SERVICE OPERATING TOTAL
----------- -------- --------- --------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets and liabilities acquired:
Net current assets............... $ 931 $ -- $ 318 $ 276 $ 2,314 $ 3,839
Property and equipment........... 3,138 593 2,346 1,397 6,338 13,812
Covenants not to compete......... 50 -- 50 50 50 200
Goodwill......................... 4,027 1,346 80 662 (8) 6,107
Other assets..................... -- -- 60 4 529 593
Long-term debt, net of current
portion....................... (1,752) -- (813) -- -- (2,565)
Deferred tax liability........... (715) -- (436) (263) (1,709) (3,123)
------- ------ ------ ------ ------- -------
$ 5,679 $1,939 $1,605 $2,126 $ 7,514 $18,863
======= ====== ====== ====== ======= =======
Consideration given:
Cash............................. $ 4,379 $1,600 $1,205 $1,526 $ 6,514 $15,224
Convertible notes................ -- 250 400 -- 1,000 1,650
Common stock..................... 1,300 -- -- 600 -- 1,900
Warrants for commons stock....... -- 89 -- -- -- 89
------- ------ ------ ------ ------- -------
$ 5,679 $1,939 $1,605 $2,126 $ 7,514 $18,863
======= ====== ====== ====== ======= =======
Additional information:
Estimated tax basis of
property...................... $ 1,034 $ 593 $1,065 $ 624 $ 1,311 $ 4,627
Estimated shares of common stock
to be issued.................. 87 -- -- 40 -- 127
Estimated number of warrants..... -- 17 -- -- -- 17
</TABLE>
Each of the Acquisitions, with the exception of Trinity, is a purchase
of stock. The Trinity acquisition is the purchase only of Trinity's
operating assets. Common Stock to be issued is valued at an estimated
offering price of $ per share. Warrants are valued based on their
terms using a Black-Scholes pricing model.
(2) To reflect the issuance of additional post split shares of
common stock to Sierra's CEO under his amended employment agreement. The shares
are valued at the assumed offering price. Of such shares shares vest
immediately with the remainder being earned over a five-year period.
F1-4
<PAGE> 63
SIERRA WELL SERVICE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(3) To reflect the use of the net proceeds of the offering for the
following purposes:
<TABLE>
<S> <C>
Repayment of principal and deferred interest on the
Subordinated Note......................................... $26,535
Redemption of Series A Convertible Preferred Stock.......... 5,305
-------
$31,840
=======
</TABLE>
Also, to reflect write-off of $247,000 in unamortized deferred loan
costs associated with the Subordinated Note.
(4) To reflect the conversion of Series B Convertible Preferred Stock to
shares of common stock.
(5) To record incremental depreciation and amortization of assets to be
recorded in the Acquisitions. Depreciation of acquired equipment is calculated
in accordance with Sierra's depreciation policies. Amortization of goodwill is
over 15 years, and amortization of covenants not to compete is calculated over
their three-year terms.
(6) This adjustment eliminates the revenues and direct operating expenses
of certain oil and gas properties currently held Sundown Operating Inc., which
are not being acquired by Sierra.
(7) Amortization of deferred compensation to Sierra's CEO. See adjustment
(2).
(8) To record incremental interest expense on notes issued as
consideration for certain of the Acquisitions at the current prime rate of 8.75%
(9) Interest savings on repayment of the Subordinated Note based on actual
recorded expense and related amortization of deferred loan costs.
(10) To adjust federal income taxes.
F1-5
<PAGE> 64
When the transaction referred to in the third paragraph of Note 1 of the
Notes to Financial Statements has been consummated, we will be in a position to
render the following report.
KPMG LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Sierra Well Service, Inc.:
We have audited the accompanying balance sheets of Sierra Well Service,
Inc. of December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Sierra Well Service,
Inc. as of December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1999, in conformity with generally accepted accounting principles.
KPMG LLP
Midland, Texas
March 11, 2000, except as to the
third paragraph of Note 1
which is as of , 2000.
F2-1
<PAGE> 65
SIERRA WELL SERVICE, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1999
ASSETS
(in thousands, except share data)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 2,846 $ 1,062
Trade accounts receivable, net of allowance of $1,238 and
$271, respectively..................................... 6,534 7,477
Accounts receivable-related party......................... 89 73
Inventories............................................... 158 144
Other current assets...................................... 255 215
-------- --------
Total current assets.............................. 9,882 8,971
-------- --------
PROPERTY AND EQUIPMENT, NET................................. 35,634 31,186
-------- --------
OTHER ASSETS
Deferred loan costs, net of amortization of $1,318 and
$2,198, respectively................................... 317 494
Goodwill, net of amortization of $16,660 and $17,024,
respectively........................................... 4,998 4,633
Other..................................................... 2,496 1,577
-------- --------
Total other assets................................ 7,811 6,704
-------- --------
TOTAL ASSETS................................................ $ 53,327 $ 46,861
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt......................... $ 403 $ 1,164
Accounts payable.......................................... 1,772 4,281
Accounts payable-related party............................ 40 49
Accrued expenses.......................................... 1,384 1,698
Deferred income tax....................................... -- 104
-------- --------
Total current liabilities......................... 3,599 7,296
-------- --------
LONG-TERM DEBT.............................................. 54,664 50,371
DEFERRED INCOME TAX......................................... -- 2,224
COMMITMENTS & CONTINGENCIES................................. -- --
STOCKHOLDERS' EQUITY
Series A Redeemable 10% Preferred Stock, $10,000 par,
1,000 shares authorized, 530.45 shares issued.......... -- 5,305
Series B Convertible Preferred Stock, $1 par, 1,000 shares
authorized, 1,000 issued............................... -- 1
Series C Convertible Preferred Stock, $1,000 par, 1 share
authorized, one issued................................. -- 1
Common stock -- $.01 par; $1 stated value; 25,000,000
shares authorized; 1,944,966 and 1,985,488 shares
issued and outstanding at December 31, 1998 and 1999,
respectively........................................... 19 20
Additional paid-in capital................................ 24,830 24,829
Accumulated deficit....................................... (29,785) (43,186)
-------- --------
Total stockholders' deficit....................... (4,936) (13,030)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT................. $ 53,327 $ 46,861
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F2-2
<PAGE> 66
SIERRA WELL SERVICE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Well Servicing......................................... $ 20,920 $ 26,687 $ 24,453
Fluid Services......................................... 5,214 18,632 12,878
---------- ---------- ----------
26,134 45,319 37,331
EXPENSES
Well Servicing......................................... 16,534 21,640 20,164
Fluid Services......................................... 3,469 13,009 9,613
General and administration, including management fees
and computer services from related parties of $136,
$241, and $234, respectively........................ 2,785 5,471 5,229
Depreciation and amortization.......................... 2,931 8,624 6,747
Impairment of long lived assets (Note 4)............... -- 22,671 --
---------- ---------- ----------
25,719 71,415 41,753
---------- ---------- ----------
OPERATING INCOME (LOSS).................................. 415 (26,096) (4,422)
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income........................................ 85 263 100
Interest expense....................................... (1,508) (7,166) (6,065)
Loss on sale of assets................................. (30) (93) (301)
Other, net............................................. 11 (974) 45
---------- ---------- ----------
(1,442) (7,970) (6,221)
---------- ---------- ----------
LOSS BEFORE INCOME TAXES................................. (1,027) (34,066) (10,643)
Deferred income tax (expense) benefit.................. 230 5,770 (2,328)
---------- ---------- ----------
NET LOSS................................................. $ (797) $ (28,296) $ (12,971)
---------- ---------- ----------
Preferred stock dividend............................... -- -- 430
---------- ---------- ----------
NET LOSS TO COMMON STOCKHOLDERS' INTEREST................ $ (797) $ (28,296) $ (13,401)
========== ========== ==========
LOSS PER SHARE........................................... $ (0.65) $ (14.55) $ (6.78)
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............ 1,224,195 1,945,095 1,975,358
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F2-3
<PAGE> 67
SIERRA WELL SERVICE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
REDEEMABLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- --------------- --------------- ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------ ------ ------ ------ ------ ------ --------- ------ ---------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- JANUARY 1,
1997...................... -- -- -- -- -- -- 867,651 8 $ 5,145 $ (692)
Stock compensation
granted................. -- -- -- -- -- -- 8,900 -- -- --
Common stock issued....... -- -- -- -- -- -- 1,068,445 11 19,209 --
Issuance of common stock
warrants................ -- -- -- -- -- -- -- -- 476 --
Net loss.................. -- -- -- -- -- -- -- -- -- (797)
--- ----- ----- -- -- -- --------- -- ------- --------
BALANCE -- DECEMBER 31,
1997...................... -- -- -- -- -- -- 1,944,966 19 24,830 (1,489)
Net loss.................. -- -- -- -- -- -- -- -- -- (28,296)
--- ----- ----- -- -- -- --------- -- ------- --------
BALANCE -- DECEMBER 31,
1998...................... -- -- -- -- -- -- 1,944,966 19 24,830 (29,785)
Stock compensation
granted................. -- -- -- -- -- -- 40,522 1 (1) --
Preferred stock issued.... 500 5,000 1,000 1 1 1 -- -- -- --
Preferred stock
dividend -- stock....... 30 305 -- -- -- -- -- -- -- (305)
Preferred stock
dividend -- cash........ -- -- -- -- -- -- -- -- -- (125)
Net loss.................. -- -- -- -- -- -- -- -- -- (12,971)
--- ----- ----- -- -- -- --------- -- ------- --------
BALANCE -- DECEMBER 31,
1999...................... 530 5,305 1,000 1 1 1 1,985,488 20 $24,829 $(43,186)
=== ===== ===== == == == ========= == ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F2-4
<PAGE> 68
SIERRA WELL SERVICE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $ (797) $(28,296) $(12,971)
Depreciation.............................................. 2,459 6,322 5,494
Amortization.............................................. 472 2,302 1,253
Impairment of long lived assets........................... -- 22,671 --
Bad debt expense.......................................... 475 442 125
Noncash interest expense.................................. 281 1,435 2,494
Write-off of deferred loan costs.......................... -- 655 --
Loss on sale of assets.................................... 30 93 301
Deferred income tax expense (benefit)..................... (230) (5,770) 2,328
Changes in operating assets and liabilities, net of
acquisitions --
Accounts receivable.................................... (6,489) 1,011 (1,051)
Inventories............................................ 15 92 14
Income tax receivable.................................. 15 -- --
Other current assets................................... 33 (152) 46
Accounts payable....................................... 2,586 (1,333) 2,518
Accrued expenses....................................... 1,095 (468) 314
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES......... (55) (996) 865
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........................ (6,585) (2,435) (2,287)
Proceeds from sale of property and equipment.............. 86 309 1,210
Collections of notes receivable........................... -- -- 3
Proceeds from sale of other long-term assets.............. -- 85 205
Payments for other long-term assets....................... (247) (92) (101)
Payments for businesses, net of cash acquired............. (56,076) (1,800) --
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES............. (62,822) (3,933) (970)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under long-term debt........................... 58,791 2,100 --
Payments of long-term debt................................ (7,121) (595) (497)
Dividends paid............................................ -- -- (125)
Deferred loan costs....................................... (2,037) (267) (1,057)
Proceeds from issuance of common stock.................... 19,220 -- --
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 68,853 1,238 (1,679)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 5,976 (3,691) (1,784)
Cash and cash equivalents -- beginning of year............ 561 6,537 2,846
-------- -------- --------
CASH AND CASH EQUIVALENTS -- END OF YEAR.................... $ 6,537 $ 2,846 $ 1,062
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION --
Interest paid............................................. $ 1,227 $ 5,732 $ 5,106
Income taxes received..................................... -- -- --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES --
Common stock warrants issued as debt discount............. $ 476 $ -- $ --
Capital leases issued for equipment....................... 462 252 353
Notes receivable-non cash................................. -- -- 83
</TABLE>
The accompanying notes are an integral part of these financial statements.
F2-5
<PAGE> 69
SIERRA WELL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization & Business -- Sierra Well Service, Inc. (the "Company"), a
Delaware corporation, was formed in 1992 as a subsidiary of Southwest Royalties,
Inc. ("SWR"). In June 1997, Southwest Royalties Holding, Inc. ("SRH") was formed
to serve as a holding company for SWR, the Company and other subsidiaries of
SWR. At that time, SWR's investment in the Company was transferred by dividend
to SRH and the Company became a subsidiary of SRH. Due to sales of the Company's
common stock to Southwest Partners II, L.P. and Southwest Partners III, L.P.
(limited partnerships for which SWR serves as general partner) in 1996 and 1997,
SRH's ownership interest in the Company was reduced to a point where the
Company's financial position and results of operations were no longer
consolidated with SRH, effective July 1, 1997.
The Company provides a range of well site services to oil and gas drilling
and producing companies through the Company's fleet of well servicing rigs and
fluid handling assets. The Company's operations are concentrated in the major
United States oil and gas producing regions of Texas, New Mexico, Oklahoma and
Louisiana.
Common Stock Split
On , 2000, the Company filed a restated certificate of
incorporation increasing its authorized common shares to 25,000,000 and
completed a 445-for-1 stock split. All share and per share amounts have been
restated as if the stock split had occurred at the beginning of the earliest
period presented.
Estimates and Uncertainties -- The preparation of these financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Cash and Cash Equivalents -- The Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents. The Company maintains its excess cash in various financial
institutions, where deposits may exceed federally insured amounts at times.
Inventories -- Inventories mainly consist of pipe, are held for use in the
operations of the Company and are stated at the lower of cost or market, with
cost being determined on the first-in, first-out (FIFO) method.
Property and Equipment -- Property and equipment are stated at cost.
Expenditures for repairs and maintenance are charged to expense as incurred and
additions and improvements that significantly extend the lives of the assets are
capitalized. Upon sale or other retirement of depreciable property, the cost and
accumulated depreciation are removed from the related accounts and any gain or
loss is reflected in operations. All assets are depreciated on the straight-line
method and the estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 20-30 years
Well servicing rigs and equipment........................... 5-15 years
Fluid service equipment..................................... 5-10 years
Brine/fresh water stations.................................. 15 years
Enviro-Vat units and fluid service.......................... 10 years
Disposal facilities......................................... 10 years
Vehicles.................................................... 3-5 years
</TABLE>
F2-6
<PAGE> 70
SIERRA WELL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company reviews property and equipment and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
is indicated if the sum of the expected undiscounted future cash flows is less
than the carrying amount, including any related goodwill, of such assets.
Expected future cash flows and carrying values are aggregated at their lowest
identifiable level, which is on a rig-by-rig basis for the Company's well
service rigs and by region for the Company's truck fleets and water stations.
The Company would recognize an impairment loss for the difference between the
asset's, or group of assets, carrying value and estimated fair value, if the
carrying value exceeded the expected future cash flows.
Deferred Debt Costs -- The Company capitalizes certain costs in connection
with obtaining its borrowings, such as lender's fees and related attorney's
fees. These costs are being amortized to interest expense on the straight-line
method over the terms of the related debt.
Goodwill -- The Company classifies as goodwill the cost in excess of fair
value of the net tangible assets acquired in purchase transactions. Goodwill is
being amortized on a straight-line basis over fifteen years. Management
continually evaluates whether events or circumstances have occurred that
indicate the remaining useful life of goodwill may warrant revision or the
remaining balance of goodwill may not be recoverable.
Income Taxes -- Deferred income taxes are recognized for the tax
consequences of temporary differences between financial statement carrying
amounts and the tax basis of existing assets and liabilities. The measurement of
current and deferred tax assets and liabilities is based on enacted tax law. The
effect on deferred tax assets and liabilities of a change in tax rate is
recognized in income in the period of change. A valuation allowance for deferred
tax assets is recognized when it is "more likely than not" that the benefit of
deferred tax assets will not be realized.
Concentrations of Credit Risk -- Financial instruments, which potentially
subject the Company to concentration risk, consist primarily of temporary cash
investments and trade receivables. The Company restricts investment of temporary
cash investments to financial institutions with high credit standing. The
Company's customer base consists primarily of multi-national and independent oil
and natural gas producers. The Company performs ongoing credit evaluations of
its customers but generally does not require collateral on its trade
receivables. Credit risk is considered by management to be limited due to the
large number of customers comprising the Company's customer base. The Company
maintains reserves for potential credit losses, and such losses have been within
management's expectations.
Loss Per Share -- The Company accounts for loss per share based upon
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128). Under SFAS 128, basic earnings or loss per common share are determined by
dividing net earnings or loss applicable to common stock by the weighted average
number of common shares actually outstanding during the year. Diluted earnings
per common share is based on the increased number of shares that would be
outstanding assuming conversion of dilutive outstanding convertible securities
using the "as if converted" method. The share effect related to outstanding
common stock warrants is omitted for 1998 and 1997 because they are antidilutive
to the periods presented. Such warrants are no longer outstanding.
Recent Accounting Pronouncements -- In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133")
which establishes standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. It establishes conditions under which a derivative may be
designated as a hedge, and establishes standards for reporting changes in the
fair value of a derivative. FAS 133, as amended by FAS 137, is required to be
implemented for all fiscal quarters of all fiscal years
F2-7
<PAGE> 71
SIERRA WELL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
beginning after June 15, 2000. Early adoption is permitted. The Company has not
completed the evaluation of the potential effects of implementing FAS 133.
2. ACQUISITIONS
In 1997 and 1998, Sierra acquired either substantially all of the assets or
all of the outstanding capital stock of each of the following businesses, which
were accounted for using the purchase method of accounting:
<TABLE>
<CAPTION>
CLOSING DATE PURCHASE PRICE
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
East Texas Vac. Service, L.C........................... June 1997 $ 3,080
S&N Well Servicing, Ltd................................ July 1997 5,400
Lonnies Well Service Co................................ August 1997 714
Harrison Rig Service, inc.............................. August 1997 475
DKB Enterprises, Inc. ................................. October 1997 5,600
Diamond Rental, Inc. .................................. October 1997 3,500
Larry O'Connor, Inc. .................................. October 1997 3,600
Aries Well Service, Inc. .............................. October 1997 1,500
Trans-Texas Operating, Inc. ........................... October 1997 5,500
Smith Brothers Casing Pullers, Inc. ................... October 1997 1,300
Mansell Brine Sales, Inc. ............................. November 1997 7,000
Bobby Herricks Trucking, Inc. ......................... December 1997 11,750
Ackerly Service Company, Inc. and Enviro-Vat, Inc. .... December 1997 5,000
Accurate Petroleum Services, Inc. ..................... April 1998 2,100
</TABLE>
The Company sold 2,401 shares of common stock totaling $19,219,500 to
Southwest Partners II, Southwest Partners III and Southwest Royalties, Inc. and
borrowed $49,408,000 from Joint Energy Development Investments Limited
Partnership II in order to fund the acquisitions and purchase additional well
servicing equipment. The remainder of the proceeds was used for working capital.
The operations of each of the aforementioned acquisitions are included in the
Company's statement of operations as of each respective closing date.
In 1998, the Company expensed previously deferred costs from foregone
acquisitions and costs associated with an equity offering not consummated,
totaling approximately $990,000.
F2-8
<PAGE> 72
SIERRA WELL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Land........................................................ $ 831 $ 236
Buildings and improvements.................................. 1,973 1,673
Well service units and equipment............................ 21,523 22,507
Water hauling equipment..................................... 7,049 7,052
Brine/fresh water stations.................................. 8,429 8,620
Enviro-Vat units and frac/test tanks........................ 3,211 3,211
Disposal facilities......................................... 5,348 5,348
Vehicles.................................................... 4,429 4,389
Other....................................................... 631 672
------- -------
53,424 53,708
Less accumulated depreciation............................... 17,790 22,522
------- -------
Property and equipment, net................................. $35,634 $31,186
======= =======
</TABLE>
4. IMPAIRMENT
At December 31, 1998, the Company recorded an impairment loss on its well
service rigs and equipment, water stations and related goodwill of approximately
$378,000, $7,372,000 and $14,922,000, respectively, for a total impairment of
approximately $22,672,000. In determining if an impairment loss was indicated,
management projected future cash flows through the estimated life of each asset,
for each of the Company's well service rigs and by region for the Company's
trucks and water stations, based on estimated utilization rates, hours, revenues
and expenses, generally increasing utilization rates based on managements
expectations, but using constant hourly rates charged to customers. Where an
impairment was indicated, the carrying value of the asset plus the related
goodwill was reduced to the estimated fair market value, based upon a recent
appraisal.
5. LONG-TERM DEBT
Long-term debt consists of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Credit Facility............................................. $54,331 $ --
New Credit Facility
Senior Notes.............................................. -- 24,408
Subordinated Notes........................................ -- 26,535
Capital leases and equipment notes.......................... 736 592
------- -------
55,067 51,535
Less current portion, determined based on the terms of the
New Credit Facility (see discussion below)................ 403 1,164
------- -------
$54,664 $50,371
======= =======
</TABLE>
On September 30, 1997, the Company signed a loan agreement (the "Credit
Facility") that provided up to $60,000,000 for acquisitions and refinancing
existing debt. The agreement required monthly interest payments with the
outstanding principal balance and accrued interest due on March 31, 1999. The
loan consisted of two tranches (Tranche A and Tranche B) totaling $30,000,000
each. As of December 31,
F2-9
<PAGE> 73
SIERRA WELL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1998, Tranche A had an outstanding balance of $30,000,000 and Tranche B had an
outstanding balance of $24,410,000. The initial interest rates for Tranche A and
B were prime plus 1% and 3%, respectively. Interest on Tranche B, if not retired
in whole by October 1998, increased by 1% at the end of each subsequent
two-month period. The Credit Facility contained various restrictive covenants
which included restrictions on the incurrence of additional indebtedness and
limitations on the amount of capital lease obligations. Certain covenants also
placed restrictions on dividends, stock redemptions, investments and sales of
assets.
As part of the agreement, the Company issued common stock warrants to the
lender which were exercisable in whole or in part any time prior to October
2002. As of December 31, 1998, the lender was entitled to 457 warrants at
exercise prices ranging from $8,500 to $11,500 per share. These warrants had
estimated fair value of $476,400 at time of issuance and a carrying value of
$79,400 as of December 31, 1998. The fair value of the warrants were calculated
using the Black-Scholes option model assuming no expected volatility and a risk
free interest rate of 5%. On March 31, 1999 the outstanding warrants associated
with the Credit Facility were cancelled.
In October 1997, the Company repaid approximately $6,000,000 of short-term
debt, including accrued interest, with proceeds from the Credit Facility.
On March 31, 1999, the Company entered into three security purchase
agreements (collectively, the "New Credit Facility") that provides up to
$54,410,000, the proceeds of which were used to retire the Credit Facility. The
Company has accounted for this restructuring under FAS 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructuring". The Company issued
preferred stock with an estimated fair value of $5 million to the lender on
March 31, 1999, as partial settlement of the outstanding balance of the Credit
Facility. In accordance with FAS 15, no gain or loss was recognized on the
restructuring.
The New Credit Facility is comprised of a senior credit facility (the
"Senior Notes"), a senior subordinated credit facility (the "Subordinated
Notes") and three classes of preferred stock, as follows:
The Senior Notes have a principal balance of $24,408,000 with
quarterly interest payable at a rate per annum of 250 basis points above
the six month London Interbank Offered Rate beginning March 31, 1999. All
outstanding principal and accrued and unpaid interest is due and payable in
full on June 30, 2004. The principal is payable quarterly beginning
September 30, 2000, based on a seven year amortization of principal
beginning June 30, 2000 and a final balloon payment due on June 30, 2004
for the unpaid balance.
The Subordinated Notes have a principal balance of $25,000,000 with
quarterly interest payable at a rate of 10% per annum beginning March 31,
1999. The Company may defer interest payments due prior to September 30,
2001, at a rate of 12% per annum. All accrued and unpaid interest is due on
September 30, 2001. The Company chose to defer the interest payments due
September 30 and December 31, 1999. All principal and accrued and unpaid
interest is due and payable in full on June 30, 2004.
The Senior and Subordinated Notes contain covenants which restrict
dividends, investments, and the sale of assets. At December 31, 1999, the
Company was not in compliance with certain debt covenants of the Senior and
Subordinated Notes. The Company has obtained an amendment to the New Credit
Facility to cure those events of non-compliance. Additionally, the covenants
require the Company to maintain a fixed charge coverage ratio (as defined) of at
least 1.00:1 for each quarter beginning June 30, 2000.
F2-10
<PAGE> 74
SIERRA WELL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999, the aggregate maturities of debt, including
capital leases, for each of the five years subsequent to December 31, 1999, are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
2000........................................................ $ 1,165
2001........................................................ 6,070
2002........................................................ 3,608
2003........................................................ 3,488
2004........................................................ 37,204
-------
$51,535
=======
</TABLE>
500 shares of Series A Cumulative Preferred Stock ("Series A"), $10,000 per
share liquidation preference ($5,000,000) with a dividend payable quarterly at
10% per annum. The Company may choose to pay dividends in-kind at a rate of 12%
per annum. The Company paid dividends in-kind on the September 30 and December
31, 1999 payment dates.
The Company may redeem all of the shares of Series A at any time, at a
redemption price of $10,000 per share, together with accrued and unpaid
dividends to the date of redemption; provided, however, that in accordance with
the Company's Senior Subordinated Credit Facility, the Company is not entitled
to redeem shares of Series A unless and until all outstanding principal and
accrued and unpaid interest under the Subordinated Note has been paid in full.
Series A ranks senior to all other classes and series of the stock in all
respects, including as to redemption and payment of dividends and distributions
(including upon liquidation or winding up). Series A may be redeemed by the
Issuer at any time after the Subordinated Notes have been paid in full for an
amount equal to par plus all accrued and unpaid dividends. Upon redemption, all
conversion, voting, and other rights of Series A shall terminate.
1,000 shares of Series B Convertible Preferred Stock ("Series B"), $1 per
share liquidation value ($1000), with dividends payable only if dividends are
paid on the Company's common stock. The number of shares of the common stock
into which Series B is convertible varies based upon the timing of the repayment
of Series A, but represents, at a minimum, 25% of the Company's outstanding
common stock. Series B may be converted, at the holders option, into the number
of shares of the Company's common stock necessary to equal the following
percentages of total, post-conversion common shares calculated on a fully
diluted basis:
<TABLE>
<CAPTION>
CONVERSION AMOUNT AS
TIMING OF REPAYMENT A PERCENTAGE OF POST-
OF SERIES A ISSUE CONVERSION OUTSTANDING
ON OR BEFORE COMMON STOCK
- ------------------- ----------------------
<S> <C>
December 31, 1999........................................ 25%
June 30, 2000............................................ 30%
After June 30, 2000...................................... 35%
</TABLE>
Series B ranks senior to all other classes and series of the Company's
stock except Series A, in all respects, including as to redemption and payment
of dividends and distributions (including upon liquidation or winding up).
One share of Series C Convertible Preferred Stock ("Series C"), $1,000 per
share liquidation preference, with dividends payable only if dividends are paid
on the Company's common stock. The number of shares of the Company's common
stock into which Series C is convertible varies based upon
F2-11
<PAGE> 75
SIERRA WELL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the timing of the redemption of Series A. Series C may be converted, at the
option of the holder, into the number of shares of common stock necessary to
equal the following percentages of total, post-conversion common shares
calculated on a fully diluted basis:
<TABLE>
<CAPTION>
CONVERSION AMOUNT AS
TIMING OF REPAYMENT A PERCENTAGE OF POST-
OF SERIES A ISSUE CONVERSION OUTSTANDING
ON OR BEFORE COMMON STOCK
- ------------------- ----------------------
<S> <C>
June 30, 2000............................................ 0%
June 30, 2001............................................ 10%
June 30, 2002............................................ 20%
June 30, 2003............................................ 30%
June 30, 2004............................................ 40%
After June 30, 2004...................................... 65%
</TABLE>
Series C ranks senior to all other classes and series of the Company's
stock except for Series A and Series B, in all respects, including as to
redemption and payment of dividends and distributions (including upon
liquidation or winding up).
6. INCOME TAXES
The provision (benefit) for income taxes consists of the following as of
December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current................................................. $ -- $ -- $ --
Deferred................................................ 1,204 (2,415) 5,392
Benefit of net operating loss carryforward.............. (1,434) (3,355) (2,555)
Change in valuation allowance........................... -- -- (509)
------- ------- -------
$ (230) $(5,770) $ 2,328
======= ======= =======
</TABLE>
A reconciliation between the amount determined by applying the federal
statutory rate with the provision (benefit) for income taxes is as follows as of
December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
----- -------- -------
<S> <C> <C> <C>
Statutory federal income tax............................. $(350) $(11,073) $(3,619)
Amortization of non-deductible goodwill and property..... 74 5,195 227
Meals and entertainment.................................. 46 95 75
Change in valuation allowance............................ -- -- (509)
Reduction in net operating loss carryforwards............ -- -- 6,101
Other.................................................... -- 13 53
----- -------- -------
$(230) $ (5,770) $ 2,328
===== ======== =======
</TABLE>
As a result of issuing preferred stock and convertible preferred stock to
its primary lender on March 31, 1999, the Company's net operating loss
carryforwards accumulated prior to that date were effectively reduced to zero
under Section 382 of the Internal Revenue Code. Deferred tax assets related to
operating loss carryforwards existing at December 31, 1999 arose from losses
occurring subsequent to March 31, 1999.
F2-12
<PAGE> 76
SIERRA WELL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows as of
December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards.............................. $ 5,082 $ 2,555
Receivables............................................... 148 --
Other..................................................... 1 202
Valuation allowance....................................... (509) --
------- -------
Total deferred tax assets................................. 4,722 2,757
------- -------
Deferred tax liabilities:
Property and equipment.................................... (4,505) (4,794)
Real estate investments................................... (23) --
Goodwill.................................................. (157) (145)
Other intangibles......................................... (37) (42)
Receivables............................................... -- (104)
------- -------
Total deferred tax liabilities............................ (4,722) (5,085)
------- -------
Net deferred tax liability........................ $ -- $(2,328)
======= =======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. The valuation allowance
relates primarily to the uncertainty of the realizability of the Company's
carryforwards. The amount of the valuation allowance could be reduced if
estimates of future taxable income during the carryforward period are increased.
As of December 31, 1999, the Company had net operating loss carryforwards
for U.S. federal income tax purposes of approximately $7,514,107, which are
available to offset future regular taxable income, if any. The net operating
loss carryforwards expire in various periods through 2020. As described above,
this amount relates only to tax losses since March 31, 1999.
7. COMMITMENTS AND CONTINGENCIES
Environmental
The Company is subject to various federal, state and local environmental
laws and regulations which establish standards and requirements for protection
of the environment. The Company cannot predict the future impact of such
standards and requirements which are subject to change and can have retroactive
effectiveness. The Company continues to monitor the status of these laws and
regulations. Management does not believe that the disposition of any of these
items will result in a material adverse impact to the financial position,
liquidity, capital resources or future results of operations of the Company.
Currently, the Company has not been fined, cited or notified of any
environmental violations which would have a material adverse effect upon the
financial position, liquidity or capital resources of the Company. However,
management does recognize that by the very nature of its business, material
costs could be incurred in the near term to bring the Company into total
compliance. The amount of such future expenditures is not determinable due to
several factors including the unknown magnitude of possible contamination, the
unknown timing and extent of the corrective actions which may be required, the
determination of the Company's liability in proportion to other responsible
parties and the extent to which such expenditures are recoverable from insurance
or indemnification.
F2-13
<PAGE> 77
SIERRA WELL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Litigation
From time to time, the Company is a party to litigation or other legal
proceedings that the Company considers to be a part of the ordinary course of
business. The Company is not currently involved in any legal proceedings that
could reasonably be expected to have a material adverse effect on the Company's
financial condition or results of operations.
Leases
The Company leases certain equipment under non-cancelable operating leases
which expire at various dates through December 2001. The term of the operating
leases generally run from 36 to 60 months with varying payment dates throughout
each month.
As of December 31, 1999, the future minimum lease payments under
non-cancelable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, LEASE PAYMENTS
------------ --------------
<S> <C>
2000........................................................ $291
2001........................................................ 176
2002........................................................ 142
2003........................................................ 142
2004........................................................ 118
----
Total....................................................... $869
====
</TABLE>
Rent expense approximated $962,000 for 1997, $979,000 for 1998, and
$942,000 for 1999. The Company rents various equipment for short-term periods in
order to assist day-to-day operations.
8. STOCK COMPENSATION
The Company granted an officer 40,520 shares with nominal value, at March
31, 1999. The Company granted two employees 10 shares of common stock each,
effective January 1, 1997. Compensation expense related to the 1997 issuances
was determined at the date of the grant based on the estimated fair value of the
Company as determined by an independent investment advisor.
9. RELATED PARTY TRANSACTIONS
The Company provided services and products for workover, maintenance and
plugging of existing oil and gas wells to a related party for $508,000, $906,000
and $1,010,000 in 1997, 1998 and 1999 respectively. The Company has receivables
from this related party, of $89,000 and $73,000 as of December 31, 1998 and
1999, respectively.
The Company paid a related party management fees for accounting,
bookkeeping, tax preparation, banking and computer services in 1999. All
services, except for computer services, were terminated by the Company as of
December 31, 1999. Since January 1996, this related party has performed computer
services for the Company for $7,500 per month.
The Company leases three well service rigs from a related party under an
operating lease entered into in October 1999. The lease requires monthly
payments of approximately $11,000 and expires in October 2004. Rent expense
related to this lease approximated $24,000 for 1999.
F2-14
<PAGE> 78
SIERRA WELL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A director of the Company is a partner in a law firm that provides legal
services to the Company. During 1998 and 1999, the Company paid approximately
$112,000 and $64,000, respectively in fees for legal services performed.
10. PROFIT SHARING PLAN
The Company has a contributory retirement plan that covers substantially
all employees. Employees may contribute up to 15% of their base salary with the
maximum amount determined by law. Employee contributions are fully vested at all
times and discretionary employer contributions are fully vested upon the first
to occur of retirement and five years of service. Employer contributions to the
401(k) plan approximated $13,000 for 1997, $18,000 for 1998 and $56,000 for
1999.
11. MAJOR CUSTOMERS
No customers accounted for over 10% sales in 1997, 1998 or 1999. The
Company performs ongoing evaluations of its customers' financial condition and
generally requires no collateral to secure outstanding receivables.
12. BUSINESS SEGMENT INFORMATION
Information about the Company's operations by business segment for the
years ended December 31, 1997, 1998 and 1999, is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
REVENUES:
Well servicing...................................... $20,920 $ 26,687 $ 24,453
Fluid services...................................... 5,214 18,632 12,878
------- -------- --------
$26,134 $ 45,319 $ 37,331
======= ======== ========
INCOME (LOSS) BEFORE INCOME TAXES:
Well servicing...................................... $ 4,388 $ 5,741 $ 4,553
Fluid services...................................... 1,744 5,943 3,382
Interest expense.................................... (1,508) (7,166) (6,065)
General corporate................................... (5,651) (38,584) (12,513)
------- -------- --------
$(1,027) $(34,066) $(10,643)
======= ======== ========
IDENTIFIABLE ASSETS:
Well servicing...................................... $28,613 $ 25,531 $ 23,855
Fluid services...................................... 46,287 20,888 18,893
General corporate................................... 12,219 6,908 4,113
------- -------- --------
$87,119 $ 53,327 $ 46,861
======= ======== ========
CAPITAL EXPENDITURES:
Well servicing...................................... $ 5,883 $ 1,747 $ 1,715
Fluid services...................................... 338 536 469
General corporate................................... 364 152 103
------- -------- --------
$ 6,585 $ 2,435 $ 2,287
======= ======== ========
DEPRECIATION:
Well servicing...................................... $ 1,941 $ 3,849 $ 3,829
Fluid services...................................... 907 4,593 2,721
General corporate................................... 83 182 197
------- -------- --------
$ 2,931 $ 8,624 $ 6,747
======= ======== ========
</TABLE>
F2-15
<PAGE> 79
SIERRA WELL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's well servicing business line offers a broad range of services
including well maintenance, workover of existing wells, new well completions and
plug and abandonment services. The Company's fluid services business line
complements the well service operations by providing liquids handling, water
supply and disposal services.
13. SUBSEQUENT EVENTS
The Company entered into definitive agreements to acquire five businesses
and the stock purchase of a sixth corporation with four inactive rigs during the
last quarter of 1999 and the first quarter of 2000. Funding of each of these
acquisitions is contingent upon the consummation of the Company's initial public
offering. The following described acquisitions were not completed as of December
31, 1999 and are not included in the Company's results of operations for the
twelve months ended December 31, 1999. Other than Trinity Services, which is an
asset purchase rather than a stock purchase, the cash portion of each
acquisition will be adjusted to reflect the net financial assets of the acquired
company as of the acquisition date. Net financial assets is defined as net
working capital minus long-term debt, including leases.
TAT (Turn Around Trucking), Inc.
The Company has entered into a definitive agreement for the acquisition of
TAT (Turn Around Trucking), Inc. ("TAT") for cash and a note with an total
estimated value of approximately $6.5 million. The note will be converted within
45 days after the completion of the offering into shares of the Company's common
stock valued at the initial public offering price; the note accrues interest at
a floating rate equal to the prime rate. TAT operates 32 fluid service trucks, 2
support trucks, 38 fluid service tanks, 2 salt water disposal wells and related
equipment in south Texas.
Sundown Operating Company, Inc.
The Company has entered into a definitive agreement for the acquisition of
Sundown Operating Company, Inc. ("Sundown") for cash and a note with an
estimated value of approximately $5.2 million. The note will be convertible, at
the holder's option, into shares of the Company's common stock valued at the
initial public offering price; the note matures on the one year anniversary of
the closing of the proposed initial public offering and accrues interest at a
floating rate equal to the prime rate. Sundown operates 26 well servicing rigs
and related equipment in the northern Permian Basin.
Eunice Well Service Company
The Company has entered into a definitive agreement for the acquisition of
Eunice Well Service Company ("Eunice") for cash and a note with an estimated
value of approximately $2.1 million. The note will be convertible, at the
holder's option, into shares of the Company's common stock valued at the initial
public offering price; the note matures on the one year anniversary of the
closing of this offering and accrues interest at a floating rate equal to the
prime rate. Eunice operates 10 well servicing rigs and related equipment in the
western Permian Basin.
Gold Star Service Company, Inc.
The Company has entered into a definitive agreement for the acquisition of
Gold Star Service Company, Inc. ("Gold Star") for cash and a note with an
estimated value of approximately $1.80 million. The note will be converted into
shares of our common stock valued at the initial public offering price within 45
days after the completion of the proposed initial public offering; the note
accrues interest at a floating rate equal to the prime rate. Gold Star operates
19 fluid service trucks, 4 support trucks, 1 salt water disposal well, 2 fresh
and brine water stations and related equipment in the western Permian Basin.
F2-16
<PAGE> 80
SIERRA WELL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Trinity Services
The Company has entered into a definitive agreement for the acquisition of
Trinity Services ("Trinity") for cash, a note and warrants with an estimated
value of approximately $1.94 million. The warrants will be exercisable, at the
holder's option, into shares of the Company's common stock valued at the initial
public offering price. The holder has the option to offset any indebtedness
under the note against the exercise price of the warrant. The note matures 15
months after the closing of this offering and accrues interest at a floating
rate equal to the prime rate. The warrant expires on the later of (1) 18 months
after the closing of the proposed offering or (2) one year after the note is
repaid in full. Trinity operates 10 well servicing rigs and related equipment in
south Texas.
Harrison Well Service, Inc.
The Company has entered into a definitive agreement for the acquisition of
Harrison Well Service, Inc. ("Harrison") for cash and a note with an estimated
value of approximately $1.225 million. The note will be converted into shares of
the Company's common stock at the initial public offering price within 45 days
after the completion of the proposed offering; the note accrues interest at a
floating rate equal to the prime rate. Harrison operates 4 well servicing rigs
and related equipment in the northern Permian Basin.
F2-17
<PAGE> 81
APPENDIX A
GLOSSARY OF TERMS
Blowout preventer: A series of valves installed on the wellhead to prevent
the escape of pressure either in the annular space between the casing and tubing
or drill pipe or in open hole during drilling or completion operations.
Brine water: Water that is heavily saturated with salt used in various well
completion and workover activities.
Casing: Steel pipe placed in an oil or gas well as drilling progresses to
prevent the wall of the hole from caving in, to prevent seepage of fluids, and
to provide a means of extracting petroleum if the well is productive.
Drilling mud: the fluid pumped down the drilling string and up the wellbore
to bring debris from the drilling and workover operators to the surface.
Drilling muds also cool and lubricate the bit, protect against blowouts by
holding back underground pressures and, in new well drilling, deposit a mud cake
on the wall of the borehole to minimize loss of fluid to the formation.
Flow back: the re-entry of fluid from the formation into the wellbore
previously pumped into the formation during a frac job or other procedure to
stimulate production. This fluid is allowed to flow out of the wellbore to the
surface where it is then transported offsite to a disposal well.
Frac job or fracturing operations: A procedure to stimulate production of
oil or gas from a well by pumping fluids from the surface under high pressure
into the well bore to induce fractures in the formation.
Frac tank: A steel tank used to store fluids at the well location to
facilitate completion and workover operations. The largest demand is related to
the storage of fluid used in fracturing operations.
Hot oil truck: A truck mounted pump, tank and heating element used to melt
paraffin accumulated in the well bore by pumping heated oil or water through the
well.
Kill truck: A truck with a high pressure pump used to circulate fluid into
the well to overcome formation pressure and stop the flow of oil or gas so that
other well procedures can be performed on the well; also used to pressure test
tubing, flow lines etc.
Plugging and abandonment activities: Activities to remove production
equipment and seal off a well at the end of a well's economic life.
Power swivel: An independently powered rotary tool that is hung from the
traveling block to suspend and permit free rotation of the drill string for
drilling through cement, plugs and other obstructions in the well bore and for
deepening existing well bores. It also provides a connection for the rotary hose
and a passageway for the flow of drilling/circulating fluid into the drill.
Well completion: The activities and procedures necessary to prepare a well
for the production of oil and gas after the well has been drilled to its
targeted depth. Well completions establish a flow path for hydrocarbons between
the reservoir and the surface.
Well servicing: The maintenance work performed on an oil or gas well to
improve or maintain the production from a formation already producing. It
usually involves repairs to the downhole pump, rods, tubing, and so forth or
removal of sand, paraffin or other debris which is preventing or restricting
production of oil or gas.
Well workover: refers to a broad category of procedures preformed on an
existing well to correct a major downhole problem, such as collapsed casing, or
to establish production from a formation not previously produced, including
deepening the well from its originally completed depth.
A-1
<PAGE> 82
- --------------------------------------------------------------------------------
Until , all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligations of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotment or subscriptions.
- --------------------------------------------------------------------------------
SIERRA WELL SERVICE, INC.
[LOGO]
PRUDENTIAL SECURITIES
JOHNSON RICE & COMPANY L.L.C.
SIMMONS & COMPANY
INTERNATIONAL
- --------------------------------------------------------------------------------
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are the expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby. With the exception of the
Securities and Exchange Commission registration fee, the NASD filing fee and the
Nasdaq filing fee, the amounts set forth below are estimates:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 15,939
NASD filing fee............................................. 6,537
Nasdaq listing fee.......................................... 48,750
Printing and engraving expenses............................. 100,000
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 150,000
Transfer agent and registrar fees........................... 3,500
Miscellaneous............................................... 25,274
--------
TOTAL............................................. $500,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper. Sierra's certificate of incorporation and bylaws
provide that indemnification shall be to the fullest extent permitted by the
DGCL for all current or former directors or officers of Sierra. As permitted by
the DGCL, the certificate of incorporation provides that directors of Sierra
shall have no personal liability to Sierra or its stockholders for monetary
damages for breach of fiduciary duty as a director, except (1) for any breach of
the director's duty of loyalty to Sierra or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of II-1 law, (3) under Section 174 of the DGCL or (4) for any
transaction from which a director derived an improper personal benefit.
II-1
<PAGE> 84
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to our securities issued or sold within
the past three years which were not registered under the Securities Act of 1933
(giving effect to a 445-for-1 stock split in 2000):
(i) In January 1997, we issued 4,450 shares of common stock to each
Joey D. Fields and Dub W. Harrison for services rendered;
(ii) In February 1997, we issued 88,555 shares of common stock to
Southwest Royalties, Inc. for a total purchase price of $500,000;
(iii) In July and August 1997, we issued an aggregate of 87,665 shares
of common stock to Southwest Partners II, L.P. for a total purchase price
of $1,672,000;
(iv) In July, August, September and December 1997, we issued an
aggregate of 892,225 shares of common stock to Southwest Partners III,
L.P., for a total purchase price of $$17,048,000;
(v) In September 1997, we issued warrants (the "Warrants") to Joint
Energy Development Investments Limited Partnership pursuant to a loan
agreement, which were cancelled in March 1999; and
(vi) In March 1999, we issued 500 shares of Series A Preferred Stock,
1,000 shares of Series B Preferred Stock and 1 share of Series C Preferred
Stock to Joint Energy Development Investments II Limited Partnership in
exchange for the cancellation of the Warrants.
Simultaneously with the completion of this offering, we will issue notes
and warrants convertible or exercisable into an aggregate of shares of
common stock (based on a estimated public offering price of $ per share),
valued at the initial public offering price, in connection with the acquisition
of five well services businesses and the stock of one other corporation with
four inactive rigs.
Each of these transactions was effected without registration of the
relevant security under the Securities Act in reliance upon the exemption
provided by Section 4(2) of the Securities Act for transactions not involving a
public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits:
<TABLE>
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1* -- Form of Amended and Restated Certificate of Incorporation
3.2* -- Form of Restated Bylaws
3.3 -- Certificate of Designations of Series A Cumulative
Preferred Stock
3.4 -- Certificate of Designations of Series B Convertible
Preferred Stock
3.5 -- Certificate of Designations of Series C Convertible
Preferred Stock
3.6* -- Form of Certificate of Designations for Series One Junior
Participating Preferred Stock
5.1* -- Opinion of Andrews & Kurth L.L.P.
10.1* -- Form of Indemnification Agreement
10.2 -- 2000 Stock Option Plan
10.3 -- Employment Agreement dated as of March 16, 1999 with
Kenneth V. Huseman
10.4 -- First Amendment to Employment Agreement dated as of March
21, 1999 with Kenneth V. Huseman
10.5* -- Employment Agreement with Dub W. Harrison
10.6* -- Employment Agreement with Charles W. Swift
</TABLE>
II-2
<PAGE> 85
<TABLE>
<C> <S>
10.7* -- Employment Agreement with Ronald T. McClung
10.8 -- Securities Purchase Agreement dated as of March 31, 1999
with JEDI II
10.9 -- Registration Rights Agreement dated as of March 31, 1999
with JEDI II
10.10 -- Stockholders' Agreement dated as of March 31, 1999 with
JEDI II and other stockholders named therein
10.11 -- Stockholders' Agreement dated as of March 21, 2000 with
JEDI II and other stockholders named therein
10.12 -- Subordinated Loan Agreement dated as of March 31, 1999
with JEDI II
10.13 -- $25,000,000 Subordinated Note dated as of March 31, 1999
to JEDI II
10.14 -- Senior Loan Agreement dated as of March 31, 1999 with
JEDI II as Senior Agent and the Senior Lender
10.15 -- $24,408,000 Senior Note dated as of March 31, 1999 to
JEDI II
10.16* -- Form of Preferred Share Purchase Plan
10.17 -- Stock Purchase Agreement dated as of March 1, 2000, as
amended, with Turn Around Trucking and other sellers
named therein
10.18 -- Asset Purchase Agreement dated as of February 10, 2000
with Trinity
10.19 -- Acquisition Agreement dated as of March 14, 2000, as
amended, with Gold Star and other sellers named therein
10.20 -- Stock Purchase Agreement dated as of February 29, 2000,
as amended, with Eunice and the other sellers named
therein
10.21 -- Stock Purchase Agreement dated as of December 29, 1999,
as amended, with Harrison and the other sellers named
therein
10.22 -- Stock Purchase Agreement dated as of February 8, 2000, as
amended, with Sundown and the other sellers named therein
10.23 -- First Amendment to Loan Agreement dated as of March 31,
2000
21.1 -- Subsidiaries of Sierra
23.1 -- Consent of KPMG LLP
23.4* -- Consent of Andrews & Kurth L.L.P. (Contained in Exhibit
5.1)
24.1 -- Power of Attorney (included on signature page)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* to be filed by amendment
b. Financial Statement Schedules
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described
in Item 14, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being
II-3
<PAGE> 86
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(b) To provide to the underwriter(s) at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter(s) to permit prompt delivery
to each purchaser.
(c) For purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston, in
the State of Texas, on March 23, 2000.
SIERRA WELL SERVICES, INC.
By: /s/ RONALD T. MCCLUNG
----------------------------------
Name: Ronald T. McClung
Title: Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Kenneth V. Huseman and
Ron T. McClung, and each of them, any of whom may act without the joinder of the
other, as his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any Registration Statement
(including any amendment thereto) for this offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or would do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their or
his substitute and substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED BELOW.
<TABLE>
<CAPTION>
SIGNATURE DATE
--------- ----
<S> <C> <C>
/s/ H.H. WOMMACK, III Chairman and Director March 23, 2000
- -----------------------------------------------------
H.H. Wommack, III
/s/ KENNETH V. HUSEMAN President, Chief Executive March 23, 2000
- ----------------------------------------------------- Officer and Vice Chairman
Kenneth V. Huseman
/s/ RONALD T. MCCLUNG Chief Financial Officer March 23, 2000
- -----------------------------------------------------
Ronald T. McClung
/s/ WILLIAM M. KERR, JR. Director March 23, 2000
- -----------------------------------------------------
William M. Kerr, Jr.
Director March 23, 2000
- -----------------------------------------------------
Paul L. Morris
/s/ WILLIAM J. MYERS Director March 23, 2000
- -----------------------------------------------------
William J. Myers
</TABLE>
II-5
<PAGE> 88
<TABLE>
<CAPTION>
SIGNATURE DATE
--------- ----
<S> <C> <C>
/s/ STEVE PERSON Director March 23, 2000
- -----------------------------------------------------
Steve Person
/s/ CLIFFORD STROZIER Director March 23, 2000
- -----------------------------------------------------
Clifford Strozier
</TABLE>
II-6
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1* -- Form of Amended and Restated Certificate of Incorporation
3.2* -- Form of Restated Bylaws
3.3 -- Certificate of Designations of Series A Cumulative
Preferred Stock
3.4 -- Certificate of Designations of Series B Convertible
Preferred Stock
3.5 -- Certificate of Designations of Series C Convertible
Preferred Stock
3.6* -- Form of Certificate of Designations for Series One Junior
Participating Preferred Stock
5.1* -- Opinion of Andrews & Kurth L.L.P.
10.1* -- Form of Indemnification Agreement
10.2 -- 2000 Stock Plan
10.3 -- Employment Agreement dated as of March 16, 1999 with
Kenneth V. Huseman
10.4 -- First Amendment to Employment Agreement dated as of March
21, 1999 with Kenneth V. Huseman
10.5* -- Employment Agreement with Dub W. Harrison
10.6* -- Employment Agreement with Charles W. Swift
10.7* -- Employment Agreement with Ronald T. McClung
10.8 -- Securities Purchase Agreement dated as of March 31, 1999
with JEDI II
10.9 -- Registration Rights Agreement dated as of March 31, 1999
with JEDI II
10.10 -- Stockholders' Agreement dated as of March 31, 1999 with
JEDI II and other stockholders named therein
10.11 -- Stockholders' Agreement dated as of March 21, 2000 with
JEDI II and other stockholders named therein
10.12 -- Subordinated Loan Agreement dated as of March 31, 1999
with JEDI II
10.13 -- $25,000,000 Subordinated Note dated as of March 31, 1999
to JEDI II
10.14 -- Senior Loan Agreement dated as of March 31, 1999 with
JEDI II as Senior Agent and the Senior Lender
10.15 -- $24,408,000 Senior Note dated as of March 31, 1999 to
JEDI II
10.16* -- Form of Preferred Share Purchase Plan
10.17 -- Stock Purchase Agreement dated as of March 1, 2000, as
amended, with Turn Around Trucking and other sellers
named therein
10.18 -- Asset Purchase Agreement dated as of February 10, 2000
with Trinity
10.19 -- Acquisition Agreement dated as of March 14, 2000, as
amended, with Gold Star and other sellers named therein
10.20 -- Stock Purchase Agreement dated as of February 29, 2000,
as amended, with Eunice and the other sellers named
therein
10.21 -- Stock Purchase Agreement dated as of December 29, 1999,
as amended, with Harrison and the other sellers named
therein
10.22 -- Stock Purchase Agreement dated as of February 8, 2000, as
amended, with Sundown and the other sellers named therein
10.23 -- First Amendment to Loan Agreement dated as of March 31,
2000
21.1 -- Subsidiaries of Sierra
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
23.1 -- Consent of KPMG LLP
23.4* -- Consent of Andrews & Kurth L.L.P. (Contained in Exhibit
5.1)
24.1 -- Power of Attorney (included on signature page)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.3
[EXECUTION VERSION]
CERTIFICATE OF DESIGNATIONS
OF
SERIES A CUMULATIVE PREFERRED STOCK
OF
SIERRA WELL SERVICE, INC.
SIERRA WELL SERVICE, INC., a Delaware corporation (the "Corporation"),
DOES HEREBY CERTIFY:
That the following resolutions were duly adopted by the Board of
Directors of the Corporation (the "Board of Directors") at a meeting duly
convened and held on March 29, 1999, pursuant to authority conferred upon the
Board of Directors by the provisions of the Certificate of Incorporation of the
Corporation that authorize the issuance of up to 2,500 shares of preferred stock
(the "Preferred Stock"):
"BE IT RESOLVED, that the issuance of a series of Preferred
Stock of Sierra Well Service, Inc. (the "Corporation") is hereby
authorized, and the designation, voting powers, preferences and
relative, participating, optional and other special rights, and
qualifications, limitations and restrictions thereof, of the shares of
such series, in addition to those set forth in the Certificate of
Incorporation of the Corporation, are hereby fixed as follows.
SECTION 1. DESIGNATION. The distinctive serial designation of such
series shall be "Series A Cumulative Preferred Stock" (hereinafter called
"Series A"). Each share of Series A shall be identical in all respects with all
other shares of Series A.
SECTION 2. RANK. All shares of the Series A shall rank (i) prior to the
Corporation's Common Stock; and (ii) except as specifically provided herein,
prior to any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of a majority of the holders of Series A and
all other series of Preferred Stock obtained in accordance with Section 9(c)
hereof, such class or series of capital stock specifically, by its terms, ranks
senior to or pari passu with the Series A).
<PAGE> 2
SECTION 3. NUMBER OF SHARES. The number of shares of Series A
authorized shall initially be 1,000, which number may from time to time be
decreased (but not below the number of shares of Series A then outstanding) by
the Board of Directors. Shares of Series A that are redeemed, purchased or
otherwise acquired by the Corporation or converted into Common Stock shall be
canceled and shall revert to authorized but unissued shares of Preferred Stock
undesignated as to series.
SECTION 4. DEFINITIONS. As used herein with respect to Series A, the
following terms shall have the following meanings:
a. The term "junior stock" shall mean any other class or
series of capital stock of the Corporation hereafter authorized over
which Series A has preference or priority in the payment of dividends
or in the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.
b. The term "accrued dividends" shall mean an amount computed
at the applicable annual dividend rate from the date on which dividends
became cumulative to and including the date to which such dividends are
to be accrued (whether or not such dividends have been declared), less
the aggregate amount of all dividends theretofore paid thereon.
c. The term "parity stock" shall mean any other class or
series of stock of the Corporation hereafter authorized which ranks on
a parity with Series A in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or winding up of
the Corporation.
d. The term "business day" shall mean each Monday, Tuesday,
Wednesday, Thursday or Friday on which banking institutions in New
York, New York are not authorized or obligated by law, regulation or
executive order to close.
SECTION 5. DIVIDENDS.
a. The holders of shares of Series A shall be entitled to
receive, when, as and if declared by the Board of Directors, but only
out of funds legally available therefor, cumulative cash dividends at
the annual rate of $1,000.00 per share, payable on the first day of
January, April, July and October, respectively, in each year, beginning
July 1, 1999 (or, if any such date is not a business day, on the next
succeeding business day), with respect to the quarterly dividend period
(or portion thereof) ending on the day preceding such respective
dividend payment date (each payment date to be designated a "Dividend
Due Date"). The record date for the payment of dividends shall, unless
otherwise altered by the Corporation's Board of Directors, be the
fifteenth day of November, March, June and
-2-
<PAGE> 3
September, as the case may be, immediately preceding the relevant
Dividend Due Date. The record date for the payment of dividends on the
Series A shall in no event be more than 60 nor less than 10 days
preceding such Dividend Due Date. The dividends payable per share of
Series A for each quarterly dividend period shall be computed by
dividing the annual dividend rate by four. Dividends on shares of
Series A (or fraction thereof) shall accumulate and be cumulative from
and after the date of issuance thereof. At the option of the
Corporation, dividends payable on shares of Series A on any quarterly
dividend payment date may be paid in additional shares of Series A,
instead of in cash, at the annual rate of 0.12 shares of Series A per
share of Series A then outstanding. To the extent that dividends are
paid in additional shares of Series A, such additional shares shall be
entitled to receive cumulative dividends at the rates specified herein
from the date of issuance thereof.
b. Each fractional share of Series A outstanding shall be
entitled to a ratably proportionate amount of all dividends accruing
with respect to each outstanding share of Series A pursuant to this
Section 5, and all such dividends with respect to such outstanding
fractional shares shall be cumulative and shall accrue, and shall be
payable in the same manner and at such times as provided in this
Section 5 with respect to dividends on each outstanding share of Series
A. Each fractional share of Series A outstanding shall also be entitled
to a ratably proportionate amount of all distributions made with
respect to each outstanding share of Series A pursuant to this Section
5, and all such distributions shall be payable in the same manner and
at such times as provided in this Section 5 with respect to
distributions on each outstanding share of Series A.
c. So long as any share of Series A remains outstanding, no
dividend whatsoever shall be paid or declared and no distribution shall
be made on any junior stock, other than a dividend payable solely in
junior stock, and no shares of junior stock shall be purchased,
redeemed or otherwise acquired for consideration by the Corporation,
directly or indirectly (except as a result of a reclassification of
junior stock into other junior stock, or the exchange or conversion of
one share of junior stock for or into another share of junior stock,
and except for the use of the proceeds of a substantially
contemporaneous sale of other shares of junior stock). When dividends
are not paid in full upon the shares of Series A and any parity stock,
all dividends declared upon shares of Series A and all parity stock
shall be declared pro rata so that the amount of dividends declared per
share on Series A and all such parity stock shall in all cases bear the
same ratio to each other as all accrued but unpaid dividends per share
on the shares of Series A and all such parity stock bear to each other.
SECTION 6. LIQUIDATION RIGHTS. In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, then, before any
distribution or payment out of the assets of the Corporation shall be made to or
set aside for the holders of any junior stock, the holders of shares of Series A
shall be entitled to receive in full an amount equal to $10,000.00 per share
(which
-3-
<PAGE> 4
amount is referred to herein as the "liquidation preference"), together with
accrued dividends to such distribution or payment date whether or not earned or
declared. In determining whether a distribution (other than upon voluntary or
involuntary liquidation), by dividend, redemption or other acquisition of shares
or otherwise, is permitted under the Delaware General Corporation Law, amounts
that would be needed, if the Corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of holders of
shares of Series A whose preferential rights upon dissolution are superior to
those receiving the distribution shall not be added to the Corporation's total
liabilities. If the assets of the Corporation are not sufficient to pay such
amount in full to all holders of shares of Series A and any parity stock, the
amounts paid to holders of shares of Series A and holders of all parity stock
shall be pro rata in accordance with the respective aggregate liquidation
preferences of Series A and all such parity stock.
If such amount shall have been paid in full to all holders of shares of
Series A, the remaining assets of the Corporation shall be distributed among the
holders of junior stock, according to their respective rights and preferences
and in each case according to their respective numbers of shares. For the
purposes of this Section 6, the consolidation or merger of the Corporation with
any other corporation shall not be deemed to constitute a liquidation,
dissolution or winding up of the Corporation.
SECTION 7. REDEMPTION.
a. The Corporation, at the option of the Board of Directors,
may redeem all, but not less than all, of the shares of Series A at the
time outstanding, at any time, upon notice given as hereinafter
specified, at a redemption price equal to $10,000.00 per share,
together with accrued and unpaid dividends to the date of redemption;
provided, however, that in accordance with the Corporation's Senior
Subordinated Credit Facility, dated as of March 31, 1999 (the
"Subordinated Note"), the Corporation shall not be entitled to redeem
shares of Series A unless and until all outstanding principal and
accrued and unpaid interest under the Subordinated Note has been paid
in full.
b. Notice of every redemption of shares of Series A shall be
mailed by first-class mail, postage prepaid, addressed to the holders
of record of the shares to be redeemed at their respective last
addresses as they shall appear on the books of the Corporation. Such
mailing shall be at least 30 days and not more than 60 days prior to
the date fixed for redemption. Any notice which is mailed in the manner
herein provided shall be conclusively presumed to have been duly given,
whether or not the holder receives such notice, but failure duly to
give such notice by mail, or any defect in such notice or in the
mailing thereof, to any holder of shares of Series A designated for
redemption shall not affect the validity of the proceedings for the
redemption of any other shares of Series A. If such notice of
redemption shall have been duly given or if the Corporation shall have
given to the bank or trust
-4-
<PAGE> 5
company hereinafter referred to irrevocable authorization promptly to
give such notice and if on or before the redemption date specified
therein all funds necessary for such redemption shall have been
deposited by the Corporation with such bank or trust company in trust
for the pro rata benefit of the holders of the shares called for
redemption, then, notwithstanding that any certificate for shares so
called for redemption shall not have been surrendered for cancellation,
on and after such redemption date, all shares so called for redemption
shall no longer be deemed to be outstanding and all rights with respect
to such shares shall forthwith on such redemption date cease and
terminate, except only the right of the holders thereof to receive the
amount payable on redemption thereof, without interest, from such bank
or trust company, out of the funds so deposited, at any time after such
redemption date. The aforesaid bank or trust company shall be organized
and in good standing under the laws of the United States of America or
of Texas, shall have capital, surplus and undivided profits aggregating
at least $250,000,000 according to its last published statement of
financial condition, and shall be identified in the notice of
redemption. Any interest accrued on such funds shall be paid to the
Corporation from time to time. Any funds so deposited and unclaimed at
the end of three years from the redemption date shall, to the extent
permitted by law, be released or repaid to the Corporation, after which
time the holders of the shares so called for redemption shall look only
to the Corporation for payment thereof. Any funds so deposited or set
aside by the Corporation which shall not be required for such
redemption because of the subsequent exercise of any right of
conversion shall be released or repaid to the Corporation forthwith.
c. In the event that the Series A and any parity stock are
each the subject of redemption and the total amount of funds legally
available for redemption is insufficient to redeem both the Series A
and such parity stock, then the Series A and the shares of such parity
stock shall be redeemed ratably based on the aggregate redemption
amount payable with respect to the shares of Series A and the shares of
the parity stock then redeemable.
SECTION 8. VOTING RIGHTS.
a. So long as any shares of Series A are outstanding, a
majority of the holders of Series A shall at all times have the
exclusive right to designate a number of members of the Corporation's
Board of Directors equal to the greater of: (i) such number as would
equal a majority of the maximum authorized number of directors and (ii)
such number as would be as close as possible to the product of (x) the
percentage of the outstanding voting power of the Corporation entitled
to vote generally in the election of directors that is represented by
the outstanding shares of Series A at such time, multiplied by (y) the
maximum authorized number of directors. Upon receipt by the Corporation
of written notice signed by or on behalf of the holders of a majority
of the outstanding shares of Series A designating the persons to serve
on the Board of Directors as the initial designees of the Series A
holders (the "Series A Directors"), the Board of Directors of the
Corporation shall immediately appoint the designees named in such
notice. In lieu of delivery of notice to the Corporation as described
in the preceding sentence, at their discretion, the holders of shares
of Series A may
-5-
<PAGE> 6
elect the Series A Directors at any annual meeting of stockholders or
any special meeting of the holders of shares of Series A. The Series A
Directors so elected shall hold office until the next annual meeting of
the stockholders; the holders of Series A thereafter shall be entitled
to elect the Series A Directors at each such annual meeting of
stockholders or may designate such directors by written consent or at a
special meeting of Series A shareholders, in accordance with the
procedures herein provided. If at any time the number of directors that
may be designated by the holders of Series A shall increase based on an
increase in the percentage of the outstanding voting power of the
Corporation represented by the outstanding shares of Series A, the
holders of Series A may immediately designate such additional directors
by written consent or vote at a special meeting of Series A holders
called for such purpose.
b. In case any vacancy shall occur among the directors elected
by the holders of shares of Series A as provided in this Section 9,
such vacancy may be filled for the unexpired portion of the term by
majority vote of the remaining directors theretofore elected by such
holders (if there is one or more remaining directors) or, in the
alternative, by the written consent or vote (at a special or annual
meeting) of a majority of the holders of the Series A then outstanding
and entitled to vote for such directors.
c. Any director elected by the holders of Series A may be
removed from office at any time with or without cause, but only by the
written consent or vote (at a special or annual meeting) of a majority
of the holders of the Series A then outstanding and entitled to vote
for such directors.
d. Upon the written request of holders of a majority of the
outstanding shares of Series A addressed to the Secretary of the
Corporation at the principal office of the Corporation, the Secretary
of the Corporation shall call a special meeting of Series A holders.
Such meeting shall be held within thirty (30) days after delivery of
such request to the Secretary, at the place and upon the notice
provided by law and in the bylaws of the Corporation, as then in
effect, for the holding of stockholder meetings.
e. Any action required or permitted to be taken by the Series
A stockholders at any stockholder meeting, whether annual or special,
may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall
be signed by the holders of outstanding shares of Series A having not
less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting.
f. As to matters other than the election of directors, the
holders of Series A shall vote together with the holders of Common
Stock (and of any other class or series which may similarly be entitled
to vote with the holders of Common Stock) as a single class on all
matters on which holders of Common Stock are entitled to vote. Each
share of Series A shall entitle its holder to cast a number of votes
equal to the number of votes that could be cast by a holder of the
percentage of then outstanding shares of Common Stock (calculated on a
fully
-6-
<PAGE> 7
diluted basis) equal to the Voting Ratio as of the record date for such
vote, or if there is no record date for the vote, on the date such vote
is taken. The "Voting Ratio," which shall be subject to adjustment from
time to time upon the Corporation's issuance of additional shares of
Series A, shall be equal to: (x) 0.16 divided by (y) the sum of (i) 500
plus (ii) the number of additional shares of Series A issued by the
Corporation since the initial date of issuance of the Series A. The
term "fully diluted" shall mean the total number of shares of Common
Stock outstanding assuming the exercise of all outstanding warrants,
stock options or similar rights to acquire shares of Common Stock and
the conversion of all evidences of indebtedness, shares (other than
Common Stock) and other securities convertible into or exchangeable for
shares of Common Stock; provided, the total number of shares of Common
Stock outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Corporation or
its subsidiaries.
g. So long as any shares of Series A are outstanding, in
addition to any other vote or consent of stockholders required by law
or by the certificate of incorporation, the vote or consent of the
holders of a majority of the shares of Series A and all other series of
the Preferred Stock similarly entitled to vote upon the matters
specified in this paragraph at the time outstanding, voting separately
as a single class regardless of series, given in person or by proxy,
either in writing without a meeting or by vote at any meeting called
for the purpose, shall be necessary for effecting or validating:
i. any amendment, alteration or repeal (including by
merger or consolidation) of any of the provisions of the terms of the
Series A or any other amendment, alteration or repeal of any provisions
of the certificate of incorporation or of the by-laws of the
Corporation;
ii. the authorization or creation of, or increase in
the authorized amount of, any shares of any class or series or any
security convertible into shares of any class or series of capital
stock of the Corporation ranking prior to or on a parity with Series A
in the payment of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Corporation; or
iii. any (x) merger or consolidation of the
Corporation with or into any other corporation, unless the Corporation
shall be the surviving or resulting corporation and the shares of
Series A remain outstanding immediately upon completion of such merger
or consolidation or (y) sale of all or substantially all of the
Corporation's assets; or
iv. any issuance of shares of Series A other than
pursuant to Section 5(a).
SECTION 9. OTHER RIGHTS. The shares of Series A shall not have any
voting powers, preferences or relative, participating, optional or other special
rights, or qualifications, limitations or restrictions thereof, other than as
set forth herein or in the Certificate of Incorporation of the Corporation.
-7-
<PAGE> 8
SECTION 10. RESTATEMENT OF CERTIFICATE. Upon any restatement of the
Certificate of Incorporation of the Corporation, Sections 1 through 10 of this
Certificate of Designations shall be included in the Certificate of
Incorporation under the heading "Series A Cumulative Preferred Stock" and this
Section 11 may be omitted. If the Board of Directors so determines, the
numbering of Sections 1 through 10 may be changed for convenience of reference
or for any other proper purpose."
-8-
<PAGE> 9
[SIGNATURE PAGE - SERIES A PREFERRED CERTIFICATE OF DESIGNATIONS]
IN WITNESS WHEREOF, Sierra Well Service, Inc. has caused this
certificate to be signed by Bill E. Coggin, its Vice Chairman, this 31st day of
March, 1999.
SIERRA WELL SERVICE, INC.,
A Delaware corporation
By: /s/ Bill E. Coggin
--------------------------------------
Name: Bill E. Coggin
Title: Vice Chairman
S-1
<PAGE> 1
EXHIBIT 3.4
[EXECUTION VERSION]
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
SIERRA WELL SERVICE, INC.
SIERRA WELL SERVICE, INC., a Delaware corporation (the "Corporation"),
DOES HEREBY CERTIFY:
That the following resolutions were duly adopted by the Board of
Directors of the Corporation (the "Board of Directors") at a meeting duly
convened and held on March 29, 1999, pursuant to authority conferred upon the
Board of Directors by the provisions of the Certificate of Incorporation of the
Corporation that authorize the issuance of up to 2,500 shares of preferred stock
(the "Preferred Stock"):
"BE IT RESOLVED, that the issuance of a series of Preferred
Stock of Sierra Well Service, Inc. (the "Corporation") is hereby
authorized, and the designation, voting powers, preferences and
relative, participating, optional and other special rights, and
qualifications, limitations and restrictions thereof, of the shares of
such series, in addition to those set forth in the Certificate of
Incorporation of the Corporation, are hereby fixed as follows.
SECTION 1. DESIGNATION. The distinctive serial designation of such
series shall be "Series B Convertible Preferred Stock" (hereinafter called
"Series B"). Each share of Series B shall have a par value of $1 per share and
shall be identical in all respects with all other shares of Series B.
SECTION 2. RANK. All shares of the Series B shall rank (i) prior to the
Corporation's Common Stock; (ii) junior to the Corporation's Series A Cumulative
Preferred Stock (the "Series A"); and (iii) except as specifically provided
herein, prior to any class or series of capital stock of the Corporation
hereafter created (unless, with the consent of a majority of the holders of
Series B and all other series of the Preferred Stock obtained in accordance with
Section 9(b) hereof, such class or series of capital stock specifically, by its
terms, ranks senior to or pari passu with the Series B).
<PAGE> 2
SECTION 3. NUMBER OF SHARES. The number of shares of Series B shall
initially be 1,000, which number may from time to time be decreased (but not
below the number of shares of Series B then outstanding) by the Board of
Directors. Shares of Series B that are converted into Common Stock shall be
canceled and shall revert to authorized but unissued shares of Preferred Stock
undesignated as to series.
SECTION 4. DEFINITIONS. As used herein with respect to Series B, the
following terms shall have the following meanings:
a. The term "junior stock" shall mean the Common Stock and any
other class or series of capital stock of the Corporation hereafter
authorized over which Series B has preference or priority in the
payment of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Corporation.
b. The term "parity stock" shall mean any other class or
series of stock of the Corporation hereafter authorized which ranks on
a parity with Series B in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or winding up of
the Corporation.
c. The term "business day" shall mean each Monday, Tuesday,
Wednesday, Thursday or Friday on which banking institutions in New
York, New York are not authorized or obligated by law, regulation or
executive order to close.
SECTION 5. DIVIDENDS. The holders of record, as of the record date
therefor or, if there is no such record date, as of the date of payment thereof,
of shares of Series B shall be entitled to receive, when, as and if declared by
the Board of Directors of the Corporation, out of funds legally available
therefor, any dividends payable on the Common Stock, as and when paid, in an
amount equal to the amount each such holder would have received if such holder's
shares of Series B had been converted into Common Stock pursuant to Section 8
immediately prior to the record date or, if there is no such record date, on the
date of payment thereof. Except as provided in this Section 5, holders of shares
of Series B shall not be entitled to any dividends unless authorized by
unanimous vote of the Board of Directors.
SECTION 6. LIQUIDATION RIGHTS. In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation (an "event of
liquidation"), the holders of the outstanding shares of Series B shall be deemed
to have elected, immediately prior to such event of liquidation, to convert
their shares of Series B into Common Stock pursuant to Section 8 hereof;
provided, however, that each holder of Series B shall have the right upon an
event of liquidation to elect in writing to receive the liquidation preference
(as hereinafter defined) with respect to its shares of Series B in lieu of
converting such shares into Common Stock. Upon an event of liquidation, before
any distribution
<PAGE> 3
or payment out of the assets of the Corporation shall be made to or set aside
for the holders of any junior stock, the holders of shares of Series B who have
elected to receive the liquidation preference shall be entitled to receive in
full an amount equal to $1.00 per share (which amount is referred to herein as
the "liquidation preference"). In determining whether a distribution (other than
upon voluntary or involuntary liquidation), by dividend, redemption or other
acquisition of shares or otherwise, is permitted under the Delaware General
Corporation Law, amounts that would be needed, if the Corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of holders of shares of Series B whose preferential rights upon
dissolution are superior to those receiving the distribution shall not be added
to the Corporation's total liabilities. If the assets of the Corporation are not
sufficient to pay such amount in full to all holders of shares of Series B and
any parity stock, the amounts paid to holders of shares of Series B and holders
of all parity stock shall be pro rata in accordance with the respective
aggregate liquidation preferences of Series B and all such parity stock.
If such amount shall have been paid in full to all holders of shares of
Series B, the remaining assets of the Corporation shall be distributed among the
holders of junior stock, according to their respective rights and preferences
and in each case according to their respective numbers of shares. For the
purposes of this Section 6, the consolidation or merger of the Corporation with
any other corporation shall not be deemed to constitute a liquidation,
dissolution or winding up of the Corporation.
SECTION 7. REDEMPTION.. The Corporation shall not be entitled to redeem
shares of Series B at any time.
SECTION 8. CONVERSION RIGHTS. Each holder of shares of Series B shall
have the right, at such holder's option, to convert any or all of such holder's
shares of Series B into shares of Common Stock of the Corporation at any time on
and subject to the following terms and conditions.
a. The shares of Series B shall be convertible at the
principal office of the Corporation, and at such other office or
offices, if any, as the Board of Directors may designate, into fully
paid and non-assessable shares (calculated as to each conversion to the
nearest 1/100th of a share) of Common Stock of the Corporation, at the
ratio (herein called the "conversion amount") of:
(i) 0.025% of the total number of then outstanding
shares of Common Stock (calculated on a fully
diluted basis) per share of Series B; or
(ii) 0.030% of the total number of then outstanding
shares of Common Stock (calculated on a fully
diluted basis) per share of Series B, if
<PAGE> 4
Series A is redeemed in full by the Corporation on a
date that was after December 31, 1999 but before
July 1, 2000; or
(iii) 0.035% of the total number of then outstanding
shares of Common Stock (calculated on a fully
diluted basis, as defined below) per share of Series
B, if, as of July 1, 2000, one or more shares of the
Corporation's Series A remain outstanding.
Upon each conversion of Series B, the holder thereof shall be entitled
to receive, in addition to the shares of Common Stock or other capital
stock issuable upon such conversion, all dividends accrued to the date
of conversion on the shares of Series B being converted. The term
"fully diluted" shall mean the total number of shares of Common Stock
outstanding assuming the exercise of all outstanding warrants, stock
options or similar rights to acquire shares of Common Stock and the
conversion of all evidences of indebtedness, shares (other than Common
Stock) and other securities convertible into or exchangeable for shares
of Common Stock; provided, the total number of shares of Common Stock
outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Corporation or
its subsidiaries.
b. In order to convert shares of Series B into Common Stock
the holder thereof shall surrender at the office or offices hereinabove
mentioned the certificate or certificates therefor, duly endorsed or
assigned to the Corporation or in blank, and give written notice to the
Corporation at said office or offices that such holder elects to
convert such shares. Except for the payment by the Corporation of
accrued dividends pursuant to paragraph (a) above, no payment or
adjustment shall be made upon any conversion on account of any unpaid
or accrued dividends on the shares or Series B surrendered for
conversion or on account of any dividends on the Common Stock issued
upon conversion. Shares of Series B shall be deemed to have been
converted immediately prior to the close of business on the day of the
surrender of the certificates for such shares for conversion in
accordance with the foregoing provisions, and the person or persons
entitled to receive the Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of
such Common Stock at such time. As promptly as practicable on or after
the conversion date, the Corporation shall issue and deliver at such
office a certificate or certificates for the number of full shares of
Common Stock issuable upon such conversion, together with payment in
lieu of any fraction of a share, as hereinafter provided, to the person
or persons entitled to receive the same.
c. No fractional shares of Common Stock shall be issued upon
conversion of shares of Series B, but, instead of any fraction of a
share which would otherwise be issuable, the Corporation shall pay cash
in respect of such fraction in an amount equal to the same
<PAGE> 5
fraction of the Closing Price on the date on which the certificate or
certificates for such shares were duly surrendered for conversion, or,
if such date is not a Trading Day, on the next Trading Day.
d. The number and kind of shares of capital stock of the
Corporation issuable on conversion shall be adjusted from time to time
as follows:
i. In case the Corporation shall issue by
reclassification of its outstanding Common Stock (whether
pursuant to a merger or consolidation or otherwise) any other
shares of capital stock of the Corporation, the holder of any
shares of Series B surrendered for conversion after the record
date fixed by the Board of Directors for such reclassification
shall be entitled to receive the aggregate number and kind of
shares of capital stock of the Corporation which, if such
shares of Series B had been converted immediately prior to
such record date, such holder would have been entitled to
receive by virtue of such reclassification.
ii. In case of any consolidation or merger of the
Corporation with or into another corporation or entity (other
than a merger with another corporation in which the
Corporation is the surviving corporation and which does not
result in any reclassification or change in the Common Stock
issuable upon conversion of shares of Series B), or in the
case of a statutory share exchange in which all shares of
Common Stock are exchanged for shares of another corporation
or entity, the holders of shares of Series B shall have, and
the Corporation or such successor entity or purchaser shall
covenant in the constituent documents effecting any of the
foregoing transactions that the holders of shares of Series B
shall have, the right to obtain upon conversion of shares of
Series B, in lieu of each share of Common Stock theretofore
issuable upon exercise of the conversion rights set forth
herein, the kind and amount of shares of stock, other
securities, money and property receivable upon such
consolidation or merger or share exchange by a holder of one
share of Common Stock issuable upon exercise of the conversion
rights set forth herein as if they had been exercised
immediately prior to such consolidation or merger or share
exchange. The constituent documents effecting any such
consolidation or merger or share exchange shall provide for
adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided in this paragraph. The
provisions of this paragraph shall apply similarly to
successive consolidations or mergers or shares exchanges.
e. In case:
<PAGE> 6
i. of any reclassification of the capital stock of
the Corporation (other than a subdivision or combination of
its outstanding shares of Common Stock), or of any
consolidation or merger to which the Corporation is a party
and for which approval of any stockholders of the Corporation
is required, or of the sale, transfer or other disposition of
all or substantially all of the assets of the Corporation; or
ii. of the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with each transfer agent for the
shares of Series B (or, if no transfer agent, shall keep on file at its offices)
and shall cause to be mailed to the holders of record of the outstanding shares
of Series B, at least 20 days prior to the applicable record or effective date
hereinafter specified, a notice stating the date on which such reclassification,
consolidation, merger, sale, transfer, disposition, liquidation, dissolution or
winding up is expected to become effective, and the date as of which it is
expected that holders of record of Common Stock shall be entitled to exchange
their shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, disposition,
liquidation, dissolution or winding up. Failure to give notice as required by
this subsection (e), or any defect therein, shall not affect the validity of any
such dividend, distribution, right, warrant, reclassification, consolidation,
merger, sale, transfer, disposition, liquidation, dissolution or winding up, or
the vote on any action authorizing such.
f. The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but
unissued Common Stock, for the purpose of issuance upon conversion of
shares of Series B, the full number of shares of Common Stock then
deliverable upon the conversion of all shares of Series B then
outstanding.
g. The Corporation shall pay any and all transfer taxes that
may be payable in respect of the issuance or delivery of shares of
Common Stock on conversion of shares of Series B pursuant hereto, other
than any tax in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which
the shares of Series B so converted were registered. No such issuance
or delivery in a name other than that in which the shares of Series B
were registered shall be made unless and until the person requesting
such issuance or delivery has paid to the Corporation the amount of any
such tax or has established to the satisfaction of the Corporation that
such tax has been paid.
h. For the purpose of this Section 8, the term "Common Stock"
shall mean the class of stock of the Corporation which, as of the first
date of issuance of shares of Series B, has no preference or priority
in the payment of dividends or in the distribution of assets in the
event of any voluntary or involuntary liquidation, dissolution or
winding up of the
<PAGE> 7
Corporation and which is not subject to redemption by the Corporation
and shares of the Corporation of any classes or series resulting from
any reclassification or reclassifications thereof.
i. As used in this Section 8, the term "Closing Price" on any
day shall mean the reported last sale price per share of Common Stock
regular way on such day or, in case no such sale takes place on such
day, the average of the reported closing bid and asked prices regular
way, in each case on the New York Stock Exchange, or if the Common
Stock is not listed or admitted to trading on such Exchange, on the
American Stock Exchange, or, if the Common Stock is not listed or
admitted to trading on such Exchange, on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading
on any national securities exchange, the average of the closing bid and
asked prices in the over-the-counter market as reported by the National
Association of Securities Dealers' Automated Quotation System, or, if
not so reported, as reported by the National Quotation Bureau,
Incorporated, or any successor thereof, or, if not so reported, the
average of the closing bid and asked prices as furnished by any member
of the National Association Securities Dealers, Inc. selected from time
to time by the Corporation for that purpose, or, if such prices are
unavailable, the fair market value per share of Common Stock on the
applicable date as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board resolution ,
provided that in the event the Corporation's stockholders have approved
an incentive stock option plan, such determination shall be made by the
Board of Directors in accordance with such plan and such determination
shall be final and conclusive. The term "Trading Day" shall mean a day
on which the principal national securities exchange on which the Common
Stock is listed or admitted to trading is open for the transaction of
business or, if the Common Stock is not listed or admitted to trading
on any national securities exchange, a business day.
SECTION 9. VOTING RIGHTS.
a. The holders of Series B shall vote together with the
holders of Common Stock (and of any other class or series which may
similarly be entitled to vote with the holders of Common Stock) as a
single class on all matters on which holders of Common Stock are
entitled to vote. Each share of Series B shall entitle its holder to
cast a number of votes equal to the number of votes that could be cast
by a holder of 0.035% of the total number of then outstanding shares of
Common Stock (calculated on a fully diluted basis) as of the record
date for such vote, or if there is no record date for the vote, on the
date such vote is taken.
b. Upon the written request of holders of a majority of the
outstanding shares of Series B addressed to the Secretary of the
Corporation at the principal office of the Corporation, the Secretary
of the Corporation shall call a special meeting of the Series B
stockholders. Such meeting shall be held within thirty (30) days after
delivery of such request to the Secretary, at the place and upon the
notice provided by law and in the bylaws of the Corporation, as then in
effect, for the holding stockholder meetings.
<PAGE> 8
c. Any action required or permitted to be taken by the Series
B stockholders at any stockholder meeting, whether annual or special,
may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall
be signed by the holders of outstanding shares of Series B having not
less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting.
d. So long as any shares of Series B are outstanding, in
addition to any other vote or consent of stockholders required by law
or by the certificate of incorporation, the vote or consent of the
holders of a majority of the shares of Series B and all other series of
the Preferred Stock similarly entitled to vote upon the matters
specified in this paragraph at the time outstanding, voting separately
as a single class regardless of series, given in person or by proxy,
either in writing without a meeting or by vote at any meeting called
for the purpose, shall be necessary for effecting or validating:
i. any amendment, alteration or repeal (including by
merger or consolidation) of any of the provisions of the terms of the
Series B or any other amendment, alteration or repeal of any provisions
of the certificate of incorporation or of the by-laws of the
Corporation;
ii. the authorization or creation of, or increase in
the authorized amount of, any shares of any class or series or any
security convertible into shares of any class or series of capital
stock of the Corporation ranking prior to or on a parity with Series B
in the payment of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Corporation; or
iii. any (x) merger or consolidation of the
Corporation with or into any other corporation, unless the Corporation
shall be the surviving or resulting corporation and the shares of
Series B remain outstanding immediately upon completion of such merger
or consolidation or (y) sale of all or substantially all of the
Corporation's assets; or
iv. any issuance of shares of Series B other than
pursuant to Section 5(a).
SECTION 10. OTHER RIGHTS. The shares of Series B shall not have any
voting powers, preferences or relative, participating, optional or other special
rights, or qualifications, limitations or restrictions thereof, other than as
set forth herein or in the Certificate of Incorporation of the Corporation.
SECTION 11. RESTATEMENT OF CERTIFICATE. Upon any restatement of the
Certificate of Incorporation of the Corporation, Sections 1 through 10 of this
Certificate of Designations shall be included in the Certificate of
Incorporation under the heading "Series B Cumulative Convertible Preferred
Stock" and this Section 11 may be omitted. If the Board of Directors so
determines, the numbering of Sections 1 through 10 may be changed for
convenience of reference or for any other proper purpose."
<PAGE> 9
[SIGNATURE PAGE - SERIES B PREFERRED CERTIFICATE OF DESIGNATIONS]
IN WITNESS WHEREOF, Sierra Well Service, Inc. has caused this
certificate to be signed by Bill E. Coggin, its Vice Chairman, this
31st day of March, 1999.
SIERRA WELL SERVICE, INC.,
A Delaware corporation
By: /s/ Bill E. Coggin
-------------------------------------
Name: Bill E. Coggin
Title: Vice Chairman
<PAGE> 1
EXHIBIT 3.5
[EXECUTION VERSION]
CERTIFICATE OF DESIGNATIONS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
SIERRA WELL SERVICE, INC.
SIERRA WELL SERVICE, INC., a Delaware corporation (the "Corporation"),
DOES HEREBY CERTIFY:
That the following resolutions were duly adopted by the Board of
Directors of the Corporation (the "Board of Directors") at a meeting duly
convened and held on March 29, 1999, pursuant to authority conferred upon the
Board of Directors by the provisions of the Certificate of Incorporation of the
Corporation that authorize the issuance of up to 2,500 shares of preferred stock
(the "Preferred Stock"):
"BE IT RESOLVED, that the issuance of a series of Preferred
Stock of Sierra Well Service, Inc. (the "Corporation") is hereby
authorized, and the designation, voting powers, preferences and
relative, participating, optional and other special rights, and
qualifications, limitations and restrictions thereof, of the shares of
such series, in addition to those set forth in the Certificate of
Incorporation of the Corporation, are hereby fixed as follows.
SECTION 1. DESIGNATION. The distinctive serial designation of such
series shall be "Series C Convertible Preferred Stock" (hereinafter called
"Series C"). Each share of Series C shall have a par value of $1,000 per share
and shall be identical in all respects with all other shares of Series C.
SECTION 2. RANK. All shares of the Series C shall rank (i) prior to the
Corporation's Common Stock; (ii) junior to the Corporation's Series A Cumulative
Preferred Stock (the "Series A") and Series B Convertible Preferred Stock (the
"Series B"); and (iii) except as specifically provided herein, prior to any
class or series of capital stock of the Corporation hereafter created (unless,
with the consent of a majority of the holders of Series C and all other series
of the Preferred Stock obtained in accordance with Section 10(b) hereof, such
class or series of capital stock specifically, by its terms, ranks senior to or
pari passu with the Series C).
<PAGE> 2
SECTION 3. NUMBER OF SHARES. The number of shares of Series C shall
initially be one (1). Shares of Series C that are converted into Common Stock
shall be canceled and shall revert to authorized but unissued shares of
Preferred Stock undesignated as to series.
SECTION 4. DEFINITIONS. As used herein with respect to Series C, the
following terms shall have the following meanings:
a. The term "junior stock" shall mean the Common Stock and any
other class or series of capital stock of the Corporation hereafter
authorized over which Series C has preference or priority in the
payment of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Corporation.
b. The term "parity stock" shall mean any other class or
series of stock of the Corporation hereafter authorized which ranks on
a parity with Series C in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or winding up of
the Corporation.
c. The term "business day" shall mean each Monday, Tuesday,
Wednesday, Thursday or Friday on which banking institutions in New
York, New York are not authorized or obligated by law, regulation or
executive order to close.
SECTION 5. DIVIDENDS. The holders of record, as of the record date
therefor or, if there is no such record date, as of the date of payment thereof,
of shares of Series C shall be entitled to receive, when, as and if declared by
the Board of Directors of the Corporation, out of funds legally available
therefor, any dividends payable on the Common Stock, as and when paid, in an
amount equal to the amount each such holder would have received if such holder's
shares of Series C had been converted into Common Stock pursuant to Section 8
immediately prior to the record date or, if there is no such record date, on the
date of payment thereof. Except as provided in this Section 5, holders of shares
of Series C shall not be entitled to any dividends unless authorized by
unanimous vote of the Board of Directors.
SECTION 6. LIQUIDATION RIGHTS. In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation (an "event of
liquidation"), the holders of the outstanding shares of Series C shall be deemed
to have elected, immediately prior to such event of liquidation, to convert
their shares of Series C into Common Stock pursuant to Section 8 hereof;
provided, however, that each holder of Series C shall have the right upon an
event of liquidation to elect in writing to receive the liquidation preference
(as hereinafter defined) with respect to its shares of Series C in lieu of
converting such shares into Common Stock. Upon an event of liquidation, before
any distribution or payment out of the assets of the Corporation shall be made
to or set aside for the holders of any junior stock, the holders of shares of
Series C who shall have elected to receive the liquidation
-2-
<PAGE> 3
preference shall be entitled to receive in full an amount equal to $1,000.00 per
share (which amount is referred to herein as the "liquidation preference"). In
determining whether a distribution (other than upon voluntary or involuntary
liquidation), by dividend, redemption or other acquisition of shares or
otherwise, is permitted under the Delaware General Corporation Law, amounts that
would be needed, if the Corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of holders of
shares of Series C whose preferential rights upon dissolution are superior to
those receiving the distribution shall not be added to the Corporation's total
liabilities. If the assets of the Corporation are not sufficient to pay such
amount in full to all holders of shares of Series C and any parity stock, the
amounts paid to holders of shares of Series C and holders of all parity stock
shall be pro rata in accordance with the respective aggregate liquidation
preferences of Series C and all such parity stock.
If such amount shall have been paid in full to all holders of shares of
Series C, the remaining assets of the Corporation shall be distributed among the
holders of junior stock, according to their respective rights and preferences
and in each case according to their respective numbers of shares. For the
purposes of this Section 6, the consolidation or merger of the Corporation with
any other corporation shall not be deemed to constitute a liquidation,
dissolution or winding up of the Corporation.
SECTION 7. REDEMPTION. The Corporation shall not be entitled to redeem
shares of Series C at any time.
SECTION 8. CONVERSION RIGHTS. After June 30, 2000, each holder of
shares of Series C shall have the right, at such holder's option, to convert any
or all of such holder's shares of Series C into shares of Common Stock of the
Corporation at any time on and subject to the following terms and conditions.
a. The shares of Series C shall be convertible at the
principal office of the Corporation, and at such other office or
offices, if any, as the Board of Directors may designate, into fully
paid and non-assessable shares (calculated as to each conversion to the
nearest 1/100th of a share) of Common Stock of the Corporation, at the
ratio (herein called the "conversion amount") of:
(i) 10% of the total number of then outstanding
shares of Common Stock (calculated on a
fully diluted basis, as defined below) per
share of Series C, if the Series A is
redeemed in full by the Corporation on a
date that was after June 30, 2000 but before
July 1, 2001;
(ii) 20% of the total number of then outstanding
shares of Common Stock (calculated on a
fully diluted basis) per share of Series C,
if the Series
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<PAGE> 4
A is redeemed in full by the Corporation on
a date that was after June 30, 2001 but
before July 1, 2002;
(iii) 30% of the total number of then outstanding
shares of Common Stock (calculated on a
fully diluted basis) per share of Series C,
if the Series A is redeemed in full by the
Corporation on a date that was after June
30, 2002 but before July 1, 2003;
(iv) 40% of the total number of then outstanding
shares of Common Stock (calculated on a
fully diluted basis) per share of Series C,
if the Series A is redeemed in full by the
Corporation on a date that was after June
30, 2003 but before July 1, 2004; or
(v) 65% of the total number of then outstanding
shares of Common Stock (calculated on a
fully diluted basis) per share of Series C,
if, as of July 1, 2004, one or more shares
of the Corporation's Series A remain
outstanding.
Upon each conversion of Series C, the holder thereof shall be entitled
to receive, in addition to the shares of Common Stock or other capital
stock issuable upon such conversion, all dividends accrued to the date
of conversion on the shares of Series C being converted. The term
"fully diluted" shall mean the total number of shares of Common Stock
outstanding assuming the exercise of all outstanding warrants, stock
options or similar rights to acquire shares of Common Stock and the
conversion of all evidences of indebtedness, shares (other than Common
Stock) and other securities convertible into or exchangeable for shares
of Common Stock; provided, the total number of shares of Common Stock
outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Corporation or
its subsidiaries.
b. In order to convert shares of Series C into Common Stock
the holder thereof shall surrender at the office or offices hereinabove
mentioned the certificate or certificates therefor, duly endorsed or
assigned to the Corporation or in blank, and give written notice to the
Corporation at said office or offices that such holder elects to
convert such shares. Except for the payment by the Corporation of
accrued dividends pursuant to paragraph (a) above, no payment or
adjustment shall be made upon any conversion on account of any unpaid
or accrued dividends on the shares or Series C surrendered for
conversion or on account of any dividends on the Common Stock issued
upon conversion. Shares of Series C shall be deemed to have been
converted immediately prior to the close of business on the day of the
surrender of the certificates for such shares for conversion in
accordance with the foregoing provisions, and the person or persons
entitled to receive the Common Stock
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<PAGE> 5
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Common Stock at such time. As promptly
as practicable on or after the conversion date, the Corporation shall
issue and deliver at such office a certificate or certificates for the
number of full shares of Common Stock issuable upon such conversion,
together with payment in lieu of any fraction of a share, as
hereinafter provided, to the person or persons entitled to receive the
same.
c. No fractional shares of Common Stock shall be issued upon
conversion of shares of Series C, but, instead of any fraction of a
share which would otherwise be issuable, the Corporation shall pay cash
in respect of such fraction in an amount equal to the same fraction of
the Closing Price on the date on which the certificate or certificates
for such shares were duly surrendered for conversion, or, if such date
is not a Trading Day, on the next Trading Day.
d. The number and kind of shares of capital stock of the
Corporation issuable on conversion shall be adjusted from time to time
as follows:
i. In case the Corporation shall issue by
reclassification of its outstanding Common Stock (whether
pursuant to a merger or consolidation or otherwise) any other
shares of capital stock of the Corporation, the holder of any
shares of Series C surrendered for conversion after the record
date fixed by the Board of Directors for such reclassification
shall be entitled to receive the aggregate number and kind of
shares of capital stock of the Corporation which, if such
shares of Series C had been converted immediately prior to
such record date, such holder would have been entitled to
receive by virtue of such reclassification.
ii. In case of any consolidation or merger of the
Corporation with or into another corporation or entity (other
than a merger with another corporation in which the
Corporation is the surviving corporation and which does not
result in any reclassification or change in the Common Stock
issuable upon conversion of shares of Series C), or in the
case of a statutory share exchange in which all shares of
Common Stock are exchanged for shares of another corporation
or entity, the holders of shares of Series C shall have, and
the Corporation or such successor entity or purchaser shall
covenant in the constituent documents effecting any of the
foregoing transactions that the holders of shares of Series C
shall have, the right to obtain upon conversion of shares of
Series C, in lieu of each share of Common Stock theretofore
issuable upon exercise of the conversion rights set forth
herein, the kind and amount of shares of stock, other
securities, money and property receivable upon such
consolidation or merger or share exchange by a holder of one
share of Common Stock issuable upon exercise of the conversion
rights set forth herein as if they had
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<PAGE> 6
been exercised immediately prior to such consolidation or
merger or share exchange. The constituent documents effecting
any such consolidation or merger or share exchange shall
provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided in this
paragraph. The provisions of this paragraph shall apply
similarly to successive consolidations or mergers or shares
exchanges.
e. In case:
i. of any reclassification of the capital stock of
the Corporation (other than a subdivision or combination of
its outstanding shares of Common Stock), or of any
consolidation or merger to which the Corporation is a party
and for which approval of any stockholders of the Corporation
is required, or of the sale, transfer or other disposition of
all or substantially all of the assets of the Corporation; or
ii. of the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with each transfer agent for the
shares of Series C (or, if no transfer agent, shall keep on file at its offices)
and shall cause to be mailed to the holders of record of the outstanding shares
of Series C, at least 20 days prior to the applicable record or effective date
hereinafter specified, a notice stating the date on which such reclassification,
consolidation, merger, sale, transfer, disposition, liquidation, dissolution or
winding up is expected to become effective, and the date as of which it is
expected that holders of record of Common Stock shall be entitled to exchange
their shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, disposition,
liquidation, dissolution or winding up. Failure to give notice as required by
this subsection (e), or any defect therein, shall not affect the validity of any
such dividend, distribution, right, warrant, reclassification, consolidation,
merger, sale, transfer, disposition, liquidation, dissolution or winding up, or
the vote on any action authorizing such.
f. The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but
unissued Common Stock, for the purpose of issuance upon conversion of
shares of Series C, the full number of shares of Common Stock then
deliverable upon the conversion of all shares of Series C then
outstanding.
g. The Corporation shall pay any and all transfer taxes that
may be payable in respect of the issuance or delivery of shares of
Common Stock on conversion of shares of Series C pursuant hereto, other
than any tax in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which
the shares of Series C so converted were registered. No such issuance
or delivery in a name other than that in which the
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<PAGE> 7
shares of Series C were registered shall be made unless and until the
person requesting such issuance or delivery has paid to the Corporation
the amount of any such tax or has established to the satisfaction of
the Corporation that such tax has been paid.
h. For the purpose of this Section 8, the term "Common Stock"
shall mean the class of stock of the Corporation which, as of the first
date of issuance of shares of Series C, has no preference or priority
in the payment of dividends or in the distribution of assets in the
event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation and which is not subject to redemption by
the Corporation and shares of the Corporation of any classes or series
resulting from any reclassification or reclassifications thereof.
i. As used in this Section 8, the term "Closing Price" on any
day shall mean the reported last sale price per share of Common Stock
regular way on such day or, in case no such sale takes place on such
day, the average of the reported closing bid and asked prices regular
way, in each case on the New York Stock Exchange, or if the Common
Stock is not listed or admitted to trading on such Exchange, on the
American Stock Exchange, or, if the Common Stock is not listed or
admitted to trading on such Exchange, on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading
on any national securities exchange, the average of the closing bid and
asked prices in the over-the-counter market as reported by the National
Association of Securities Dealers' Automated Quotation System, or, if
not so reported, as reported by the National Quotation Bureau,
Incorporated, or any successor thereof, or, if not so reported, the
average of the closing bid and asked prices as furnished by any member
of the National Association Securities Dealers, Inc. selected from time
to time by the Corporation for that purpose, or, if such prices are
unavailable, the fair market value per share of Common Stock on the
applicable date as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board resolution ,
provided that in the event the Corporation's stockholders have approved
an incentive stock option plan, such determination shall be made by the
Board of Directors in accordance with such plan and such determination
shall be final and conclusive. The term "Trading Day" shall mean a day
on which the principal national securities exchange on which the Common
Stock is listed or admitted to trading is open for the transaction of
business or, if the Common Stock is not listed or admitted to trading
on any national securities exchange, a business day.
SECTION 9. MANDATORY CONVERSION. Upon the terms and in the manner set
forth in this Section 9, at the option of the Corporation all outstanding shares
of Series C Preferred Stock shall be converted (the "Mandatory Conversion"),
without any action on the part of the holders thereof, into shares of Common
Stock upon the closing of an underwritten public offering of debt or equity
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<PAGE> 8
securities pursuant to the Corporation's first effective registration statement
under the Securities Act of 1933, as amended, the proceeds of which are used to
(i) repay in full the outstanding balance of the Corporation's Senior
Subordinated Credit Facility, dated as of March 31, 1999, and (ii) redeem the
Series A, if outstanding (the "Initial Public Offering"). In the event of an
Initial Public Offering, the date of the closing of the Initial Public Offering
on which the Corporation receives the proceeds of such offering or the date of
the notice by the Board of Directors, as applicable, shall be the effective date
of conversion ("Mandatory Conversion Date").
a. Each of the shares of Series C shall be converted upon the
Mandatory Conversion Date into a number of fully paid and nonassessable
shares of Common Stock upon the same basis as provided in Section 8
above.
b. On the Mandatory Conversion Date, each holder of a
certificate that, immediately prior to the closing of the Mandatory
Conversion Date, represented a number of shares of Series C shall be
entitled, upon endorsement to the Corporation or in blank and surrender
thereof to the Corporation at its principal office or at the office of
the agency maintained for such purpose, to receive in exchange therefor
a certificate (bearing such legend(s) as may be required under
applicable federal or state laws) for the number of shares of Common
Stock to which such holder shall be entitled, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash
equal to such fraction multiplied by the Closing Price of the Common
Stock as of the close of business on the date of such conversion. Until
so surrendered, each certificate that, immediately prior to the
Mandatory Conversion Date, represented a number of shares of Series C
shall, at and following the Mandatory Conversion Date, evidence solely
the ownership of shares of the Common Stock. All shares of Common Stock
into which shares of Series C shall have been converted pursuant to
this Section 9 shall be issued in full satisfaction of all rights
pertaining to such converted shares.
SECTION 10. VOTING RIGHTS.
a. The holders of Series C shall vote together with the
holders of Common Stock (and of any other class or series which may
similarly be entitled to vote with the holders of Common Stock) as a
single class on all matters on which holders of Common Stock are
entitled to vote. As of the record date for any such vote, or if there
is no record date for the vote, on the date such vote is taken, each
share of Series C shall entitle its holder to cast a number of votes
equal to the number of votes (calculated as to the nearest 1/100th of a
share) that could be cast by a holder of:
(i) 10% of the total number of then outstanding
shares of Common Stock (calculated on a
fully diluted basis) per share of Series C,
if the date
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<PAGE> 9
is before July 1, 2001 and the Series A was
redeemed in full by the Corporation on a
date that was after June 30, 2000 but before
July 1, 2001;
(ii) 20% of the total number of then outstanding
shares of Common Stock (calculated on a
fully diluted basis) per share of Series C,
if the date is before July 1, 2002 and the
Series A was redeemed in full by the
Corporation on a date that was after June
30, 2001 but before July 1, 2002;
(iii) 30% of the total number of then outstanding
shares of Common Stock (calculated on a
fully diluted basis) per share of Series C,
if the date is before July 1, 2003 and the
Series A was redeemed in full by the
Corporation on a date that was after June
30, 2002 but before July 1, 2003;
(iv) 40% of the total number of then outstanding
shares of Common Stock (calculated on a
fully diluted basis) per share of Series C,
if the date is before July 1, 2004 and the
Series A was redeemed in full by the
Corporation on a date that was after June
30, 2003 but before July 1, 2004; or
(v) 49% of the total number of then outstanding
shares of Common Stock (calculated on a
fully diluted basis) per share of Series C,
if, the date is on or after July 1, 2004
and, as of July 1, 2004, one or more shares
of the Corporation's Series A remain
outstanding.
b. Upon the written request of holders of a majority of the
outstanding shares of Series C addressed to the Secretary of the
Corporation at the principal office of the Corporation, the Secretary
of the Corporation shall call a special meeting of the Series C
stockholders. Such meeting shall be held within thirty (30) days after
delivery of such request to the Secretary, at the place and upon the
notice provided by law and in the bylaws of the Corporation, as then in
effect, for the holding stockholder meetings.
c. Any action required or permitted to be taken by the Series
C stockholders at any stockholder meeting, whether annual or special,
may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall
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<PAGE> 10
be signed by the holders of outstanding shares of Series C having not
less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting.
d. So long as any shares of Series C are outstanding, in
addition to any other vote or consent of stockholders required by law
or by the certificate of incorporation, the vote or consent of the
holders of a majority of the shares of Series C and all other series of
the Preferred Stock similarly entitled to vote upon the matters
specified in this paragraph at the time outstanding, voting separately
as a single class regardless of series, given in person or by proxy,
either in writing without a meeting or by vote at any meeting called
for the purpose, shall be necessary for effecting or validating:
i. any amendment, alteration or repeal
(including by merger or consolidation) of
any of the provisions of the terms of the
Series C or any other amendment, alteration
or repeal of any provisions of the
certificate of incorporation or of the
by-laws of the Corporation;
ii. the authorization or creation of, or
increase in the authorized amount of, any
shares of any class or series or any
security convertible into shares of any
class or series of capital stock of the
Corporation ranking prior to or on a parity
with Series C in the payment of dividends or
in the distribution of assets on any
liquidation, dissolution or winding up of
the Corporation; or
iii. any (x) merger or consolidation of the
Corporation with or into any other
corporation, unless the Corporation shall be
the surviving or resulting corporation and
the shares of Series C remain outstanding
immediately upon completion of such merger
or consolidation or (y) sale of all or
substantially all of the Corporation's
assets; or
iv. any issuance of shares of Series C other
than pursuant to Section 5(a).
SECTION 11. OTHER RIGHTS. The shares of Series C shall not have any
voting powers, preferences or relative, participating, optional or other special
rights, or qualifications, limitations or restrictions thereof, other than as
set forth herein or in the Certificate of Incorporation of the Corporation.
SECTION 12. RESTATEMENT OF CERTIFICATE. Upon any restatement of the
Certificate of Incorporation of the Corporation, Sections 1 through 11 of this
Certificate of Designations shall be included in the Certificate of
Incorporation under the heading "Series C Cumulative Convertible Preferred
Stock" and this Section 12 may be omitted. If the Board of Directors so
determines, the numbering of Sections 1 through 11 may be changed for
convenience of reference or for any other proper purpose."
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<PAGE> 11
[SIGNATURE PAGE - SERIES C PREFERRED CERTIFICATE OF DESIGNATIONS]
IN WITNESS WHEREOF, Sierra Well Service, Inc. has caused this
certificate to be signed by Bill E. Coggin, its Vice Chairman, this
31st day of March, 1999.
SIERRA WELL SERVICE, INC.,
A Delaware corporation
By: /s/ Bill E. Coggin
------------------------------------------
Name: Bill E. Coggin
Title: Vice Chairman
<PAGE> 1
EXHIBIT 10.2
SIERRA WELL SERVICE, INC.
2000 STOCK PLAN
SECTION 1. Purpose of the Plan.
The Sierra Well Service, Inc. 2000 Stock Plan (the "Plan") is intended
to promote the interests of Sierra Well Service, Inc., a Delaware corporation
(the "Company"), by encouraging officers, employees, directors and consultants
of the Company and its Affiliates to acquire or increase their equity interest
in the Company and to provide a means whereby they may develop a sense of
proprietorship and personal involvement in the development and financial success
of the Company, and to encourage them to remain with and devote their best
efforts to the business of the Company thereby advancing the interests of the
Company and its stockholders. The Plan is also contemplated to enhance the
ability of the Company and its Affiliates to attract and retain the services of
individuals who are essential for the growth and profitability of the Company.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set
forth below:
"Affiliate" shall mean (i) any entity in which the Company, directly or
indirectly, owns 50% or more of the combined voting power, as determined by the
Committee, and (ii) any "parent corporation" of the Company (as defined in
Section 424(e) of the Code) and any "subsidiary corporation" of any such parent
(as defined in Section 424(f) of the Code) thereof.
"Award" shall mean any Option, Restricted Stock, Performance Award,
Phantom Shares, Bonus Shares, Other Stock-Based Award or Cash Award.
"Award Agreement" shall mean any written or electronic agreement,
contract, or other instrument or document evidencing any Award, which may, but
need not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Bonus Shares" shall mean an award of Shares granted pursuant to
Section 6(d) of the Plan.
"Cash Award" shall mean an award payable in cash granted pursuant to
Section 6(f) of the Plan.
"Change in Control" shall mean the occurrence of any one of the
following:
<PAGE> 2
(a) the consummation of any transaction (including without limitation,
any merger, consolidation, tender offer, or exchange offer) the result
of which is that any individual or "person" (as such term is used in
Sections 13(d)(3) and 14(d)(2), of the Securities Exchange Act of 1934
(the "Exchange Act")), other than Southwest Royalties Holdings, Inc.
and its "affiliates" (as such term is defined in Rule 144 under the
Exchange Act), is or becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding securities,
(b) the individuals who, as of the effective date of the Plan,
constitute the Board (the "Incumbent Board"), cease for any reason to
constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of either (i) an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act), or an actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board or (ii) a plan or agreement to replace a majority of the
members of the Board then comprising the Incumbent Board,
(c) the sale, lease, transfer, conveyance or other disposition
(including by merger or consolidation) in one or a series of related
transactions, of all or substantially all of the assets of the Company
to an unrelated person, or
(d) the adoption of a plan relating to the liquidation or dissolution
of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations thereunder.
"Committee" shall mean the committee appointed by the Board to
administer the Plan or, if none, the Board.
"Consultant" shall mean any individual, other than a Director or an
Employee, who renders consulting services to the Company or an Affiliate for a
fee.
"Director" shall mean a "non-employee director" of the Company, as
defined in Rule 16b-3.
"Employee" shall mean any employee of the Company or an Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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<PAGE> 3
"Fair Market Value" shall mean, with respect to Shares, the closing
sales price (or, if applicable, the highest reported bid price) of a Share on
the applicable date (or if there is no trading in the Shares on such date, on
the next preceding date on which there was trading) as reported in The Wall
Street Journal (or other reporting service approved by the Committee). In the
event the Shares are not publicly traded at the time a determination of its fair
market value is required to be made hereunder, the determination of fair market
value shall be made in good faith by the Committee.
"Option" shall mean an option granted under Section 6(a) of the Plan.
Options granted under the Plan may constitute "incentive stock options" for
purposes of Section 422 of the Code or nonqualified stock options.
"Other Stock-Based Award" shall mean an award granted pursuant to
Section 6(g) of the Plan that is not otherwise specifically provided for, the
value of which is based in whole or in part upon the value of a Share.
"Participant" shall mean any Director, Employee or Consultant granted
an Award under the Plan.
"Performance Award" shall mean any right granted under Section 6(c) of
the Plan.
"Performance Objectives" means the objectives, if any, established by
the Committee that are to be achieved with respect to an Award granted under
this Plan, which may be described in terms of Company-wide objectives, in terms
of objectives that are related to performance of a division, subsidiary,
department or function within the Company or a subsidiary in which the
Participant receiving the Award is employed or in individual or other terms, and
which will relate to the period of time determined by the Committee. The
Performance Objectives intended to qualify under Section 162(m) of the Code
shall be with respect to one or more of the following (i) net earnings; (ii)
operating income; (iii) earnings before interest and taxes ("EBIT"); (iv)
earnings before interest, taxes, depreciation, and amortization expenses
("EBITDA"); (v) earnings before taxes and unusual or nonrecurring items; (vi)
revenue; (vii) return on investment; (viii) return on equity; (ix) return on
total capital; (x) return on assets; (xi) total stockholder return; (xii) return
on capital employed in the business; (xiii) stock price performance; (xiv)
earnings per share growth; and (xv) cash flows. Which objectives to use with
respect to an Award, the weighting of the objectives if more than one is used,
and whether the objective is to be measured against a Company-established budget
or target, an index or a peer group of companies, shall be determined by the
Committee in its discretion at the time of grant of the Award. A Performance
Objective need not be based on an increase or a positive result and may include,
for example, maintaining the status quo or limiting economic losses.
"Person" shall mean individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
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<PAGE> 4
"Phantom Shares" shall mean an Award of the right to receive Shares
issued at the end of a Restricted Period which is granted pursuant to Section
6(e) of the Plan.
"Restricted Period" shall mean the period established by the Committee
with respect to an Award during which the Award either remains subject to
forfeiture or is not exercisable by the Participant.
"Restricted Stock" shall mean any Share, prior to the lapse of
restrictions thereon, granted under Sections 6(b) of the Plan.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the
Exchange Act, or any successor rule or regulation thereto as in effect from time
to time.
"SEC" shall mean the Securities and Exchange Commission, or any
successor thereto.
"Shares" or "Common Shares" or "Common Stock" shall mean the common
stock of the Company, $1.00 par value, and such other securities or property as
may become the subject of Awards under the Plan.
SECTION 3. Administration.
The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum, and the acts of the members of the
Committee who are present at any meeting thereof at which a quorum is present,
or acts unanimously approved by the members of the Committee in writing, shall
be the acts of the Committee. Subject to the terms of the Plan and applicable
law, and in addition to other express powers and authorizations conferred on the
Committee by the Plan, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be granted
to a Participant; (iii) determine the number of Shares to be covered by, or with
respect to which payments, rights, or other matters are to be calculated in
connection with, Awards; (iv) determine the terms and conditions of any Award;
(v) determine whether, to what extent, and under what circumstances Awards may
be settled or exercised in cash, Shares, other securities, other Awards or other
property, or canceled, forfeited, or suspended and the method or methods by
which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi)
determine whether, to what extent, and under what circumstances cash, Shares,
other securities, other Awards, other property, and other amounts payable with
respect to an Award shall be deferred either automatically or at the election of
the holder thereof or of the Committee; (vii) interpret and administer the Plan
and any instrument or agreement relating to an Award made under the Plan; (viii)
establish, amend, suspend, or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan;
and (ix) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and
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shall be final, conclusive, and binding upon all Persons, including the Company,
any Affiliate, any Participant, any holder or beneficiary of any Award, any
stockholder and any Employee.
SECTION 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section
4(c), the aggregate number of Shares with respect to which Awards may be granted
under the Plan shall be equal to 10% of the number of Shares outstanding at the
date of any grant, but in no event to exceed 2 million Shares. If any Award is
exercised, paid, forfeited, terminated or canceled without the delivery of
Shares, then the Shares covered by such Award, to the extent of such payment,
exercise, forfeiture, termination or cancellation, shall again be Shares with
respect to which Awards may be granted.
(b) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
(c) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and type of Shares
(or other securities or property) with respect to which Awards may be granted,
(ii) the number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award or, if deemed appropriate, make provision for a cash payment to the holder
of an outstanding Award.
SECTION 5. Eligibility.
Any Employee, Director or Consultant shall be eligible to be designated
a Participant and receive an Award under the Plan.
SECTION 6. Awards.
(a) Options. Subject to the provisions of the Plan, the Committee shall
have the authority to determine the Participants to whom Options shall be
granted, the number of Shares to be covered by each Option, the purchase price
therefor and the conditions and limitations applicable to the exercise of the
Option, including the following terms and conditions and such additional terms
and conditions, as the Committee shall determine, that are not inconsistent with
the provisions of the Plan.
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(i) Exercise Price. The purchase price per Share purchasable
under an Option shall be determined by the Committee at the time the
Option is granted, but shall not be less than the Fair Market Value per
Share on such grant date.
(ii) Time and Method of Exercise. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part (which may include the achievement of one or more
Performance Objectives), and the method or methods by which, and the
form or forms, in which payment of the exercise price with respect
thereto may be made or deemed to have been made (which may include,
without limitation, cash, check acceptable to the Company, Shares held
for the period required to avoid a charge to the Company's reported
financial earnings and owned free and clear of any liens, claims,
encumbrances or security interests, outstanding Awards, a
"cashless-broker" exercise (through procedures approved by the
Company), other securities or other property, loans, notes approved by
the Committee, or any combination thereof, having a Fair Market Value
on the exercise date equal to the relevant exercise price).
(iii) Incentive Stock Options. The terms of any Option granted
under the Plan intended to be an incentive stock option shall comply in
all respects with the provisions of Section 422 of the Code, or any
successor provision, and any regulations promulgated thereunder.
Incentive stock options may be granted only to employees of the Company
and its parent corporation and subsidiary corporations, within the
meaning of Section 424 of the Code. To the extent the aggregate Fair
Market Value of the Shares (determined as of the date of grant) of an
Option to the extent exercisable for the first time during any calendar
year (under all plans of the Company and its parent and subsidiary
corporations) exceeds $100,000, such Option Shares in excess of
$100,000 shall be nonqualified stock options.
(iv) Limits. The maximum number of Options that may be
granted to any Participant during any calendar year shall not exceed
500,000 Shares.
(b) Restricted Stock. Subject to the provisions of the Plan, the
Committee shall have the authority to determine the Participants to whom
Restricted Stock shall be granted, the number of Shares of Restricted Stock to
be granted to each such Participant, the duration of the Restricted Period
during which, and the conditions, including Performance Objectives, if any,
under which if not achieved, the Restricted Stock may be forfeited to the
Company, and the other terms and conditions of such Awards.
(i) Dividends. Dividends paid on Restricted Stock may be paid
directly to the Participant, may be subject to risk of forfeiture
and/or transfer restrictions during any period established by the
Committee or sequestered and held in a bookkeeping cash account (with
or without interest) or reinvested on an immediate or deferred basis in
additional shares of Common Stock, which account or shares may be
subject to the same restrictions as the underlying Award or such other
restrictions, all as determined by the Committee in its discretion.
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<PAGE> 7
(ii) Registration. Any Restricted Stock may be evidenced in
such manner as the Committee shall deem appropriate, including, without
limitation, book-entry registration or issuance of a stock certificate
or certificates. In the event any stock certificate is issued in
respect of Restricted Stock granted under the Plan, such certificate
shall be registered in the name of the Participant and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock.
(iii) Forfeiture and Restrictions Lapse. Except as otherwise
determined by the Committee or the terms of the Award that granted the
Restricted Stock, upon termination of a Participant's employment (as
determined under criteria established by the Committee) for any reason
during the applicable Restricted Period, all Restricted Stock shall be
forfeited by the Participant and reacquired by the Company.
Unrestricted Shares, evidenced in such manner as the Committee shall
deem appropriate, shall be issued to the holder of Restricted Stock
promptly after the applicable restrictions have lapsed or otherwise
been satisfied.
(iv) Transfer Restrictions. During the Restricted Period,
Restricted Stock will be subject to the limitations on transfer as
provided in Section 6(h)(i).
(v) Limits. The maximum number of Shares of Restricted Stock
that may be granted to any Participant during any calendar year shall
not exceed 100,000 Shares.
(c) Performance Awards. The Committee shall have the authority to
determine the Participants who shall receive a Performance Award, which shall be
denominated as a cash amount (e.g., $100 per award unit) at the time of grant
and confer on the Participant the right to receive payment of such Award, in
whole or in part, upon the achievement of such Performance Objectives during
such performance periods as the Committee shall establish with respect to the
Award.
(i) Terms and Conditions. Subject to the terms of the Plan and
any applicable Award Agreement, the Committee shall determine the
Performance Objectives to be achieved during any performance period,
the length of any performance period, the amount of any Performance
Award and the amount of any payment or transfer to be made pursuant to
any Performance Award.
(ii) Payment of Performance Awards. Performance Awards, to
the extent earned, shall be paid (in cash and/or in Shares, in the sole
discretion of the Committee) in a lump sum following the close of the
performance period.
(iii) Limits. The maximum value of Performance Awards that may
be granted to any Participant during any calendar year shall not exceed
$500,000.
(d) Bonus Shares. The Committee shall have the authority, in its
discretion, to grant Bonus Shares to Participants. Each Bonus Share shall
constitute a transfer of an unrestricted Share to the Participant, without other
payment therefor, as additional compensation for the Participant's
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<PAGE> 8
services to the Company. Bonus Shares shall be in lieu of a cash bonus that
otherwise would be granted.
(e) Phantom Shares. The Committee shall have the authority to grant
Awards of Phantom Shares to Participants upon such terms and conditions as the
Committee may determine.
(i) Terms and Conditions. Each Phantom Share Award shall
constitute an agreement by the Company to issue or transfer a specified
number of Shares or pay an amount of cash equal to a specified number
of Shares, or a combination thereof to the Participant in the future,
subject to the fulfillment during the Restricted Period of such
conditions, including Performance Objectives, if any, as the Committee
may specify at the date of grant. During the Restricted Period, the
Participant shall not have any right to transfer any rights under the
subject Award, shall not have any rights of ownership in the Phantom
Shares and shall not have any right to vote such shares.
(ii) Dividends. Any Phantom Share award may provide that
amount equal to any or all dividends or other distributions paid on
Shares during the Restricted Period be credited in a cash bookkeeping
account (without interest) or that equivalent additional Phantom Shares
be awarded, which account or shares may be subject to the same
restrictions as the underlying Award or such other restrictions as the
Committee may determine.
(iii) Limits. The maximum number of Phantom Shares that may be
granted to any Participant during any calendar year shall not exceed
100,000.
(f) Cash Awards. The Committee shall have the authority to determine
the Participants to whom Cash Awards shall be granted, the amount, and the terms
or conditions, if any, as additional compensation for the Participant's services
to the Company or its Affiliates. If granted, a Cash Award shall be granted
(simultaneously or subsequently) in tandem with another Award and shall entitle
a Participant to receive a specified amount of cash from the Company upon such
other Award becoming taxable to the Participant, which cash amount may be based
on a formula relating to the anticipated taxable income associated with such
other Award and the payment of the Cash Award.
(g) Other Stock-Based Awards. The Committee may also grant to
Participants an Other Stock-Based Award, which shall consist of a right which is
an Award denominated or payable in, valued in whole or in part by reference to,
or otherwise based on or related to, Shares as is deemed by the Committee to be
consistent with the purposes of the Plan. Subject to the terms of the Plan,
including the Performance Objectives, if any, applicable to such Award, the
Committee shall determine the terms and conditions of any such Other Stock-Based
Award. The maximum number of Shares or value for which Other Stock-Based Awards
may be granted to any Participant during any calendar year shall not exceed
100,000 Shares, if the Award is in Shares, or $500,000, if the Award is in
dollars.
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<PAGE> 9
(h) Automatic Director Options.
(i) Each person who is a Director immediately following the
closing of the initial public offering of the Shares shall
automatically receive a nonqualified Option for 5,000 shares of Common
Stock.
(ii) On the date of the regular annual meeting of stockholders
of the Company in each year that this Plan is in effect (commencing
with the annual meeting of stockholders in 2001), each Director who is
serving immediately after that meeting, including a Director who was
elected for the first time at such annual meeting, shall automatically
receive a nonqualified Option grant for 1,000 shares of Common Stock.
(iii) Each Option automatically granted to a Director pursuant
to this paragraph will be subject to the following provisions:
(1) Each such Option shall be exercisable (vested) in
full on its grant date.
(2) The purchase price of each such Option shall be
the Fair Market Value of the Common Stock on its grant date.
(3) Each such Option may be exercised in full at one
time or in part from time to time by giving written notice to
the Company, stating the number of shares of Common Stock with
respect to which the Director Option is being exercised,
accompanied by payment in full of the option purchase price
for such shares, which payment may be (i) in cash or check
acceptable to the Company, (ii) by the transfer to the Company
of shares of Common Stock owned by the Director for the period
required to avoid a charge to the Company's reported financial
earnings and free and clear of any liens, claims, encumbrances
or security interests, (iii) if the Shares are publicly
traded, from the proceeds of a "cashless broker" sale through
procedures approved by the Company, or (iv) by any combination
of such methods of payment.
(4) Each such Option shall expire on the earlier of
10 years from its grant date or the first anniversary of the
date the Director ceases to be a member of the Board.
(i) General.
(i) Limits on Transfer of Awards.
(A) Except as provided in (C) below, each Award, and
each right under any Award, shall be exercisable only by the
Participant during the Participant's lifetime, or by the
person to whom the Participant's rights shall pass by will or
the laws of descent and distribution.
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(B) Except as provided in (C) below, no Award and no
right under any such Award may be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered
by a Participant otherwise than by will or by the laws of
descent and distribution (or, in the case of Restricted Stock,
to the Company) and any such purported assignment, alienation,
pledge, attachment, sale, transfer or encumbrance shall be
void and unenforceable against the Company or any Affiliate.
(C) Notwithstanding anything in the Plan to the
contrary, to the extent specifically provided by the Committee
with respect to a grant, a nonqualified stock option may be
transferred to immediate family members or related family
trusts, or similar entities on such terms and conditions as
the Committee may establish.
(ii) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee; provided, that in no
event shall the term of any Award exceed a period of 10 years from the
date of its grant.
(iii) Share Certificates. All certificates for Shares or other
securities of the Company delivered under the Plan pursuant to any
Award or the exercise thereof shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under
the Plan or the rules, regulations, and other requirements of the SEC,
any stock exchange upon which such Shares or other securities are then
listed, and any applicable federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(iv) Consideration for Grants. Awards may be granted for no
cash consideration or for such consideration as the Committee
determines including, without limitation, such minimal cash
consideration as may be required by applicable law.
(v) Delivery of Shares or other Securities upon Payment by
Participant of Consideration. No Shares or other securities shall be
delivered pursuant to any Award until payment in full of any amount
required to be paid pursuant to the Plan or the applicable Award
Agreement is received by the Company.
SECTION 7. Amendment and Termination.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. Except as required by applicable
law or the rules of the principal securities market on which the shares
are traded and subject to Section 7(b) below, the Board or the
Committee may amend, alter, suspend, discontinue, or terminate the Plan
without the consent of any stockholder, Participant, other holder or
beneficiary of an Award, or other Person.
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(b) Amendments to Awards. Subject to (d) below, the Committee
may waive any conditions or rights under, amend any terms of, or alter
any Award theretofore granted, provided no change, other than pursuant
to Section 7(c), in any Award shall reduce the benefit to Participant
without the consent of such Participant. In no event shall the
Committee take action that constitutes a "repricing" of an Option for
financial accounting purposes.
(c) Adjustment of Awards Upon the Occurrence of Certain
Unusual or Nonrecurring Events. Subject to (d) below, the Committee is
hereby authorized to make adjustments in the terms and conditions of,
and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events
described in Section 4(c) of the Plan) affecting the Company, any
Affiliate, or the financial statements of the Company or any Affiliate,
or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits
or potential benefits intended to be made available under the Plan.
(d) Section 162(m). The Committee, in its sole discretion and
without the consent of the Participant, may amend (i) any stock-based
Award to reflect (1) a change in corporate capitalization, such as a
stock split or dividend, (2) a corporate transaction, such as a
corporate merger, a corporate consolidation, any corporate separation
(including a spinoff or other distribution of stock or property by a
corporation), any corporate reorganization (whether or not such
reorganization comes within the definition of such term in Section 368
of the Code), (3) any partial or complete corporate liquidation, or (4)
a change in accounting rules required by the Financial Accounting
Standards Board and (ii) any Award that is not intended to meet the
requirements of Section 162(m) of the Code, to reflect significant
event that the Committee, in its sole discretion, believes to be
appropriate to reflect the original intent in the grant of the Award.
With respect to an Award that is subject to Section 162(m) of the Code,
the Committee (i) shall not take any action that would disqualify such
Award and (ii) must first certify that the Performance Objectives, if
applicable, have been achieved before the Award may be paid.
SECTION 8. Change in Control.
Notwithstanding any other provision of this Plan to the contrary, in
the event of a Change in Control of the Company all outstanding Awards
automatically shall become fully vested immediately prior to such Change in
Control (or such earlier time as set by the Committee), all restrictions, if
any, with respect to such Awards shall lapse, all performance criteria, if any,
with respect to such Awards shall be deemed to have been met in full (at the
highest level). Unless the Company survives as an independent publicly traded
company, all Options outstanding at the time of the event or transaction shall
terminate and the Optionee shall be paid, with respect to each Option, an amount
in cash equal to the excess of the Fair Market Value of a Share over the
Option's exercise price (if the Option exercise price exceeds the Fair Market
Value of a Share on such date,
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the Optionee shall be paid an amount in cash equal to the lesser of $1.00 or the
Black-Scholes value of the cancelled Option as determined in good faith by the
Board), unless and except to the extent provision is made in writing in
connection with such Change in Control event or transaction for the continuation
of the Plan and/or the assumption of the Options theretofore granted, or for the
substitution for such Options of new options covering the stock of a successor
entity, or the parent or subsidiary thereof, with appropriate adjustments as to
the number and kinds of shares and exercise prices, in which event the Plan and
Options theretofore granted shall continue as fully vested Options in the manner
and under the terms so provided.
SECTION 9. General Provisions.
(a) No Rights to Awards. No Director, Employee, Consultant or other
Person shall have any claim to be granted any Award, and there is no obligation
for uniformity of treatment of Employees, Consultants, or holders or
beneficiaries of Awards. The terms and conditions of Awards need not be the same
with respect to each recipient.
(b) Withholding. The Company or any Affiliate is authorized to withhold
from any Award, from any payment due or transfer made under any Award or under
the Plan or from any compensation or other amount owing to a Participant the
amount (in cash, Shares, other securities, Shares that would otherwise be issued
pursuant to such Award, other Awards or other property) of any applicable taxes
payable in respect of an Award, its exercise, the lapse of restrictions thereon,
or any payment or transfer under an Award or under the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes. In addition, the Committee may
provide, in an Award Agreement, that the Participant shall have the right to
direct the Company to satisfy the Company's tax withholding obligation through
the "constructive" tender of already-owned Shares or the withholding of Shares
otherwise to be acquired upon the exercise or payment of such Award.
(c) No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the Company or
any Affiliate. Further, the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(d) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable federal law.
(e) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to the applicable laws, or if it cannot
be construed or deemed amended without, in the determination of the Committee,
materially altering the intent
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<PAGE> 13
of the Plan or the Award, such provision shall be stricken as to such
jurisdiction, Person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
(f) Other Laws. The Committee may refuse to issue or transfer any Shares
or other consideration under an Award if, acting in its sole discretion, it
determines that the issuance of transfer or such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary.
(g) No Trust or Fund Created. Neither the Plan nor the Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any general unsecured creditor of the
Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 10. Effective Date of the Plan.
The Plan shall be effective on the date it is approved by the
stockholders of the Company, provided such approval is obtained within 12 months
of the date the Plan is approved by the Board.
SECTION 11. Term of the Plan.
No Award shall be granted under the Plan after the 10th anniversary of
the date this Plan is adopted by the Board. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award granted
prior to such termination, and the authority of the Board or the Committee to
amend, alter, adjust, suspend, discontinue, or terminate any such Award or to
waive any conditions or rights under such Award, shall extend beyond such
termination date.
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of this 16th
day of March, 1999 by and between KENNETH V. HUSEMAN, 3900 Baybrook Court,
Midland, Texas 79707, (the "Executive"), and SIERRA WELL SERVICE, INC., a
Delaware corporation with its principal offices at 406 N. Big Spring, Midland,
Texas 79701 (the "Company").
Recitals
The Company desires to employ the Executive as the President and Chief
Executive Officer of the Company and the Executive desires to work for the
Company in such capacities.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the Company and the Executive hereby agree as follows:
1. Employment; Term.
(a) The Company hereby agrees to employ the Executive, and the
Executive hereby accepts employment by the Company, as the Company's President
and Chief Executive Officer, such employment to commence as of May 1, 1999 (the
"Commencement Date") and to continue until the close of business on April 30,
2004, unless sooner terminated in accordance herewith (the "Employment Period").
(b) The Executive shall have the responsibilities, duties and authority
commensurate with his positions as the President and Chief Executive Officer of
the Company, including without limitation the usual duties of a President and
Chief Executive Officer and those duties of President and Chief Executive
Officer, if any, set forth in the Company's bylaws and will be responsible,
subject to the further direction of the Chairman of the Board and the Board of
Directors of the Company (the "Board"), for participating in the management and
direction of the Company's business and operations. The Executive will, if
elected, serve as a director of the Company and its subsidiaries and perform all
duties incident to such positions and such specific other tasks as may from time
to time be assigned to him by the Chairman of the Board or the Board.
(c) The Executive will devote his full time and his best efforts to the
business and affairs of the Company and its subsidiaries; provided, however,
that nothing contained in this Section 1 shall be deemed to prevent or limit the
Executive's right to: (i) make investments in the securities of any
publicly-owned corporation; or (ii) make any other investments with respect to
which he is not obligated or required to, and to which he does not in fact,
devote substantial managerial efforts which materially interfere with his
fulfillment of his duties hereunder; or (iii) to serve on boards of directors
and to serve in such other positions with non-profit and for-profit
organizations as to which the Board may from time to time consent, which consent
shall not be unreasonably withheld or delayed.
(d) The principal location at which the Executive will substantially
perform his duties will be the Company's offices at 406 N. Big Spring, Midland,
Texas 79701.
<PAGE> 2
2. Salary; Bonuses; Expenses.
(a) During the Employment Period, the Company will pay base
compensation to the Executive at the annual rate of Two Hundred Fifty Thousand
and No/100 Dollars ($250,000) per year (the "Base Salary"), payable in
substantially equal installments in accordance with the Company's existing
payroll practices, but no less frequently than monthly.
(b) The Company will additionally pay a commencement bonus to the
Executive in the total amount of One Hundred Thousand and No/100 Dollars
($100,000) (the "Commencement Bonus"), payable in four (4) semiannual
installments of $25,000 each on May 1, 1999, November 1, 1999, May 1, 2000, and
November 1, 2000, respectively.
(c) The Company will further pay an annual incentive bonus to the
Executive in an amount not less than Fifty Thousand and No/100 Dollars ($50,000)
and not more than Two Hundred Fifty Thousand and No/100 Dollars ($250,000) per
year, and otherwise determined in accordance with the performance criteria set
forth on Schedule 2(c) attached hereto and made a part hereof (the "Annual
Incentive Bonus"), payable in arrears commencing May 1, 2000 for each calendar
year of employment hereunder (prorated to reflect the actual number of months of
employment by Executive in the applicable calendar year).
(d) The Executive shall be reimbursed by the Company for reasonable
travel, lodging, meal and other expenses incurred by him in connection with
performing his services hereunder in accordance with the Company's policies from
time to time in effect.
3. Bonus Stock. Subject to all of the other terms and conditions of this
Agreement, and in addition to the monetary compensation set forth in Section 2
hereof, the Company agrees to issue to the Executive during the Employment
Period Common Stock (as defined in Section 5(c)) of the Company totaling up to
four percent (4%) of the sum of (a) the issued and outstanding Common Stock
(hereinafter defined) of the Company as of the date of this Agreement, plus (b)
any Common Stock which may hereafter be issued by the Company to Enron Capital &
Trade Resources Corp., or its designees (collectively, "Enron"), including
without limitation Joint Energy Development Investments Limited Partnership and
Joint Energy Development Investments II Limited Partnership, in connection with
the extension, renewal, and modification of the Company's existing credit
facility with Enron or its Affiliates substantially on the terms set forth in
that certain Term Sheet dated as of March 10, 1999 (accepted as of March 15,
1999), between Enron Capital & Trade Resources Corp. and the Company or on such
other terms as may be mutually acceptable to those parties and the Executive
(any such extension, renewal, and modification so effectuated being hereinafter
referred to as the "Enron Loan Modification") (all such stock to be so issued to
the Executive pursuant to this Section 3 being hereinafter referred to as the
"Bonus Stock"), as follows.
(a) The Company shall issue one-half (1/2) of the Bonus Stock to
the Executive on or before sixty (60) days following the
Commencement Date;
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(b) The Company shall issue the remaining one-half (1/2) of the
Bonus Stock to the Executive in equal one-fifth (1/5)
proportions on each of the next five (5) ensuing anniversary
dates of the Commencement Date, starting May 1, 2000 and
continuing through May 1, 2004 when the entirety of the Bonus
Stock shall have been issued;
(c) Contemporaneously with the execution and delivery of this
Agreement, but effective as of the Commencement Date, the
Company and the Executive are entering into a shareholder
agreement that is substantially identical in form and
substance to that attached hereto as Exhibit A (the
"Shareholder Agreement"). All Bonus Stock issued by the
Company pursuant to this Agreement shall be issued expressly
subject to the terms, provisions, and conditions of the
Shareholder Agreement;
(d) The Company shall from time to time, as may be necessitated by
issuances of Common Stock in the Company to Enron pursuant to
the Enron Loan Modification, issue such additional shares of
its Common Stock to the Executive as may be necessary to
maintain his ownership of Common Stock in the Company in
accordance with the above specified percentages of ownership
as of any applicable time;
(e) The Executive likewise shall from time to time, in connection
with any reacquisitions by the Company of its Common Stock
from Enron pursuant to the Enron Loan Modification, surrender
to the Company, without cost to the Company, such shares of
the Bonus Stock as may be requisite to prevent the Executive's
percentage of ownership of the equity of the Company by virtue
of the Bonus Stock from exceeding at any given time the
percentages of ownership prescribed in this Section 3; and
(f) Except as contemplated above regarding issuances of Common
Stock by the Company to Enron in connection with the Enron
Loan Modification, no preemptive or anti-dilutive rights shall
exist in favor of the Executive or any other owner of the
Bonus Stock with respect to issuances of capital stock or
other equity by the Company following the date of this
Agreement.
4. Benefit Plans; Vacations. In connection with the Executive's employment
hereunder, he shall be entitled during the Employment Period (and thereafter to
the extent provided in Section 5(f) hereof) to the following additional
benefits:
(a) At the Company's expense, such fringe benefits, including without
limitation group medical and dental, life, executive life, accident and
disability insurance and retirement plans and supplemental and excess retirement
benefits, as the Company may provide from time to time for its senior
management, but in any case, at least the benefits described on Exhibit B
hereto.
(b) The Executive shall be entitled to no less than the number of
vacation days in each calendar year determined in accordance with the Company's
vacation policy as in effect from time
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to time, but not less than twenty-one (21) days in any calendar year (prorated
in any calendar year during which he is employed hereunder for less than the
entire year in accordance with the number of days in such calendar year in which
he is so employed). The Executive shall also be entitled to all paid holidays
and personal days given by the Company to its executives.
(c) The Executive shall be entitled to receive an allowance of $1,000
per month, plus reimbursement for the costs of fuel incurred by the Executive,
in connection with the use of his automobile during the Employment Period.
(d) Nothing herein contained shall preclude the Executive, to the
extent he is otherwise eligible, from participation in all group insurance
programs or other fringe benefit plans which the Company may from time to time
in its sole and absolute discretion make available generally to its personnel,
or for personnel similarly situated, but the Company shall not be required to
establish or maintain any such program or plan except as may be otherwise
expressly provided herein.
5. Termination, Change of Control and Reassignment of Duties.
(a) Termination by Company. The Company shall have the right to
terminate the Executive's employment under this Agreement for Cause (as defined
below) at any time without obligation to make any further payments of any kind
or issue any further Bonus Stock to the Executive hereunder. The Company shall
have the right to terminate the Executive's employment for any reason other than
for Cause only upon at least ninety (90) days prior written notice to him,
except as otherwise provided in Section 5(b), which Section shall apply in the
event the Executive becomes unable to perform his obligations hereunder by
reason of Disability (as defined below). In the event the Company terminates the
Executive's employment hereunder for any reason other than for Cause or
Disability, then for the purpose of effecting a transition during the ninety
(90) day notice period of the Executive's management functions from the
Executive to another person or persons, during such period the Company may
reassign the Executive's duties hereunder to another person or other persons.
Such reassignment shall not reduce the Company's obligations hereunder to make
salary, bonus and other payments to the Executive, to issue any further Bonus
Stock to the Executive, and to provide to him any other benefits which may be
expressly required under this Agreement during the remainder of his employment
and following the termination of his employment, including without limitation
the use of his office and secretarial services during the remainder of his
employment.
As used in this Agreement, the term "Cause" shall mean (i) the willful
and continued failure by the Executive to substantially perform his duties
hereunder (other than (A) any such willful or continued failure resulting from
this incapacity due to physical or mental illness or physical injury or (B) any
such actual or anticipated failure after the issuance of a notice of termination
by the Executive for Good Reason (as defined below), after demand for
substantial performance is delivered by the Company to the Executive that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his duties); or (ii) the willful engaging by the
Executive in misconduct which is materially injurious to the Company, monetarily
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or otherwise; or (iii) the conviction of a felony by a court of competent
jurisdiction; or (iv) the inability of the Executive to perform his duties
hereunder for a period twelve (12) or more consecutive months due to injunctive
or other equitable relief issued at the instance or request of a third party by
a court of competent jurisdiction prohibiting the employment of the Executive by
the Company as its President and Chief Executive Officer (notwithstanding the
good faith efforts of the Company pursuant to Section 19 to contest any such
proceedings) (an "Employment Prohibiting Order"). For purposes of this
paragraph, no act, or failure to act on the part of the Executive shall be
considered "willful" unless done or omitted to be done by him in bad faith and
without reasonable belief that his action or omission was in the best interest
of the Company. Notwithstanding the foregoing, the Executive's employment shall
not be deemed to have been terminated for Cause unless (A) reasonable notice
shall have been given to him setting forth in detail the reasons for the
Company's intention to terminate for Cause, and if such termination is pursuant
to clause (i) or (ii) above and any damage to the Company is curable, only if
the Executive has been provided a period of ten (10) business days from receipt
of such notice to cease the actions or inactions, and he has not done so; (B) an
opportunity shall have been provided for the Executive, together with his
counsel, to be heard before the Board; and (C) if such termination is pursuant
to clause (i) or (ii) above, delivery shall have been made to the Executive of a
notice of termination from the Board finding that in the good faith opinion of a
majority of the Board (excluding the Executive) he was guilty of conduct set
forth in clause (i) or (ii) above, and specifying the particulars thereof in
detail.
(b) Termination upon Disability and Temporary Reassignment of Duties
Due to Disability.
(i) If the Executive becomes totally and permanently disabled during
the Employment Period so that he is unable to perform his obligations hereunder
by reasons involving physical or mental illness or physical injury (A) for a
period of ninety (90) consecutive days, or (B) for an aggregate of ninety (90)
days during any period of twelve (12) consecutive months ("Disability"), then
the term of the Executive's employment hereunder may be terminated by the
Company within sixty (60) days after the expiration of said ninety (90) day
period (whether consecutive or in the aggregate, as the case may be), said
termination to be effective ten (10) days after written notice to the Executive.
In the event the Company shall give a notice of termination under this Section
5(b)(i), then the Company may reassign the Executive's duties hereunder to
another person or other persons. Such reassignment shall not reduce the
Company's obligations hereunder to make salary, bonus and other payments to the
Executive, to issue Bonus Stock to the Executive, and to provide to him any
other benefits which may be expressly required under this Agreement during the
remainder of his employment and following the termination of his employment.
(ii) During any period that the Executive is totally disabled such that
he is unable to perform his obligations hereunder by reasons involving physical
or mental illness or physical injury, as determined by a physician chosen by the
Company and reasonably acceptable to the Executive (or his legal
representative), the Company may reassign the Executive's duties hereunder to
another person or other persons, provided if the Executive shall again be able
to perform his obligations hereunder, all such duties shall again be the
Executive's duties. The cost of any examination by such
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<PAGE> 6
physician shall be borne by the Company. Notwithstanding the foregoing, if the
Executive has been unable to perform his obligations hereunder by reasons
involving physical or mental illness or physical injury for a period of ninety
(90) consecutive days or an aggregate of ninety (90) days during any period of
twelve (12) consecutive months, then a determination by a physician of
disability will not be required prior to any such reassignment. Any such
reassignment shall not be a termination of employment and in no event shall such
reassignment reduce the Company's obligation to make salary, bonus and other
payments to the Executive, to issue Bonus Stock to the Executive, and to provide
to him any other benefits which may be expressly required under this Agreement
during the remainder of his employment and following the termination of his
employment.
(c) Termination by Executive. The Executive's employment may be
terminated by him by giving written notice to the Company as follows: (i) at any
time by notice of at least thirty (30) days; (ii) at any time by notice for a
Good Reason, effective upon giving such notice; (iii) at any time, if his health
should become impaired, provided he has obtained a written statement from a
qualified doctor to such effect, effective upon giving such notice; or (iv) at
any time following, but prior to the first anniversary of, a Change of Control
(as defined below), effective upon giving such notice. In the event of a
termination by the Executive of his employment, the Company may reassign the
Executive's duties hereunder to another person or other persons. Any such
termination of employment by Executive, shall, except as otherwise expressly
provided in this Agreement, terminate the Company's obligations to make salary,
bonus, and other payments to the Executive, to issue any further Bonus Stock to
the Executive, and to provide other benefits to him following such termination.
As used herein, a "Good Reason" shall mean any of the following:
(A) Failure of the Board to elect the Executive as President and Chief
Executive Officer of the Company, or his removal from the office of President
and Chief Executive Officer of the Company, provided that such failure or
removal is not in connection with a termination of the Executive's employment
hereunder for Cause in accordance with Section 5(a) or for Disability in
accordance with Section 5(b) and provided further that any notice of termination
hereunder shall be given by the Executive within ninety (90) days of such
failure or removal.
(B) Material change by the Company in the Executive's authority,
functions, duties or responsibilities as President and Chief Executive Officer
of the Company (including without limitation material changes in the control or
structure of the Company) (which would cause his position with the Company to
become of less responsibility, importance, scope or dignity than his position as
of the Commencement Date, provided that (I) such material change is not in
connection with a termination of Executive's employment hereunder for Cause in
accordance with Section 5(a), (II) such material change is not made in
accordance with Section 5(a) following a termination of Executive's employment
by the Company other than for Cause or Disability, (III) such material change is
not made in accordance with Section 5(b) pertaining to disability, including
without limitation the time period restrictions applicable thereunder, and (IV)
any notice of termination
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hereunder shall be given by him within ninety (90) days of when he becomes aware
of such change; or
(C) Failure by the Company to comply with any provision of Section 1,
2, 3, 4, 8, 19 or 20 of this Agreement, which has not been cured within fifteen
(15) days after notice of such noncompliance has been given by the Executive to
the Company, provided any notice of termination hereunder shall be given by the
Executive within ninety (90) days after the end of such fifteen (15) day period;
(D) Failure by the Company to obtain an assumption of this Agreement by
a successor in accordance with Section 14 unless payment or provision for
payment and provision for continuation of benefits under this Agreement have
been made in a manner permitted by Section 5; and
(E) Any purported termination by the Company of the Executive's
employment which is not effected in accordance with the terms of this Agreement,
including without limitation pursuant to a notice of termination not satisfying
the requirements set forth herein (and for purposes of this Agreement no such
purported termination by the Company shall be effective), which has not been
cured within ten (10) days after notice of such non-conformance has been given
by the Executive to the Company, provided any notice of termination hereunder
shall be given by the Executive within thirty (30) days of receipt of notice of
such purported termination.
As used herein, a "Change of Control" means that any of the following
events has occurred:
(I) Any person (as defined in Section 3(a)(9) of the 1934 Act (or any
successor provision), other than Southwest Royalties Holdings, Inc. or its
Affiliates (hereinafter defined), the Company, or Enron or its Affiliates, is
the beneficial owner directly or indirectly of more than fifty percent (50%) of
the outstanding Common Stock of the Company, determined in accordance with Rule
13d-3 under the 1934 Act (or any successor provision), or otherwise becomes
entitled to vote more than fifty percent (50%) of the voting power entitled to
be cast at elections for directors ("Voting Power") of the Company, or in any
event such lower percentage as may at any time be provided for in any similar
provision for any director or officer of the Company or of any subsidiary
approved by the Board;
(II) If the Company is subject to the reporting requirements of Section
13 or 15(d) (or any successor provision) of the 1934 Act, any person (as defined
in Section 3(a)(9) of the 1934 Act), other than Southwest Royalties Holdings,
Inc. or its Affiliates, the Company, or Enron or its Affiliates shall purchase
shares pursuant to a tender offer or exchange offer to acquire Common Stock of
the Company (or securities convertible into or exchangeable for or exercisable
for common stock) for cash, securities or any other consideration, provided that
after consummation of the offer, the person in question is the beneficial owner,
directly or indirectly, of more than fifty percent (50%) of the outstanding
Common Stock of the Company, determined in accordance with Rule 13d-3 under the
1934 Act (or any successor provision) or such lower percentage as may at any
time be provided
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for in any similar provision for any director or officer of the Company or of
any subsidiary approved by the Board;
(III) The stockholders or the Board shall have approved any
consolidation or merger of the Company in which (1) the Company is not the
continuing or surviving corporation unless such merger is with an entity at
least eighty percent (80%) of the Voting Power of which is held by the Southwest
Royalties Holdings, Inc. or its Affiliates, the Company, or Enron or its
Affiliates; or (2) the holders of the Company's shares of Common Stock of the
Company immediately prior to such merger or consolidation would not be the
holders immediately after such merger or consolidation of at least a majority of
the Voting Power of the Company or such lower percentage as may at any time be
provided for in any similar provision for any director or officer of the Company
or of any Subsidiary approved by the Board; or
(IV) The Company shall have consummated any sale, lease, exchange or
other transfer (in one transaction or a series of transactions) of all or
substantially all of the assets of the Company.
As used in this Agreement, "Common Stock" means the common stock of the
Company as it shall be constituted from time to time entitling the holders
thereof to share generally in the distribution of all assets available for
distribution to the Company's stockholders after the distribution to any holders
of capital stock with preferential rights.
(d) Severance Compensation.
(i) Termination for Good Reason or Other than for Cause. In the event
the Executive's employment hereunder is terminated (A) by the Executive for a
Good Reason or (B) the Company other than for Cause, the Executive, in addition
to any other benefits provided for in this Section 5, shall be entitled
immediately to any remaining unpaid portion of the Commencement Bonus and, in
addition, to severance compensation in an aggregate amount equal to the product
of (I) one-twelfth of his Base Salary times (II) the lesser of (A) thirty-six
(36) or (B) the number of full calendar months remaining in the Employment
Period but for such termination, payable in substantially equal monthly
installments (in the number determined under Part (II) of the formula
immediately above) commencing at the end of the calendar month in which the
termination date occurs; provided, however, that if the Executive's employment
is terminated following a Change of Control or is terminated by the Company
other than for Cause in anticipation of a Change of Control, the severance
compensation referred to above shall be payable in one lump sum on the date of
such termination.
(ii) Termination following Disability. In the event the Executive's
employment should be terminated by the Company as a result of Disability in
accordance with Section 5(b) hereof, then the Executive shall be entitled, in
addition to the any other benefits provided for in this Section 5, to severance
compensation in an aggregate amount equal to the product of (A) one-twelfth of
his Base Salary times (B) the lesser of (I) eighteen (18) or (II) the number of
full calendar months remaining in the Employment Period but for such
termination, payable in substantially equal monthly
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installments (in the number determined under Part (B) of the formula immediately
above) commencing at the end of the calendar month in which the termination date
occurs, reduced by the amount of any disability insurance proceeds actually paid
to the Executive or for his benefit during the said time period.
(e) Effect of Termination or Change of Control upon Equity
Compensation.
(i) In the event the Executive's employment hereunder is terminated by
the Company for any reason other than for Cause, or in the event the Executive
should terminate his employment for Good Reason, then, effective upon the date
such termination is effective, the Executive shall be entitled to immediately
receive any Bonus Stock then remaining unissued under Section 3.
(ii) In the event the Executive's employment hereunder is terminated by
the Company for Cause, then effective upon the date such termination is
effective, any Bonus Stock then remaining unissued by the Company to the
Executive under Section 3 shall be automatically forfeited by the Executive.
Additionally, if such termination is due to an Employment Prohibiting Order, the
Executive shall likewise automatically forfeit and relinquish to the Company any
Bonus Stock theretofore issued by the Company to or in favor of the Executive.
(iii) In the event of the Executive's death while employed or in the
event that the Executive's employment should terminate as a result of
Disability, then any Bonus Stock then remaining unissued for the year (and only
for the year) in which such death or Disability occurs shall be issued to the
Estate of the Executive, with forfeiture of rights to any unissued Bonus Stock
in ensuing years.
(f) Continuation of Benefits etc.
(i) Subject to Section 5(f)(ii) hereof, in the event that Executive's
employment hereunder is terminated by the Executive for a Good Reason or by the
Company other than for Cause, the Executive shall continue to be entitled to the
benefits that the Executive was receiving or to which the Executive was entitled
as of the date immediately preceding the applicable termination date pursuant to
Section 4 hereof at the Company's expense for a period of time following the
termination date ending on the first to occur of (I) April 30, 2004, (II) the
third anniversary of the termination date or (III) the date on which the
Executive commences full-time employment by another employer, but only if and to
the extent the Executive is eligible to receive through such other employer
benefits which are at least equivalent on an aggregate basis to those benefits
the Executive was receiving or to which the Executive was entitled under Section
4 hereof as of immediately preceding the applicable termination date. If because
of limitations required by third parties or imposed by law, the Executive cannot
be provided such benefits through the Company's plans, then the Company will
provide the Executive with substantially equivalent benefits, on an aggregate
basis, at the Company's expense. For purposes of the determination of any
benefits which require a particular period of employment by the Company and/or
the attainment of a particular age while employed by the
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Company in order to be payable, the Executive shall be treated as having
continued in the employment of the Company during such period of time as the
Executive is entitled to receive benefits under this Section 5(f). At such time
as the Company is no longer required to provide the Executive with life and/or
disability insurance, as the case may be, the Executive shall be entitled at the
Executive's expense to convert such life and disability insurance, as the case
may be, except if and to the extent such conversion is not available from the
provider of such insurance.
(ii) In the event the Executive's employment is terminated following a
Change of Control or is terminated by the Company other than for Cause in
anticipation of a Change of Control, the Company shall pay to the Executive, in
lieu of providing the benefits contemplated by Section 5(f)(i) above, an amount
in cash equal to the aggregate reasonable expenses that the Company would incur
if it were to provide such benefits for a period of time following the
termination date ending on the earlier of (I) April 30, 2004 or (II) the third
anniversary of the termination date, which amount shall be paid in one lump sum
on the date of such termination.
(g) Accrued Compensation. In the event of any termination of the
Executive's employment for any reason, the Executive (or his estate) shall be
paid such portion of his Base Salary and bonuses as has accrued (including
without limitation as provided below) by virtue of his employment during the
period prior to termination and has not yet been paid, together with any amounts
for expense reimbursement and similar items which have been properly incurred in
accordance with the provisions hereof prior to termination and have not yet been
paid. Such amounts shall be paid within ten (10) days of the termination date.
The amount due to the Executive (or his estate) under this Section 5(g) in
payment of any bonus, including without limitation the Commencement Bonus in
Section 2(b) and the Annual Incentive Bonus in Section 2(c), shall be a
proportionate amount of the bonus that would next be payable to him and would
otherwise have been due to the Executive if such termination had not occurred
and such bonus had been fully earned, and which proportion shall be based on the
number of elapsed days in the applicable bonus period prior to the termination
date and in which the termination date occurs.
(h) Resignation. If the Executive's employment hereunder shall be
terminated by him or by the Company in accordance with the terms set forth
herein, then effective upon the date such termination is effective, he will be
deemed to have resigned from all positions as an officer and director of the
Company and of any of its Subsidiaries, except as the parties (or with respect
to positions with a Subsidiary, the Executive and such Subsidiary) may otherwise
agree.
6. Limitation on Competition. During the Employment Period and for a period of
three (3) years thereafter, in the event of termination of the Executive's
employment hereunder for any reason other than (a) following a Change of
Control, or (b) by the Executive for a Good Reason or (c) by the Company other
than for Cause, (i) the Executive shall not, directly or indirectly, without
prior written consent of the Board, participate or engage in, whether as a
director, officer, employee, advisor, consultant, stockholder, partner, joint
venturer, owner or in any other capacity (other than as an outside attorney or
investment banker), in the business of operating oil and gas pulling units or
workover rigs or of completing, servicing, maintaining, or repairing oil and gas
wells, or
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<PAGE> 11
removing, transporting, or disposing of liquid wastes produced therefrom in
competition with the Company or any of its Subsidiaries in any county in the
United States in which the Company or any Subsidiary has conducted business
during the Employment Period (a "Competing Enterprise"); provided, however, that
the Executive shall not be deemed to be participating or engaging in any such
business solely by virtue of his ownership of not more than five percent (5%) of
any class of stock or other securities which are publicly traded on a national
securities exchange or in a recognized over-the-counter market; and (ii) the
Executive shall not, directly or indirectly solicit, raid, entice or otherwise
induce any employee of the Company or any of its Subsidiaries to be employed by
a Competing Enterprise.
7. Enforceability. If any provision of this Agreement shall be deemed invalid or
unenforceable as written, this Agreement shall be construed, to the greatest
extent possible, or modified, to the extent allowable by law, in a manner which
shall render it valid and enforceable and any limitation on the scope or
duration of any such provision necessary to make it valid and enforceable shall
be deemed to be a part thereof. No invalidity or unenforceability of any
provision contained herein shall affect any other portion of this Agreement
unless the provision deemed to be so invalid or unenforceable is a material
element of this Agreement, taken as a whole.
8. Legal Expenses. The Company shall pay the Executive's reasonable fees for
legal and tax advice and other related expenses associated with the negotiation
and completion of this Agreement. The Company shall also pay the Executive's
reasonable fees for legal and other related expenses associated with any
disputes arising hereunder or under the Shareholder Agreement if a court of
competent jurisdiction shall render a final judgement in favor of the Executive
on the issues in such dispute, from which there is no further right of appeal.
If it shall be determined in such judicial adjudication that the Executive is
successful on some of the issues in such dispute, but not all, then the
Executive shall be entitled to receive a portion of such legal fees and other
expenses as shall be appropriately prorated.
9. Notices. All notices which the Company is required or permitted to give to
the Executive shall be given by registered or certified mail or overnight
courier, with a receipt obtained, addressed to the Executive at the address
referred to above, or at such other place as the Executive may from time to time
designate in writing, or by personal delivery, and to counsel for the Executive
as may be requested in writing by the Executive from time to time. All notices
which the Executive is required or permitted to give to the Company shall be
given by registered or certified mail or overnight courier, with a receipt
obtained, addressed to the Company at the address set forth above, or at such
other address as the Company may from time to time designate in writing, or by
personal delivery, and to counsel for the Company as may be requested in writing
by the Company. A notice will be deemed given upon the mailing thereof or
delivery to an overnight courier for delivery the next business day, except for
a notice of change of address, which will not be effective until receipt, and
except as otherwise provided in Section 5(a).
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10. Waivers. No waiver by either party of any breach or nonperformance of any
provision or obligation of this Agreement shall be deemed to be a waiver of any
preceding or succeeding breach of the same or any other provision of this
Agreement.
11. Headings; Other Language. The headings contained in this Agreement are for
reference purposes only and shall in no way affect the meaning or interpretation
of this Agreement. In this Agreement, as the context may require, the singular
includes the plural and the singular, the masculine gender includes both male
and female reference, the word "or" is used in the inclusive sense and the words
"including", "includes", and "included" shall not be limiting.
12. Counterparts. This Agreement may be executed in duplicate counterparts, each
of which shall be deemed to be an original and all of which, taken together,
shall constitute one agreement.
13. Agreement Complete; Amendments Effective as of the Commencement Date, this
Agreement, together with the exhibits and schedules hereto and any other written
agreements, is the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior agreements, written or oral, with respect
thereto. This Agreement may not be amended, supplemented, canceled or discharged
except by a written instrument executed by both of the parties hereto, provided,
however, that the immediately foregoing provision shall not prohibit the
termination of rights and obligations under this Agreement which termination is
made in accordance with the terms of this Agreement.
14. Benefit and Binding Nature/Nonassignability. This Agreement shall be binding
upon and inure to the benefit of the successors and permitted assigns of the
respective parties hereto. This Agreement and the rights and obligations
hereunder are personal to the Company and the Executive and are not assignable
or transferable to any other person, firm or corporation without the consent of
the other party, except as contemplated hereby; provided however in the event of
the merger or consolidation of the Company, whether or not the Company is the
surviving or resulting corporation, the transfer of all or substantially all of
the assets of the Company, or the voluntary or involuntary dissolution of the
Company, then the surviving or resulting corporation or the transferee or
transferees of the Company's assets shall be bound by this Agreement and the
Company shall take all actions necessary to insure that such corporation,
transferee or transferees are bound by the provisions of this Agreement, and
provided, further, this Agreement shall inure to the benefit of the Executive's
estate, heirs, executors, administrators, personal and legal representatives,
distributees, devisees, and legatees. Notwithstanding the foregoing provisions
of this Section 14, the Company shall not be required to take all actions
necessary to insure that a transferee or transferees of the Company's assets are
bound by the provisions of this Agreement and such transferee or transferees of
the Company's shall not be bound by the obligations of the Company under this
Agreement if the Company shall have (a) paid to the Executive or made provision
satisfactory to the Executive for payment to him of all amounts which are or may
become payable to him hereunder in accordance with the terms hereof and (b) made
provision satisfactory to the Executive for the continuance of all benefits
required to be provided to him in accordance with the terms hereof.
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15. Governing Law. This Agreement will be governed and construed in accordance
with the law of Texas applicable to agreements made and to be performed entirely
within such state, without giving effect to the conflicts of laws principles
thereof.
16. Survival. The provisions of Sections 3, 5(d), (e), (f), (g) and (h), 6, 7,
8, 19, 20 and 21 hereof and the Shareholder Agreement shall survive the
termination of the Executive's employment as continuing and separate agreements
between the parties; provided, however, that a termination pursuant to Section
21 shall automatically terminate and extinguish all rights and obligations of
the parties under this Agreement.
17. Certain Definitions. As used herein, (a) the term "Subsidiaries" shall mean
all corporations in which a majority of the capital stock entitling the holder
thereof to vote is owned by the Company or a Subsidiary; and (b) the term
"Affiliates" shall mean any person, corporation, subsidiary, partnership, or
other business entity which, whether directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, any
applicable entity.
18. Interpretation. The Company and the Executive each acknowledge and agree
that this Agreement has been reviewed and negotiated by such party and its or
his counsel, who have contributed to its revision, and the normal rule of
construction, to the effect that any ambiguities are resolved against the
drafting party, shall not be employed in the interpretation of it.
19. Certain Representations, Warranties, and Covenants.
(a) As a material inducement to the Company to employ the Executive
hereunder, and as representations, warranties, and covenants which shall survive
any termination of this Agreement, the Executive represents, warrants, and
covenants to and with the Company that (i) the Employment Agreement (the "Key
Employment Agreement") dated December 15, 1998, between the Executive and Key
Energy Group, Inc. ("Key") and the exhibits thereto, and the Policy Regarding
Acquisition, Ownership and Disposition of Company Securities of Key (the "Key
Policy"), copies of which have been provided to the Company, are all contracts
or agreements, whether written or oral, between such parties relating to the
Executive's employment by Key and have not been modified, supplemented, or
amended in any respect, (ii) the Executive has not misrepresented and, for the
duration of his employment with Key, will not misrepresent, to Key in any
material respect any aspect of the negotiations and dealings between the
Executive and the Company leading up to this Agreement,(iii) this Agreement and
the Executive's performance of his duties hereunder do not and will not conflict
with, violate, or constitute a breach of any other contracts or agreements,
whether written or oral, to which the Executive is a party or by which he is
bound, including, without limitation, the Key Employment Agreement and the Key
Policy, and (iv) the Executive will indemnify and hold the Company harmless from
and against any and all lawful claims and causes of action (including reasonable
attorneys' fees and other expenses of litigation) asserted and ultimately
established against the Company by third parties arising from, based upon, or
due to the breach or inaccuracy of any of the foregoing representations,
warranties, and covenants of or by the Employee.
-13-
<PAGE> 14
(b) As a material inducement to the Executive to accept employment by
the Company hereunder, and as representations, warranties, and covenants which
shall survive any termination of this Agreement, the Company, in reliance upon
the foregoing representations, warranties, and covenants of the Executive,
represents, warrants, and covenants to and with the Executive that: (i) this
Agreement and the Company's performance of its duties have been duly and
properly authorized by all necessary corporate action on the part of the Company
and do not and will not conflict with, violate, or constitute a breach of any
other contracts or agreements, whether written or oral, to which the Company is
a party or by which he is bound, (ii) the Company has not asked and will not ask
or expect the Executive to use or disclose in his employment under this
Agreement any trade secrets or other confidential information of his prior
employers (including, without limitation, Key) that is prohibited from use or
disclosure under applicable law, and (iii) the Company will indemnify, defend,
and hold the Executive harmless from and against any and all claims and causes
of action (including reasonable attorneys' fees and other expenses of
litigation) asserted by third parties against the Executive arising from, based
upon, or due to (A) the breach or inaccuracy of any of the foregoing
representations, warranties, and covenants of or by the Company or (B) the
establishment of an employment relationship between the Executive and the
Company pursuant to this Agreement.
(c) In the event of any claim, demand, suit, or proceeding involving a
third party with respect to which indemnity may be sought by one party to this
Agreement (for purposes of this Section, the "Indemnified Party") against the
other (for purposes of this Section, the "Indemnifying Party"), the Indemnified
Party will give proper written notice thereof to the Indemnifying Party, which
shall state specifically the representation, warranty, covenant, or agreement
with respect to which indemnification is sought, and the Indemnifying Party
shall within fifteen (15) days of the receipt of such notice by registered or
certified mail advise the Indemnified Party of the extent, if any, to which it
will contest the same (which it shall be entitled to do at its own expense
through representatives of its own choice). The Indemnifying Party will not, in
defense of any such claim, demand, suit or proceeding, except with the prior
written consent of the Indemnified Party, consent to the entry of any judgment
or enter into any settlement that does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to the Indemnified Party of
a release from all liability in respect thereof. The Indemnified Party may, but
shall not be required to, at its expense, join in such contest through
representatives of its own choice. To the extent that the Indemnifying Party:
(i) fails to give such advice within the fifteen (15) day
period aforesaid;
(ii) advises that it will not contest such claim, demand,
suit, or proceeding; or
(iii) fails to contest such claim, demand, suit, or
proceeding, promptly, diligently, and in good faith,
the Indemnified Party shall have the right at its
discretion, to pay, compromise, or defend the same
and, as to such claim, the Indemni fied Party shall
be indemnified in full by the Indemnifying Party on
demand as incurred with respect to out-of-pocket
expenses incurred by the Indemnified Party and, to
the extent not paid directly to such third parties by
-14-
<PAGE> 15
the Indemnifying Party, on demand at the time of
payment by the Indemnified Party to such third
parties. If the Indemnifying Party disputes its
liability with respect to a claim or an amount
thereof, then such dispute shall be settled pursuant
to the mediation and arbitration procedures set forth
in Section 20 of this Agreement.
20. Mediation and Arbitration. (a) Any dispute between the Company and
the Executive arising under or in connection with, concerning, or relating to
this Agreement shall be resolved under the mediation and binding arbitration
procedures outlined in this Section 20. The parties will first attempt in good
faith to resolve all disputes by negotiations between persons having authority
to settle the controversy. If any party believes further negotiations are
futile, such party may initiate the mediation process by so notifying the other
party in writing. The parties shall then attempt in good faith (and employing
persons with authority to settle the controversy) to resolve the dispute by
mediation in Midland, Texas in accordance with the Center for Public Resources
Model Procedure for Mediation of Business Disputes, as such procedure may be
modified by written agreement of the Parties.
(b) If the dispute has not been resolved pursuant to mediation within
sixty (60) days after initiating the mediation process, the dispute shall be
finally resolved through binding arbitration. The arbitration proceeding shall
be held in Midland, Texas, shall be governed by Texas law, and shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"). The arbitration shall be before a three-person
panel of neutral arbitrators, consisting of persons from any of the following
categories: (i) attorneys having practiced in the area of commercial law for at
least ten (10) years; and (ii) retired judges at the United States District
Court or a Texas or United States appellate court level. The AAA shall submit a
list of persons meeting the criteria outlined above and the parties shall select
the arbitration panel from the list in the manner established by the AAA. The
arbitrators shall conduct a hearing no later than thirty (30) days after
submission of the matter to arbitration and a decision shall be rendered by the
arbitrators within thirty (30) days of the hearing. At the hearing the parties
shall present such evidence and witnesses as they may choose, with or without
counsel. Adherence to formal rules of evidence shall not be required, but the
arbitration panel shall consider any evidence and testimony which it deems to be
relevant, in accordance with the procedures that it determines to be
appropriate. Any award entered in the arbitration shall be made within fifteen
(15) days of the arbitrators' decisions. The final decision of the arbitrators
shall be binding upon the parties and non-appealable, may be filed in any court
of competent jurisdiction and enforced by any party as a final judgment of such
court, and may include such award of costs and attorneys' fees as the
arbitrators determine appropriate.
21. Special Contingency. Any provisions of this Agreement to the
contrary notwithstanding, the Company and the Executive expressly agree that,
if, for any reason, the instruments and documents effectuating the Enron Loan
Modification shall not have been fully executed and delivered by the
Commencement Date, this Agreement shall automatically terminate and neither the
Company nor the Executive shall have any further rights, obligations, or
liabilities hereunder.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SIERRA WELL SERVICE, INC.
By: /s/ Bill E. Coggin
--------------------------------
Printed Name: Bill E. Coggin
----------------------
Title: Vice President
-----------------------------
/s/ KENNETH V. HUSEMAN
-----------------------------------
KENNETH V. HUSEMAN
-16-
<PAGE> 1
EXHIBIT 10.4
EXECUTION COPY
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is executed
between Kenneth V. Huseman (the "Executive") and Sierra Well Service, Inc. (the
"Company") effective as of March 21, 2000.
WHEREAS, the Executive and the Company have entered into an
Employment Agreement dated as of March 16, 1999 (the "Employment Agreement");
and
WHEREAS, the Employment Agreement provides for the issuance to
the Executive of Bonus Shares on each of the first five anniversaries of the
Commencement Date, subject to the further provisions of the Employment
Agreement;
WHEREAS, the Company and the Executive desire to amend the
Employment Agreement to provide, in lieu of the future issuance of shares of
Bonus Stock, for the immediate issuance of restricted shares of Bonus Stock to
the Executive; and
WHEREAS, Executive and the Company with to clarify certain
additional terms of the Employment Agreement;
NOW, THEREFORE, the parties hereby amend the Employment
Agreement to provide as follows:
1. In lieu of the issuance of shares of Bonus Stock to the
Executive on each of the first five anniversaries of the
Commencement Date, as provided in Section 3(b) of the
Employment Agreement, the Company hereby grants to the
Executive 91.06 shares of Restricted Bonus Stock. Such shares
are nontransferable (other than by will and the laws of
descent and distribution) and are subject to vesting and
forfeiture on the same basis as provided in the Employment
Agreement with respect to the Bonus Stock, as in effect prior
to this First Amendment. For example, shares of Restricted
Bonus Stock shall become unrestricted, vested shares of Bonus
Stock on the dates that were provided for the issuance of
Bonus Stock under the provisions of the Employment Agreement
as in effect prior to this First Amendment and shall be
forfeited on the dates that the Executive's right to receive
additional shares of Bonus Stock would terminate under the
provisions of the Employment Agreement as in effect prior to
this First Amendment.
<PAGE> 2
2. Based upon shares of Common Stock reasonably anticipated to
be issued to Enron or its designees in accordance with the
conversion of Series B Convertible Preferred Stock, the
Company hereby grants to the Executive 39.02 shares of Bonus
Stock (the "JEDI Bonus Stock"), which shares shall be vested
as if issued pursuant to Section 3(a) of the Employment
Agreement but shall remain non-transferable by the Executive
and subject to forfeiture pursuant to Section 3(e) of the
Employment Agreement if shares of Common Stock are not in fact
issued in the future to Enron or its designees.
3. In addition, based upon shares of Common Stock reasonably
anticipated to be issued to Enron or its designees in
accordance with the conversion of Series B Convertible
Preferred Stock, the Company hereby grants to the Executive an
additional 39.02 shares of Common Stock (the "Restricted JEDI
Bonus Stock"), which shares shall be subject to vesting in the
same manner as shares of Restricted Bonus Stock as set forth
in Section 1 of this First Amendment and shall remain non-
transferable by the Executive and subject to forfeiture
pursuant to Section 3(e) of the Employment Agreement if shares
of Common Stock are not in fact issued in the future to Enron
or its designees.
4. Additional shares of Restricted Bonus Stock or vested Bonus
Stock shall be issued to, or forfeited by, the Executive on
the same basis as provided in Section 3(d) and (e) with
respect to the Bonus Stock as in effect prior to this First
Amendment.
5. All distributions made with respect to shares of Restricted
Bonus Stock (cash, stock or other property), and any shares
issued upon a stock split or stock dividend, shall be subject
to the same restrictions, and the same vesting and forfeiture
provisions, as are applicable to the shares of Restricted
Bonus Stock hereby granted to the Executive.
6. All distributions made with respect to shares of JEDI Bonus
Stock (cash, stock or other property), and any shares issued
upon a stock split or stock dividend, shall be subject to the
same restrictions, and the same forfeiture provisions, as are
applicable to the shares of JEDI Bonus Stock hereby granted to
the Executive.
7. All distributions made with respect to shares of JEDI
Restricted Bonus Stock (cash, stock or other property), and
any shares issued upon a stock split or stock dividend, shall
be subject to the same restrictions, and the same forfeiture
provisions, as are applicable to the shares of JEDI Restricted
Bonus Stock hereby granted to the Executive.
8. The Company may place such legends on the certificate(s)
for the shares of Restricted Bonus Stock, JEDI Bonus Stock and
JEDI Restricted Bonus Stock as the Company may determine to be
appropriate to evidence the above restrictions.
-2-
<PAGE> 3
9. The Company and the Executive hereby agree that 91.06
shares of Bonus Stock issued pursuant to the Employment
Agreement prior to the date hereof was, and is, the proper and
correct issuance of Bonus Stock pursuant to Section 3 of the
Employment Agreement. The Company and the Executive further
agree that if Enron and its designees are issued shares of
Common Stock upon conversion of the Company's Series B
Convertible Preferred Stock in accordance with Section
8.a.(ii) of the Certificate of Designations for the Company's
Series B Convertible Preferred Stock (i.e., into an aggregate
of 30% of the total number of fully diluted shares of Common
Stock, assuming no additional shares of Common Stock are
issued after the date hereof that will be included the formula
presented in this Certificate of Designations), these 91.06
shares of Bonus Stock, together with the shares of JEDI Bonus
Stock, the Restricted Bonus Stock and the Restricted JEDI
Bonus Stock shall represent all of the shares to which the
Executive is entitled pursuant to the Employment Agreement (in
each case subject to anti-dilution protection for stock
dividends, stock splits and other capital reorganization
events). Notwithstanding the foregoing, the Executive shall be
entitled to an adjustment to shares of Bonus Stock issuable
pursuant to Section 3 of the Employment Agreement in the event
the Company issues shares of Common Stock to Enron or its
affiliates other than upon conversion of the Series B
Convertible Preferred Stock in accordance with Section
8.a.(ii) of the Certificate of Designations related thereto.
All terms used herein that are defined in the Employment
Agreement shall have the same meanings given to such terms in the Employment
Agreement, except as otherwise expressly provided herein.
Except as amended and modified hereby, the Employment
Agreement shall continue in full force and effect and the Employment Agreement
and this First Amendment shall be read, taken and construed as one and the same
instrument.
This instrument may be executed in several counterparts, each
of which shall be deemed an original, but all of which shall constitute but one
and the same instrument which may be evidenced by any one counterpart.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this First
Amendment to the Employment Agreement effective for all purposes as of the date
first above written.
SIERRA WELL SERVICE, INC.
By: /s/ H.H. WOMMACK III
--------------------------------------
Name: H.H. Wommack III
------------------------------------
Title: Chairman
-----------------------------------
Executive
/s/ KENNETH V. HUSEMAN
-----------------------------------------
Kenneth V. Huseman
-4-
<PAGE> 1
EXHIBIT 10.8
[EXECUTION VERSION]
================================================================================
SECURITIES PURCHASE AGREEMENT
BETWEEN
SIERRA WELL SERVICE, INC.
(the "Company")
AND
JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP
(the "Purchaser")
DATED AS OF MARCH 31, 1999
SERIES A PREFERRED SHARES
SERIES B CONVERTIBLE PREFERRED SHARES
AND
SERIES C CONVERTIBLE PREFERRED SHARES
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS..............................................................................................1
Section 1.01 Definitions............................................................................1
Section 1.02 Accounting Procedures and Interpretation...............................................7
ARTICLE II
ISSUANCE OF SECURITIES; RIGHTS OF PURCHASER..............................................................7
Section 2.01 Issuance of Securities.................................................................7
Section 2.02 The Closing............................................................................8
Section 2.03 Delivery...............................................................................8
Section 2.04 Tax Matters............................................................................8
Section 2.05 Rights of Purchaser....................................................................8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................8
Section 3.01 Corporate Existence....................................................................9
Section 3.02 Corporate Power and Authorization......................................................9
Section 3.03 Binding Obligations....................................................................9
Section 3.04 No Legal Bar Or Resultant Lien.........................................................9
Section 3.05 No Consent.............................................................................9
Section 3.06 Financial Condition....................................................................9
Section 3.07 Liabilities............................................................................9
Section 3.08 Litigation............................................................................10
Section 3.09 Taxes; Governmental Charges...........................................................10
Section 3.10 Titles, Etc...........................................................................10
Section 3.11 Defaults..............................................................................10
Section 3.12 Casualties; Taking of Properties......................................................10
Section 3.13 Location of Business and Offices......................................................10
Section 3.14 Compliance with the Law...............................................................10
Section 3.15 No Material Misstatements.............................................................11
Section 3.16 ERISA.................................................................................11
Section 3.17 Environmental Matters.................................................................11
Section 3.18 Capitalization........................................................................12
Section 3.19 Subsidiaries; Partnerships............................................................13
Section 3.20 Conversion Shares.....................................................................13
Section 3.21 Certain Fees..........................................................................13
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.........................................................13
Section 4.01 Investment............................................................................13
Section 4.02 Nature of Purchaser...................................................................14
Section 4.03 Receipt of Information; Authorization.................................................14
Section 4.04 No Consent............................................................................14
ARTICLE V
COVENANTS PENDING CLOSING...............................................................................14
Section 5.01 Antitrust Notification................................................................14
Section 5.02 Mergers...............................................................................15
Section 5.03 Dividends.............................................................................15
Section 5.04 Nature of Business....................................................................15
Section 5.05 Amendment of Certificate of Incorporation or Bylaws...................................15
Section 5.06 Asset Sales...........................................................................15
Section 5.07 Equity Proceeds.......................................................................15
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING.........................................................................16
Section 6.01 Conditions Precedent to Obligations of the Purchasers.................................16
Section 6.02 Conditions Precedent to Obligations of the Company....................................17
ARTICLE VII
COVENANTS...............................................................................................18
Section 7.01 Financial Statements and Reports......................................................18
Section 7.02 Compliance with Laws..................................................................19
Section 7.03 Further Assurances....................................................................19
Section 7.04 Accounts and Records..................................................................19
Section 7.05 Right of Inspection...................................................................19
Section 7.06 Transactions with Affiliates..........................................................19
Section 7.07 Public Disclosures....................................................................19
ARTICLE VIII
MISCELLANEOUS...........................................................................................20
Section 8.01 Interpretation and Survival of Provisions.............................................20
Section 8.02 Costs, Expenses and Taxes.............................................................20
Section 8.03 No Waiver; Modifications in Writing...................................................20
Section 8.04 Binding Effect; Assignment............................................................21
Section 8.05 Replacement Securities................................................................21
Section 8.06 Communications........................................................................21
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
Section 8.07 Governing Law.........................................................................22
Section 8.08 Arbitration...........................................................................22
Section 8.09 Execution in Counterparts.............................................................23
Exhibits:
Exhibit 1.01(a) - Certificate of Designations of Series A Preferred Stock
Exhibit 1.01(b) - Certificate of Designations of Series B Preferred Stock
Exhibit 1.01(c) - Certificate of Designations of Series B Preferred Stock
Exhibit 7.01(c) - Budget Requirements
Schedules:
Schedule 3.07 - Liabilities
Schedule 3.08 - Litigation
Schedule 3.17 - Environmental
Schedule 3.18 - Capitalization
Schedule 3.19 - Subsidiaries; Partnerships
</TABLE>
-iii-
<PAGE> 5
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of March 31, 1999 (this
"Agreement"), between SIERRA WELL SERVICE, INC., a Delaware corporation (the
"Company"), and JOINT ENERGY DEVELOPMENT INVESTMENTS II LIMITED PARTNERSHIP, a
Delaware limited partnership (the "Purchaser").
In consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"AAA" has the meaning provided therefor in Section 8.08 (b) of this
Agreement.
"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 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.
"Auction Package" means the auction of various vehicles and
miscellaneous obsolete equipment on or before May 31, 1999.
"Basic Documents" means, collectively, this Agreement and the Equity
Documents.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of the Board of
Directors.
"Business Day" means any day other than Saturday, Sunday, or a day on
which banking institutions in New York City are not required to be open for
business.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the balance sheet.
<PAGE> 6
"Capital Stock" of any Person means any and all shares, interests,
participations, or other equivalents (however designated) of, or rights,
warrants, or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Closing" has the meaning provided therefor in Section 2.02 of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations thereunder.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the common stock, no par value per share, of the
Company or such other Capital Stock or other securities as shall, after the
date of this Agreement, constitute the common equity of the Company.
"Conversion Shares" means the shares of Common Stock, Capital Stock
and other securities, property or cash receivable upon conversion of the
Preferred Shares.
"Dispute" shall have the meaning set forth in Section 8.08 (a) of this
Agreement.
"EBITDA" means, with respect to any Person and for any period of its
determination, the consolidated net income of such Person for such period, plus
the consolidated interest expense, income taxes and depreciation and
amortization of such Person for such period, in each case excluding (a)
unrealized gains or losses with respect to such Person's investment portfolio,
(b) any extraordinary gains or losses, and (c) any gains or losses on the sale
of fixed assets.
"Effective Date" shall mean the date of this Agreement.
"Environmental Laws" means any and all laws, statutes, ordinances,
rules, regulations, orders, or determinations of any Governmental Authority
pertaining to health or the environment in effect in any and all jurisdictions
in which the Company is conducting or at any time has conducted business, or
where any property of the Company is located, or where any hazardous substances
generated by or disposed of by the Company is located, including but not
limited to the Oil Pollution Act of 1990 ("OPA"), as amended, the Clean Air
Act, as amended, the Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, and other environmental conservation or protection laws. The term
"oil" has the meaning specified in OPA; the terms "hazardous substance,"
"release" and "threatened release" have the meanings specified in CERCLA, and
the terms "solid waste," "disposal" and "disposed" have the meanings specified
in RCRA; provided, however, if either CERCLA, RCRA or OPA is amended so as to
broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment, and provided,
further, that, to the extent the laws of the state in which any property of
2
<PAGE> 7
the Company is located establish a meaning for "oil," "hazardous substance,"
"release," "solid waste" or "disposal" which is broader than that specified in
either OPA, CERCLA or RCRA, such broader meaning shall apply with respect to
such property.
"Equity Documents" means the Certificates of Designation relating to
the Preferred Shares, the Registration Rights Agreement and the Stockholders'
Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time and the rules and regulations thereunder.
"Estimated Private Market Equity Value" means at any time the
difference between (a) the sum of (i) the combined Net Working Capital of the
Company, and (ii) the EBITDA of the Company, for the preceding four fiscal
quarters most recently ended multiplied by 6.0, and (b) the outstanding
Indebtedness of the Company.
"Financial Statements" means consolidated balance sheets, statements
of operations, and statements of cash flow, the consolidating schedules used to
prepare the same, and, on an annual basis, appropriate footnotes prepared in
accordance with GAAP.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Governmental Authority" means any (domestic or foreign) federal,
native American Indian, state, province, county, city, municipal, or other
political subdivision or government, department, commission, board, bureau,
court, agency, or any other instrumentality of any of them, which exercises
jurisdiction over the Company, or any of its property.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by such
Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against loss,
(iii) to supply funds to, or in any other manner invest in, the debtor
(including any agreement to pay for property or services to be acquired by such
debtor irrespective of whether such property is received or such services are
rendered), (iv) to maintain working capital or equity capital of the debtor, or
otherwise to maintain the net worth, solvency or other financial condition of
the debtor, or (v) otherwise to assure a creditor against loss; provided that
the term "guarantee" shall not include endorsements for collection or deposit,
in either case in the ordinary course of business, or any obligation or
liability of such Person in respect of leasehold interests assigned by such
Person to any other Person.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indebtedness" means, with respect to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services,
3
<PAGE> 8
excluding any trade accounts payable and other accrued current liabilities
incurred in the ordinary course of business other than payables or liabilities
60 days past due, (ii) all obligations of such Person evidenced by bonds,
notes, debentures, or other similar instruments, (iii) all indebtedness created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (iv) all Capitalized Lease
Obligations of such Person, (v) all indebtedness referred to in (but not
excluded from) clause (i), (ii), (iii), or (iv) above of other Persons, the
payment of which is secured by (or for which the holder of such indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
or in property (including, without limitation, accounts and contract rights)
owned by such Person, even though such Person has not assumed or become liable
for the payment of such indebtedness, (vi) all Guaranteed Debt of such Person,
(vii) all Redeemable Capital Stock that has any redemptions, dividend payments,
or other obligations that are issued by such Person valued at the maximum
redemption price plus all accrued and unpaid dividends thereon plus the maximum
value of any other obligations thereunder and (viii) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (i) through (vii) above. For purposes hereof, the
"maximum redemption price" of any Redeemable Capital Stock that does not have a
fixed redemption price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
this Agreement, and if such price is based upon, or measured by, the fair
market value of such Redeemable Capital Stock, such fair market value to be
determined in good faith by the Board of Directors of the issuer of such
Redeemable Capital Stock based on the Estimated Private Market Equity Value.
"Investment Unit" has the meaning provided therefor in Section 2.04 of
this Agreement.
"JEDI I" means Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership.
"JEDI II" means Joint Energy Development Investments II Limited
Partnership, a Delaware limited partnership.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement or other interest
in property designed to secure repayment of a liability whether arising by
agreement or under law, or otherwise means any mortgage, charge, pledge, lien,
security interest, or encumbrance of any kind.
"Loan Agreements" means, collectively, the Senior Loan Agreement and
the Subordinated Loan Agreement each between the Company and Purchaser dated
March 31, 1999, relating to the Notes.
"Material Adverse Effect" means any circumstances or events which
could (i) have a material adverse effect on the assets or properties,
liabilities, financial condition, business, operations, affairs, or
circumstances of the Company from the facts represented or warranted in any
Basic Document
4
<PAGE> 9
(other than any representation or warranty related solely to a different point
in time), or (ii) materially impair the ability of the Company to carry out its
business as it exists on the date of this Agreement or proposed at the date of
this Agreement to be conducted or to meet its obligations under the Basic
Documents on a timely basis.
"Net Working Capital" means, for any Person or group of Persons and as
of any date of its determination, the remainder (shown on the balance sheets of
such Person or group as of the end of the most recent fiscal quarter of such
Person or group for which internal financial statements are available) of (i)
all current assets of such Person or group and (ii) all current liabilities of
such Person or group, except the current portion of long-term Indebtedness.
"Notes" shall mean (i) the $24,408,000 Senior Credit Facility and (ii)
the $25,000,000 Senior Subordinated Credit Facility, each dated as of March 31,
1999, made by the Company and payable to the order of the Purchaser that are
issued pursuant to the Loan Agreements.
"Partnerships" means partnerships with the Company as general partner.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, or government or any agency or
political subdivision thereof.
"Plan" means any plan subject to Title IV of ERISA and maintained by
the Company or any such plan to which the Company is required to contribute on
behalf of their employees.
"Preferred Shares" means collectively, the Series A Shares, the Series
B Shares and the Series C Shares.
"Price" means the average of the "high" and "low" prices as reported
in The Wall Street Journal's listing for such day (corrected for obvious
typographical errors) or if such shares are not reported in such listing, the
average of the reported "high" and "low" sales prices on the largest national
securities exchange (based on the aggregate dollar value of securities listed)
on which such shares are listed or traded, or if such shares are not listed or
traded on any national securities exchange, then the average of the reported
"high" and "low" sales prices for such shares in the over- the-counter market,
as reported on the National Association of Securities Dealers Automated
Quotations System, or, if such prices shall not be reported thereon, the
average of the closing bid and asked prices so reported, or, if such prices
shall not be reported, then the average of the closing bid and asked prices
reported by the National Quotations Bureau Incorporated, or, in all other
cases, the Estimated Private Market Equity Value divided by the number of
outstanding shares (on a fully diluted basis using the treasury stock method).
The "average" Price per share for any period shall be determined by dividing
the sum of the Prices determined for the individual trading days in such period
by the number of trading days in such period.
"Redeemable Capital Stock" of any Person means any Capital Stock of
such Person that, either by its terms, by the terms of any Capital Stock or
other security into which it is convertible or exchangeable or otherwise, (i),
is, or upon the happening of an event or passage of time would be,
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required to be redeemed, or (ii) is redeemable at the option of the holder
thereof, or (iii) is convertible into or exchangeable for debt securities.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of March 31, 1999, made by the Company in favor of the
Purchaser relating to the Preferred Shares.
"Securities" means the Preferred Shares and the Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations of the Commission promulgated
thereunder.
"Series A Shares" means the 1,000 shares authorized and 500 shares
issued of the Company's Series A Cumulative Preferred Stock, $10,000 par value
per share, to the Purchaser on the date hereof pursuant to this Agreement and
having the preferences, limitations and relative rights as set forth in the
Company's Certificate of Designations of the Series A Preferred Stock attached
hereto as Exhibit 1.01(a).
"Series B Shares" means the 1,000 shares of the Company's Series B
Convertible Preferred Stock, $1 par value per share, issued to the Purchaser on
the date hereof pursuant to this Agreement and having the preferences,
limitations and relative rights as set forth in the Company's Certificate of
Designations of the Series B Convertible Preferred Stock attached hereto as
Exhibit 1.01(b).
"Series C Shares" means the 1 share of the Company's Series C
Convertible Preferred Stock, $1,000 par value per share, issued to the
Purchaser on the date hereof pursuant to the Agreement and having the
preferences, limitations and relative rights as set forth in the Company's
Certificate of Designations of the Series C Convertible Preferred Stock
attached hereto as Exhibit 1.01(c).
"Stockholders' Agreement" means the Stockholders' Agreement dated as
of March 31, 1999, entered into by and among the Purchaser, the Company and
each of the Company's other equity investors.
"Structuring Fee Agreement-Equity" means the agreement between the
Company and ECT Securities Limited Partnership dated of even date herewith and
relating to the fee payable to ECT Securities Limited Partnership for
structuring the transactions set forth in the Equity Documents.
"Subsidiary" of any specified Person means any other Person of which
at the time of determination such specified Person, directly and/or indirectly
through one or more other Persons, owns more than 50% of the voting interests.
"Time of Purchase" has the meaning provided therefor in Section 2.02
of this Agreement.
"Warrants" collectively means all warrants issued to JEDI II pursuant
to the terms of the Securities Purchase Agreement dated September 30, 1997
between JEDI I and the Company, and any warrants issued upon the transfer
thereof or in substitution therefor.
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Section 1.02 Accounting Procedures and Interpretation.
(a) The Company shall not materially change any method of
accounting employed in the preparation of its financial statements from the
methods employed in the preparation of its audited consolidated Financial
Statements dated as of December 31, 1998, unless required to conform to GAAP or
approved in writing by the Purchaser.
(b) Except as expressly provided for in this Agreement, all
accounting terms, definitions, ratios, and other tests described herein shall
be construed in accordance with GAAP with the same basis applied in the
Financial Statements described in paragraph (a) above.
(c) When the financial statements or financial results of any
group of Persons are described as "combined," that reference is to the
financial statements or financial results of such Persons taken together on a
combined basis after eliminating significant interentity balances and
transactions.
(d) Whenever any Basic Document refers to a determination of
the number of outstanding shares using the "treasury stock method," such
determination shall be based upon (1) the number of common shares outstanding,
(2) plus the assumed conversion of all convertible securities into common
stock, (3) plus the net additional shares outstanding assuming the exercise of
all warrants and options. The net additional shares outstanding assuming the
exercise of all warrants and options shall be the total new shares resulting
from such exercise of the warrants and options, reduced by the number of shares
that could be repurchased by the Company with the proceeds from the exercise
thereof at a share price that is equal to a current market value. The current
market value shall be (a) the Price or (b) if the Common Stock is not listed
for trading on a national securities exchange or quoted by NASDAQ, the price
per share as determined using the Estimated Private Market Equity Value.
ARTICLE II
ISSUANCE OF SECURITIES; RIGHTS OF PURCHASER
Section 2.01 Issuance of Securities. The Company agrees that it will
issue the Preferred Shares to the Purchaser at the Time of Purchase, but
effective as of the Effective Date, in accordance with the terms and conditions
set forth herein for good and valuable consideration, receipt and sufficiency
which is hereby accepted. Such issuance shall be made in consideration of the
forgiveness of $5,002,000 of Indebtedness owed to JEDI II under the Original
Loan Agreement as such term is defined in the Loan Agreements.
Section 2.02 The Closing. The purchase and sale of Securities will
take place at a closing (the "Closing") to be held at the offices of Bracewell
& Patterson, L.L.P., 711 Louisiana, Suite 2900, Houston, Texas 77002 at 10:00
a.m. (Houston, Texas time) on the fifth business day following the satisfaction
or waiver of all conditions set forth herein to the obligations of the parties
to consummate the transactions contemplated hereby (other than conditions to be
satisfied at or
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concurrently with the Closing), or on such other date on or before the date
specified in Section 6.01(a) to which the Company and the Purchaser shall
agree. The date and time at which the Closing is to be concluded is the "Time
of Purchase."
Section 2.03 Delivery. Delivery of the Securities pursuant to this
Agreement shall be made at the Closing by the Company delivering to the
Purchaser (i) one certificate representing the Series A Preferred Shares, (ii)
one certificate representing the Series B Preferred Shares, and (iii) one
certificate representing the Series C Preferred Shares, each registered in the
name of the Purchaser (or such other Person as the Purchaser may have
designated in writing to the Company at least three Business Days prior to the
Time of Purchase). Against such delivery, at Closing, the Purchaser shall
deliver to the Company the Warrants marked "canceled" and by such markings the
Purchaser shall agree that such Warrants are canceled..
Section 2.04 Tax Matters. The Company and the Purchaser agree as
follows: (i) Purchaser's acquisition of the Notes and Preferred Shares
constitutes the purchase of an "investment unit" (the "Investment Unit") for
purposes of Treas. Reg.Section 1.1273-2(h)(1); (ii) the issue price of the
Investment Unit is $54,410,000.00 as determined in accordance with Treas. Reg.
Section 1.1273-2(a)(1); (iii) the issue price for the Investment Unit shall be
allocated among the Notes and the Preferred Shares in accordance with their
relative fair market values, as required by Treas. Reg.Section 1.1273-2(h)(1);
and (iv) the parties shall mutually agree to an allocation of the issue price
among the Notes and the Preferred Shares prior to the Closing and shall be bound
by such allocation for all tax-related purposes.
Section 2.05 Rights of Purchaser. The Purchaser shall have such rights
with respect to the registration of the Preferred Shares or the Conversion
Shares under the Securities Act and state securities laws as are set forth in
the Registration Rights Agreement, which shall be executed by the Company and
the Purchaser at the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser, for the benefit of the
Preferred Shares, which representations and warranties shall survive the
execution of any document or agreement, that as of the Effective Date and as of
the Closing Date:
Section 3.01 Corporate Existence. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it was incorporated and is duly qualified as a foreign
corporation in all jurisdictions where qualification is necessary.
Section 3.02 Corporate Power and Authorization. The Company is duly
authorized and empowered to execute, deliver, and perform the Basic Documents;
and all corporate and other action on the Company requisite for the due
execution, delivery, and performance of the Basic Documents has been duly and
effectively taken.
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Section 3.03 Binding Obligations. The Basic Documents constitute valid
and binding obligations of the Company enforceable in accordance with their
respective terms (except that enforcement may be subject to any applicable
bankruptcy, insolvency, or similar debtor relief laws now or hereafter in
effect and relating to or affecting the enforcement of creditors rights
generally).
Section 3.04 No Legal Bar Or Resultant Lien. The Basic Documents do
not and will not, to the best of Company's knowledge, violate any provisions of
any contract, agreement, law, regulation, order, injunction, judgment, decree,
or writ to which the Company is subject, or result in the creation or
imposition of any lien or other encumbrance upon any assets or properties of
the Company.
Section 3.05 No Consent. Except for the filings required by the HSR
Act, the execution, delivery, and performance by the Company of the Basic
Documents does not require the consent or approval of any other Person or
entity, including without limitation any Governmental Authority.
Section 3.06 Financial Condition. The audited consolidated Financial
Statements of the Company dated December 31, 1998, which have been delivered to
Purchaser are complete and correct in all material respects, and fully and
accurately reflect in all material respects the financial condition and results
of the operations of the Company as of the date or dates and for the period or
periods stated, and such Financial Statements have been prepared in accordance
with GAAP. The unaudited consolidated Financial Statements of the Company dated
January 31, 1999, which have been delivered to Purchaser are complete and
correct in all material respects, and fully and accurately reflect in all
material respects the financial condition and results of the operations of the
Company as of the date or dates and for the period or periods stated, and such
Financial Statements have been prepared in accordance with GAAP. Since the date
of the January 31, 1999 Financial Statements, no change has since occurred in
the condition, financial or otherwise, of the Company which could have a
Material Adverse Effect.
Section 3.07 Liabilities. The Company does not have any material
(individually or in the aggregate) liability, direct or contingent, except as
disclosed to the Purchaser in the Financial Statements described in Section
3.06 and on Schedule 3.07 attached hereto. No unusual or unduly burdensome
restrictions, restraint, or hazard exists by contract, law or governmental
regulation, or otherwise relative to the business, assets, or properties of the
Company.
Section 3.08 Litigation. Except as described in the consolidated
Financial Statements of the Company described in Section 3.06, or as otherwise
disclosed to the Purchaser in Schedule 3.08 attached hereto, there is no
litigation, legal or administrative proceeding, investigation, or other action
of any nature pending or, to the knowledge of the officers of the Company,
threatened against or affecting the Company which involves the possibility of
any judgment or liability not fully covered by insurance.
Section 3.09 Taxes; Governmental Charges. The Company has filed all
tax returns and reports required to be filed and has paid all taxes,
assessments, fees, and other governmental charges levied upon it or its assets,
properties, or income which are due and payable, including interest and
penalties or has provided adequate reserves, if required, in accordance with
GAAP for the payment
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thereof, except such as are being contested in good faith by appropriate
proceedings and for which adequate reserves for the payment thereof as required
by GAAP has been provided and levy and execution thereon have been stayed and
continue to be stayed.
Section 3.10 Titles, Etc. The Company has good and defensible title to
all of its assets reflected as being owned by the Company in the Financial
Statements of the Company described in Section 3.06, free and clear of all
liens or other encumbrances except Permitted Liens.
Section 3.11 Defaults. The Company is not in default and no event or
circumstance has occurred which, but for the passage of time or the giving of
notice, or both, would constitute a default under any loan or credit agreement,
indenture, mortgage, deed of trust, security agreement, or other material
agreement or instrument to which the Company is a party.
Section 3.12 Casualties; Taking of Properties. Since the date of the
Financial Statements described in Section 3.06, neither the business nor the
assets or properties of the Company have been affected, as a result of any
fire, explosion, earthquake, flood, drought, windstorm, accident, strike, or
other labor disturbance, embargo, requisition, or taking of property or
cancellation of contracts, permits, or concessions by any governmental
authority thereof, riot, activities of armed forces, or acts of God or of any
public enemy.
Section 3.13 Location of Business and Offices. The principal place of
business of the Company is located at 406 N. Big Spring, Midland, Texas
79701-4326.
Section 3.14 Compliance with the Law.
(a) The Company is not in violation of any law, judgment,
decree, order, ordinance, or governmental rule or regulation to which
the Company, or any of its assets or properties are subject;
(b) the Company has not failed to obtain any license, permit,
franchise or other governmental authorization necessary to the
ownership of any of its assets or properties or the conduct of its
business;
which violation or failure is reasonably expected to have a Material Adverse
Effect.
Section 3.15 No Material Misstatements.
(a) There are no facts or conditions relating to the Basic
Documents or the financial condition, assets, or business prospects of the
Company that could, collectively or individually, have a Material Adverse
Effect.
(b) The Financial Statements and other related financial data
(excluding all projections and pro forma financial data) and reserve reports
furnished to the Purchaser by or at the direction of the Company in connection
with the negotiation of this Agreement do not contain any material misstatement
of fact and, when considered with all other written statements furnished to the
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Purchaser in that connection, such Financial Statements, related financial data
(excluding all projections and pro forma financial data) and reserve reports do
not omit to state a material fact or any fact necessary to make the statement
contained therein not misleading.
Section 3.16 ERISA. The Company is in compliance in all material
respects with the applicable provisions of ERISA, and no "reportable event", as
such term is defined in Section 4043 of ERISA, has occurred with respect to any
Plan of the Company.
Section 3.17 Environmental Matters. Except as disclosed on Schedule
3.17:
(a) Environmental Laws, etc. No property of the Company nor
the operations conducted thereon violates any applicable order of any
Governmental Authority or Environmental Laws which could reasonably be
expected to result in remedial obligations assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions,
and circumstances, if any, pertaining to the relevant property.
(b) No Litigation. Without limitation of paragraph (a) above,
no property of the Company nor the operations currently conducted
thereon or by any prior owner or operator of such property or
operation, is in violation of or subject to any existing, pending, or
threatened action, suit, investigation, inquiry, or proceeding by or
before any Governmental Authority or to any remedial obligations under
Environmental Laws, which violation, action, suit, investigation,
inquiry, or proceeding could reasonably be expected to have a Material
Averse Effect or which could reasonably be expected to result in
remedial obligations having a Material Adverse Effect assuming
disclosure to the applicable Governmental Authority of all relevant
facts, conditions, and circumstances, if any, pertaining to the
relevant property.
(c) Notices, Permits, etc. All notices, permits, licenses, or
similar authorizations, if any, required to be obtained or filed by
the Company in connection with the operation or use of any and all
property of the Company, including but not limited to past or present
treatment, storage, disposal, or release of a hazardous substance or
solid waste into the environment, have been duly obtained or filed
where the failure to do so could reasonably be expected to result in
remedial obligations assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions, and
circumstances, if any, pertaining to the relevant property.
(d) Hazardous Substances Carriers. All hazardous substances
or solid waste generated at any and all property of the Company have
in the past been transported, treated, and disposed of only by
carriers maintaining valid permits under any Environmental Law, and
only at treatment, storage, and disposal facilities maintaining valid
permits under any Environmental Law, which carriers and facilities
have been and are operating in compliance with such permits, where the
failure to maintain and comply with such permits could reasonably be
expected to result in remedial obligations having a Material Adverse
Effect assuming disclosure to the applicable Governmental Authority of
all relevant facts, conditions, and circumstances, if any, pertaining
to the relevant property.
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(e) Hazardous Substances Disposal. The Company has taken all
reasonable steps necessary to determine and have determined that no
hazardous substances or solid waste have been disposed of or otherwise
released and there has been no threatened release of any hazardous
substances on or to any property of the Company, except in compliance
with Environmental Laws, which could reasonably be expected to result
in remedial obligations assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions, and
circumstances, if any, pertaining to the relevant property.
(f) OPA Requirements. To the extent applicable, the Company
has complied with all design, operation, and equipment requirements
imposed by OPA or scheduled to be imposed by OPA, and the Company does
not have reason to believe that it will not be able to maintain such
compliance with OPA requirements.
(g) No Contingent Liability. The Company does not have any
material contingent liabilities in connection with any release or
threatened release of any hazardous substance or solid waste into the
environment other than such contingent liabilities at any one time and
from time to time which could reasonably be expected to exceed an
aggregate of $500,000 in excess of applicable insurance coverage and
for which adequate reserves for the payment thereof as required by
GAAP have not been provided, or which could reasonably be expected to
result in remedial obligations assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions, and
circumstances, if any, pertaining to such release or threatened
release.
Section 3.18 Capitalization. The authorized Capital Stock of the
Company consists of: 500,000 shares of Common Stock, no par value per share and
2,500 shares of preferred stock, par value $10,000 per share. As of the close
of business on March 31, 1999 and upon the Closing Date, there were issued and
outstanding 4370.71 shares of Common Stock and no other shares of Capital
Stock. Upon the Closing Date, the only shares of Preferred Stock issued and
outstanding are the Preferred Shares issued pursuant hereto. All outstanding
shares of the Company's Capital Stock are validly issued, fully paid and
nonassessable and, except as set forth on Schedule 3.18(a), are not subject to
any preemptive rights. Other than as set forth on Schedule 3.18(b) the Company
is not a party to any voting trust or other agreement or understanding with
respect to the voting of its Capital Stock. Other than the Preferred Shares,
there are no (i) outstanding securities convertible or exchangeable into
Capital Stock of the Company or (ii) contracts, commitments, agreements,
understandings, or arrangements of any kind to which the Company is a party
relating to the issuance of any Capital Stock of the Company. The Company is
not a party to or bound by any agreement with respect to any of its securities
which grants registration rights to any person, except as set forth on Schedule
3.18(c).
Section 3.19 Subsidiaries; Partnerships. There are no Subsidiaries of
the Company. The Company is not a partner in a Partnership, limited liability
company, joint venture, association or other business entity, except as set
forth on Schedule 3.19.
Section 3.20 Conversion Shares. When issued and delivered in
accordance with the terms of the Preferred Shares, any and all of the
Conversion Shares issuable upon conversion of the
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Preferred Shares will be duly and validly issued, fully paid, nonassessable,
and, other than as set forth in the Basic Documents, free of preemptive rights
and free from all taxes payable by the Company and Liens (except any Liens
created or suffered to be created by the Purchaser) and will not be subject to
any restriction on the voting or transfer thereof created by the Company.
Section 3.21 Certain Fees. Except for the structuring fee payable to
ECT Securities Limited Partnership pursuant to the Structuring Fee
Agreement-Equity, no fees or commissions will be payable by the Company to
brokers, finders, investment bankers, or Purchaser with respect to the issuance
and sale of any of the Securities or the consummation of the transaction
contemplated by this Agreement. The Company agrees that it will indemnify and
hold harmless the Purchaser from and against any and all claims, demands, or
liabilities for broker's, finders or placement fees, or other similar fees or
commissions incurred by the Company or alleged to have been incurred by the
Company in connection with the issuance or sale of the Securities or the
consummation of the transaction contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company, which representations and
warranties shall survive the execution of any document or agreement, that as of
the Effective Date and the Closing Date:
Section 4.01 Investment. The Purchaser represents and warrants to, and
covenants and agrees with, the Company that the Securities are being acquired
for its own account and with no intention of distributing or reselling the
Securities in any transaction which would be in violation of the securities
laws of the United States of America or any State, without prejudice, however,
to Purchaser's right at all times to sell or otherwise dispose of all or any
part of the Securities under a registration statement under the Securities Act
and applicable state securities laws or under an exemption from such
registration available thereunder (including, without limitation, if available,
Rule 144A promulgated thereunder). If the Purchaser should in the future decide
to dispose of any of the Preferred Shares or the Conversion Shares, the
Purchaser understands and agrees (i) that it may do so only (A) in compliance
with the Securities Act and applicable state securities law, as then in effect,
and (B) in the manner contemplated by any registration statement pursuant to
which such securities are being offered, and (ii) that stop-transfer
instructions to that effect will be in effect with respect to such Securities.
The Purchaser agrees to the imprinting, so long as appropriate, of a legend on
each certificate representing Securities, to the effect as set forth above.
Section 4.02 Nature of Purchaser. The Purchaser represents and
warrants to, and covenants and agrees with, the Company that, (i) it is an
"accredited investor" within the meaning of paragraphs (a)(3) or (8) of Rule
501 under the Securities Act and (ii) by reason of its business and financial
experience it has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Securities, is able to bear the economic risk of
such investment and, at the present time, would be able to afford a complete
loss of such investment.
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Section 4.03 Receipt of Information; Authorization. The Purchaser
acknowledges that it has had an opportunity to ask questions of and receive
satisfactory answers from designated representatives of the Company concerning
the terms and conditions pursuant to which the purchase of the Securities are
made. The Purchaser acknowledges that it has been afforded an opportunity to
examine such documents and other information which it has requested for the
purpose of verifying the information provided to it and for the purpose of
answering any questions it may have concerning the business affairs and
financial condition of the Company. The Purchaser represents that it alone or
with its advisors has knowledge and experience in the business of the Company
so as to be capable of evaluating the merits and risks of an investment in the
Company based upon the information furnished to it, its knowledge of the
business and affairs of the Company, the records, files, and plans of the
Company (which have been made available to it), such additional information as
it has requested and has received from the Company, and the independent
inquiries and investigations undertaken by it. The Purchaser represents and
warrants that the purchase of the Securities by it has been duly and properly
authorized and this Agreement has been duly executed and delivered by it or on
its behalf.
Section 4.04 No Consent. Except for the filings required by the HSR
Act, the execution, delivery, and performance by the Purchaser of the Basic
Documents does not require the consent or approval of any other Person or
entity, including without limitation any Governmental Authority.
ARTICLE V
COVENANTS PENDING CLOSING
Section 5.01 Antitrust Notification. Each of the Company and Purchaser
will as promptly as practicable, and in any event within 15 days after the
Effective Date, make all filings or submissions as are required under the HSR
Act. Each of the Company and Purchaser will as promptly as practicable furnish
to the other such necessary information and reasonable assistance as the other
may request in connection with its preparation of any filing or submission
which is necessary under the HSR Act. Without limiting the generality of the
foregoing, each of the Company and Purchaser will as promptly as practicable
notify the other of the receipt and content of any inquiries or requests for
additional information made by any Governmental Authority in connection
therewith and will as promptly as practicable (i) take all reasonable actions
necessary to comply with any such inquiry or request and (ii) provide the other
with a description of the information provided to any Governmental Authority
with respect to any such inquiry or request. In addition, each of the Company
and Purchaser will keep the other apprised of the status of any such inquiry or
request and take such reasonable actions as are necessary to obtain any
clearance required under the HSR Act for the consummation of the transactions
contemplated hereby.
Section 5.02 Mergers. Beginning on the Effective Date and until the
Time of Purchase, the Company shall not, and shall not permit any of its
Subsidiaries to, consolidate or merge with or into any other Person, to
liquidate, dissolve or incur a name change, including a change of trade name.
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Section 5.03 Dividends. Beginning on the Effective Date and until the
Time of Purchase, the Company shall not declare or pay any cash dividend,
purchase, redeem or otherwise acquire for value any of its Capital Stock now or
hereafter outstanding, return any capital to stockholders, or make any
distribution of its assets to its stockholders as such.
Section 5.04 Nature of Business. Beginning on the Effective Date and
until the Time of Purchase, the Company shall not, and shall not permit any
Subsidiary to, allow any material change to be made in the character of their
business as carried on at the date hereof.
Section 5.05 Amendment of Certificate of Incorporation or Bylaws.
Beginning on the Effective Date and until the Time of Purchase, the Company
shall not, and shall not permit any Subsidiary to, allow any amendment to, or
other alteration of, their Certificate of Incorporation, Bylaws or any
contract, agreement or instrument that could have a detrimental affect on the
Company.
Section 5.06 Asset Sales. Beginning on the Effective Date and until
the Time of Purchase, the Company shall not and shall not permit any Subsidiary
to, sell, transfer or otherwise convey any interest of the Company or the
Subsidiary in any of their respective assets without the prior written consent
of the Purchaser if the aggregate amount of the consideration received from all
such sales, transfers, and conveyances during any fiscal year of the Company
would exceed $100,000; provided, however, that the Company may (i) sell the
Lampassas Ranch and (ii) complete the sale of the Auction Package. No sale,
transfer or conveyance shall be for less than the fair market value of the
asset.
Section 5.07 Equity Proceeds. Beginning on the Effective Date and
until the Time of Purchase, the Company shall not, and shall not permit any
Subsidiary to, issue any additional Capital Stock or debt securities following
the Effective Date, without the prior written consent of the Purchaser.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
Section 6.01 Conditions Precedent to Obligations of the Purchasers.
The obligation of Purchaser to acquire the Securities is subject, at the Time
of Purchase, to the prior or simultaneous satisfaction or waiver of the
following conditions:
(a) The Time of Purchase shall not be later than 5:00 P.M.,
Houston, Texas time, on May 15, 1999, subject to extension if the
Purchaser agrees to extend the Time of Purchase upon request to do so
by the Company.
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<PAGE> 20
(b) The Company shall have duly amended its Certificate of
Incorporation to provide for a number of authorized shares of
preferred stock sufficient to issue the Preferred Shares hereunder.
(c) The Company shall have duly amended its Certificate of
Incorporation and/or Bylaws, in form and substance satisfactory to the
Purchaser, including, without limitation, allowing for a maximum of
seven Persons on the Company's Board of Directors.
(d) The representations and warranties made by the Company
herein shall be true and correct (except for changes expressly
provided for by this Agreement) on and as of the Effective Date and
the Time of Purchase with the same effect as though such
representations and warranties had been made on and as of the Time of
Purchase, the Company shall have performed and complied with all
agreements and conditions set forth in or contemplated hereunder or in
the Basic Documents required to be performed or complied with by it at
or prior to the Effective Date and/or the Time of Purchase, and the
Basic Documents shall have been executed and delivered by all the
respective parties thereto and shall be in full force and effect.
(e) The Company's stockholders shall have duly executed a
valid written consent approving the form and content of the Basic
Documents and the performance thereof by the Company and shall have
delivered a copy of such consent to the Purchaser.
(f) The Purchaser shall have received duly executed and
delivered copies of this Agreement, the Loan Agreements and the
Structuring Fee Agreement-Equity, intended for delivery on the
Effective Date including the Equity Documents together with all other
documents reasonably requested by the Purchaser in connection
therewith and all proceedings taken in connection with the issuance of
the Securities and the transactions contemplated by the Basic
Documents shall be reasonably satisfactory to the Purchaser and its
counsel.
(g) The Purchaser shall have received an opinion of counsel
to the Company acceptable to the Purchaser addressing the existence
and good standing of the Company, the authorization of the Basic
Documents, the enforceability of the Basic Documents, the absence of
conflicts with law, other material agreements, and court orders, the
absence of litigation, and such other matters as the Purchaser may
request.
(h) The Purchaser shall have received a certificate, dated
the Time of Purchase, of the Secretary or an Assistant Secretary of
the Company, (i) certifying as true, complete and correct the charter
and by-laws of the Company and resolutions of the Board of Directors
attached thereto, (ii) as to the absence of proceedings or other
action for dissolution, liquidation or reorganization of the Company,
(iii) as to the incumbency of the officers of the Company who shall
have executed instruments, agreements, and other documents in
connection with the transactions contemplated hereby or by the Basic
Documents, and (iv) covering such other matters, and with such other
attachments thereto, as the Purchaser may
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<PAGE> 21
request, and such certificate and the attachments thereto shall be
satisfactory in form and substance to the Purchaser.
(i) The Purchaser shall have completed its due diligence
review of such matters as it shall deem appropriate, and a review of
the Company's properties and operations with respect to compliance
with Environmental Laws, and any available reports related thereto,
and the results of such due diligence review shall be satisfactory to
the Purchaser.
(j) The Company shall have paid to or on behalf of the
Purchaser all amounts payable pursuant to Section 8.02 of this
Agreement and shall have made to ECT Securities Limited Partnership
all payments required under the terms of the Structuring Fee
Agreement-Equity.
(k) The Purchaser shall have received or be satisfied with
the completion of all other items described on the current listing of
closing documents distributed by the Purchaser to the Company in
connection with the execution of this Agreement.
(l) The waiting period under the HSR Act and the rules and
regulations promulgated thereunder applicable to the transactions
contemplated hereunder shall have expired or been terminated.
Section 6.02 Conditions Precedent to Obligations of the Company. The
obligations of the Company to issue and sell Securities hereunder is subject,
at the Time of Purchase, to the prior or simultaneous satisfaction or waiver of
the following conditions:
(a) The representations and warranties made by the Purchaser
herein shall be true and correct on and as of the Effective Date and
the Time of Purchase with the same effect as though such
representations and warranties had been made on and as of the Time of
Purchase.
(b) The issuance of the Securities by the Company shall not
at the Time of Purchase be enjoined (temporarily or permanently) under
the laws of any jurisdiction to which the Company is subject.
(c) The Purchaser shall have delivered such Warrants to the
Company marked "canceled" which such markings shall indicate
Purchaser's agreement that such Warrants are canceled.
(d) The Purchaser shall have accepted delivery of the
Securities.
(e) Each of the Basic Documents shall have been executed and
delivered by all the respective parties thereto and shall be in full
force and effect.
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<PAGE> 22
ARTICLE VII
COVENANTS
The Company covenants to the Purchaser, for the benefit of the Preferred
Shares, that so long as any Preferred Shares are outstanding:
Section 7.01 Financial Statements and Reports. The Company shall
promptly furnish to the Purchaser from time to time upon request such
information regarding the business and affairs and financial condition of the
Company, as the Purchaser may reasonably request, and will furnish to the
Purchaser:
(a) Annual Audited Financial Statements - as soon as
available, and in any event within ninety (90) days after the close of
each fiscal year, the annual audited Financial Statements
(consolidated, if applicable) of the Company, certified, without any
qualification or limit of the scope of the examination of matters
relevant to the financial statements, by KPMG Peat Marwick, L.L.P.,
any nationally recognized public accounting firm or any other
accounting firm approved by the Purchaser.
(b) Quarterly Financial Statements - as soon as available,
and in any event within forty-five (45) days after the end of each
calendar quarter of each year (except the last calendar quarter in any
fiscal year), the quarterly unaudited Financial Statements
(consolidated and consolidating) of the Company.
(c) Annual Budget - as soon as available and in any event on
or before last Business Day of each November, the detailed income
statements and capital budgets for the coming calendar year as of the
date of the budget approved by the Company's Board of Directors for
the Company and its Subsidiaries, such budget being prepared in
accordance with Exhibit 7.01(c).
(d) Additional Information - promptly upon request of the
Purchaser from time to time, any additional financial information or
other information that the Purchaser may reasonably request.
All such information, reports, and Financial Statements referred to in this
Section 7.01 shall be in such detail as the Purchaser may reasonably request
and shall be prepared in a manner consistent with the requirements set forth
above and in Section 1.02.
Section 7.02 Compliance with Laws. The Company shall observe and
comply, in all material respects, with all applicable laws, statutes, codes,
acts, ordinances, orders, judgments, deuces, injunctions, rules, regulations,
orders, and restrictions of applicable Governmental Authorities, including
those relating to Environmental Laws and energy regulations.
Section 7.03 Further Assurances. The Company shall promptly cure any
defects in the creation and issuance of the Equity Documents. The Company shall
promptly execute and deliver to the Purchaser upon its reasonable request all
such other and further documents, agreements, and
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<PAGE> 23
instruments in compliance with or accomplishment of the covenants and
agreements in the Equity Documents.
Section 7.04 Accounts and Records. The Company shall keep books,
records, and accounts in which full, true, and correct entries will be made of
all dealings or transactions in relation to its business and activities,
prepared in a manner consistent with the requirements of Section 1.02.
Section 7.05 Right of Inspection. The Company shall permit any
officer, employee, or agent of the Purchaser to examine their books, records,
and accounts, and take copies and extracts therefrom, all at such reasonable
times and as often as the Purchaser may reasonably request. The Purchaser will
keep all such information confidential and will not without prior written
consent disclose or reveal the information or any part thereof to any person
other than the Purchaser's officers, employees, legal counsel, regulatory
authorities, or advisors to whom it is necessary to reveal such information for
the purpose of effectuating the agreements and undertakings specified herein or
as otherwise required by law or in connection with the enforcement of the
Purchaser' rights and remedies under the Equity Documents.
Section 7.06 Transactions with Affiliates. The Company shall not enter
into any transaction with any of its Affiliates, except transactions upon terms
no less favorable to it than would be obtained in a transaction negotiated at
arm's length with a unrelated third party.
Section 7.07 Public Disclosures. The Company covenants that it will
not disclose the identity of the Purchaser in any public announcement,
governmental filing or otherwise without Purchaser's prior written consent
unless such disclosure is compelled or required by law, stock exchange rule or
by order of a court of competent jurisdiction.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Interpretation and Survival of Provisions. Article,
Section, Schedule, and Exhibit references are to this Agreement, unless
otherwise specified. All references to instruments, documents, contracts, and
agreements are references to such instruments, documents, contracts, and
agreements as the same may be amended, supplemented, and otherwise modified
from time to time, unless otherwise specified. The word "including" shall mean
"including but not limited to." Whenever the Company has an obligation under
the Basic Documents, the expense of complying with that obligation shall be an
expense of the Company unless otherwise specified. Whenever any determination,
consent, or approval is to be made or given by the Purchaser, such action shall
be in the Purchaser's sole discretion unless otherwise specified in this
Agreement. If any provision in the Basic Documents is held to be illegal,
invalid, not binding, or unenforceable, such provision shall be fully severable
and the Basic Documents shall be construed and enforced as if such illegal,
invalid, not binding, or unenforceable provision had never comprised a part of
the Basic Documents, and the remaining provisions shall remain in full force
and effect. The Basic Documents have been reviewed and negotiated by
sophisticated parties with access to legal counsel and shall not be
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<PAGE> 24
construed against the drafter. The representations, warranties, and covenants
made in this Agreement shall remain operative and in full force and effect
regardless of (a) any investigation made by or on behalf of the Company or the
Purchaser or (b) acceptance of any of the Securities and payment therefor and
repayment or repurchase thereof. The provision of Section 8.02 shall remain
operative and in full force and effect unless such Sections are expressly
terminated in a writing referencing those individual Sections, regardless of
any purported general termination of this Agreement.
Section 8.02 Costs, Expenses and Taxes. The Company agrees to pay all
costs and expenses (including reasonable, properly documented fees and expenses
of counsel to the Purchaser) reasonably incurred by the Purchaser in connection
with negotiation, preparation, printing, execution and delivery of the Basic
Documents and the transactions contemplated hereby and thereby. The Company
shall also pay any expenses of the Purchaser reasonably incurred in connection
with any amendment or supplement to or modification of any of the foregoing and
any and all other documents furnished pursuant hereto or thereto or in
connection herewith or therewith. In addition, the Company shall pay any and
all stamp, transfer, and other similar taxes payable or determined to be
payable in connection with the execution and delivery of this Agreement or the
original issuance of the Securities and shall save and hold the Purchaser
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying, or omission to pay, such taxes.
Section 8.03 No Waiver; Modifications in Writing.
(a) No failure or delay on the part of the Company or the
Purchaser in exercising any right, power, or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power, or remedy preclude any other or further exercise thereof or the exercise
of any right, power, or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchaser at law or in equity or otherwise.
(b) Except as otherwise provided herein, no amendment,
waiver, consent, modification, or termination of any provision of this
Agreement shall be effective unless signed by the Company and the holder of the
majority of the Preferred Shares. Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by the Company from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement, no notice to or demand on
the Company in any case shall entitle the Company to any other or further
notice or demand in similar or other circumstances.
Section 8.04 Binding Effect; Assignment. This Agreement shall be
binding upon the Company and the Purchaser, and their respective successors and
permitted assigns. Except as expressly provided in this Agreement, this
Agreement shall not be construed so as to confer any right or benefit upon any
Person other than the parties to this Agreement, and their respective
successors and permitted assigns. Prior to the Time of Purchase, the rights and
obligations of the Purchaser under this Agreement may not be assigned to any
other Person except with the prior consent of the
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<PAGE> 25
Company, which shall not be unreasonably withheld. After the Time of Purchase,
the rights and obligations of the Purchaser under this Agreement with respect
to the Preferred Shares may be assigned by the Purchaser by assignment of the
Preferred Shares, and upon any such assignment, the holder of the Preferred
Shares shall succeed to all of the Purchaser's rights and obligations under
this Agreement with respect to the Preferred Shares and the Purchaser shall be
automatically released from any obligations thereunder with respect to the
Preferred Shares. Upon request of the Purchaser in connection with the transfer
of any Preferred Shares, the Company shall execute and deliver any amendment to
this Agreement, the Preferred Shares, and the other Basic Documents reasonably
requested by the Purchaser to reflect the transfer.
Section 8.05 Replacement Securities. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any certificates representing Preferred Shares or Conversion Shares and, in the
case of any such loss, theft, or destruction, upon delivery of any unsecured
letter of indemnity to the Company or, in the case of any such mutilation, upon
surrender or cancellation thereof, the Company will issue new certificates
representing Preferred Shares, or Conversion Shares, as applicable.
Section 8.06 Communications. All notices and demands provided for
hereunder shall be in writing, and if to the Purchaser, shall be given by
registered or certified mail, return receipt requested, telex, telegram,
telecopy, air courier guaranteeing overnight delivery or personal delivery, to
the Purchaser, to the following address:
Joint Energy Development Investments II Limited Partnership
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Donna Lowry, Director - 28th Floor
Telecopier: (713) 646-3602
and, if to the Company:
Sierra Well Service, Inc.
406 N. Big Spring
Midland, Texas 79701
Attention: H.H. Wommack III
Telecopier: (915) 688-0191
or to such other address as the Company or Purchaser may designate in writing.
All other communications may be by regular mail. All such notices and
communications and all notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; four days
after being sent by certified mail, return receipt requested, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next Business Day if timely delivered to an air courier guaranteeing overnight
delivery.
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Section 8.07 Governing Law. The laws of the State of New York will
govern this Agreement without regard to principles of conflicts of laws.
Section 8.08 Arbitration.
(a) Binding Arbitration. On the request of either Company or
Purchaser, (whether made before or after the institution of any legal
proceeding), any action, dispute, claim or controversy of any kind now existing
or hereafter arising between any of the parties hereto in any way arising out
of, pertaining to or in connection with this Agreement (a "Dispute") shall be
resolved by binding arbitration in accordance with the terms hereof. Either
Company or Purchaser may, by summary proceedings, bring an action in court to
compel arbitration of any Dispute.
(b) Governing Rules. Any arbitration shall be administered by
the American Arbitration Association (the "AAA") in accordance with the terms
of this Section, the Commercial Arbitration Rules of the AAA, and, to the
maximum extent applicable, the Federal Arbitration Act. Judgment on any award
rendered by an arbitrator may be entered in any court having jurisdiction.
(c) Arbitrators. Arbitration hereunder shall be before a
three-person panel of neutral arbitrators, consisting of one person from each
of the following categories: (1) an attorney who has practiced in the area of
commercial law for at least 10 years or a retired judge at the Texas or United
States District Court or an appellate court level: (2) a person with at least
10 years experience in commercial lending: and (3) a person with at least 10
years experience in the petroleum industry. The AAA shall submit a list of
persons meeting the criteria outlined above for each category of arbitrator,
and the parties shall select one person from each category in the manner
established by the AAA. If the parties cannot agree on an arbitrator within 30
days after the request for an arbitration, then any party may request the AAA
to select an arbitrator. The arbitrators may engage engineers, accountants or
other consultants that the arbitrator deems necessary to render a conclusion in
the arbitration proceeding.
(d) Conduct of Arbitration. To the maximum extent
practicable, an arbitration proceeding hereunder shall be concluded within 180
days of the filing of the Dispute with the AAA. Arbitration proceedings shall
be conducted in Houston, Texas. Arbitrators shall be empowered to impose
sanctions and to take such other actions as the arbitrators deem necessary to
the same extent a judge could impose sanctions or take such other actions
pursuant to the Federal Rules of Civil Procedure and applicable law. At the
conclusion of any arbitration proceeding, the arbitrator shall make specific
written findings of fact and conclusions of law. The arbitrators shall have the
power to award recovery of all costs and fees to the prevailing party. Company
and Purchaser each agrees to keep all Disputes and arbitration proceedings
strictly confidential except for disclosure of information required by
applicable law.
(e) Costs of Arbitration. All fees of the arbitrators and any
engineer, accountant or other consultant engaged by the arbitrators, shall be
paid by Company and Purchaser equally unless otherwise awarded by the
arbitrators.
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Section 8.09 Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together,
shall constitute but one and the same Agreement.
[SIGNATURE PAGE - SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto execute this Agreement,
effective as of the date first above written.
SIERRA WELL SERVICE, INC.
/s/ Bill E. Coggin
---------------------------------------------
Bill E. Coggin
Vice Chairman
JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED
PARTNERSHIP
By: Enron Capital Management II Limited
Partnership, its General Partner
By: Enron Capital II Corp.,
its General Partner
/s/ John D. Curtin III
-----------------------------
Name: John D. Curtin III
Title: Agent and Attorney-in-Fact
S-1
<PAGE> 1
EXHIBIT 10.9
[EXECUTION VERSION]
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of March 31, 1999, by and among Sierra Well Service, Inc., a
Delaware corporation (the "Company") and Joint Energy Development Investments II
Limited Partnership, a Delaware limited partnership (JEDI II").
This Agreement is made pursuant to the Securities Purchase Agreement
(the "Securities Purchase Agreement") dated as of March 31, 1999, by and among
the Company and JEDI II. In order to induce JEDI II to enter into the Securities
Purchase Agreement, the Company has agreed to provide the registration and other
rights set forth in this Agreement. Pursuant to the Securities Purchase
Agreement, JEDI II will purchase shares of the Company's (i) Series A Cumulative
Preferred Stock, (ii) Series B Convertible Preferred Stock and (iii) Series C
Convertible Preferred Stock. The execution and delivery of this Agreement is a
condition to the Closing (as defined in the Securities Purchase Agreement).
The parties agree as follows:
ARTICLE 0.01
Section (i). Definitions. Capitalized terms used herein without
definition shall have the meanings given to them in the Securities Purchase
Agreement. The terms set forth below are used herein as so defined:
"Affiliate" means, with respect to any Person, any other
Person (i) directly or indirectly controlling, controlled by, or under common
control with the first Person or (ii) that directly or indirectly owns more than
five percent (5%) of any class of the voting securities or capital stock of or
equity interests in such Person. The term "control" (including the terms
"controlling," "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power either to (i) vote five percent
(5%) or more of the securities or interests having ordinary voting power for the
election of directors (or other comparable controlling body) of such Person or
to (ii) direct or cause the direction of the management or the policies of such
Person, whether through the ownership of voting securities or interests, by
contract or otherwise.
"Commission" has the meaning specified therefor in Section
1.02 of this Agreement.
"Common Stock" means the common stock, no par value per share,
of the Company.
"Conversion Shares" means the shares of Common Stock issuable
on conversion of the Preferred Stock.
<PAGE> 2
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
"Holder" means the record holder of any Registrable
Securities.
"Inspector" has the meaning specified therefor in Section 2.03
this Agreement.
"Losses" has the meaning specified therefor in Section 2.06(a)
of this Agreement.
"Other Holders" has the meaning specified therefor in Section
2.01 of this Agreement.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, business
trust, trust or unincorporated entity.
"Preferred Stock" means, either singly or collectively, the
Company's Series A Cumulative Preferred Stock, Series B Convertible Preferred
Stock and Series C Convertible Preferred Stock, issued or received in connection
with the Securities Purchase Agreement, dated March 31, 1999, by and between the
Company and JEDI II.
"Records" has the meaning specified therefor in Section 2.03
of this Agreement.
"Registrable Securities" means the Conversion Shares and
shares of the Company's Common Stock issued pursuant to the terms and conditions
of the Preferred Stock, until such time as such securities cease to be
Registrable Securities pursuant to Section 1.02 hereof.
"Requesting Holder(s)" has the meaning specified therefor in
Section 2.01 of this Agreement.
"Request Notice" has the meaning specified therefor in Section
2.01 of this Agreement.
"Registration Statement" has the meaning specified therefor in
Section 2.01 of this Agreement.
"Reporting Commencement Date" has the meaning specified
therefor in Section 2.01 of this Agreement.
"Securities Act" has the meaning specified therefor in Section
1.02 of this Agreement.
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<PAGE> 3
"Selling Holder" means a Holder who is selling Registrable
Securities pursuant to a Registration Statement.
Section 0.02. Registrable Securities. Any Registrable Security will
cease to be a Registrable Security when (i) a Registration Statement covering
such Registrable Security has been declared effective by the Securities and
Exchange Commission (the "Commission") and such Registrable Security has been
sold or disposed of pursuant to such effective Registration Statement; (ii) such
Registrable Security is disposed of pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act of 1933, as amended (the
"Securities Act"); (iii) such Registrable Security is eligible to be, and at the
time of determination can be, disposed of pursuant to paragraph (k) of Rule 144
(or any similar provision then in force) under the Securities Act; or (iv) such
Registrable Security is held by the Company or one of its subsidiaries.
ARTICLE I
Section 1.01. Demand Registration. (a) Any time after the first date on
which (i) the Common Stock is registered under Section 12 of the Exchange Act or
(ii) the Company is required to file reports with the Commission pursuant to
Section 15(d) of the Exchange Act as a result of the effectiveness of a
registration statement filed by the Company under the Securities Act with
respect to Common Stock (the "Reporting Commencement Date"), any Holder or
Holders who collectively beneficially own at least a majority of the Registrable
Securities may request (a "Request Notice") the Company to register under the
Securities Act all or any portion of the Registrable Securities that are held by
such Holder or Holders (collectively, the "Requesting Holder") for sale in the
manner specified in the Request Notice.
(b) Promptly following receipt of a Request Notice, the
Company shall immediately notify each Holder (except the Requesting Holder) of
the receipt of a Request Notice and shall use its best efforts to file a
registration statement under the Securities Act (each such registration
statement is hereinafter referred to as a "Registration Statement") effecting
the registration under the Securities Act, for public sale in accordance with
the method of disposition specified in such Request Notice, of the Registrable
Securities specified in the Request Notice (and in any notices that the Company
receives from other Holders no later than the 15th day after receipt of the
notice sent by the Company) (such other Holders and the Requesting Holder are
hereinafter referred to as the "Requesting Holders"). If such method of
disposition shall be an underwritten public offering, the Requesting Holders
holding a majority of the Registrable Securities to be registered may designate
the managing underwriter of such offering, subject to the approval of the
Company, which approval shall not be withheld unreasonably. The Company shall be
obligated to register Registrable Securities pursuant to this Section 2.01 on
three occasions only. A request pursuant to this Section 2.01 shall be counted
only when the corresponding Registration Statement has been filed and becomes
effective under the Securities Act.
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<PAGE> 4
(c) The Company and any Person other than a Holder (the "Other
Holders") who is entitled to piggy-back registration rights may include
securities of the Company in a Registration Statement filed pursuant to Section
2.01, but only to the extent that (i) all of the Registrable Securities
requested by Holders to be included in such Registration Statement have been
included and (ii) in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such inclusion would not
materially jeopardize the successful marketing of the Registrable Securities to
be sold. If the managing underwriter determines that it is necessary to reduce
the number of securities to be registered on behalf of the Company or such Other
Holders, securities held by such Other Holders shall be excluded first and then
the securities to be registered by the Company shall be excluded. Except as
provided in this subsection (c), the Company will not effect any other
registration of its securities (except with respect to Registration Statements
on Form S-4 or S-8 or any forms succeeding thereto for purposes permissible
under such forms as of the date hereof or filed in connection with an exchange
offer), whether for its own account or that of any Other Holder, from the date
of receipt of a Request Notice related to an underwritten public offering until
the completion of the distribution by the underwriters of all securities
thereunder.
From and after the date of this Agreement and until no Registrable
Securities remain outstanding, the Company shall not grant registration rights
to any Person unless such rights are consistent with the provisions of this
Agreement.
Section 1.02. Piggy-Back Registration. If the Company proposes
to register any of its securities under the Securities Act for sale to the
public for cash, whether for its own account or for the account of Other Holders
or both (except with respect to Registration Statements on Forms S-4 or S-8 or
any forms succeeding thereto for purposes permissible under such forms as of the
date hereof), each such time it will give written notice to all Holders of its
intention to do so no less than 20 days prior to the anticipated filing date.
Upon the written request received by the Company from any Holder no later than
the 15th day after receipt by such Holder of the notice sent by the Company
(which request shall state the intended method of disposition thereof), the
Company will use commercially reasonable efforts to cause the Registrable
Securities as to which registration shall have been so requested to be included
in the securities to be covered by such Registration Statement, all to the
extent requisite to permit the sale or other disposition by each Holder (in
accordance with its written request) of such Registrable Securities so
registered; provided, however, that the Company may at any time prior to the
effectiveness of any such Registration Statement, in its sole discretion and
without the consent of any Holder, abandon any proposed offering by the Company
in which any Holder had requested to participate. The number of Registrable
Securities to be included in such a registration may be reduced or eliminated if
and to the extent, in the case of an underwritten offering, the managing
underwriter shall advise the Company that such inclusion would materially
jeopardize the successful marketing of the securities (including the Registrable
Securities) proposed to be sold therein; provided, however, that (a) in the case
of a Registration Statement filed pursuant to the
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<PAGE> 5
exercise of demand registration rights of any Other Holders, priority shall be
given first to the Other Holders demanding such registration, then to the
Holders, then to the Company and then to Other Holders (other than the Other
Holders demanding such registration) and (b) in the case of a Registration
Statement the filing of which is initiated by the Company, priority shall be
given (A) first to the Company, then (B) to the Holders, then (C) to Other
Holders. Notwithstanding any language to the contrary in this Section 2.02,
however, Registrable Securities may be excluded from a registration statement
only to the extent that securities held by Affiliates of the Company (other than
the Holders) have first been excluded from such registration statement.
Section 1.03. Registration Procedures. If and whenever the
Company is required pursuant to this Agreement to effect the registration of any
of the Registrable Securities under the Securities Act, the Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a Registration
Statement, on a form available to the Company, with respect to such securities
(which filing shall be made (i) as expeditiously as reasonably possible (but in
no event later than 30 days after the receipt by the Company of a Request
Notice) in the case of a shelf registration if the Company is then eligible to
file a Registration Statement on Form S-3 or (ii) as expeditiously as reasonably
possible (but in no event later than 45 days after the receipt by the Company of
a Request Notice) in the case of any underwritten offering or if the Company is
not eligible to file a Registration Statement on Form S-3; the Company shall
thereafter use commercially reasonable efforts to cause such Registration
Statement to become and remain effective for the period of the distribution
contemplated thereby (determined pursuant to subparagraph (g) below);
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
the distribution period (determined pursuant to subparagraph (g) below) and as
may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement;
(c) furnish to each Selling Holder and to each underwriter
such number of copies of the Registration Statement and the prospectus included
therein (including each preliminary prospectus and each document incorporated by
reference therein to the extent then required by the rules and regulations of
the Commission) as such Persons may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Securities covered by
such Registration Statement;
(d) if applicable, use commercially reasonable efforts to
register or qualify the Registrable Securities covered by such Registration
Statement under the securities or blue sky laws of such jurisdictions as the
Selling Holders or, in the case of an underwritten public offering,
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<PAGE> 6
the managing underwriter, shall reasonably request, provided that the Company
will not be required to qualify generally to transact business in any
jurisdiction where it is not then required to so qualify or to take any action
that would subject it to general service of process in any such jurisdiction
where it is not then so subject;
(e) immediately notify each Selling Holder and each
underwriter, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus contained in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing and amend
or supplement the prospectus or take other appropriate action as promptly as
practicable (but, in any event, no longer than fifteen days) so that the
prospectus does not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(f) in the case of an underwritten public offering enter into
such customary agreements, (including an underwriting agreement), and furnish,
at the request of the underwriters, such opinions of counsel, and "cold comfort"
letters from the independent accountants for the Company as are, in each case,
customary in form and substance;
(g) For purposes of subsections (a) and (b) above, the period
of distribution of Registrable Securities in a firm commitment underwritten
public offering shall be deemed to extend until each underwriter has completed
the distribution of all securities purchased by it (but not more than six
months) and the period of distribution of Registrable Securities in any other
registration shall be deemed to extend until the sale of all Registrable
Securities covered thereby;
(h) make available for inspection by one representative of the
Selling Holders designated by a majority thereof, any underwriter participating
in any distribution pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by such representative of the Selling Holders
or underwriter (the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company (collectively, the "Records"),
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Inspector in connection with such
Registration Statement; provided that the Company may require the Inspectors to
conduct their investigation in a manner that does not unreasonably disrupt the
Company's operations and to execute such reasonable confidentiality agreements
as the Company may reasonably determine to be advisable.
(i) cause the Registrable Securities to be listed on any
national securities exchange or on the NASDAQ National Market if the Common
Stock is or becomes so listed;
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(j) use commercially reasonable efforts to keep effective and
maintain for the period specified in subparagraph (g) a registration,
qualification, approval or listing obtained to cover the Registrable Securities
as may be necessary for the Selling Holders to dispose thereof and shall from
time to time amend or supplement any prospectus used in connection therewith to
the extent necessary in order to comply with applicable law;
(k) use commercially reasonable efforts to cause the
Registrable Securities to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the Selling Holders to
consummate the disposition of such Registrable Securities; and
(l) take such other actions as are reasonably requested by the
Selling Holders or the underwriters, if any, in order to expedite, facilitate or
consummate the disposition of such Registrable Securities.
Each Selling Holder, upon receipt of notice from the Company of the
happening of any event of the kind described in subsection (e) of this Section
2.03, shall forthwith discontinue disposition of the Registrable Securities
until such Selling Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by subsection (e) of this Section 2.03 or until it is
advised in writing by the Company that the use of the prospectus may be resumed,
and has received copies of any additional or supplemental filings which are
incorporated by reference in the prospectus, and, if so directed by the Company,
such Selling Holder will, or will request the managing underwriter or
underwriters, if any, to, deliver to the Company (at the Company's expense) all
copies in their possession or control, other than permanent file copies then in
such Selling Holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice. If the Company shall
give any such notice, (i) the Company shall comply with its obligation in
subsection (e) to rectify the untrue or omitted statements in the prospectus
within the time periods so specified and (ii) the time periods specified in
subsection (g) of this Section 2.03 shall be extended by the number of days
during the period from and including the date of the giving of such notice to
and including the date when each Selling Holder shall have received the copies
of the supplemented or amended prospectus contemplated by subsection (e) of this
Section 2.03 hereof or the notice that they may resume use of the prospectus.
In connection with each registration hereunder with respect to an
underwritten public offering, the Company and each Selling Holder agrees to
enter into a written agreement with the managing underwriter or underwriters
selected in the manner herein provided in such form and containing such
provisions as are customary in the securities business for such an arrangement
between underwriters and companies of the Company's size and investment stature,
provided that such agreement shall not contain any such provision applicable to
the Company or the Selling Holders that is inconsistent with the provisions
hereof; and further provided, that the time and place
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of the closing under said agreement shall be as mutually agreed upon among the
Company and the Selling Holders and such managing underwriter. Each Selling
Holder shall supply to the Company the information relating to such Selling
Holder that is required by the Securities Act and the rules and regulations
thereunder to be included in a Registration Statement which registers
Registrable Securities of such Selling Holder and each Selling Holder shall
execute all consents, powers of attorney, registration statements and other
documents reasonably required to be signed by such Selling Holder in order to
effectuate the registration or disposition of Registrable Securities by such
Selling Holder.
Section 1.04. Restrictions on Public Sale by the Company. To the extent
required by an underwriter in an underwritten public offering, the Company
agrees not to effect on its own behalf any public sale or distribution of any
securities similar to those being registered, or any securities convertible into
or exchangeable or exercisable for such securities, during the 14 days before,
and during the 180-day period beginning on, the effective date of any
Registration Statement in which the Selling Holders of Registrable Securities
are participating, other than pursuant to such Registration Statement or a
Registration Statement on Form S-8 or Form S-4.
Section 1.05. Expenses.
(a) "Registration Expenses" means all expenses incident to the
Company's performance under or compliance with this Agreement, including without
limitation, all registration and filing fees, blue sky fees and expenses,
printing expenses, listing fees, fees and disbursements of counsel and
independent public accountants for the Company, fees of the National Association
of Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, costs of insurance and reasonable out-of-pocket expenses, but
excluding any Selling Expenses. "Selling Expenses" means all underwriting fees,
discounts and selling commissions allocable to the sale of the Registrable
Securities, underwriters' counsel fees and expenses in case of any demand
registration under Section 2, and all expenses incurred directly by the Selling
Holders for legal counsel.
(b) The Company will pay all Registration Expenses in
connection with each Registration Statement filed pursuant to this Agreement,
whether or not the Registration Statement becomes effective, and the Selling
Holders shall pay all Selling Expenses in connection with any Registrable
Securities registered pursuant to this Agreement.
Section 1.06. Indemnification. (a) In the event of a registration of
any Registrable Securities under the Securities Act pursuant to this Agreement,
the Company will indemnify and hold harmless each Selling Holder thereunder and
each underwriter, pursuant to the applicable underwriting agreement with such
underwriter, of Registrable Securities thereunder and each Person, if any, who
controls such Selling Holder or underwriter within the meaning of the Securities
Act and the Exchange Act, against any losses, claims, damages or liabilities
(including reasonable attorneys'
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<PAGE> 9
fees) ("Losses"), joint or several, to which such Selling Holder or underwriter
or controlling Person may become subject under the Securities Act, the Exchange
Act or otherwise, insofar as such Losses, (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement under which such
Registrable Securities were registered under the Securities Act pursuant to this
Agreement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each such Selling Holder, each such underwriter and each such
controlling Person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such Loss or actions;
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by such
Selling Holder, such underwriter or such controlling Person in writing
specifically for use in such Registration Statement or prospectus.
(b) Each Selling Holder agrees to indemnify and hold harmless
the Company, its directors, officers, employees and agents and each Person, if
any, who controls the Company within the meaning of the Securities Act or of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Selling Holder, but only with respect to information regarding such Selling
Holder furnished in writing by or on behalf of such Selling Holder expressly for
inclusion in any Registration Statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto; provided,
however, that the liability of such Selling Holder shall not be greater in
amount than the dollar amount of the proceeds (net of any Selling Expenses)
received by such Selling Holder from the sale of the Registrable Securities
giving rise to such indemnification.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party under this Section 2.06, unless the indemnifying party
shall have been prejudiced by such failure to give notice, and such failure to
give notice shall not relieve the indemnifying party from any obligation of
indemnification or contribution arising otherwise than under this Section 2.06.
In case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 2.07
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<PAGE> 10
for any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof; provided, however, that, (i) if the
indemnifying party has failed to assume the defense and employ counsel or (ii)
if the defendants in any such action include both the indemnified party and the
indemnifying party and counsel to the indemnified party shall have reasonably
concluded that the interests of the indemnified party conflict with the
interests of the indemnifying party, then the indemnified party shall have the
right to select a separate counsel reasonably acceptable to the indemnifying
party and to assume such legal defense and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other reasonable expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) If the indemnification provided for in this Section 2.06
is unavailable to the Company or the Selling Holders or is insufficient to hold
them harmless in respect of any Losses, then each such indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such Losses as between the
Company on the one hand and each Selling Holder on the other, in such proportion
as is appropriate to reflect the relative fault of the Company on the one hand
and of each Selling Holder on the other in connection with the statements or
omissions which resulted in such Losses, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and each
Selling Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statements of a material fact or
the omission or alleged omission to state a material fact has been made by, or
relates to, information supplied by such party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who is not guilty of such fraudulent
misrepresentation.
ARTICLE II
Section 2.01. Arbitration.
(a) Binding Arbitration. On the request of any of the
parties hereto, (whether made before or after the institution of any legal
proceeding), any action, dispute, claim or controversy of any kind now existing
or hereafter arising between any of the parties hereto in any way arising out
of, pertaining to or in connection with this Agreement (a "Dispute") shall be
resolved by binding arbitration in accordance with the terms hereof. Any party
may, by summary proceedings, bring an action in court to compel arbitration of
any Dispute.
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(b) Governing Rules. Any arbitration shall be
administered by the American Arbitration Association (the "AAA") in accordance
with the terms of this Section, the Commercial Arbitration Rules of the AAA,
and, to the maximum extent applicable, the Federal Arbitration Act. Judgment on
any award rendered by an arbitrator may be entered in any court having
jurisdiction.
(c) Arbitrators. Arbitration hereunder shall be
before a three-person panel of neutral arbitrators, consisting of one person
from each of the following categories: (1) an attorney who has practiced in the
area of commercial law for at least 10 years or a retired judge at the Texas or
United States District Court or an appellate court level: (2) a person with at
least 10 years experience in commercial lending: and (3) a person with at least
10 years experience in the petroleum industry. The AAA shall submit a list of
persons meeting the criteria outlined above for each category of arbitrator, and
the parties shall select one person from each category in the manner established
by the AAA. If the parties cannot agree on an arbitrator within 30 days after
the request for an arbitration, then any party may request the AAA to select an
arbitrator. The arbitrators may engage engineers, accountants or other
consultants that the arbitrator deems necessary to render a conclusion in the
arbitration proceeding.
(d) Conduct of Arbitration. To the maximum extent
practicable, an arbitration proceeding hereunder shall be concluded within 180
days of the filing of the Dispute with the AAA. Arbitration proceedings shall be
conducted in Houston, Texas. Arbitrators shall be empowered to impose sanctions
and to take such other actions as the arbitrators deem necessary to the same
extent a judge could impose sanctions or take such other actions pursuant to the
Federal Rules of Civil Procedure and applicable law. At the conclusion of any
arbitration proceeding, the arbitrator shall make specific written findings of
fact and conclusions of law. The arbitrators shall have the power to award
recovery of all costs and fees to the prevailing party. The parties agree to
keep all Disputes and arbitration proceedings strictly confidential except for
disclosure of information required by applicable law.
(e) Costs of Arbitration. All fees of the arbitrators
and any engineer, accountant or other consultant engaged by the arbitrators,
shall be paid by the disputing parties equally unless otherwise awarded by the
arbitrators.
Section 2.02. Communications. All notices and other communications
provided for or permitted hereunder shall be made in writing by telecopy,
courier service or personal delivery:
(a) if to a Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this Section 3.02,
which address initially is, with respect to JEDI II, the address set forth in
the Securities Purchase Agreement, and
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<PAGE> 12
(b) if to the Company, initially at its address set forth in
the Securities Purchase Agreement, and
(c) for each, thereafter at such other address, notice of
which is given in accordance with the provisions of this Section 3.02.
All such notices and communications shall be deemed to have
been received at the time delivered by hand, if personally delivered; when
receipt acknowledged, if telecopied; and on the next business day if timely
delivered to an air courier guaranteeing overnight delivery.
Section 2.03. Successor and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including subsequent holders of Registrable Securities.
Section 2.04. Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which counterparts, when so executed and delivered, shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
but one and the same Agreement.
Section 2.05. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 2.06. Governing Law. THE LAWS OF THE STATE OF NEW YORK SHALL
GOVERN THIS AGREEMENT WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
Section 2.07. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting or impairing the validity or enforceability of such provision in any
other jurisdiction.
Section 2.08. Entire Agreement. This Agreement, together with the
Securities Purchase Agreement and the other Basic Documents (as defined in the
Securities Purchase Agreement) are intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company with respect to the securities
sold pursuant to the Securities Purchase Agreement. This Agreement, the
Securities Purchase Agreement and the other Basic Documents supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
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Section 2.09. Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, the successful party shall be entitled
to recover reasonable attorneys' fees in addition to its costs and expenses and
any other available remedy.
Section 2.10. Amendment. This Agreement may be amended only by means of
a written amendment signed by the Company and by the Holders of a majority of
the Registrable Securities.
Section 2.11. Registrable Securities Held by the Company or Its
Affiliates. In determining whether the Holders of the required amount of
Registrable Securities have concurred in any direction, amendment, supplement,
waiver or consent, Registrable Securities owned by the Company or one of its
subsidiaries shall be disregarded.
Section 2.12. Assignment of Rights. The rights of any Holder under this
Agreement may be assigned to any Person who acquires any Registrable Securities.
Any assignment of registration rights pursuant to this Section 3.12 shall be
effective only upon receipt by the Company of written notice from such assigning
Holder stating the name and address of any assignee. The rights of an assignee
under this Section 3.12 shall be the same rights granted to the assigning Holder
under this Agreement. In connection with any such assignment, the term "Holder"
as used herein shall, where appropriate to assign the rights and obligations of
the assigning Holder hereunder to such assignee, be deemed to refer to the
assignee.
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[SIGNATURE PAGE - REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SIERRA WELL SERVICE, INC.
/s/ Bill E. Coggin
-----------------------------------------
Bill E. Coggin
Vice President
JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP
By: Enron Capital Management II Limited
Partnership, its General Partner
By: Enron Capital II Corp., its
General Partner
By: /s/ John D. Curtin III
--------------------------------------
Name: John D. Curtin III
Title: Agent and Attorney-in-fact
S-1
<PAGE> 1
EXHIBIT 10.10
[EXECUTION VERSION]
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement, dated as of March 31, 1999, is by and
among Joint Energy Development Investments II Limited Partnership, a Delaware
limited partnership ("JEDI II"), Sierra Well Service, Inc., a Delaware
corporation (the "Company"), and the Persons designated on the Schedule of
Investors attached hereto as Annex A.
WHEREAS, the Company and JEDI II have entered into a Securities
Purchase Agreement, dated as of March 31, 1999 (the "Securities Purchase
Agreement"), regarding the sale of, among other investments, shares of the
Company's Preferred Stock; and
WHEREAS, the parties desire to set forth their agreement with respect
to certain matters relating to the transfer and voting of the shares of Common
Stock held by the Company's Stockholders; and
WHEREAS, the execution and delivery of this Agreement is a condition to
consummation of the transactions contemplated by the Securities Purchase
Agreement:
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS.
Unless the context otherwise requires, capitalized terms used but not
otherwise defined herein shall have the following respective meanings:
"Acceptance Notice" has the meaning specified therefor in Section 5(b)
of this Agreement.
"Adoption Agreement" shall mean an agreement in the form attached
hereto as Exhibit "A" and any similar agreement satisfactory in form and
substance to the Company.
"Affiliate" means, with respect to any specified Person, any other
Person (i) directly or indirectly controlling, controlled by, or under common
control with the first Person or (ii) that directly
or indirectly owns more than five percent (5%) of any class of the voting
securities or capital
<PAGE> 2
stock of or equity interests in such person. The term "control" (including the
terms "controlling," "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power either to (i) vote five percent
(5%) or more of the securities or interests having ordinary voting power for the
election of directors (or other comparable controlling body) of such Person or
to (ii) direct or cause the direction of the management or the policies of such
Person, whether through the ownership of voting securities or interests, by
contract or otherwise.
"Agreement" shall mean this Agreement as in effect on the date hereof
and as hereafter from time to time amended, modified or supplemented in
accordance with the terms hereof.
"Appraised Value" shall mean the fair market value of the Company
Securities determined by agreement between the Board of Directors and the
Subject Stockholder (or a representative or designee thereof) or, if such
agreement is not obtained within 30 days after the relevant determination date,
by agreement of two firms qualified to appraise the Company's business, one of
which shall be selected by a majority of the members of the Board of Directors
of the Company and one of which shall be selected by the Subject Stockholder (or
a representative or designee thereof). If the two appraisers' determinations of
fair market value are within 10% of each other, the average of these amounts
shall be the Appraised Value. Otherwise, the two appraisers shall select a
mutually agreeable third appraiser to make a determination of the fair market
value of the Company Securities. The Appraised Value shall then be the average
of: (i) the fair market value as established by such third appraiser and (ii)
the fair market value established by one of the first two appraisers that is
closest to the third appraiser's estimate. For purposes of determining Appraised
Value, the fair market value of the Company Securities shall equal the price
that could be obtained in an open (non-forced) sale of all of such outstanding
securities, with ample time for marketing and closing and assigning equal value
to each share thereof. Each party will bear the cost of its own appraiser and
any such appraiser will, upon providing reasonable notice to the Company, be
given full access to the books, records, properties and employees of the Company
and its subsidiaries during regular business hours. In the event that a third
appraiser is chosen as provided hereunder, the parties will bear the cost of
such appraiser equally.
"Board of Directors" shall mean the Board of Directors of the Company.
"Business Day" means a day that is not a Saturday, a Sunday or a day on
which banking institutions in New York, New York are not required to be open for
business.
"Change in Control" shall mean the occurrence with respect to any
Stockholder of any of the following events; provided, however, that a Change of
Control shall not be deemed to have occurred (x) if any of the events described
in subsections (i) or (ii) below directly results from a Preferred Holder
exercising its rights pursuant to this Agreement or (y) if, after any of the
events described in subsections (i) or (ii) below, the voting securities or
assets of the Stockholder are held by a Person, entity or group that was a
subsidiary of the Stockholder prior to the date hereof:
2
<PAGE> 3
(i) any Person, entity or group (within the meaning of Section 13(d) or
14(d) of the Exchange Act) shall purchase securities pursuant to a tender offer
or exchange offer to acquire any securities for cash, securities or any other
consideration, provided that after consummation of the offer, the Person, entity
or group in question is the beneficial owner (as such term is defined in Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of 50%
percent or more of the combined voting power of the then outstanding securities
of such Stockholder;
(ii) the stockholders of such Stockholder shall approve: (i) any
merger, consolidation, or reorganization of such Stockholder; (a) in which such
Stockholder is not the continuing or surviving corporation or (b) pursuant to
which shares of outstanding voting securities of such Stockholder would be
converted into cash, securities or other property; (ii) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of such Stockholder; or
(iii) any liquidation or dissolution of such Stockholder;
(iii) during any period of two consecutive years, the individuals who
at the beginning of such period constituted the board of directors of such
Stockholder cease for any reason to constitute a majority of such board, unless
the election or nomination for election by such Stockholder's stockholders of
each new director during any such two-year period was approved by the vote of
two-thirds of the directors then still in office who were directors at the
beginning of such two-year period; or
(iv) The substitution of any general partner of any Stockholder that is
a partnership or a Change of Control shall occur with respect to the general
partner of any Stockholder that is a partnership
"Common Stock" shall mean the common stock, no par value, of the
Company and all equity securities received in connection with any stock split,
stock dividend, reorganization, recapitalization, merger or consolidation of the
Company with or into another entity or a similar event. All references herein to
Common Stock owned by a Stockholder shall include: (i) the community interest or
similar marital property interest, if any, of a spouse of such Stockholder in
such Common Stock; and (ii) all of the equity interests and voting rights in the
Company which are reflected by Common Stock ownership.
"Common Stock Equivalent" means any right, warrant or option to
purchase shares of Common Stock of the Company or any other security convertible
into or exchangeable for shares of Common Stock of the Company.
"Company" has the meaning specified therefor in the preamble of this
Agreement.
"Company Offer" has the meaning specified therefor in Section 5(a) of
this Agreement.
3
<PAGE> 4
"Company Offered Securities" has the meaning specified therefor in
Section 5(a) of this Agreement.
"Company Securities" shall mean all of the capital stock of the
Company, including, but not limited to, any Common Stock, Common Stock
Equivalents, any securities convertible into or exchangeable for such
securities, and any options, warrants or other rights to purchase such
securities.
"Conversion Shares" means the shares of Common Stock and other
securities, property or cash receivable upon conversion of the Preferred Stock.
"Dispute" has the meaning specified therefor in Section 12(d)(i) of
this Agreement.
"Effective Date" has the meaning specified therefor in Section 2 of
this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exempt Issuance" shall mean (i) the sale or issuance of Common Stock
by the Company in a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act, (ii) shares of Common
Stock sold or issued upon conversion of shares of the Preferred Stock, (iv)
Common Stock issued pursuant to any merger or acquisition by the Company that is
approved by the Board of Directors, and (vi) Common Stock issued pursuant to
stock splits, stock dividends and other distributions to Stockholders.
"Fully Diluted" shall mean the total number of shares of Common Stock
outstanding assuming the exercise of all outstanding warrants, stock options or
similar rights to acquire shares of Common Stock and the conversion of all
evidences of indebtedness, shares (other than Common Stock) and other securities
convertible into or exchangeable for shares of Common Stock; provided, the total
number of shares of Common Stock outstanding shall not include any shares
thereof then directly or indirectly owned or held by or for the account of the
Corporation or its subsidiaries.
"JEDI Affiliates" has the meaning specified therefor in Section 10(a)
of this Agreement.
"JEDI II" has the meaning specified therefor in preamble of this
Agreement.
"Liens" means mortgages, liens, security interests, pledges, voting
trusts, restrictions, encumbrances, preferential purchase rights and claims of
every kind.
"Option" has the meaning specified therefor in Section 7(b) of this
Agreement.
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"Option Purchase Price" has the meaning specified therefor in Section
7(a) of this Agreement.
"Option Shares" has the meaning specified therefor in Section 7(c) of
this Agreement.
"Participation Notice" has the meaning specified therefor in Section
4(iii) of this Agreement.
"Person" means any natural person, partnership, corporation, and any
other form of business or legal entity.
"Positions" has the meaning specified therefor in Section 10(a) of this
Agreement.
"Preferred Holder" shall mean the Persons listed as Preferred Holders
on Annex B to this Agreement, the holders of the Conversion Shares issued
pursuant to the conversion of the Preferred Stock and any transferees of any
such Persons.
"Preferred Stock" means, either singly or collectively, shares of the
Company's: (i) Series A Preferred; (ii) Series B Preferred; and (iii) Series C
Preferred.
"Pro Rata Portion," with respect to a Preferred Holder, means a
fraction, the numerator of which shall equal the total number of shares of
Common Stock then held by such Preferred Holder (assuming conversion of all of
such holder's shares of Preferred Stock) and the denominator of which shall
equal the sum of all shares of Common Stock then held by all Preferred Holders
(assuming conversion of all outstanding shares of Preferred Stock).
"Proposed Sale Price" has the meaning specified therefor in Section
4(i) of this Agreement.
"Purchase Notice" has the meaning specified therefor in Section 4(ii)
of this Agreement.
"Purchasing Investor" has the meaning specified therefor in Section
5(e) of this Agreement.
"Qualified Transferee" means a Person that is an "accredited investor,"
as such term is defined in Rule 501(a) of Regulation D under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Securities Purchase Agreement" has the meaning specified therefor in
the recitals of this Agreement.
"Securityholders" means anyone owning any shares of the capital stock
of the Company.
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"Selling Stockholder" has the meaning specified therefor in Section
4(i) of this Agreement.
"Senior Facility" means the Company's $24,408,000 Senior Credit
Facility, dated March 31, 1999.
Series A Holder" has the meaning specified therefor in Section 9(a) of
this Agreement.
"Series A Preferred" means the Company's Series A Cumulative Preferred
Stock.
Series B Holder" has the meaning specified therefor in Section 7(b) of
this Agreement.
"Series B Preferred" means the Company's Series B Convertible Preferred
Stock.
"Series C Call Option" has the meaning specified therefor in Section
6(a) of this Agreement.
"Series C Holder" has the meaning specified therefor in Section 6(b) of
this Agreement.
"Series C Preferred" means the Company's Series C Convertible Preferred
Stock.
"Stockholder" shall mean each Person listed as a Stockholder on Annex A
to this Agreement, any Transferee (other than a Preferred Holder) of any such
Person and any person who signs an Adoption Agreement in accordance with Section
3(c).
"Subject Shares" has the meaning specified therefor in Section 4(i) of
this Agreement.
"Subject Stockholder" has the meaning specified therefor in Section
4(vi) of this Agreement.
"Subordinated Facility" means the Company's $25 million Senior
Subordinated Credit Facility, dated March 31, 1999.
"Transfer" shall mean any direct or indirect transfer, assignment,
donation, devise, sale, gift, pledge, hypothecation, encumbrance, or other
disposition of any security, or any interest therein, whether voluntary or
involuntary, including without limitation any disposition or transfer as a part
of any liquidation of assets or any reorganization pursuant to the United
States' or any other jurisdiction's bankruptcy law or other similar debtor
relief laws. The term "Transfer," shall also include a transaction involving a
change of ownership interest or voting power of a Stockholder entered into for
the purpose or with the effect of avoiding the restrictions on the Transfer of
the Company Securities provided herein or other any other provision hereof
governing Transfers.
"Transfer Notice" has the meaning specified therefor in Section 4(i) of
this Agreement.
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"Transferee" shall mean any Person who acquires Company Securities from
a Stockholder (other than a Preferred Holder).
"Voting Power" shall mean, with respect to a Securityholder, the total
number of votes that could be cast by such Securityholder in a matter for which
holders of Common Stock are entitled to vote, other than the election of
directors, without giving effect to any cumulative voting rights.
2. EFFECTIVE DATE. The restrictions, obligations and rights of the
parties hereto imposed by Sections 3 through 9 of this Agreement shall become
effective concurrently with the Closing (as defined therein) of the Securities
Purchase Agreement (the "Effective Date"). The Company and each Stockholder
covenants and agrees that, from the date hereof until the Effective Date, such
Stockholder will not Transfer any shares of Common Stock or Company Securities
or any interest therein.
3. GENERAL RESTRICTION ON TRANSFERS.
(a) General Rule; Ownership. Each of the Stockholders agrees
that until the redemption of all outstanding shares of the Series A
Preferred in accordance with its terms, no Stockholder may effect any
Transfer of any shares of Company Securities owned by such Stockholder
without the prior written consent of holders representing a majority of
the outstanding shares of the Series A Preferred. Thereafter,
Stockholders may only Transfer Company Securities in strict compliance
with the provisions of this Agreement. Each Stockholder represents and
warrants to the Preferred Holders that such Stockholder beneficially
owns all of the Company Securities, and no other securities, set forth
opposite its name on Annex A to this Agreement, free and clear of all
Liens (except as otherwise specified on Annex A) and that such shares
are held of record in the name set forth on Annex A.
(b) Prohibited Transfers are Void. Attempts by Stockholders to
Transfer Company Securities that do not comply with the terms of this
Agreement shall be void and of no effect and the Company shall hold and
refuse to effectuate such Transfer. The Company shall give effect to
the transfer restrictions imposed by this Agreement by placing an
"issuer hold" on the Company Securities owned by the Stockholders and
it will not release such issuer hold except in accordance with the
terms hereof. Each Stockholder consents to the Company making a
notation on its records and giving instructions to any transfer agent
of the Company in order to implement the restrictions on transfer
established in this Agreement. The Company shall keep a copy of this
Agreement (as it may be amended from time to time) at its principal
place of business and shall make such Agreement subject to the same
right of examination by Securityholders of the Company, in person or by
agent, attorney or accountant, as are the books and records of the
Company by any stockholder generally. The Company's duty to prohibit
Transfers that do not comply with the terms of this Agreement is
additional to, and without prejudice to, the rights and remedies that
may be otherwise available to the parties. Each party: (i) acknowledges
that remedies at law for any breach or any attempted breach hereof
would be inadequate; (ii) agrees that each other
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party shall be entitled to specific performance and injunctive relief
and other equitable relief in case of such a breach or attempted
breach; and (iii) agrees to waive any requirement for notice prior to
obtaining injunctive or equitable relief in such circumstances.
(c) Adoption Agreement. The Company shall not issue or
Transfer Company Securities, nor shall any Stockholder Transfer any
Company Securities, unless the intended Transferee (other than a
Preferred Holder) first executes an Adoption Agreement and delivers it
to the Company, whereupon such Transferee shall be deemed a
"Stockholder" and shall have the rights and obligations of a
Stockholder under this Agreement and the Company Securities held by any
such Person shall be subject to the provisions hereof.
4. RIGHT OF FIRST REFUSAL AND TAG-ALONG RIGHT ON STOCKHOLDER TRANSFERS.
Each of the Stockholders agrees that it will not Transfer any shares of
Company Securities to any Person without first providing the Company the right
to purchase the shares to be Transferred and the Preferred Holders (i) the right
to purchase the shares to be Transferred or (ii) the right to participate in the
Stockholder's proposed Transfer, in accordance with the following provisions:
(i) Proposed Transfer. If any Stockholder (a "Selling
Stockholder") desires to Transfer Company Securities it shall
deliver to the Company and to JEDI II or its designees a
written notice (a "Transfer Notice") which shall specify the
proposed Transferee, the number and kind of Company Securities
to be Transferred (the "Subject Shares"), the proposed
consideration to be paid per share therefor (the "Proposed
Sale Price"), and other material terms of the proposed
Transfer (which terms shall not limit the ability of the
Company or the Preferred Holders to exercise their rights to
acquire the securities hereunder), and which notice shall
include a copy of any agreement with respect to the proposed
Transfer. No Stockholder may Transfer Company Securities to a
non-Preferred Holder for consideration other than cash.
(ii) Right of First Refusal.
(1) The Company shall have the right, for a
period of thirty days following its receipt of a
Transfer Notice to elect to acquire the Company
Securities specified in the Transfer Notice at a cash
price equal to the Proposed Sale Price. The Company
may exercise the foregoing right by delivering to the
Selling Stockholders, within thirty days after
receipt of the Transfer Notice, written notice (a
"Purchase Notice") of its intention to purchase the
Subject Shares. The closing of any acquisition of
Subject Shares by the Company shall be consummated
within five Business Days following delivery of the
Purchase Notice, at the principal offices of the
Company (unless otherwise mutually agreed), at which
time the Proposed Sale Price (in the form of a wire
transfer to an account designated by the
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<PAGE> 9
Selling Stockholder) shall be delivered to the
Selling Stockholder or its representative and Selling
Stockholder shall deliver to the Company certificates
representing the Subject Shares, duly endorsed for
transfer or accompanied by duly executed stock
powers.
(2) If the Company does not elect to acquire
any or all of the Subject Shares, each of the
Preferred Holders shall have the right to elect to
acquire any Subject Shares not purchased by the
Company at the Proposed Sale Price. The Preferred
Holders may exercise the foregoing right by
delivering to the Selling Stockholder a Purchase
Notice of their intention to purchase the Subject
Shares within (x) sixty days following receipt of a
Transfer Notice or (y) thirty days after written
notification by the Company that it will not acquire
all of the Subject Shares, whichever is earlier. The
closing of any acquisition of Subject Shares by the
Preferred Holders shall be consummated within five
Business Days following delivery of the Purchase
Notice, at the principal offices of JEDI II (unless
otherwise mutually agreed), at which time the
purchase price (in the form of a wire transfer to an
account designated by the Selling Stockholder or, if
other than cash, in a form reasonably acceptable to
the Selling Stockholder) shall be delivered to the
Selling Stockholder or its representative and the
Selling Stockholder shall deliver to the Preferred
Holders certificates representing the Subject Shares,
duly endorsed for transfer or accompanied by duly
executed stock powers. Unless otherwise agreed among
the Preferred Holders who have exercised their
election to acquire the Subject Shares, the Subject
Shares so purchased shall be allocated among such
Preferred Holders in proportion to their Pro Rata
Portion.
(iii) Tag-Along Right. Each of the Preferred Holders
shall have the right, for a period of thirty days following
receipt of a Transfer Notice, to elect to participate in the
sale to the Selling Stockholder's proposed Transferee of the
Subject Shares on substantially the same terms as the proposed
Transferee could acquire the Subject Shares from the Selling
Stockholder. A Preferred Holder shall exercise the foregoing
right by delivering to the Selling Stockholder, within thirty
days after receipt of the Transfer Notice, written notice of
its intention to participate in the sale to the Transferee (a
"Participation Notice"), specifying the amount of shares the
Preferred Holder desires to sell to the proposed Transferee
(such amount being equal to or less than its Pro Rata Portion
of the Subject Shares). The closing of any tag-along sale by
the Preferred Holders shall be consummated within five
Business Days following delivery of the Participation Notice,
at the principal offices of JEDI II (unless otherwise mutually
agreed), at which time the purchase price (in the form of a
wire transfer to an account designated by the Preferred
Holders) shall be delivered to the Preferred Holders or their
representatives and the Preferred Holders shall deliver to
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<PAGE> 10
the third-party Transferee certificates representing the
shares they are selling, duly endorsed for transfer or
accompanied by duly executed stock powers.
(iv) Lapse. If the Preferred Holders shall (i) fail
to give either a Purchase Notice or a Participation Notice
within the applicable time period specified in paragraph
(ii)(2) above, or (ii) notify the Selling Stockholder in
writing of the waiver of their "first-refusal" and "tag-along"
rights given in subparagraphs (ii) and (iii) above with
respect to the Subject Shares, whichever is earlier, then the
Selling Stockholder shall have the right, for a period of 30
calendar days to sell to any Qualified Transferee the Subject
Shares remaining unsold at a price not less than the Proposed
Sale Price and on terms substantially the same as set forth in
the Selling Stockholder's Transfer Notice delivered pursuant
to subparagraph (i) above.
(v) Waiting Period with Respect to Subsequent
Transfers. In the event that the Preferred Holders do not
exercise their "first-refusal" and "tag-along" rights given in
subparagraphs (ii) and (iii) above with respect to the Subject
Shares and the Selling Stockholder shall not have sold the
Subject Shares to a Qualified Transferee before the expiration
of the 30-day period set forth in subparagraph (iv), then such
Selling Stockholder shall not propose another Transfer of
Company Securities for a period of 60 calendar days after the
last day of such 30-day period.
(vi) Change in Control Option.
(1) If any Stockholder undergoes a Change in
Control, or in the event of the death or divorce of
any individual Stockholder (each a "Subject
Stockholder"), the Company shall have the option to
purchase all (but not less than all) of the Subject
Stockholder's Company Securities. The price per share
at which such Company Securities shall be purchased
shall be the Appraised Value and shall be payable in
cash. Such option must be exercised within 30 days
after the date on which the Company receives written
notice of the Change in Control, death or divorce of
the Subject Stockholder.
(2) If the Company elects not to purchase
all of the Subject Stockholder's Company Securities,
the Preferred Holders shall have the right to acquire
all, but not less than all, of such securities. The
price per share at which such Company Securities
shall be purchased shall be the Appraised Value and
shall be payable in cash. Such option must be
exercised within (x) 60 days after the date on which
the Preferred Holders receive written notice of the
Change in Control, death or divorce of the Subject
Stockholder or (y) 30 days after written notification
by the Company that it will not acquire all of the
Subject Stockholder's Company Securities, whichever
is earlier. If any Preferred Holder elects to
purchase less than its Pro Rata Portion of the
Subject Stockholder's Company Securities, then such
Preferred Holder shall
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be allocated and shall purchase the amount of such
securities it elected to purchase and the other
Preferred Holders shall be allocated and shall
purchase the balance of the Subject Stockholder's
Securities.
(3) To the extent not exercised by the
Company or the Preferred Holders, the option to
acquire the Subject Stockholder's Company Securities
will expire and be of no further force and effect.
Each Subject Stockholder agrees to provide prompt
written notice to each Preferred Holder and the
Company of the occurrence of any Change in Control or
upon the occurrence of any divorce of such Subject
Stockholder.
5. PREEMPTIVE RIGHT ON COMPANY ISSUES.
(a) Company Offer. The Company shall give the Preferred
Holders thirty (30) days' prior written notice (the "Company Offer"), delivered
or mailed as provided in Section 12(k), of the Company's intention to sell or
issue any Company Securities, other than an Exempt Issuance (the "Company
Offered Securities"), stating the intended date and material proposed terms of
such sale or issuance and the respective record ownership of Company Securities
and Voting Power of each Securityholder immediately before and after giving
effect to the proposed issuance. Such notice shall include a representation to
the Preferred Holders that the Company has a good faith intention to sell such
Company Securities on the terms specified in the Company Offer. A Company Offer
shall constitute an offer by the Company, irrevocable for thirty (30) days, to
sell or issue all or any portion of the Company Offered Securities to the
Preferred Holders on the same terms as specified in the Company Offer or, if
such terms provide for consideration other than cash, for cash in an amount
equal to the fair market value of such non-cash consideration. The fair market
value of such non-cash consideration shall be determined in good faith by a
majority of the Board of Directors.
(b) Acceptance of Company Offer. Within thirty (30) days after
receipt of a Company Offer, each Preferred Holder shall give an irrevocable
written notice to the Company (an "Acceptance Notice") that (a) such Preferred
Holder has elected to purchase all or a stated portion of the Company Offered
Securities without regard to the other Preferred Holders' election or (b) such
Preferred Holder has elected to purchase all or a stated portion of the Company
Offered Securities only if the other Preferred Holders elect to purchase all or
a stated portion of the Company Offered Securities. If any Preferred Holder does
not give an Acceptance Notice by the end of such thirty (30) day period, such
Preferred Holder shall be deemed to have elected not to purchase any of the
Company Offered Securities.
(c) Allocation of Company Offered Securities. If the Preferred
Holders elect to purchase, in the aggregate, either all or more than all of the
Company Offered Securities, the Company Offered Securities shall be allocated as
follows:
(i) If any Preferred Holder elects to purchase less
than its Pro Rata Portion of the Offered Securities, then such Preferred Holder
shall be allocated and shall purchase the
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amount of Company Offered Securities it elected to purchase and the other
Preferred Holders electing to purchase the Company Offered Securities shall be
allocated and shall purchase the balance of the Company Offered Securities;
provided, however, that, no such Preferred Holder shall be obligated to purchase
an amount of Company Offered Securities in excess of the amount set forth in its
Acceptance Notice; and
(ii) Otherwise, each Preferred Holder electing to
purchase the Company Offered Securities shall be allocated and shall purchase
its Pro Rata Portion of the Company Offered Securities.
(d) Rejection of Company Offer. If the Preferred Holders do
not elect to purchase all of the Company Offered Securities, the Company shall
have the right, exercisable not later than one hundred twenty (120) days after
the giving of the Company Offer, to issue the Company Offered Securities not
purchased by the Preferred Holders on substantially the same terms as, and in
any case, no more favorable to the purchaser than, those set forth in the
Company Offer.
(e) Closing. The closing of any sale or issue of Company
Offered Securities to a Preferred Holder pursuant to this Section 5, (a
"Purchasing Investor") shall take place on such date, within thirty (30) days of
the date of the Acceptance Notice (subject to extension to comply with any
applicable law), as shall be agreed by the Company and the Purchasing Investor.
At any such closing, the Company shall deliver to each Purchasing Investor
certificates representing the Company Offered Securities being issued,
registered in the name of such Purchasing Investor or its nominee, against
payment of the applicable purchase price by wire transfer of same day funds or
check as deemed acceptable to the Company.
6. OPTION TO PURCHASE SERIES C PREFERRED.
(a) Stockholders' Call Option. Beginning on the date hereof
and ending on June 30, 2004, the Stockholders shall have the option to purchase
the outstanding shares of the Company's Series C Preferred At the price and upon
the terms as set forth herein (the "Series C Call Option"); provided, however,
that the Stockholders may not exercise such option unless and until the
company's Series a Preferred has been redeemed in full.
(b) Notice of Exercise. The Series C Call Option Set forth in
this Section 6 may be exercised by the action of Stockholders representing, in
the aggregate, at least a majority in interest of the then outstanding shares of
Common Stock, giving 15 days' prior written notice to the holder of the Series C
Preferred (the "Series C Holder") in accordance with Section 12(k) hereof.
(c) Purchase price. The total purchase price for the Series C
Preferred Shall be that amount which would yield to JEDI II An eighteen percent
(18%) annual internal rate of return (compounded quarterly) on the aggregate of
all investments made by JEDI II and its Affiliates in the Company (excluding in
such calculation the Series B Preferred issued to JEDI and its affiliates
pursuant to the Securities Purchase Agreement), calculated from the date on
which the respective
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investments were made (less any cash received) to the date of exercise of the
Series C Call Option, as set forth on Annex C hereto.
(d) Closing. The closing of the purchase and sale of shares of
the Series C Preferred pursuant to this Section 6 shall take place at the
principal office of the Company on the date specified in the notice of exercise.
At such closing, the Series C Holder shall deliver the certificate representing
the Series C Preferred, duly endorsed or assigned to the purchasers or in blank,
against payment of the applicable purchase price by wire transfer of same day
funds or check as deemed acceptable to the Series C Holder. The Series C
Preferred shall be free and clear of any and all claims, charges, security
interests or other encumbrances of any nature whatsoever.
7. OPTION TO REDEEM COMMON STOCK.
(a) Company's Call Option. Each Stockholder agrees that the
Company shall have the exclusive option, commencing June 30, 2004 and ending 30
days thereafter, to purchase all or part of the shares of Common Stock owned by
such Stockholder for a purchase price equal to $1.00 per share (the "Option
Purchase Price"); provided, however, that such option may only be exercised if,
prior to the date of exercise, one or more shares of the Series A Preferred
remain outstanding.
(b) Series B Holders' Call Option. Each Stockholder agrees
that if the Company does not elect to purchase all of such Stockholder's shares
of Common Stock pursuant to subsection (a), the holders of the Series B
Preferred (the "Series B Holders") shall have the option to purchase all or part
of the shares of Common Stock owned by such Stockholder at the Option Purchase
Price; provided, however, that such option may only be exercised if, prior to
the date of exercise, one or more shares of the Series A Preferred remain
outstanding. Collectively, the Company's call option provided in subsection (a)
above and the Series B Holders' call option provided in this subsection (b) are
referred to as the "Option."
(c) Adjustment of Option Purchase Price. The Option Purchase
Price shall be subject to adjustment from time to time on and after the date
hereof as provided in this Section 7(c). In case the Company shall at any time
after the date hereof (i) pay a dividend of shares of Common Stock or make a
distribution of shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a larger number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock or (iv) issue any shares of its capital stock or other assets in a
reclassification or reorganization of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing entity), then the Option Purchase Price shall be
adjusted to equal the Option Purchase Price immediately prior to the adjustment
multiplied by a fraction, (A) the numerator of which is the number of shares of
Common Stock for which this Option is exercisable immediately prior to the
adjustment, and (B) the denominator of which is the number of shares of Common
Stock for which this Option is exercisable immediately after such adjustment.
The adjustments made pursuant to this Section 7(c) shall become effective
immediately after the effective date of the event creating such right of
adjustment, retroactive to the record date, if any, for such event. Any Option
Shares
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purchasable as a result of such adjustment shall not be issued prior to the
effective date of such event.
(d) Adjustment Notices. Upon any increase or decrease in the
Option Purchase Price the Company shall, within 30 days thereafter, deliver
written notice thereof to all Series B Holders, which notice shall state the
adjusted Option Purchase Price, setting forth in reasonable detail the method of
calculation and the facts upon which such calculations are based.
(e) Notice of Exercise.
(i) The Company's Option set forth in subsection
7(a)(i) may be exercised by action of a majority of the members of the
Board of Directors of the Company by delivery to the Stockholder of
written notice of such exercise no less than 15 days in advance of the
date of exercise pursuant to the notice requirements of Section 12(k).
(ii) The Series B Holders' Option set forth in
subsection 7(a)(ii) may be exercised by any Series B Holder upon
delivery to the Stockholder of written notice of such exercise no less
than 15 days in advance of the date of exercise pursuant to the notice
requirements of Section 12(k). If more than one Series B Holder elects
to exercise its Option set forth in subsection 7(a)(ii) with respect to
the same share or shares of Common Stock, such share or shares will be
allocated among such Series B Holders to the extent of their Pro Rata
Portion or as otherwise agreed.
(f) Closing. The closing of the purchase and sale of shares of
Common Stock pursuant to this Section 7 shall take place at the principal office
of the Company on the date specified in the notice of exercise. At such closing,
the Company or Series B Holders, as the case may be, shall deliver payment of
the purchase price in the form of a check or wire transfer to the holder or
holders of the shares of Common Stock purchased, against delivery of the
certificate or certificates representing such shares, duly endorsed or assigned
to the Company or the Series B Holders, as the case may be, or in blank, free
and clear of any and all claims, charges, security interests or other
encumbrances of any nature whatsoever.
8. BRING ALONG/COME-ALONG RIGHTS. If Preferred Holders owning 10% or
more of the shares of Common Stock (calculated on a Fully Diluted Basis) make a
determination to sell their interest to a third party (excluding subsidiaries of
the Preferred Holders), such Preferred Holders shall have the right to require
all of the Stockholders of the Company to participate in such sale at the same
price and on the same terms as the other Stockholders.
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9. CORPORATE GOVERNANCE MATTERS.
(a) Designation and Removal of Directors. The Company and the
Stockholders agree that, so long as shares of Series A are outstanding, the
holders of Series A Preferred (the "Series A Holders") shall be entitled to
designate and remove members of the Company's Board of Directors in accordance
with the Company's Certificate of Designations for the Series A.
(b) Stockholder Action. Each Stockholder hereby agrees to vote
its shares of Common Stock (and to execute any requested written consent in lieu
of a meeting) from time to time as may be necessary to elect the Series A
Holders' designees to the Board of Directors and to take any other action
necessary to accomplish the purposes of this Section.
(c) Action by Preferred Holders. Each Preferred Holder hereby
agrees, so long as the Series A Holders' designees to the Board of Directors
have been elected as provided in this Section 9, to vote its shares of Preferred
Stock (and execute any requested written consent in lieu of a meeting) in any
election for the remaining members (if any) of the Board of Directors in the
same proportion as the Stockholders, so that the percentage of votes cast by the
Preferred Holders for any candidate shall equal the percentage of votes cast by
the Stockholders for such candidate.
(d) Committee Representation. At the election of the holders
of the Series A Preferred, any or all of the designees of the Series A Holders
serving on the Board of Directors pursuant to this Section 9 shall be members of
any executive committee or compensation committee, and, except for any
environmental committee, each other committee of the Board of Directors of the
Company.
10. CORPORATE OPPORTUNITIES.
(a) The Stockholders and the Company recognize that JEDI II,
its Affiliates (other than the directors elected or appointed to the Board of
Directors by JEDI II) and assigns (collectively, the "JEDI Affiliates") and the
directors elected or appointed to the Board of Directors of the Company by the
JEDI Affiliates (i) may have participated, directly or indirectly, and may
continue to participate in venture capital and other direct investments in
corporations, partnerships, joint ventures, limited liability companies and
other entities and other similar transactions, (ii) may have interests in,
participate with, and maintain seats on the board of directors of other such
entities and (iii) may develop opportunities for such entities. Specifically,
such directors elected or appointed to the Board of Directors by JEDI II may be
directors or employees of the JEDI Affiliates or directors or advisors of
entities in which the JEDI Affiliates have invested or may invest (collectively,
the "Positions"). In such Positions, such directors elected or appointed by the
JEDI Affiliates may encounter business opportunities that the Company or its
Stockholders may desire to pursue. The Stockholders and the Company recognize
that such opportunities may include, but shall not be limited to, identifying,
pursuing and investing in entities, financing entities, acquiring property or
other assets of entities, engaging investment banking firms or other
underwriters for access to public and private securities markets, and obtaining
investment funds from institutional and private
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investors or others, and agree that, to the fullest extent permitted by law, the
JEDI Affiliates and the directors elected or appointed to the Board of Directors
by the JEDI Affiliates shall not be expressly or implicitly restricted or
proscribed from engaging in any of the foregoing activities, regardless of
whether such business activity is (or such business entity engages in businesses
that are) in direct or indirect competition with the business or activities of
the Company and its Affiliates.
(b) The Stockholders and the Company agree that the JEDI
Affiliates and the directors elected or appointed by the JEDI Affiliates shall
have no obligation to the Company, the Stockholders of the Company or to any
other person or entity to present any such business opportunity to the Company
before presenting and allowing time to develop such opportunity to any other
entities, other than such opportunities presented to him or her solely in, and
as a direct result of, his or her capacity as a director of the Company;
provided, that this paragraph shall in no way allow a director to usurp a
corporate opportunity solely for his or her benefit without first presenting and
allowing time to the entities set forth above to develop such opportunity.
However, if an opportunity is separately presented by a person other than such
director of the Company to such entity, including the JEDI Affiliates, such
entity shall be free to pursue such opportunity even if it came to the
director's attention solely as a result of and in his or her capacity as a
director of the Company.
11. LEGEND ON CERTIFICATES; STOP TRANSFER ORDERS. The Stockholders
agree to the placement of a conspicuous legend on all certificates representing
shares of Company Securities or Common Stock Equivalents indicating that such
securities may not be Transferred except in accordance with this Agreement and
to the entry of a stop transfer order with the transfer agent for such
securities against the transfer of such securities except in accordance with
this Agreement. Such legend shall be substantially in the following form:
BY THE TERMS OF A STOCKHOLDERS' AGREEMENT DATED MARCH 31,
1999 AMONG CERTAIN STOCKHOLDERS AND THE COMPANY (THE "STOCKHOLDERS'
AGREEMENT"), CERTAIN RESTRICTIONS HAVE BEEN PLACED ON THE TRANSFER AND
VOTING OF THE SHARES REPRESENTED BY THIS CERTIFICATE. NEITHER THESE
SECURITIES NOR ANY INTEREST HEREIN MAY BE TRANSFERRED, BY MEANS OF A
DIRECT OR INDIRECT SALE, ASSIGNMENT, DONATION, TRANSFER, DEVISE,
PLEDGE, HYPOTHECATION, ENCUMBRANCE OR OTHER DISPOSITION OF LEGAL TITLE
OR BENEFICIAL INTEREST HEREIN, EXCEPT IN ACCORDANCE WITH THE
STOCKHOLDERS' AGREEMENT. A COPY OF THE STOCKHOLDERS' AGREEMENT HAS BEEN
PLACED ON FILE BY THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE AND IS AVAILABLE FOR INSPECTION.
Each Stockholder holding Company Securities issued prior to the Effective Date
of this Agreement agrees to surrender all certificates representing such
securities for endorsement as indicated above.
16
<PAGE> 17
12. MISCELLANEOUS.
(a) Action by Preferred Holders. Where consent, approval or a
designation by the Preferred Holders is contemplated by this Agreement, such
consent, approval or designation shall be deemed given, unless otherwise
specified by this Agreement, if (i) JEDI II shall evidence in writing its
consent, approval or designation, provided JEDI II and its Affiliates then own
beneficially at least 10% of the outstanding shares of Preferred Stock or (ii)
if JEDI II and its Affiliates own beneficially less than 10% of the outstanding
shares of Preferred Stock, the Persons beneficially owning over 50% of the
outstanding shares of Preferred Stock evidence such consent, approval or
designation in one or more signed writings in each case. Where any action by the
Preferred Holders is contemplated by this Agreement, each Preferred Holder may
independently exercise its respective rights. Shares of Preferred Stock or
Conversion Shares held by the Company or any subsidiary of the Company shall not
be deemed to be outstanding and neither the Company nor any subsidiary may
exercise any rights as a Preferred Holder.
(b) Determination of Beneficial Ownership. For purposes of
this Agreement, the determination of beneficial ownership of Company Securities
shall be made in accordance with Rule 13d-3 under the Exchange Act.
(c) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties hereto.
(d) Arbitration.
(i) On the request of any of the parties hereto,
(whether made before or after the institution of any legal proceeding), any
action, dispute, claim or controversy of any kind now existing or hereafter
arising between any of the parties hereto in any way arising out of, pertaining
to or in connection with this Agreement (a "Dispute") shall be resolved by
binding arbitration in accordance with the terms hereof. Any of the parties may,
by summary proceedings, bring an action in court to compel arbitration of any
Dispute.
(ii) Any arbitration shall be administered by the
American Arbitration Association (the "AAA") in accordance with the terms of
this Section, the Commercial Arbitration Rules of the AAA, and, to the maximum
extent applicable, the Federal Arbitration Act. Judgment on any award rendered
by an arbitrator may be entered in any court having jurisdiction.
(iii) Arbitration hereunder shall be before a
three-person panel of neutral arbitrators, consisting of one person from each of
the following categories: (1) an attorney who has practiced in the area of
commercial law for at least 10 years or a retired judge at the Texas or United
States District Court or an appellate court level: (2) a person with at least 10
years experience in commercial lending: and (3) a person with at least 10 years
experience in the petroleum industry. The AAA shall submit a list of persons
meeting the criteria outlined above for each category of arbitrator, and the
parties shall select one person from each category in the manner established by
the AAA. If the parties cannot agree on an arbitrator within 30 days after the
request for an arbitration, then any party may request the AAA to select an
arbitrator. The arbitrators may engage
17
<PAGE> 18
engineers, accountants or other consultants that the arbitrator deems necessary
to render a conclusion in the arbitration proceeding.
(iv) To the maximum extent practicable, an
arbitration proceeding hereunder shall be concluded within 180 days of the
filing of the Dispute with the AAA. Arbitration proceedings shall be conducted
in Houston, Texas. Arbitrators shall be empowered to impose sanctions and to
take such other actions as the arbitrators deem necessary to the same extent a
judge could impose sanctions or take such other actions pursuant to the Federal
Rules of Civil Procedure and applicable law. At the conclusion of any
arbitration proceeding, the arbitrator shall make specific written findings of
fact and conclusions of law. The arbitrators shall have the power to award
recovery of all costs and fees to the prevailing party. Each of the parties
agrees to keep all Disputes and arbitration proceedings strictly confidential
except for disclosure of information required by applicable law.
(v) All fees of the arbitrators and any engineer,
accountant or other consultant engaged by the arbitrators, shall be paid by the
disputing parties equally unless otherwise awarded by the arbitrators.
(e) Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute but one
and the same Agreement.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Choice of Law. The laws of the State of Delaware shall
govern this Agreement without regard to principles of conflict of laws.
(h) Saving Clause. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting or impairing the
validity or enforceability of such provision in any other jurisdiction.
(i) Integrated Agreement. This Agreement, together with the
Securities Purchase Agreement and the documents and instruments to be executed
in connection therewith, is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement, the Securities Purchase Agreement and
the documents and instruments to be executed in connection therewith supersede
all prior agreements and understandings between the parties with respect to such
subject matter.
(j) Amendment. This Agreement may be amended only by means of
a written amendment signed by all of the parties hereto.
18
<PAGE> 19
(k) Notices. All notices provided for hereunder shall be in
writing by registered or certified mail, return receipt requested, telex,
telegram, telecopy, air courier guaranteeing overnight delivery or personal
delivery to the following addresses:
to the Company:
Sierra Well Service, Inc.
406 N. Big Spring
Midland, Texas 79702-0460
Attention:
Telecopier:
to JEDI II:
Joint Energy Development Investments II Limited Partnership
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention:
Telecopier: (713) 646-4039
to the Stockholders:
At the addresses set forth on Annex A
with a copy to:
Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37450-1800
Attention: J. Porter Durham, Jr.
Telecopier: (423) 756-3447
or to such other address as any such party may designate by notice in the manner
provided above. All such notices and communications and all notices and
communications shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; four days after being sent by certified mail,
return receipt requested, if mailed; when answered back, if telexed; when
receipt acknowledged, if telecopied; and on the next Business Day if timely
delivered to an air courier guaranteeing overnight delivery.
(l) Authority. Each signatory hereto signing in a
representative capacity represents and warrants to every party that his
principal has duly authorized him to execute this Agreement on its behalf and
that he has the power to bind his principal to this Agreement by such signature.
19
<PAGE> 20
(m) Reliance. Each Stockholder acknowledges that JEDI II, in
making the investment described in the Securities Purchase Agreement, is relying
on the representations, warranties and covenants of the Stockholders as set
forth in this Agreement.
20
<PAGE> 21
[SIGNATURE PAGE - STOCKHOLDERS' AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
SIERRA WELL SERVICE, INC.
/s/ Bill E. Coggin
---------------------------------------------
Bill E. Coggin
Vice President
JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP
By: Enron Capital Management II Limited
Partnership, its General Partner
By: Enron Capital II Corp., its
General Partner
By: /s/ John D. Curtin III
--------------------------------------------
Name: John D. Curtin III
Title: Agent and Attorney-in-Fact
STOCKHOLDERS:
SOUTHWEST ROYALTIES, INC.
By: /s/ Bill E. Coggin
--------------------------------------------
Name: Bill E. Coggin
Title: Vice President
S-1
<PAGE> 22
[SIGNATURE PAGE - STOCKHOLDERS' AGREEMENT]
SOUTHWEST PARTNERS II, L.P.
By: /s/ Bill E. Coggin
--------------------------------------------
Name: Bill E. Coggin
Title: Vice President
SOUTHWEST PARTNERS III, L.P.
By: /s/ Bill E. Coggin
--------------------------------------------
Name: Bill E. Coggin
Title: Vice President
/s/ Joey D. Fields
-----------------------------------------------
Joey D. Fields
/s/ Dub W. Harrison
-----------------------------------------------
Dub W. Harrison
S-2
<PAGE> 23
SIERRA WELL SERVICE, INC.
SPOUSAL CONSENT
The undersigned spouse of hereby joins the Stockholders' Agreement
dated as of March __, 1999 (the "Stockholders' Agreement"), among Sierra Well
Service, Inc., a Delaware corporation (the "Company"), and its Stockholders and
Preferred Holders, a copy of which has been reviewed by such spouse. The
undersigned executes this Consent to evidence this act with respect to any
community property interest or other marital interest such spouse may hold in
the Company Securities held by . Initially capitalized terms used but not
defined herein have the meanings given to them in the Stockholders' Agreement.
WITNESS: SPOUSE:
- --------------------------- --------------------------------
Name: Name:
Date: Date:
<PAGE> 24
ANNEX A
<TABLE>
<CAPTION>
Name of Stockholder Number of Shares of Common Stock
------------------- --------------------------------
<S> <C>
Southwest Partners III, L.P. 2,009.71
Southwest Royalties Holdings, Inc. 1,260.00
Southwest Partners II, L.P. 1,071.00
Joey D. Fields 20.00
Dub W. Harrison 10.00
</TABLE>
<PAGE> 25
ANNEX B
<TABLE>
<CAPTION>
Name of Preferred Holder Series and Number of Preferred Shares
------------------------ -------------------------------------
<S> <C> <C>
JEDI II Series A 500
JEDI II Series B 1000
JEDI II Series C 1
</TABLE>
<PAGE> 26
[SIGNATURE PAGE - STOCKHOLDERS' AGREEMENT]
EXHIBIT A
ADOPTION AGREEMENT
This Adoption Agreement ("Agreement") is executed by the person or
entity named as "Transferee" below pursuant to the terms of the Stockholders'
Agreement dated as of March __, 1999 ("Stockholders' Agreement") relating to
restrictions imposed on the Stockholders of Sierra Well Service, Inc., a
Delaware corporation (the "Company"). Initially capitalized terms used but not
otherwise defined herein, shall have the meanings ascribed to them in the
Stockholders' Agreement.
1. Acknowledgment. The Transferee acknowledges receipt of a copy of the
Stockholders' Agreement. Transferee further acknowledges that Transferee's
acquisition of Company Securities (or any interest therein) is subject to the
terms and conditions of the Stockholders' Agreement.
2. Agreement. The Transferee hereby adopts the Stockholders' Agreement
and agrees that, so long as the Transferee holds Company Securities, the
Transferee shall be bound by and subject to the terms of the Stockholders'
Agreement with the same force and effect as if Transferee were a
"Securityholder" thereunder.
3. Notice. Any notice required or permitted by the Stockholders'
Agreement shall be given to Transferee at the address listed below Transferee's
signature.
4. Joinder. The spouse of Transferee, if applicable, executes this
Agreement to acknowledge that it is fair and in such spouse's best interests and
to bind such spouse's community interest, if any, in the securities acquired by
Transferee to the terms of the Stockholders' Agreement.
<PAGE> 27
[SIGNATURE PAGE - STOCKHOLDERS' AGREEMENT]
This Agreement is executed by Transferee on .
--------------
TRANSFEREE: SPOUSE (if applicable):
- -------------------------- -------------------------------
Signature Signature
- -------------------------- -------------------------------
Print Name Print Name
- --------------------------
- --------------------------
Address
SIERRA WELL SERVICE, INC.
-------------------------------
Bill E. Coggin
Vice President
<PAGE> 1
EXHIBIT 10.11
EXECUTION COPY
================================================================================
STOCKHOLDERS' AGREEMENT
By and Between
SIERRA WELL SERVICE, INC.,
JOINT ENERGY DEVELOPMENT INVESTMENTS II
LIMITED PARTNERSHIP
and
THE PERSONS DESIGNATED ON THE
SCHEDULE OF INVESTORS ATTACHED HERETO
MARCH 21, 2000
================================================================================
<PAGE> 2
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of March 21, 2000 (this
"Agreement"), by and between SIERRA WELL SERVICE, INC., a Delaware corporation
(the "Company"), JOINT ENERGY DEVELOPMENT INVESTMENTS II LIMITED PARTNERSHIP, a
Delaware limited partnership ("JEDI II") and the "Other Stockholders" listed on
the signature page hereto (together with JEDI II, each a "Stockholder" and
collectively, the "Stockholders").
R E C I T A L S
WHEREAS, the Company and each of the Stockholders (other than
Kenneth V. Huseman) are parties to a Stockholders' Agreement dated as of March
31, 1999 (the "Old Stockholders' Agreement");
WHEREAS, JEDI II is the holder of shares of the Company's
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock
(collectively, the "Preferred Stock"); and
WHEREAS, the Company, Southwest Royalties, Inc. and Joey D.
Fields are parties to a Shareholder Agreement dated as of January 1, 1995 (the
"Fields Shareholder Agreement");
WHEREAS, the Company, Southwest Royalties, Inc. and Dub W.
Harrison are parties to a Shareholder Agreement dated as of January 1, 1997 (the
"Harrison Shareholder Agreement");
WHEREAS, the Company, Southwest Royalties, Inc. and Kenneth V.
Huseman are parties to a Shareholder Agreement dated as of January 5, 1999 (the
"Huseman Shareholder Agreement");
WHEREAS, subsequent to the execution and delivery of this
Agreement, the Company may commence a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act and desires to amend certain terms of the Old Stockholders' Agreement, the
Fields Shareholder Agreement, the Harrison Shareholder Agreement, the Huseman
Shareholder Agreement and the Certificates of Designations for the Preferred
Stock (as defined below);
NOW, THEREFORE, in consideration of the premises and the
mutual agreements and covenants hereinafter set forth, the parties hereto hereby
agree as follows:
<PAGE> 3
SECTION 1. Certain Defined Terms. As used in this Agreement,
the following terms shall have the following meanings:
"Affiliate" shall mean any person controlling, controlled by
or under common control with a Person.
"Board" shall mean the Board of Directors of the Company.
"Business Day" shall mean any day that is not a Saturday,
Sunday or United States federal holiday.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Initial Public Offering" shall mean a firm commitment
underwriting of the Company's Common Stock pursuant to an effective registration
statement filed with the Securities and Exchange Commission for an aggregate
offering price of not less than $30 million.
"JEDI II Affiliates" has the meaning ascribed thereto in
Section 7(d) of this Agreement.
"JEDI II Designee" has the meaning ascribed thereto in Section
7(a) of this Agreement.
"New Directors" has the meaning ascribed thereto in Section
8(b) of this Agreement.
"Person" shall mean any individual, partnership, firm,
corporation, association, trust, unincorporated organization or other entity, as
well as any syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Exchange Act.
"Preferred Stock" means the Company's Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock.
"Series A Preferred Stock" means the company's Series A
Cumulative Preferred Stock.
"Series B Designation" means the Certificate of Designation of
the Series B Preferred Stock.
"Series B Preferred Stock" means the Company's Series B
Convertible Preferred Stock.
-2-
<PAGE> 4
"Series C Designation" means the Certificate of Designations
for the Series C Preferred Stock.
"Series C Preferred Stock" means the Company's Series C
Convertible Preferred Stock.
"Subordinated Debt" means all indebtedness, including accrued
but unpaid interest outstanding under the Subordinated Loan Agreement dated
March 31, 1999 between JEDI II and the Company.
SECTION 2. Termination of Old Stockholders' Agreement. The
Company, JEDI II and each of the other Stockholders hereby agree that the Old
Stockholders' Agreement shall be terminated and of no further force and effect
immediately and without further action by the Company or any Stockholder at such
time as the Company has completed an Initial Public Offering by June 30, 1999,
repaid in full the Subordinated Debt and the shares of Series A Preferred Stock
are no longer outstanding.
SECTION 3. Agreements relating to Series B Preferred Stock.
The Company and JEDI II hereby agree that notwithstanding the existing terms of
the Series B Preferred Stock:
(a) JEDI II hereby elects to convert its shares of Series B
Preferred Stock, and that all its shares of Series B Preferred Stock shall be
converted immediately and without further action by JEDI II, otherwise in
accordance with Section 8 of the Series B Designation, effective immediately at
such time as the Company has completed an Initial Public Offering by June 30,
1999, repaid in full the Subordinated Debt and the shares of Series A Preferred
Stock are no longer outstanding; and
(b) the conversion effected in accordance with (a) immediately
above shall be into an aggregate of (i) 1,873.16 shares of Common Stock (which
is calculated of a "fully diluted basis" in accordance with the Old
Stockholders' Agreement except that the number of shares excludes (1) an
aggregate of 260.16 shares Common Stock issued to Kenneth V. Huseman pursuant to
his employment agreement dated as of March 16, 1999, as amended by a First
Amendment dated as of March 21, 2000, (2) any options issued with an exercise
price not less than the initial public offering price pursuant to an option plan
approved by the Board to directors, officers or employees of the Company other
than Kenneth V. Huseman, (3) convertible notes, warrants or shares of common
stock that may be issued on or after the date of an Initial Public Offering at,
or with a conversion or exercise price at, not less than the initial public
offering price, in connection with acquisitions specified in the registration
statement relating to the Initial Public Offering, (4) any shares of Common
Stock issued in connection with, the Initial Public Offering, and (5) shares
issuable upon the conversion of options issued to William J. Myers (not to
exceed 13 shares) pursuant to agreements between Mr. Myers and the Company). In
the event any shares of Common Stock or other securities convertible or
exercisable into shares of Common Stock other than shares excluded in the
exclusions (1)-(5) above are issued on
-3-
<PAGE> 5
or prior to the date of an Initial Public Offering, the conversion number above
shall be adjusted so that the number of shares of Common Stock into which the
Series B Preferred Stock are convertible by JEDI II is equal to 28.80% of the
outstanding common stock on a "fully diluted" basis excluding the shares covered
in exclusions (2)-(5) above.
(c) JEDI II hereby agrees that it will not transfer the shares
of Series B Preferred Stock prior to June 30, 2000, other than to Affiliates of
JEDI II who agree to be bound by the terms of this Agreement.
(d) The share numbers set forth above in this Section 3 shall
be adjusted to give effect to any stock splits, stock dividends or other capital
reorganizations after the date of this Agreement.
SECTION 4. Agreements relating to Series C Preferred Stock.
The Company and JEDI II hereby agree that for purposes of clarifying the terms
of the Series C Preferred Stock in connection with the Mandatory Conversion set
forth in Section 9 and the conversion provisions set forth in Section 8 of the
Series C Designation, the shares of Series C Preferred Stock shall be canceled
on the Mandatory Conversion Date (as defined in Section 9 of the Series C
Designation) if such date occurs on or prior to June 30, 2000 upon the payment
of $1,000. The following provision is intended to clarify the basis of Section 8
of the Series C Designation, which is cross-referenced by Section 9 but contains
no provision for conversion in the event of a Mandatory Conversion Date on or
prior to June 30, 2000. JEDI II hereby agrees that it will not transfer the
shares of Series C Preferred Stock prior to June 30, 2000, other than to
Affiliates of JEDI II who agree to be bound by the terms of this Agreement.
SECTION 5. Removal of Legend. Each of the Stockholders hereby
directs the Company, and the Company hereby agrees, to remove the current legend
on any certificates relating to the Company's securities required by the Old
Stockholders' Agreement as promptly as practicable following after such time as
the Company has completed an Initial Public Offering by June 30, 1999, repaid in
full the Subordinated Debt and the shares of Series A Preferred Stock are no
longer outstanding.
SECTION 6. Termination of Fields Shareholder Agreement,
Harrison Shareholder Agreement and Huseman Shareholder Agreement. The Company,
JEDI II and each of the other Stockholders hereby agree that each of the Fields
Shareholder Agreement, Harrison Shareholder Agreement and Huseman Shareholder
Agreement shall be terminated and of no further force and effect immediately and
without further action by the Company or any Stockholder at such time as the
Company has completed an Initial Public Offering.
SECTION 7. JEDI II Director Rights after an Initial Public
Offering.
(a) Board Representation. From and after the date of
termination of the Old Stockholders' Agreement, subject to the provisions of
Section 7(d) below, JEDI II shall be
-4-
<PAGE> 6
entitled to designate one person for nomination for election to the Board. A
member of the Board designated by JEDI II pursuant to this Section 7(a) or
elected to fill a vacancy by a member designated by JEDI II as provided in
Section 7(c) herein shall be referred to as the "JEDI II Designee."
(b) Annual Meeting. At each annual meeting of the Company's
stockholders or any extraordinary meeting in lieu thereof at which the term of
any JEDI II Designee is to expire, JEDI II shall be entitled to designate one
person for nomination as a director. The Company agrees to cause the JEDI II
Designee so designated by JEDI II to be nominated for election to the Board at
each annual meeting of the Company's stockholders or any extraordinary meeting
in lieu thereof. To the extent the Company's proxy statement for any annual
meeting of shareholders, or any extraordinary meeting in lieu thereof, includes
a recommendation regarding the election of any other nominees to the Company's
Board, the Company agrees to include a recommendation of its Board that the
stockholders also vote in favor of the JEDI II Designee standing for election at
such meeting. The Company shall take all actions necessary to ensure that the
Certificate of Incorporation and Bylaws of the Company do not at any time
conflict in any respect with the provisions of this Section 7.
(c) Vacancies. If, prior to his election to the Board pursuant
to Section 7(a) hereof, any JEDI II Designee shall be unable or unwilling to
serve as a director of the Company, then JEDI II shall be entitled to nominate a
replacement in accordance with the provisions set forth in Section 7(a), who
shall then be a JEDI II Designee for purposes of this Section 7. If, following
an election or appointment to the Board pursuant to Section 7(a) hereof, the
JEDI II Designee shall resign or be removed or be unable to serve for any reason
prior to the expiration of his term as a director of the Company, then JEDI II
shall, within 30 days of such event, notify the Board in writing of a
replacement JEDI II Designee, and the Company and the Board shall take such
action as necessary to cause such replacement JEDI II Designee to be appointed
to the Board and each applicable committee thereof to fill the unexpired term of
the JEDI II Designee who such new JEDI II Designee is replacing.
(d) Termination of Director Rights. The right of JEDI II to
designate a nominee for directors under this Section 7 shall terminate if at any
time after the date of this Agreement, (i) JEDI II and (ii) other persons,
trusts or other business entities controlling, controlled by or under common
control with JEDI II (collectively, the "JEDI II Affiliates"), cease to
beneficially own at least 10% of the outstanding shares of Common Stock.
(e) Fees; Costs and Expenses. The JEDI II Designee shall be
entitled to receive annually an amount equal to the annual retainer, meeting
fees or other consideration paid to the Company's non-management directors for
serving on the Board (or committees thereof). In addition, the Company will pay
or reimburse the JEDI II Designee for all reasonable out-of-pocket expenses
incurred by the JEDI II Designee in connection with its participation in
meetings of the Board (and committees thereof).
-5-
<PAGE> 7
(f) Other Actions. The Company agrees to take all other
necessary or desirable actions within its control so that:
(i) the person designated by JEDI II in accordance with
this Agreement will be elected as a director at any
annual or special meeting of the Company or will fill
any vacancy created by the Board or by the
resignation or removal of the JEDI II Designee; and
(ii) to the extent any provision of the Company's
certificate of incorporation or by-laws is
inconsistent with the provisions of this Agreement,
to effect the amendments to the certificate of
incorporation or bylaws as may be necessary and
appropriate to give full effect to the provisions of
this Agreement.
(g) Other Activities of JEDI II and its Affiliates; Fiduciary
Duties. It is understood and accepted by the parties to this Agreement that JEDI
II and its Affiliates have interests in other business ventures which may be in
conflict with the activities of the Company and that, subject to applicable law,
nothing in this Agreement shall limit the current or future business activities
of JEDI II or its Affiliates, whether or not such activities are competitive
with those of the Company. Nothing in this Agreement, express or implied, shall
relieve any officer or director of the Company (including any designee of JEDI
II pursuant to Sections 7(a) or 7(c)) of any fiduciary or other duties or
obligations they may have to the Company's stockholders.
SECTION 8. JEDI II Director Rights Prior to an IPO. (a) In
anticipation of an Initial Public Offering to be completed on or prior to June
30, 2000 and the agreements set forth below in this Section 8, as well as other
good and valuable consideration, JEDI II hereby agrees to effect the resignation
of the following directors currently serving on the Board:
Bradford Larson
John D. Curtin, III
Marshall M. Eubank
John Hopley
(b) In connection with and as consideration for the
resignation of the current directors set forth above, JEDI II hereby consents to
the appointment of the following persons as directors, provided each of the
following persons (the "New Directors") execute the agreement attached hereto as
Annex A:
William M. Kerr, Jr.
Paul L. Morris
J. Steven Person
Clifford A. Strozier
-6-
<PAGE> 8
(c) At the written request of JEDI II at any time prior to the
completion of an Initial Public Offering satisfying the conditions set forth in
Section 10(c) below, or if an Initial Public Offering satisfying the conditions
set forth in Section 10(c) below is not completed on or prior to June 30, 2000,
then each of New Directors shall resign immediately in accordance with the
agreements attached hereto as Annex A, and JEDI II shall have the right to
nominate an equal number of Persons to fill the vacancies created by such
resignations. In the event any of the New Directors shall cease to be a director
prior to the earlier of (1) the completion of an Initial Public Offering or (2)
June 30, 2000, JEDI II shall have the right to nominate a director to fill the
vacancy of such director. In the event that any New Director shall fail to
resign as a director in accordance with the agreement attached hereto as Annex
A, the Company and the Stockholders hereby agree to take all actions necessary
and permitted under the Company's certificate of incorporation, bylaws and the
General Corporation Law of the State of Delaware to remove such New Director
from the Board.
(d) The Company agrees to nominate each of the New Directors
for reelection as a director at the Company's annual meeting of stockholders to
be called by the Company and held in April 2000, and each of the Stockholders
party hereto agree to vote in favor of each of the New Directors (or such other
Persons nominated by JEDI II in the event such Persons decline to accept the
nomination for election as a director).
SECTION 9. Notices by the Company. Prior to the completion of
an Initial Public Offering satisfying the conditions set forth in Section 10(c)
of this Agreement, the Company hereby agrees to give JEDI II written notice of
any actions to be taken by the Board concurrently with notices given to the
directors of the Company. In addition, prior to the completion of an Initial
Public Offering satisfying the conditions set forth in Section 10(c) of this
Agreement, the Company will not increase the number of directors on the Board to
a number greater than seven (7), which is the current number of directors on the
Board.
SECTION 10. Term of Agreement; Termination. (a) This Agreement
shall be in full force and effect and shall be binding on the parties hereto
from the date hereof.
(b) This agreement shall terminate automatically upon the
earlier of (i) the termination of the Initial Public Offering or (ii) June 30,
2000 and the completion of an Initial Public Offering with proceeds sufficient
to (A) repay the Subordinated Debt and (B) redeem the Series A Preferred Stock
has not occurred. For purposes of clarification, pending the outcome of the
contingencies provided for in the previous sentence, the Old Stockholders'
Agreement shall remain in full force and effect.
(c) The provisions of Section 2, 3, 4, 5, 6, 8 and 9 of this
Agreement shall terminate upon the completion of an Initial Public Offering with
proceeds sufficient to (i) repay the Subordinated Debt and (ii) redeem the
Series A Preferred Stock.
-7-
<PAGE> 9
SECTION 11. Amendments. Neither this Agreement nor any
provision hereof may be amended or waived orally or in writing, except by a
writing signed by the parties hereto and approved by two-thirds of the Board.
SECTION 12. Specific Enforcement. Each Stockholder
acknowledges and agrees that the Company and its stockholders would be
irreparably injured in the event that any provision of this Agreement is
breached or not performed by each Stockholder and his Affiliates in accordance
with its specific terms. Accordingly, it is agreed that each party shall be
entitled to temporary and permanent injunctive relief with respect to each and
any breach or purported repudiation of this Agreement by the other and to
specifically enforce strict adherence to this Agreement and the terms and
provisions hereof against the other in any action instituted in a court of
competent jurisdiction, in addition to any other remedy which such aggrieved
party may be entitled to obtain. Moreover, in the event of the breach of any of
the provisions of this Agreement, timeliness in obtaining relief is of the
essence.
SECTION 13. Arbitration.
(a) On the request of any of the parties hereto (whether made
before or after the institution of any legal proceeding), any action, dispute,
claim or controversy of any kind now existing or hereafter arising between any
of the parties hereto in any way arising out of, pertaining to or in connection
with this Agreement ("Dispute") shall be resolved by binding arbitration in
accordance with the terms hereof. Any of the parties may, by summary
proceedings, bring an action in court to compel arbitration of any Dispute.
(b) Any arbitration shall be administered by the American
Arbitration Association ("AAA") in accordance with the terms of this Section,
the Commercial Arbitration Rules of the AAA, and, to the extent applicable, the
Federal Arbitration Act. Judgment on any award rendered by an arbitrator may be
entered in any court having jurisdiction.
(c) Arbitration hereunder shall be before a three-person panel
of neutral arbitrators, consisting of one person from each of the following
categories: (1) an attorney who has practiced in the area of commercial law for
at least 10 years or a retired judge at the Texas or United States District
Court or an appellate court level: (2) a person with at least 10 years
experience in commercial lending: and (3) a person with at least 10 years
experience in the petroleum industry. The AAA shall submit a list of persons
meeting the criteria outlined above for each category of arbitrator, and the
parties shall select one person from each category in the manner established by
the AAA. If the parties cannot agree on an arbitrator within 30 days after the
request for an arbitration, then any party may request the AAA to select an
arbitrator. The arbitrators may engage engineers, accountants or other
consultants that the arbitrator deems necessary to render a conclusion in the
arbitration proceeding.
(d) To the maximum extent practicable, an arbitration
proceeding hereunder shall be concluded within 180 days of the filing of the
Dispute with the AAA. Arbitration
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<PAGE> 10
proceedings shall be conducted in Houston, Texas. Arbitrators shall be empowered
to impose sanctions and to take such other actions as the arbitrators deem
necessary to the same extent a judge could impose sanctions or take such other
actions pursuant to the Federal Rules of Civil Procedure and applicable law. At
the conclusion of any arbitration proceeding, the arbitrator shall make specific
written findings of fact and conclusions of law. The arbitrators shall have the
power to award recovery of all costs and fees to the prevailing party. Each of
the parties agrees to keep all Disputes and arbitration proceedings strictly
confidential except for disclosure of information required by applicable law.
(e) All fees of the arbitrators and any engineer, accountant
or other consultant engaged by the arbitrators, shall be paid by the disputing
parties equally unless otherwise awarded by the arbitrators.
SECTION 14. Miscellaneous.
(a) Notices. All notices and other communications provided for
herein shall be in writing and shall be delivered by hand, by facsimile,
telecopied or sent by certified or registered mail, return receipt requested,
postage prepaid, addressed in the manner set forth below (or in such other
manner for a party as shall be specified in a notice given in accordance with
this Section 14(a)):
(i) if to the Company, to:
Sierra Well Service, Inc.
406 North Big Spring
Midland, Texas 79701
Attention: President
(ii) if to any Stockholder, to the address set
forth below the name of such Stockholder on
the signature pages hereto:
All such notices shall be conclusively deemed to be received and shall be
effective, if sent by facsimile, hand delivery or telecopied, upon receipt, or
if sent by registered or certified mail, on the fifth day after the day on which
such notice is mailed.
(b) Expenses. Except as otherwise provided herein, all costs
and expenses incurred in connection with this Agreement shall be paid by the
party incurring such costs and expenses.
(c) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties. This Agreement may not be assigned by any Stockholder without the
prior written consent of the Company approved by two-thirds of the Board.
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<PAGE> 11
(d) Third Party Beneficiaries. Nothing expressed or implied in
this Agreement is intended or shall be construed to give any Person, other than
the parties hereto and their respective successors and assigns, any legal or
equitable right, remedy or claim under or in respect of this Agreement.
(e) Entire Agreement. This Agreement is intended by the
parties to be a final expression of their agreement and a complete and exclusive
statement of their agreement and understanding in respect of the subject matter
contained herein. This Agreement supercedes all prior agreements and
understandings between the parties with respect to such subject matter.
(f) Severability. In the event that any provision contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
(g) Waiver; Remedies. No delay on the part of any party hereto
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party hereto of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
(h) Attorneys' Fees. In any action at law or in equity brought
to enforce or interpret any provision of this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees, costs and
disbursements, in addition to any other relief to which such party may be
entitled.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely within that State.
(j) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(k) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement in their individual capacity or caused it to be duly executed by their
respective authorized signatories thereunto duly authorized as of the date first
above written.
Sierra Well Service, Inc.
By /s/ KENNETH V. HUSEMAN
---------------------------------------
Name: Kenneth V. Huseman
Title: President
Joint Energy Development Investments II
Limited Partnership
By: Enron Capital Management II Limited
Partnership, its General Partner
By: Enron Capital II Corporation,
its General Partner
By: /s/ RICHARD B. BUY
--------------------------------------
Name: Richard B. Buy
Title: Executive Vice President
Address:
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: General Counsel
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<PAGE> 13
Other Stockholders:
SOUTHWEST ROYALTIES, INC.
By: /s/ H.H. WOMMACK III
---------------------------------------
Name: H.H. Wommack III
Title: President
Address:
406 North Big Spring
Midland, Texas 79701
Attention: President
SOUTHWEST PARTNERS II, L.P.
By: Southwest Royalties, Inc., its General
Partner
By: /s/ H.H. WOMMACK III
---------------------------------------
Name: H.H. Wommack III
Title: President
Address:
406 North Big Spring
Midland, Texas 79701
Attention: General Partner
SOUTHWEST PARTNERS III, L.P.
By: Southwest Royalties, Inc.,
its General Partner
By: /s/ H.H. WOMMACK III
---------------------------------------
Name: H.H. Wommack III
Title: President
Address:
406 North Big Spring
Midland, Texas 79701
Attention: General Partner
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<PAGE> 14
/s/ JOEY D. FIELDS
-----------------------------------------
JOEY D. FIELDS
Address:
406 North Big Spring
Midland, Texas 79701
/s/ DUB W. HARRISON
-----------------------------------------
DUB W. HARRISON
Address:
406 North Big Spring
Midland, Texas 79701
/s/ KENNETH V. HUSEMAN
-----------------------------------------
KENNETH V. HUSEMAN
Address:
406 North Big Spring
Midland, Texas 79701
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<PAGE> 15
ANNEX A
AGREEMENT OF DIRECTOR
The undersigned acknowledges that Sierra Well Service, Inc. (the "Company") and
Joint Energy Development Investment Fund II Limited Partnership ("JEDI II") are
relying on this agreement of the undersigned as consideration for the mutual
agreements set forth in a Stockholders' Agreement dated as of March 21, 2000
between the Company, JEDI II and the other Stockholders named therein (the
"Stockholders' Agreement"). The undersigned acknowledges receipt of good and
valuable consideration from the Company and JEDI II for the agreements contained
herein. All capitalized terms used herein that are not defined shall have the
meaning ascribed thereto in the Stockholders' Agreement.
The undersigned, in accepting his appointment as a director of the Company as of
the date hereof, hereby agrees that at the written request of JEDI II prior to
the completion of an Initial Public Offering satisfying the conditions set forth
in Section 10(c) of the Stockholders' Agreement or on June 30, 2000 in the event
an Initial Public Offering satisfying the conditions set forth in Section 10(c)
of the Stockholders' Agreement does not occur prior to June 30, 2000, the
undersigned shall resign, and as of such date in the event of such circumstances
without further action hereby tenders his resignation, as a director of the
Company.
This agreement shall terminate immediately upon the completion of an Initial
Public Offering satisfying the conditions set forth in Section 10(c) of the
Stockholders' Agreement.
The undersigned agrees that this agreement may be enforced by either the Company
or JEDI II. This agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware.
Dated: March 21, 2000
------------------------------
Name:
<PAGE> 1
EXHIBIT 10.12
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF THE SENIOR DEBT (AS DEFINED IN THE SUBORDINATION AND
INTERCREDITOR AGREEMENT DEFINED BELOW) PURSUANT TO, AND TO THE EXTENT PROVIDED
IN, THE SUBORDINATION AND INTERCREDITOR AGREEMENT DATED AS OF EVEN DATE HEREWITH
BY AND AMONG THE BORROWER (AS DEFINED BELOW), THE SUBORDINATED AGENT (AS DEFINED
BELOW), AND THE SENIOR AGENT (AS DEFINED THEREIN).
================================================================================
[EXECUTION VERSION]
SUBORDINATED LOAN AGREEMENT
AMONG
SIERRA WELL SERVICE, INC.
AS BORROWER
THE SUBORDINATED LENDERS NAMED IN THIS
AGREEMENT,
AS SUBORDINATED LENDERS
AND
JOINT ENERGY DEVELOPMENT INVESTMENTS II
LIMITED PARTNERSHIP
AS AGENT
DATED AS OF MARCH 31, 1999
$25,000,000 SUBORDINATED LOAN FACILITY
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1
DEFINITIONS.................................................................1
Section 1.1 Certain Definitions.......................................1
Section 1.2 Accounting Principles....................................10
ARTICLE 2
AMOUNT AND TERM OF THE SUBORDINATED LOAN...................................11
Section 2.1 Subordinated Loan........................................11
Section 2.2 Repayment Obligations; Prepayments.......................11
Section 2.3 Payments and Computations................................12
Section 2.4 Interest.................................................13
Section 2.5 Subordinated Notes.......................................14
Section 2.6 Taxes....................................................14
Section 2.7 Increased Costs..........................................15
Section 2.8 Illegality...............................................16
ARTICLE 3
CONDITIONS OF CLOSING......................................................16
ARTICLE 4
REPRESENTATIONS AND WARRANTIES.............................................19
Section 4.1 Corporate Existence......................................19
Section 4.2 Corporate Power and Authorization........................19
Section 4.3 Binding Obligations......................................19
Section 4.4 No Legal Bar Or Resultant Lien...........................20
Section 4.5 No Consent...............................................20
Section 4.6 Financial Condition......................................20
Section 4.7 Liabilities..............................................20
Section 4.8 Litigation...............................................20
Section 4.9 Taxes; Governmental Charges..............................20
Section 4.10 Ownership of Property; Liens; Leases of Equipment........21
Section 4.11 Intellectual Property....................................21
Section 4.12 Defaults.................................................21
Section 4.13 Casualties; Taking of Properties.........................21
Section 4.14 Margin Stock.............................................22
Section 4.15 Location of Business and Offices.........................22
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
Section 4.16 Compliance with the Law..................................22
Section 4.17 No Material Misstatements................................22
Section 4.18 ERISA....................................................23
Section 4.19 Environmental Matters....................................23
Section 4.20 Subsidiaries; Partnerships...............................24
Section 4.21 Certain Fees.............................................24
Section 4.22 Purpose of Loans.........................................25
Section 4.23 Support and Security Documents...........................25
Section 4.24 Employment...............................................25
Section 4.25 Year 2000 Compliance.....................................25
Section 4.26 Insurance................................................26
Section 4.27 Hedging Agreements.......................................26
Section 4.28 Capital Stock............................................27
ARTICLE 5
AFFIRMATIVE COVENANTS......................................................27
Section 5.1 Financial Statements and Reports.........................27
Section 5.2 Certificates of Compliance...............................28
Section 5.3 Accountants' Certificate.................................28
Section 5.4 Taxes Other Liens........................................28
Section 5.5 Compliance with Laws.....................................29
Section 5.6 Further Assurances.......................................29
Section 5.7 Insurance................................................29
Section 5.8 Accounts and Records.....................................29
Section 5.9 Right of Inspection......................................29
Section 5.10 Notice of Certain Events.................................30
Section 5.11 ERISA Information and Compliance.........................30
Section 5.12 Environmental Reports and Notices........................30
Section 5.13 Maintenance..............................................30
Section 5.14 New Subsidiary...........................................31
Section 5.15 Performance on Borrower's Behalf.........................31
Section 5.16 Change of Principal Place of Business....................31
Section 5.17 New Bank Accounts........................................31
Section 5.18 Year 2000 Compliant......................................32
ARTICLE 6
NEGATIVE COVENANTS.........................................................33
Section 6.1 Liens....................................................33
Section 6.2 Mergers..................................................33
Section 6.3 Indebtedness and Other Obligations.......................33
Section 6.4 Dividends; Compensation..................................34
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
Section 6.5 Investments................................................34
Section 6.6 Sale or Discount of Receivables............................35
Section 6.7 Nature of Business.........................................35
Section 6.8 Amendment of Articles of Incorporation or Bylaws...........35
Section 6.9 Asset Sales................................................35
Section 6.10 Transactions with Affiliates...............................35
Section 6.11 Partnerships...............................................36
Section 6.12 Subsidiaries...............................................36
Section 6.13 Equity Proceeds............................................36
Section 6.14 Public Disclosures.........................................36
Section 6.15 Limitation on Payment Restrictions Affecting Subsidiaries..36
Section 6.16 Fixed Charge Coverage Ratio................................37
ARTICLE 7
EVENTS OF DEFAULT............................................................37
Section 7.1 Events of Default..........................................37
Section 7.2 Acceleration...............................................39
Section 7.3 Default Interest...........................................39
Section 7.4 Other Subordinated Loan Documents..........................40
Section 7.5 Right of Setoff............................................40
Section 7.6 Cumulative Remedies........................................40
Section 7.7 Application of Payments....................................40
ARTICLE 8
THE SUBORDINATED AGENT.......................................................41
Section 8.1 Authorization and Action...................................41
Section 8.2 Subordinated Agent's Reliance, Etc.........................41
Section 8.3 The Subordinated Agent and Its Affiliates..................42
Section 8.4 Subordinated Lender Loan Decision..........................42
Section 8.5 Indemnification............................................42
Section 8.6 Successor Subordinated Agent...............................43
ARTICLE 9
MISCELLANEOUS................................................................44
Section 9.1 Interpretation and Survival of Provisions..................44
Section 9.2 Costs, Expenses and Taxes..................................44
Section 9.3 No Waiver; Modifications in Writing........................47
Section 9.4 Binding Effect; Assignment.................................47
Section 9.8 Communications.............................................50
Section 9.9 Interest...................................................50
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
Section 9.10 Governing Law..............................................51
Section 9.11 WAIVER OF JURY TRIAL.......................................51
Section 9.12 LIMITATION ON DAMAGES......................................51
Section 9.13 Execution in Counterparts..................................51
</TABLE>
EXHIBITS:
Exhibit A - Form of Subordinated Note
Exhibit 5.1(a) - Consolidating Schedules
Exhibit 5.1(d) - Budget Requirements
Exhibit 5.2 - Form of Compliance Certificate
SCHEDULES:
Schedule 4.7 - Liabilities
Schedule 4.8 - Litigation
Schedule 4.10 - Certain Assets; Permitted Liens
Schedule 4.19 - Environmental
Schedule 4.20(a) - Subsidiaries
Schedule 4.20(b) - Partnerships; Joint Ventures
Schedule 4.26 - Insurance
Schedule 4.27 - Hedging Arrangements
Schedule 4.28 - Capital Stock
Schedule 6.3 - Certain Indebtedness
Schedule 6.9 - Excluded Asset Sales
-iv-
<PAGE> 6
SUBORDINATED LOAN AGREEMENT
This Subordinated Loan Agreement (the "Subordinated Loan Agreement") is
made and entered into as of March 31, 1999, among SIERRA WELL SERVICE, INC., a
Delaware corporation, as borrower, the SUBORDINATED LENDERS, as defined below,
and JOINT ENERGY INVESTMENTS II LIMITED PARTNERSHIP, a Delaware limited
partnership, as agent for the Subordinated Lenders ("Subordinated Agent").
The Loan Agreement dated September 30, 1997 (the "Original Loan
Agreement") was entered into between the Borrower and Joint Energy Development
Investments Limited Partnership ("JEDI"). The Original Loan Agreement was
assigned to Joint Energy Development Investments II Limited Partnership ("JEDI
II") from JEDI pursuant to the Notice of Assignment and Amendment. In
conjunction with the restructuring of the Borrower's capital structure, the
Borrower, the Subordinated Lenders and the Subordinated Agent have agreed to
amend, restate, and convert the Original Loan Agreement into two separate loan
facilities: (1) this Subordinated Loan Agreement and (2) the Senior Loan
Agreement dated as of even date herewith among the Borrower, the Senior Lenders
identified therein, and the Senior Agent (the "Senior Loan Agreement").
In consideration of the mutual covenants and agreements herein
contained and of the loans hereinafter referred to, the parties agree as
follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Certain Definitions.
As used in this Agreement the following terms shall have the following
meanings:
"Acquisition" shall mean any direct or indirect acquisition, whether in
one or more related transactions, of all or substantially all of the assets,
liabilities, or securities of a Person, a division or business unit of a Person,
or any related group of the foregoing.
"Advance" shall mean the outstanding principal from a Subordinated
Lender which represents such Subordinated Lender's Pro Rata Share of the
Subordinated Loan.
"Affiliate" of any specified Person shall mean 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 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;
provided that no Person which would otherwise be an Affiliate of Enron Capital &
Trade Resources Corp. if not for this proviso shall be considered as an
Affiliate of the Borrower or its Subsidiaries.
-1-
<PAGE> 7
"Auction Package" means the auction of various vehicles and
miscellaneous obsolete equipment on or before May 31, 1999 in an amount not to
exceed $150,000.
"Basic Documents" shall mean, collectively, the Subordinated Loan
Documents and the Equity Documents.
"Board of Directors" shall mean the Board of Directors of SWRH, SWRI or
the Borrower, as applicable, or any committee thereof duly authorized to act on
behalf of the applicable Board of Directors.
"Borrower" shall mean Sierra Well Service, Inc., a Delaware
corporation.
"Business Day" shall mean any day other than Saturday, Sunday, or a day
on which banking institutions in New York City are not required to open for
business.
"Capital Lease" shall mean any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"Capitalized Lease Obligation" shall mean the amount of the liability
under any Capital Lease that, in accordance with GAAP, is required to be
capitalized and reflected as a liability on the balance sheet.
"Capital Stock" of any Person shall mean any and all shares, interests,
participations, or other equivalents (however designated) of, or rights or
warrants, or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Change of Control" shall mean (i) the occurrence of any time when H.H.
Wommack III ever owns less than 51% of the voting securities of SWRH, (ii) any
time at which a wholly owned subsidiary of SWRH ceases to be the general partner
of Southwest Partners II, L.P. and Southwest Partners III, L.P., or (iii) any
time at which SWRH, SWRI, Southwest Partners II, L.P. and Southwest Partners
III, L.P. collectively own less than 45% of the voting securities of the
Borrower, or (iv) during any period of twelve (12) consecutive months beginning
with and after the Effective Date, the individuals who at the beginning of such
twelve (12) month period were directors of SWRH, or of the Borrower, shall cease
for any reason to constitute a majority of the Board of Directors of either SWRH
or the Borrower at any time during such period; provided, however, that "Change
of Control" shall not include any change of control occasioned by any of the
Senior Loan Documents, the Subordinated Loan Documents or the Equity Documents.
"Change of Management" shall mean the occurrence of any time when H.H.
Wommack III ceases to act as chief executive officer of SWRH, whether in the
capacity of President or Chairman.
"Closing Date" shall mean the date upon which each of the conditions
precedent contained
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<PAGE> 8
in Article 3 have been either (a) satisfied in full to the Subordinated Agent's
satisfaction or (b) waived by the Subordinated Agent in its sole discretion;
provided that in no event shall the Closing Date be a date occurring after May
15, 1999.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, any successor statute, and the rules and regulation thereunder.
"Collateral" shall mean any real or personal property which may now or
hereafter be subject to a Lien securing the Subordinated Loan Obligations,
including the Liens granted by the Borrower concurrently with the execution of
this Subordinated Loan Agreement for the benefit of the Subordinated Lenders.
"Commitment" shall mean, for any Subordinated Lender, such Subordinated
Lender's commitment to make its Pro Rata Share of the Subordinated Loan pursuant
to the terms of this Subordinated Loan Agreement in an aggregate outstanding
amount not to exceed the Subordinated Lender's Maximum Commitment.
"Common Stock" shall mean the common stock, no par value per share, of
the Borrower or such other Capital Stock or other securities as shall constitute
the common equity of the Company.
"Debt/Lease Service" means, with respect to the Borrower and its
Subsidiaries and for any period of its determination, the sum of (a) the
aggregate amount of consolidated principal payments that became due and payable
or that were paid on account of long-term Indebtedness of the Borrower and its
Subsidiaries during such period, including any such amounts related to the
Capital Leases of the Borrower and its Subsidiaries, plus (b) the aggregate
consolidated lease expense of the Borrower and its Subsidiaries that became due
and payable or that was paid during such period, plus (c) the aggregate
consolidated interest expense of the Borrower and its Subsidiaries that became
due and payable or that was paid during such period, plus (d) the consolidated
Capital Expenditures of the Borrower and its Subsidiaries during such period. In
clarification of the foregoing, any interest amount deferred pursuant to Section
2.4(b) of the Subordinated Loan Agreement shall not be included in clause (c) of
this definition until the earlier of (i) the date such interest amount becomes
due and payable or (ii) the date such interest amount is paid.
"Default" shall mean any event which is, or after notice or passage of
time, or both, would be, an Event of Default.
"Default Rate" shall mean, for the applicable period, a per annum
interest rate equal to the applicable interest rate on the outstanding principal
balance of the respective Subordinated Notes as set forth in Section 2.6(c) for
such period plus 3.00% per annum.
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<PAGE> 9
"EBITDA" means, with respect to any Person and for any period of its
determination, the consolidated net income of such Person for such period, plus
the consolidated interest expense, income taxes, and depreciation and
amortization of such Person for such period, in each case excluding (a)
unrealized gains or losses with respect to such Person's investment portfolio,
(b) any extraordinary gains or losses, (c) any gains or losses on the sale of
fixed assets, and (d) any non-cash impairments of assets.
"Effective Date" shall mean the date of this Subordinated Loan
Agreement.
"Environmental Laws" shall mean any and all laws, statutes, ordinances,
rules, regulations, orders, or determinations of any Governmental Authority
pertaining to health or the environment in effect in any and all jurisdictions
in which the Borrower or its Subsidiaries are conducting or at any time have
conducted business, or where any property of the Borrower or its Subsidiaries is
located, or where any hazardous substances generated by or disposed of by the
Borrower or its Subsidiaries are located, including but not limited to the Oil
Pollution Act of 1990 ("OPA"), as amended, the Clean Air Act, as amended, the
Comprehensive Environmental, Response, Compensation, and Liability Act of 1980
("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, and other
environmental conservation or protection laws. The term "oil" has the meaning
specified in OPA; the terms "hazardous substance," "release" and "threatened
release" have the meanings specified in CERCLA, and the terms "solid waste,"
"disposal" and "disposed" have the meanings specified in RCRA; provided,
however, if either CERCLA, RCRA or OPA is amended so as to broaden the meaning
of any term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment, and provided, further, that, to the extent the
laws of the state in which any property of the Borrower or its Subsidiaries is
located establish a meaning for "oil," "hazardous substance," "release," "solid
waste" or "disposal" which is broader than that specified in either OPA, CERCLA
or RCRA, such broader meaning shall apply with respect to such property.
"Equipment" shall mean all of Borrower's and its Subsidiaries' present
and future owned or leased fixtures, equipment, mobile equipment, vehicles,
interstate commercial vehicles, workover rigs and inventory comprised of such
items, wherever located, including Vehicles, tongs, hooks, tubing elevators,
pumps, pipes, engines, containers, tires, parts inventory, and other oil-field
service equipment, and all parts thereof and all accessions and additions
thereto.
"Equity Documents" shall mean the Securities Purchase Agreement between
the Borrower and JEDI II dated as of the Effective Date, the Certificate of
Designation of Preferred Stock - Series A, the Certificate of Designation of
Preferred Stock - Series B, the Certificate of Designation of Preferred Stock -
Series C, and the Stockholders' Agreement, and Registration Rights Agreement,
each as defined therein.
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"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, any successor statute, and the rules and
regulations thereunder.
"Event of Default" shall have the meaning specified in Section 7.1.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for any such day on
such transactions received by the Subordinated Agent from three Federal funds
brokers of recognized standing selected by it.
"Final Maturity Date" shall mean June 30, 2004.
"Financial Statements" shall mean consolidated balance sheets,
statements of operation and statements of cash flow, the consolidating schedules
used to prepare the same and, on an annual basis, appropriate footnotes prepared
in accordance with GAAP.
"Financing Statement" shall mean any document executed by either the
Borrower or any of its Subsidiaries required to perfect the pledge or security
interest granted by the Subordinated Loan Parties in any of the Collateral.
"GAAP" shall mean generally accepted accounting principles, applied on
a consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants or in statements of
the Financial Accounting Standards Board or their respective successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
observed in a current period are comparable in all material respects to those
accounting principles applied in preceding periods.
"Governmental Authority" shall mean any (domestic or foreign) federal,
native American Indian, state, province, county, city, municipal, or other
political subdivision or government, department, commission, board, bureau,
court, agency, or any other instrumentality of any of them, which exercises
jurisdiction over the Borrower, any of its Subsidiaries, or any of their
respective property.
"Guaranteed Debt" of any Person shall mean, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any manner
by such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such
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Indebtedness against loss, (iii) to supply funds to, or in any other manner
invest in, the debtor (including any agreement to pay for property or services
to be acquired by such debtor irrespective of whether such property is received
or such services are rendered), (iv) to maintain working capital or equity
capital of the debtor, or otherwise to maintain the net worth, solvency or other
financial condition of the debtor, or (v) otherwise to assure a creditor against
loss; provided that the term "guarantee" shall not include endorsements for
collection or deposit, in either case in the ordinary course of business, or any
obligation or liability of such Person in respect of leasehold interests
assigned by such Person to any other Person.
"Guaranty" shall mean any present or future guaranty in favor of the
Subordinated Agent for the benefit of the Subordinated Lenders guaranteeing the
payment and performance of the Subordinated Loan Obligations.
"Indebtedness" shall mean, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade accounts
payable and other accrued current liabilities incurred in the ordinary course of
business, (ii) all obligations of such Person evidenced by bonds, notes,
debentures, or other similar instruments, (iii) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (iv) all Capitalized Lease
Obligations of such Person, (v) all indebtedness referred to in (but not
excluded from) clause (i), (ii), (iii), or (iv) above of other Persons, the
payment of which is secured by (or for which the holder of such indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
in property (including, without limitation, accounts and contract rights) owned
by such Person, even though such Person has not assumed or become liable for the
payment of such indebtedness, (vi) all Guaranteed Debt of such Person, (vii) all
Redeemable Capital Stock that has any redemptions, dividend payments, or other
obligations that are or could become due before the Final Maturity Date issued
by such Person.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), or preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any Capital Lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under any applicable version of the Uniform Commercial Code in effect
from time to time or any comparable law of any jurisdiction in respect of any of
the foregoing).
"Majority Subordinated Lenders" shall mean, at any time, Subordinated
Lenders holding more than 50% of the then aggregate unpaid principal amount of
the Subordinated Loan at such time.
"Material Adverse Effect" shall mean any circumstances or events which
could (i) have a material adverse effect on the assets or properties,
liabilities, financial condition, business,
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operations, affairs, or circumstances of the Borrower from the facts represented
or warranted in any Subordinated Loan Document or Equity Document (other than
any representation or warranty related solely to a different point in time), or
(ii) materially impair the ability of the Borrower to carry out its business as
it exists on the date of this Subordinated Loan Agreement or proposed at the
date of this Subordinated Loan Agreement to be conducted or to meet its
obligations under the Subordinated Loan Documents or Equity Documents on a
timely basis.
"Maximum Rate" shall mean, at any particular time in question, the
maximum rate of interest which under applicable law may then be charged on the
Subordinated Notes. If such maximum rate changes after the date hereof, the
Maximum Rate shall be automatically increased or decreased, as the case may be,
without notice to the Borrower from time to time as of the effective date of
each change in such maximum rate.
"Mortgages" shall mean (a) such Security Documents requested by the
Subordinated Agent in form and substance satisfactory to the Subordinated Agent
which shall replace and/or amend and restate the existing Deeds of Trust,
Security Agreements, and Fixture Filings, and Mortgages, Security Agreements,
and Fixture Filings executed in connection with the Original Loan Agreement, and
(b) any present or future deeds of trust, mortgages, or similar agreements made
by the Borrower or any Subsidiary, granting a first and prior lien and security
interest, subject only to Permitted Liens, in all real property, fixtures and
improvements owned by the respective Subordinated Loan Parties, including any
leasehold estate in real property, fixtures and improvements, in favor of the
Subordinated Agent for the benefit of the Subordinated Lenders securing the
Subordinated Loan Obligations.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Payment Date" shall mean the last Business Day of each March, June,
September, and December following the Effective Date until the Final Maturity
Date.
"Permitted Lien" shall mean (i) Liens disclosed in Schedule 4.10, (ii)
ad valorem taxes not yet due and payable, laborers', vendors', repairmen's,
mechanics', worker's, or materialmen's liens arising by operation of law or
incident to the construction or improvement of property if the obligations
secured thereby are not yet due or are being contested in good faith by
appropriate legal proceedings, (iii) minor irregularities in title to real
property which do not materially interfere with the occupation, use and
enjoyment by the Borrower or any Subsidiary of any of their respective
properties in the normal course of business as presently conducted or materially
impair the value thereof for such business, (iv) Liens securing the Senior Loan
Obligations (as defined in the Senior Loan Agreement).
"Person" shall mean any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, or Government Authority.
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"Plan" shall mean any plan subject to Title IV of ERISA and maintained
by the Borrower or any Subsidiary, or any such plan to which the Borrower or any
Subsidiary is required to contribute on behalf of their employees.
"Pledge Agreements" shall mean the Pledge Agreements dated as of the
Effective Date, made by each of the Pledgors in favor of the Subordinated Agent
for the benefit of the Subordinated Lenders pledging the Capital Stock of the
Borrower owned by the Pledgors to the Subordinated Agent for the benefit of the
Subordinated Lenders.
"Pledgors" shall man (a) Southwest Partners II, L.P., a Delaware
limited partnership, (b) Southwest Partners III, L.P., a Delaware limited
partnership, (c) Joey D. Fields, and (d) Dave W. Harrison.
"Pro Rata Share" shall mean, with respect to any Subordinated Lender,
(i) while no Advances are outstanding, the ratio (expressed as a percentage) of
such Subordinated Lender's Maximum Commitment, at any given time, to the total
of the Maximum Commitments at such time and (ii) while Advances are outstanding,
the the ratio (expressed as a percentage) outstanding principal amount of
Advances of such Subordinated Lender at such time to the aggregate outstanding
amount of Advances at such time.
"Redeemable Capital Stock" of any Person means any Capital Stock of
such Person or any Subsidiary of such Person that, either by its terms, by the
terms of any security into which it is convertible or exchangeable or otherwise,
(i), is, or upon the happening of an event or passage of time would be, required
to be redeemed on or prior to the Final Maturity Date, or (ii) is redeemable at
the option of the holder thereof at any time prior to the Final Maturity Date,
or (iii) is convertible into or exchangeable for debt securities at any time
prior to the Final Maturity Date.
"Requirement of Law" shall mean as to any Person, the Certificate of
Incorporation and By- laws or other organizational or governing documents of
such Person, and any law, treaty, rule, or regulation or determination of an
arbitrator or a court or other Governmental Authority, domestic or foreign, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer" shall mean the chief executive officer,
president, executive vice president, general counsel, treasurer, or corporate
secretary of the Borrower or any of its Subsidiaries, as the case may be.
"Security Agreements" shall mean (a) the Security Agreement dated as of
the Effective Date, made by the Borrower, in favor of the Subordinated Agent for
the benefit of the Subordinated Lenders as security for the payment or
performance of the Subordinated Loan Obligations and (b) any future security
agreements made by the Borrower or any of the Subsidiaries, granting a first and
prior security interest in all of the assets and properties of the Subordinated
Loan Parties, in favor
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of the Subordinated Agent for the benefit of the Subordinated Lenders as
security for the payment or performance of the Subordinated Loan Obligations.
"Security Documents" shall mean this Subordinated Loan Agreement, the
Senior Loan Agreement, the Mortgages, the Financing Statements, the Pledge
Agreements, the Security Agreement, the Financing Statements, the Guaranties,
the Bank Account Letter and any and all other agreements or instruments now or
hereafter executed and delivered by the Borrower, the Subsidiaries, or any other
Person as security or support for the payment or performance of the Subordinated
Loan Obligations.
"Senior Loan Documents" shall have such meaning as defined in the
Senior Loan Agreement.
"Structuring Fee Agreements" means (a) the letter agreement dated as of
even date herewith between the Borrower and ECT Securities Limited Partnership
and (b) the letter agreement dated as of even date herewith between the Borrower
and JEDI II.
"Subordinated Agent's Account" shall mean the account located in New
York specified by the Subordinated Agent as the Subordinated Agent's Account
shall by written notice to the Borrower.
"Subordinated Lenders" shall mean the Subordinated Lenders listed on
the signature pages of this Subordinated Loan Agreement and each assignee that
shall become a party to this Subordinated Loan Agreement pursuant to Section
9.4.
"Subordinated Lender's Account" shall mean, for any Subordinated
Lender, the account specified by such Subordinated Lender as its Subordinated
Lender's Account by notice in writing to the Subordinated Agent.
"Subordinated Loan" shall mean the loan evidenced by this Subordinated
Loan Agreement consisting of the Advances by the Subordinated Lenders.
"Subordinated Loan Documents" shall mean, collectively, the
Subordinated Loan Agreement, the Subordinated Notes, the Structuring Fee
Agreement, the Guaranty, the Security Documents, the Subordination Agreement,
and all other documents, agreements, and other instruments executed in
connection with the Subordinated Loan Agreement.
"Subordinated Loan Obligations" shall mean all principal, interest,
fees, reimbursements, indemnifications, and other amounts or obligations now or
hereafter owed or performable by the Subordinated Loan Parties under the
Subordinated Loan Documents.
"Subordinated Loan Parties" shall mean the Borrower and the
Subsidiaries.
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"Subordinated Note" shall mean a promissory note in substantially the
form of Exhibit A made by the Borrower and payable to the order of any
Subordinated Lender evidencing indebtedness of the Borrower to such Subordinated
Lender resulting from the Subordinated Loan.
"Subordination Agreement" shall mean the Subordination and
Intercreditor Agreement dated as of even date herewith among the Borrower, the
Subordinated Agent, and the agent for the lenders under the Senior Loan
Agreement.
"Subsidiary" shall mean as to any Person, a corporation, partnership,
or other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests having
such power only by reason of the happening of a contingency) to elect a majority
of the board of directors or other managers of such corporation, partnership, or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly, through one or more intermediaries, or both,
by such Person. Unless otherwise qualified, all references to a "Subsidiary" or
to "Subsidiaries" in this Subordinated Loan Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"SWRH" shall mean Southwest Royalties Holdings, Inc., a Delaware
corporation.
"SWRI" shall mean Southwest Royalties, Inc., a Delaware corporation.
"Vehicles" means all of Borrower's present and future owned or leased
crew cabs, pick-ups, vans, trucks, automobiles, tractors, trailers, and other
mobile equipment.
Section 1.2 Accounting Principles.
(a) The Borrower shall not, and shall not permit any
of its Subsidiaries to, materially change any method of accounting employed in
the preparation of their Financial Statements from the methods employed in the
preparation of the audited consolidated Financial Statements dated as of
December 31, 1998, unless required to conform to GAAP or approved in writing by
the Subordinated Agent.
(b) Except as expressly provided for in this
Subordinated Loan Agreement, all accounting terms, definitions, ratios, and
other tests described herein shall be construed in accordance with GAAP with the
same basis applied in the Financial Statements described in paragraph (a) above.
(c) When the Financial Statements or financial
results of any group of Persons are described as "combined," that reference is
to the financial statements or financial results of such Persons, but not their
Subsidiaries, taken together on a combined basis after eliminating significant
inter-entity balances and transactions.
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ARTICLE 2
AMOUNT AND TERM OF THE SUBORDINATED LOAN
Section 2.1 Subordinated Loan. Subject to the terms, conditions and
notice requirements and relying on the representations and warranties contained
in this Subordinated Loan Agreement and the other Subordinated Loan Documents,
on the Closing Date but effective as of the Effective Date Twenty-Five Million
and No/100 Dollars ($25,000,000) of the outstanding principal amount owed by the
Borrower under the Original Loan Agreement shall be converted into the
Subordinated Loan which shall consist of Advances owed to each Subordinated
Lender in an amount equal to such Subordinated Lender's Pro Rata Share of
$25,000,000.
Section 2.2 Repayment Obligations; Prepayments.
(a) Principal.
(i) The Borrower shall pay to the
Subordinated Agent for the ratable benefit of the
Subordinated Lenders the aggregate outstanding
principal amount of the Subordinated Loan on the
Final Maturity Date.
(ii) In the event of a Change of Control,
Borrower shall repay to the Subordinated Agent for
the ratable benefit of the Subordinated Lenders
within thirty days (30) of the Majority Subordinated
Lenders demand therefore, the aggregate outstanding
principal amount of the Subordinated Loan and all
unpaid interest thereon. The Majority Subordinated
Lenders reserve the right to exercise the terms and
provision of this section at any time following a
Change of Control, regardless of the length of time
following the Change of Control that the Majority
Subordinated Lenders exercises their rights
hereunder. Until such time as the Majority
Subordinated Lenders make a demand pursuant to the
terms of this section, the Borrower shall repay the
principal amount of the Subordinated Loan in
accordance with the terms of Section 2.2(a)(i).
(b) Voluntary Prepayments. The Subordinated Loan
may be prepaid in whole or in part, from time to time, without penalty or
premium, following ten (10) days prior written notice to the Subordinated Agent.
Any voluntary partial prepayments of principal must be in whole multiples of
$100,000 and voluntary prepayments may only be made on a Payment Date and shall
include all interest accrued on the Subordinated Loan and unpaid to the date of
payment. Voluntary prepayments of principal may not be reborrowed. Any
prepayments shall be made to the Subordinated Agent for the ratable benefit of
the Subordinated Lenders.
(c) Mandatory Prepayments. Upon the Senior Loan
Obligations (as defined in the Senior Loan Agreement) repayment in full, in the
event of any disposition or transfer,
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including, without limitation, any transfer by merger or operation of law, by
the Borrower or any Subsidiary of any of their respective assets, Capital Stock
or debt securities, or should the Borrower or any Subsidiary secure any loans
other than the Subordinated Loan or the Senior Loan, and whether such sales or
loans are undertaken with or without the consent of the Majority Subordinated
Lenders, the net proceeds thereof (after deducting all reasonable costs and
expenses incurred by the Borrower or Subsidiary in connection therewith) shall
be delivered to the Subordinated Agent for the ratable benefit of the
Subordinated Lenders as a mandatory prepayment of the Subordinated Loan provided
that with regard to any disposition or transfer of any assets of the Borrower or
its Subsidiaries, such prepayment shall only be required to the extent that such
disposition or transfer does not require the Subordinated Majority Lenders
consent pursuant to Section 6.9 and (ii) the mandatory prepayment provision
contained within this Section shall not apply to the Borrower's sale of its
Lampasas Ranch property. All mandatory prepayments shall be applied to the
Subordinated Loan Obligations in accordance with Section 7.7. Mandatory
prepayments of principal may not be reborrowed. Any disposition or transfer of
Equipment of which the proceeds are reinvested in like-kind Equipment within 60
days shall not be subject to the terms hereof.
Section 2.3 Payments and Computations.
(a) All payment hereunder shall be made in U.S.
Dollars. The Borrower shall make each payment under the Subordinated Loan
Agreement and under the Subordinated Notes not later than 12:00 noon (New York,
New York time) on the day when due to the Subordinated Agent's Account in
immediately available funds. All payments by the Borrower hereunder shall be
made without any offset, abatement, withholding, deduction, counterclaim, or
reduction. Upon receipt of payment from the Borrower of any principal, interest,
or fees due to the Subordinated Lenders, the Subordinated Agent shall promptly
after receipt thereof distribute to the Subordinated Lenders their ratable share
of such payments for the account of their respective Subordinated Lender's
Account. If and to the extent that the Subordinated Agent shall not have so
distributed to any Subordinated Lender its ratable share of such payments, the
Subordinated Agent agrees that it shall pay interest on such amount for each day
after the day when such amount is made available to the Subordinated Agent by
the Borrower until the date such amount is paid to such Subordinated Lender by
the Subordinated Agent at the Federal Funds Rate in effect from time to time.
Interest on such amount shall be due and payable by the Subordinated Agent upon
demand by such Subordinated Lender. Upon receipt of other amounts due solely to
the Subordinated Agent or a specific Subordinated Lender, the Subordinated Agent
shall distribute such amounts to the appropriate party to be applied in
accordance with the terms of the Subordinated Loan Agreement. Whenever any
payment shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest.
If the time for payment for an amount payable is not specified in the
Subordinated Loan Documents, or in any other document, the payment shall be due
and payable ten (10) days after the date on which the Subordinated Agent or
applicable Subordinated Lender demands payment therefor.
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(b) Unless the Subordinated Agent shall have received
written notice from the Borrower prior to any date on which any payment is due
to the Subordinated Lender that the Borrower shall not make such payment in
full, the Subordinated Agent may assume that the Borrower has made such payment
in full to the Subordinated Agent on such date and the Subordinated Agent may,
in reliance upon such assumption, cause to be distributed to each Subordinated
Lender on such date an amount equal to the amount then due such Subordinated
Lender. If and to the extent the Borrower shall not have so made such payment in
full to the Subordinated Agent, each Subordinated Lender shall repay to the
Subordinated Agent forthwith on demand such amount distributed to such
Subordinated Lender, together with interest thereon from the date such amount is
distributed to such Subordinated Lender until the date such Subordinated Lender
repays such amount to the Subordinated Agent, at an interest rate equal to, the
Federal Funds Rate in effect from time to time.
(c) Each Subordinated Lender agrees that if it should
receive any payment (whether by voluntary payment, by realization upon security,
by the exercise of the right of setoff or banker's lien, by counterclaim or
cross action, by the enforcement of any right under the Subordinated Loan
Documents, or otherwise) in respect of any obligation of the Borrower to pay
principal, interest, fees, or any other obligation incurred under the
Subordinated Loan Documents in a proportion greater than the total amount of
such principal, interest, fees, or other obligation then owed and due by the
Borrower to such Subordinated Lender bears to the total amount of principal,
interest, fees, or other obligation then owed and due by the Borrower to the
Subordinated Lenders immediately prior to such receipt, then such Subordinated
Lender receiving such excess payment shall purchase for cash without recourse
from the other Subordinated Lenders an interest in the obligations of the
Borrower to such Subordinated Lenders in such amount as shall result in a
participation by all of the Subordinated Lenders, in proportion with the
Subordinated Lenders' respective pro rata shares, in the aggregate unpaid amount
of principal, interest, fees, or any such other obligation, as the case may be,
owed by the Borrower to all of the Subordinated Lenders; provided that if all or
any portion of such excess payment is thereafter recovered from such
Subordinated Lender, such purchase shall be rescinded and the purchase price
restored to the extent of such recovery, in proportion with the Subordinated
Lenders' respective Pro Rata Shares.
Section 2.4 Interest.
(a) The outstanding principal balance of the
Subordinated Loan shall bear interest at a rate per annum equal to ten percent
(10%). The Borrower shall pay to the Subordinated Lenders all accrued but unpaid
interest on the Subordinated Loan (i) except as permitted by Section 2.4(b), on
each Payment Date and (ii) on the Final Maturity Date.
(b) With regard to interest payments due on any
Payment Date prior to September 30, 2001, the Borrower may elect to defer the
payment of such accrued interest on such date by giving the Subordinated Agent
five (5) Business Days' prior written notice thereof, in which case (i) all
accrued interest for which payment is so deferred shall bear interest at a rate
per annum equal to twelve percent (12%) and (ii) on September 30, 2001, the
Borrower shall pay to the
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Subordinated Agent for the ratable benefit of the Subordinated Lenders all
accrued but unpaid interest on the Subordinated Loan including all amounts
deferred pursuant to this Section 2.4(b) and the interest accrued thereon.
(c) Past due interest, principal and other amounts
hereunder shall bear interest at a fluctuating interest rate per annum that is
equal to the lesser of (i) the Default Rate or (ii) the Maximum Rate from the
date due until paid.
(d) All computations of interest shall be made on the
basis of a 365/366 day year, as the case may be. All such computations shall be
made for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such computation is being performed.
Interest provided for under this Subordinated Loan Agreement and the
Subordinated Notes shall be calculated on the unpaid sums actually loaned and
outstanding pursuant to the terms of this Subordinated Loan Agreement and the
Subordinated Notes and only for the period from the date or dates advanced until
repaid. Each determination by the Subordinated Agent of an interest rate shall
be conclusive and binding for all purposes, absent manifest error.
Section 2.5 Subordinated Notes. To evidence the Advance made by
each of the Subordinated Lenders pursuant to this Subordinated Loan Agreement,
the Borrower will issue, execute and deliver a Subordinated Note to each
Subordinated Lender in the principal amount of each Subordinated Lender's
Maximum Commitment dated as of the Effective Date. The records of the
Subordinated Agent shall be deemed rebuttably presumptive evidence of the
principal amount owing on the Subordinated Notes. The liability for payment of
principal and interest evidenced by Subordinated Notes shall be limited to the
principal amounts actually loaned and outstanding under the Subordinated Notes
and this Subordinated Loan Agreement and interest on such amounts calculated in
accordance with the Subordinated Notes and this Subordinated Loan Agreement.
Section 2.6 Taxes.
(a) Any and all payments by the Subordinated Loan
Parties shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges, or withholdings,
and all liabilities with respect thereto, excluding, in the case of the
Subordinated Lenders, taxes imposed on its income and franchise taxes imposed on
it by any jurisdiction of which any the Subordinated Lenders is a citizen or
resident or any political subdivision of such jurisdiction (all such nonexcluded
taxes, levies, imposts, deductions, charges, withholdings, and liabilities being
hereinafter referred to as "Taxes"). If any Subordinated Loan Party shall be
required by law to deduct any Taxes from or in respect of any sum payable to any
Subordinated Lender, (i) the sum payable shall be increased as may be necessary
so that, after making all required deductions (including deductions applicable
to additional sums payable under this Section 2.6), such Subordinated Lender
receive an amount equal to the sum it would have received had no such deductions
been made; (ii) such Subordinated Loan Party shall make such deductions; and
(iii) such Subordinated Loan Party shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
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(b) The Borrower agrees to pay and hold each
Subordinated Lender harmless from and against any and all present and future
stamp and other similar taxes with respect to this Subordinated Loan Agreement
and any other Subordinated Loan Documents and save each Subordinated Lender
harmless from and against any and all liabilities with respect to or resulting
from any delay or omission to pay such taxes, and indemnify each Subordinated
Lender for the full amount of taxes paid by the Subordinated Lenders in respect
of payments made or to be made under this Subordinated Loan Agreement or any
other Subordinated Loan Document and any liability (including penalties,
interest, and expenses) arising therefrom or with respect thereto, whether or
not such taxes were correctly or legally asserted (excluding taxes imposed on
its income and franchise taxes imposed on it by any jurisdiction of which such
Subordinated Lender is a citizen or resident or any political subdivision of
such jurisdiction).
Section 2.7 Increased Costs.
(a) Cost of Funds. If, due to either the introduction
of or any change in or in the interpretation, application, or applicability of,
any law or regulation, or the compliance with any guideline or request from any
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to such Subordinated Lender of funding or maintaining
the Subordinated Loan, or any reduction of any Subordinated Lender's reasonably
anticipated return on its investment, then the Borrower shall from time to time
upon demand by such Subordinated Lender pay to such Subordinated Lender such
additional amounts sufficient to compensate such Subordinated Lender for such
increased cost or reduced return. A certificate as to the amount of such
increased cost or reduced return detailing the calculation thereof prepared by
the Subordinated Lenders and submitted to the Borrower shall be conclusive and
binding for all purposes, absent manifest error.
(b) Capital Adequacy. If due to any change in any law
or regulation or any interpretation, directive, or request of any court or
governmental or monetary authority, whether or not having the force of law,
there shall be any increase by an amount which any Subordinated Lender
reasonably deems to be material in the capital requirements of such Subordinated
Lender or its parent or holding company related to its commitments to make or
the making, funding, or maintaining the Subordinated Loan hereunder, as such
capital requirements are reasonably allocated by such Subordinated Lender, then
the Borrower shall from time to time upon demand by such Subordinated Lender pay
to the Subordinated Lenders additional amounts sufficient to compensate such
Subordinated Lender or its respective parent or holding companies for such
increase in costs (including an amount equal to any reduction of the rate of
return on assets or equity of the Subordinated Lenders or their respective
parent or holding companies to a level below that which the Subordinated Lenders
or their respective parent or holding companies could have achieved but for such
change in law, regulation, interpretation, directive, or request). A certificate
as to such amounts and detailing the calculation of such amounts prepared by
such Subordinated Lender and submitted to the Borrower shall be conclusive and
binding for all purposes, absent manifest error.
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Section 2.8 Illegality. Notwithstanding any other provision in
this Subordinated Loan Agreement, if it becomes unlawful for any Subordinated
Lender to maintain the Subordinated Loan or to give effect to its obligations
hereunder, the Subordinated Lender will so notify the Borrower and the
Subordinated Agent, and to the extent necessary to prevent the violation of law
the aggregate outstanding principal amount of the Subordinated Loan made by the
Subordinated Lenders, all accrued but unpaid interest thereon, and any other
amounts payable to the Subordinated Lenders under this Subordinated Loan
Agreement and the other Subordinated Loan Documents will be prepaid as provided
in such notice.
ARTICLE 3
CONDITIONS OF CLOSING
The amendment and restatement of the Original Loan Agreement pursuant
to this Subordinated Loan Agreement is subject to the following conditions
precedent:
(a) The Subordinated Agent shall have received copies
of each of the following documents in form and content satisfactory to the
Subordinated Agent and its counsel, duly executed by the parties thereto and,
where applicable, acknowledged:
(i) The Subordinated Loan Documents.
(ii) Opinions of counsel to the Borrower
delivered on the Effective Date and on the Closing Date as the Subordinated
Agent may request and that are acceptable to the Subordinated Agent addressing
the existence and good standing of the Borrower and each Subsidiary, the
authorization of the Subordinated Loan Documents, the enforceability of the
Subordinated Loan Documents and the perfection of the liens under the
Subordinated Loan Documents, the absence of conflicts with law, other material
agreements, and court orders, the absence of litigation, and such other matters
as the Subordinated Agent may request.
(iii) Certificates, dated as of the
Effective Date, of the Secretary or an Assistant Secretary of each of the
Borrower and the Subsidiaries (A) certifying as true, complete and correct the
charter and by-laws of the Borrower and each Subsidiary, and resolutions of the
Board of Directors of the Borrower and each respective Subsidiary attached
thereto, (B) as to the absence of proceedings or other action for dissolution,
liquidation or reorganization of the Borrower and each Subsidiary, (C) as to the
incumbency of the officers of the Borrower and the Subsidiaries who shall have
executed instruments, agreements, and other documents in connection with the
transactions contemplated hereby or by the Subordinated Loan Documents, and (D)
covering such other matters, and with such other attachments thereto, as the
Subordinated Agent may request, and such certificate and the attachments thereto
shall be satisfactory in form and substance to the Subordinated Agent.
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(iv) Original Certificates of Title to each
of the certificated vehicles owned by the Borrower or any of the Subsidiaries,
each endorsed by the applicable Subordinated Loan Party to evidence that such
vehicle is subject to a security interest in favor of the Subordinated Agent for
the benefit of the Subordinated Lenders.
(v) All other documents reasonably requested
by the Subordinated Agent in connection with the transaction contemplated by
this Subordinated Loan Agreement.
(b) Each of the Mortgages, Financing Statements, and
Certificates of Title referenced in subparagraph (a) above, and any other
document reasonably required by the Subordinated Agent to be filed of record,
shall have been filed of record with the appropriate party in order to put third
parties on notice of the liens, security interests or other rights granted by
the Subordinated Loan Parties in the Collateral.
(c) Stock certificates of Capital Stock of the
Borrower pledged pursuant to the Pledge Agreements, along with stock powers
endorsed in blank and financing statements executed by each of the Pledgors in
connection with the perfection of the Liens created by the Pledge Agreements.
(d) The Subordinated Agent shall have completed its
due diligence review of such matters as it shall deem appropriate, and all other
documents relating thereto, the Borrower's and each Subsidiaries' properties and
operations thereof, compliance with Environmental Laws, and any available
reports related thereto, and the results of such due diligence review shall be
satisfactory to the Subordinated Agent.
(e) The Subordinated Agent shall have received
insurance certificates for the Borrower and its Subsidiaries reflecting the
insurance coverage required under this Senior Loan Agreement.
(f) The Borrower shall have provided the Subordinated
Agent with a copy of a twelve (12) month projected income statement and capital
budget, commencing with the Effective Date, which has been approved by Board of
Director's of Borrower and which is satisfactory to the Subordinated Agent in
its sole discretion.
(g) The Borrower shall have delivered to the
Subordinated Agent copies of audited Financial Statements of the Borrower as of
December 31, 1998, unaudited Financial Statements of the Borrower as of January
31, 1999, and there shall not have occurred any Material Adverse Effect in the
business, assets or financial condition of any of the Borrower or any of its
Subsidiaries since January 31, 1999.
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(h) As of the Effective Date and the Closing Date, no
Default exists or would reasonably be expected to occur by virtue of making the
Subordinated Loan or the Senior Loan or after giving effect to the transactions
contemplated by the Basic Documents.
(i) All of the representations and warranties of the
Borrower and the Pledgors contained in the Basic Documents shall be true and
correct as of the Effective Date and as of the Closing Date of the Subordinated
Loan, and the making of any extension of credit hereunder, shall be deemed to be
a restatement, representation, and additional warranty of the representations
and warranties made by the Borrower and the Pledgors in each Subordinated Loan
Document as of each such date (taking into account certain fixed dates specified
for certain representations and warranties in the Basic Documents). The
Subordinated Loan Documents shall have been executed and delivered by the
Subordinated Loan Parties as appropriate and such documents shall be in full
force and effect.
(j) As of the Effective Date and the Closing Date,
the Borrower shall have performed and complied with all agreements and
conditions set forth in or contemplated hereunder or in any other Subordinated
Loan Document or in the Equity Documents required to be performed or complied
with by it at or prior to each of such dates.
(k) As of the Effective Date and the Closing Date, no
Change of Control or Change of Management shall have occurred and all attached
and requested information in accordance with Section 2.3.
(l) The Borrower shall have paid to Subordinated
Agent for the benefit of the Subordinated Lenders all amounts payable pursuant
to Section 9.2 of this Subordinated Loan Agreement and shall have paid to ECT
Securities Limited Partnership and JEDI II all payments required under the terms
of the Structuring Fee Agreement.
(m) The Borrower shall have provided schedules to the
Basic Documents in form and substance satisfactory to the Subordinated Agent.
(n) (i) The Senior Loan Agreement shall have been
executed and delivered by all parties thereto and the conditions precedent set
forth in Article 3 of the Senior Loan Agreement shall have been satisfied and
(ii) the conditions precedent set forth in Article V of the Securities Purchase
Agreement shall have been satisfied.
(o) The Borrower shall have paid to the lender under
the Original Loan Agreement, all accrued interest, fees, and other amounts owed
thereunder as of the date of this Agreement.
(p) The Borrower shall have provided to the
Subordinated Agent such other information, documents, and agreements as it may
reasonably have requested.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
In order to induce the Subordinated Lenders to enter into this
Subordinated Loan Agreement and to make the Subordinated Loan hereunder, the
Borrower represents and warrants to the Subordinated Agent and each of the
Subordinated Lenders that as of the Effective Date and as of the Closing Date:
Section 4.1 Corporate Existence. The Borrower and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was incorporated and is
duly qualified as a foreign corporation in all jurisdictions in which
qualification is required.
Section 4.2 Corporate Power and Authorization. The Borrower is
duly authorized and empowered to create and issue the Subordinated Notes and is
duly authorized and empowered to execute, deliver, and perform its obligation
pursuant to, each of the Subordinated Loan Documents to which it is a party.
Each Subsidiary is duly authorized and empowered to execute, deliver, and
perform its obligations pursuant to, each of the Subordinated Loan Documents to
which it is a party. All corporate and other action on the Borrower's and each
Subsidiaries' part, requisite for the due execution, delivery, and performance
of the Subordinated Loan Documents to which each is a party has been duly and
effectively taken.
Section 4.3 Binding Obligations. The Subordinated Loan Documents
constitute valid and binding obligations of the Borrower and each Subsidiary,
respectively, enforceable in accordance with their respective terms (except that
enforcement may be subject to any applicable bankruptcy, insolvency, or similar
debtor relief laws now or hereafter in effect and relating to or affecting the
enforcement of creditors rights generally).
Section 4.4 No Legal Bar Or Resultant Lien. The Subordinated Loan
Documents do not and will not violate any provisions of any contract, agreement,
law, regulation, order, injunction, judgment, decree, or writ to which the
Borrower or any of its Subsidiaries is subject, or result in the creation or
imposition of any lien or other encumbrance upon any assets or properties of the
Borrower or any of its Subsidiaries other than those contemplated by this
Subordinated Loan Agreement.
Section 4.5 No Consent. The execution, delivery, and performance
by the Borrower and each Subsidiary of the Subordinated Loan Documents to which
each is a party does not require the consent or approval of any other person or
entity, including without limitation any Governmental Authority.
Section 4.6 Financial Condition. The audited consolidated
Financial Statements of the Borrower dated December 31, 1998, which have been
delivered to the Subordinated Agent are
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complete and correct in all material respects, and fully and accurately reflect
in all material respects the financial condition and results of the operations
of the Borrower and the Subsidiaries as of the date or dates and for the period
or periods stated, and such Financial Statements have been prepared in
accordance with GAAP. The unaudited consolidated Financial Statements of the
Borrower dated January 31, 1999, which have been delivered to the Subordinated
Agent are complete and correct in all material respects, and fully and
accurately reflect in all material respects the financial condition and results
of the operations of the Borrower and the Subsidiaries as of the date or dates
and for the period or periods stated, and such Financial Statements have been
prepared in accordance with GAAP. Since January 31, 1999, no change has occurred
in the condition, financial or otherwise, of the Borrower or any of the
Subsidiaries which could have a Material Adverse Effect.
Section 4.7 Liabilities. Neither the Borrower nor any of its
Subsidiaries have any material (individually or in the aggregate) liability,
direct or contingent, except as disclosed in the Financial Statements described
in Section 4.6 and on Schedule 4.7 attached hereto. No unusual or unduly
burdensome restrictions, restraint, or hazard exists by contract, law or
governmental regulation, or otherwise relative to the business, assets, or
properties of the Borrower or any of its Subsidiaries.
Section 4.8 Litigation. Except as described in the consolidated
Financial Statements of the Borrower described in Section 4.6, or as otherwise
disclosed in Schedule 4.8 attached hereto, there is no litigation, legal or
administrative proceeding, investigation, or other action of any nature pending
or, to the knowledge of the officers of the Borrower, threatened against or
affecting the Borrower or any of its Subsidiaries which involves the possibility
of any judgment or liability not fully covered by insurance.
Section 4.9 Taxes; Governmental Charges. The Borrower and each of
its Subsidiaries have filed all tax returns and reports required to be filed and
has paid all taxes, assessments, fees, and other governmental charges levied
upon it or its assets, properties, or income which are due and payable,
including interest and penalties or has provided adequate reserves, if required,
in accordance with GAAP for the payment thereof, except such as are being
contested in good faith by appropriate proceedings and for which adequate
reserves for the payment thereof as required by GAAP has been provided and levy
and execution thereon have been stayed and continue to be stayed.
Section 4.10 Ownership of Property; Liens; Leases of Equipment.
Attached hereto as Schedule 4.10 is a true and correct list of (i) all real
property owned by the Borrower and each Subsidiary, (ii) all real property
leased by the Borrower and each Subsidiary, (iii) all Capital Leases of the
Borrower and each Subsidiary, and (iv) all motorized vehicles owned by the
Borrower and each Subsidiary, whether such vehicle is certificated or not, and
in each instance identifying such vehicle by year, type and make (where
available), its vehicle registration number (where certificated) and its serial
number (where not certificated), including all work-over rigs, semis, trailers,
trucks and other rolling stock. Each of the Borrower and its Subsidiaries has
good and marketable title in fee simple (except for exceptions to title as will
not in the aggregate materially interfere with the present or contemplated use
of the property affected thereby) to, or a valid leasehold interest in, all its
real
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property, and good and marketable title to all its other property, and in all
cases enjoys peaceful and undisturbed possession thereof, and none of such
property is subject to any Lien except Permitted Liens. None of the equipment or
inventory owned by Borrower or any of its Subsidiaries has been leased by such
Person as lessor.
Section 4.11 Intellectual Property. Borrower and each Subsidiary
owns, or is licensed to use, all trademarks, trade names, trade secrets,
copyrights, technology, know-how, and processes necessary for the conduct of its
business as currently conducted (the "Intellectual Property"). No claim has been
asserted and is pending by any Person challenging or questioning the use of any
such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does the Borrower know of any valid basis for any
such claim. The use of such Intellectual Property by the Subordinated Loan
Parties does not infringe on the rights of any Person.
Section 4.12 Defaults. Neither the Borrower nor any of its
Subsidiaries are in default and no event or circumstance has occurred which, but
for the passage of time or the giving of notice, or both, would constitute a
default under any loan or credit agreement, indenture, mortgage, deed of trust,
security agreement, or other agreement or instrument to which the Borrower or
any of its Subsidiaries is a party. No Event of Default hereunder has occurred
and is continuing.
Section 4.13 Casualties; Taking of Properties. Since the date of
the Financial Statements described in Section 4.6, neither the business nor the
assets or properties of the Borrower or any of its Subsidiaries have been
affected, as a result of any fire, explosion, earthquake, flood, drought,
windstorm, accident, strike, or other labor disturbance, embargo, requisition,
or taking of property or cancellation of contracts, permits, or concessions by
any domestic or foreign Governmental Agency thereof, riot, activities of armed
forces, or acts of God or of any public enemy.
Section 4.14 Margin Stock. The Borrower is not engaged principally
or as one of its important activities in the business of extending credit for
the purpose of purchasing or carrying any "margin stock" as defined in
Regulation U of the Board of Governors of the Federal Reserve System (12 C.F.R.
part 221), or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry a margin stock or for any other purpose
which might constitute this transaction a "purpose credit" within the meaning of
said Regulation U. Neither the Borrower nor any person or entity acting on
behalf of the Borrower have taken or will take any action which might cause the
loans hereunder or any of the Subordinated Loan Documents to violate Regulation
U or any other regulation of the Board of Governors of the Federal Reserve
System or to violate the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereafter be in effect.
Section 4.15 Location of Business and Offices. The principal place
of business of the Borrower is located at 406 N. Big Spring, Midland, Texas
79701-4326.
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Section 4.16 Compliance with the Law. Neither the Borrower nor any
of its Subsidiaries:
(a) is in violation of any law, judgment, decree, order,
ordinance, or governmental rule or regulation to which the Borrower or
any of its Subsidiaries, or any of their assets or properties are
subject;
(b) have failed to obtain any license, permit, franchise
or other governmental authorization necessary to the ownership of any
of its assets or properties or the conduct of their business; which
violation or failure is individually, or in the aggregate, reasonably
expected to have a Material Adverse Effect.
Section 4.17 No Material Misstatements.
(a) There are no facts or conditions relating to the
Subordinated Loan Documents or the financial condition, assets, or business
prospects of the Borrower or any of its Subsidiaries that could, collectively or
individually, have a Material Adverse Effect. No certificate or representation
or warranty of Borrower or its Subsidiaries in the Basic Documents contains an
untrue statement of a material fact or omits to state a material fact necessary
to make the statements in such Basic Documents not misleading.
(b) The Financial Statements and other related financial
data (excluding all projections and pro forma financial data) furnished to the
Subordinated Agent by or at the direction of the Borrower or any of its
Subsidiaries in connection with the negotiation of this Subordinated Loan
Agreement do not contain any material misstatement of fact and, when considered
with all other written statements furnished to the Subordinated Agent in that
connection, such Financial Statements, related financial data (excluding all
projections and pro forma financial data) do not omit to state a material fact
or any fact necessary to make the statement contained therein not misleading.
Section 4.18 ERISA. The Borrower and of its Subsidiaries are in
compliance in all respects with the applicable provisions of ERISA, and no
"reportable event", as such term is defined in Section 4043 of ERISA, has
occurred with respect to any Plan of the Borrower or any of its Subsidiaries.
Section 4.19 Environmental Matters. Except as disclosed on
Schedule 4.19:
(a) Environmental Laws, etc. None of the property of
the Borrower or any of its Subsidiaries nor the operations conducted thereon
violate any applicable order of any court or Governmental Authority or
Environmental Laws which could reasonably be expected to result in remedial
obligations assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions, and circumstances, if any, pertaining to the
relevant property.
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(b) No Litigation. Without limitation of paragraph
(a) above, no property of the Borrower or any of its Subsidiaries, nor the
operations currently conducted thereon or by any prior owner or operator of such
property or operation, are in violation of or subject to any existing, pending,
or threatened action, suit, investigation, inquiry, or proceeding by or before
any Governmental Authority or to any remedial obligations under Environmental
Laws which could reasonably be expected to result in remedial obligations
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions, and circumstances, if any, pertaining to the relevant
property.
(c) Notices, Permits, etc. All notices, permits,
licenses, or similar authorizations, if any, required to be obtained or filed by
the Borrower or any of its Subsidiaries in connection with the operation or use
of any and all property of the Borrower or any of its Subsidiaries, including
but not limited to past or present treatment, storage, disposal, or release of a
hazardous substance or solid waste into the environment, have been duly obtained
or filed which could reasonably be expected to result in remedial obligations
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions, and circumstances, if any, pertaining to the relevant
property.
(d) Hazardous Substances Carriers. All hazardous
substances or solid waste generated at any and all property of the Borrower or
any of its Subsidiaries have in the past been transported, treated, and disposed
of only by carriers maintaining valid permits under any Environmental Law and
only at treatment, storage, and disposal facilities maintaining valid permits
under any Environmental Law, which carriers and facilities have been and are
operating in compliance with such permits which could reasonably be expected to
result in remedial obligations assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions, and circumstances, if
any, pertaining to the relevant property.
(e) Hazardous Substances Disposal. The Borrower and
Subsidiaries have taken all reasonable steps necessary to determine and have
determined that no hazardous substances or solid waste have been disposed of or
otherwise released and there has been no threatened release of any hazardous
substances on or to any property of the Borrower or any of its Subsidiaries,
except in compliance with Environmental Laws which could reasonably be expected
to result in remedial obligations assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions, and circumstances, if
any, pertaining to the relevant property.
(f) OPA Requirements. To the extent applicable, the
Borrower and each of its Subsidiaries have complied with all design, operation,
and equipment requirements imposed by OPA or scheduled to be imposed by OPA, and
the Borrower does not have reason to believe that either it or its Subsidiaries
will not be able to maintain such compliance with OPA requirements through the
Final Maturity Date.
(g) No Contingent Liability. Neither the Borrower nor
any of its Subsidiaries have any contingent liabilities in connection with any
release or threatened release of
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of hazardous substance or solid waste into the environment other than such
contingent liabilities at any one time and from time to time which could
reasonably be expected to exceed an aggregate of $500,000 in excess of
applicable insurance coverage and for which adequate reserves for the payment
thereof as required by GAAP have not been provided, or which could reasonably be
expected to result in remedial obligations assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions, and circumstances, if
any, pertaining to such release or threatened release.
Section 4.20 Subsidiaries; Partnerships.
(a) There are no Subsidiaries of the Borrower other
than as set forth on Schedule 4.20(a). All of the issued and outstanding shares
of Capital Stock of the Subsidiaries of the Borrower have been duly and validly
authorized and issued and are fully paid and non-assessable and free of
preemptive rights, and, such shares are owned by the Borrower or one of its
Subsidiaries free and clear of any Lien. Except as set forth on Schedule
4.20(a), there are no outstanding warrants, options, or other rights to purchase
or acquire any of the shares of Capital Stock of any Subsidiary, nor any
outstanding securities convertible into such shares or outstanding warrants,
options, or other rights to acquire any such convertible securities.
(b) There are no partnerships, joint ventures, or
similar arrangements involving the Borrower or any of its Subsidiaries except as
set forth in Schedule 4.20(b).
Section 4.21 Certain Fees. Except for the structuring fee payable
to ECT Securities Limited Partnership L.P. pursuant to the Structuring Fee
Agreement, no fees or commissions will be payable by the Borrower to brokers,
finders, investment bankers, the Subordinated Agent or Subordinated Lenders with
respect the consummation of the transactions contemplated by this Subordinated
Loan Agreement. The Borrower agrees that it will indemnify and hold harmless the
Subordinated Agent and the Subordinated Lenders from and against any and all
claims, demands, or liabilities for broker's, finders, placement or other
similar fees or commissions incurred by the Borrower or alleged to have been
incurred by the Borrower in connection with the consummation of the transactions
contemplated by this Subordinated Loan Agreement.
Section 4.22 Purpose of Loans. As more fully set forth in Section
2.2, the proceeds of the Subordinated Loan and the Senior Loan shall be used
only for restructuring the Indebtedness owed to JEDI II under the terms of the
Original Loan Agreement and for the reasonable fees, expenses, and financing
costs incurred by the Borrower in connection with the foregoing. The proceeds of
the Subordinated Loan shall not be used for any purpose which violates
applicable Requirements of Law, including laws regulating investments in foreign
jurisdictions.
Section 4.23 Support and Security Documents. The Security
Documents are effective to create in favor of the Subordinated Agent for the
benefit of the Subordinated Lenders, a legal, valid, and enforceable mortgage
lien, security interest, or other interest in the Collateral pledged thereunder
and the proceeds thereof in accordance with the terms of the Security Documents.
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Section 4.24 Employment. All inventory of Borrower and each
Subsidiary has been and will hereafter be produced, and all services of Borrower
and each Subsidiary has been and will hereafter be rendered, in compliance with
all applicable material laws, rules, regulations, and governmental standards,
including, without limitation, the minimum wage and overtime provisions of the
Fair Labor Standards Act, as amended (29 U.S.C. Sections 201-219), and the
regulations promulgated thereunder.
Section 4.25 Year 2000 Compliance.
(a) To the Borrower's knowledge after due inquiry,
all devices, systems, machinery, information technology, computer software and
hardware, and other date sensitive technology (jointly and severally the
"Systems") used by the Borrower and each of its Subsidiaries to carry on their
businesses as presently conducted and as contemplated to be conducted in the
future are Year 2000 Compliant or will be Year 2000 Compliant within a period of
time calculated to result in no material disruption of any of the Borrower and
each of its Subsidiaries' business operations. For purposes of these provisions,
"Year 2000 Compliant" means that such Systems are designed to be used prior to,
during and after the Gregorian calendar year 2000 A.D. and will operate during
each such time period without error relating to date data, specifically
including any error relating to, or the product of, date data which represents
or references different centuries or more than one century.
(b) The Borrower and its Subsidiaries have or will
have by September 30, 1999: (1) undertaken a detailed inventory, review, and
assessment of all areas within their businesses and operations that could be
adversely affected by the failure of the Borrower and each of its Subsidiaries
to be Year 2000 Compliant on a timely basis; (2) developed a detailed plan and
time line for becoming Year 2000 Compliant on a timely basis, and (3) to date,
implemented that plan in accordance with that timetable in all material
respects.
(c) The Borrower and its Subsidiaries have made or
will make by September 30, 1999, inquiry of each of its key suppliers, vendors,
and customers, and is undertaking to obtain in writing confirmations from all
such Persons as to whether such Persons have initiated programs to become Year
2000 Compliant and on the basis of such confirmations, the Borrower and each of
its Subsidiaries reasonably believe that all such Persons will be or become so
compliant. For purposes hereof, "key suppliers, vendors, and customers" refers
to those suppliers, vendors, and customers of the Borrower and each of its
Subsidiaries whose business failure would, with reasonable probability, result
in a material adverse change in the business, properties, condition (financial
or otherwise), or prospects of any of the Borrower and each of its Subsidiaries.
(d) The fair market value of all real and personal
property pledged to the Subordinated Agent as Collateral to secure the
Subordinated Loan hereunder is not and shall not be less than currently
anticipated or subject to substantial deterioration in value because of the
failure of such Collateral to be Year 2000 Compliant.
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Section 4.26 Insurance. Schedule 4.26 contains an accurate and
complete description of all material policies of fire, liability, workmen's
compensation and other forms of insurance owned or held by the Borrower and each
of its Subsidiaries. All such policies are in full force and effect, all
premiums with respect thereto covering all periods up to and including the
Effective Date and the Closing Date have been or will be paid, and no notice of
cancellation or termination has been received with respect to any such policy.
Such policies are sufficient for compliance with all requirements of law and of
all agreements to which the Borrower and each of its Subsidiaries is a party;
are valid, outstanding and enforceable policies; provide adequate insurance
coverage in at least such amounts and against at least such risks (but including
in any event public liability) as are usually insured against in the same
general area by companies engaged in the same or a similar business for the
assets and operations of the Borrower and each of its Subsidiaries; will remain
in full force and effect through the respective dates set forth in Schedule 4.26
without the payment of additional premiums; and will not in any way be affected
by, or terminate or lapse by reason of, the transactions contemplated by this
Subordinated Loan Agreement. None of the Borrower nor any of its Subsidiaries
has been refused any insurance with respect to its Property or operations, nor
has its coverage been limited below usual and customary policy limits, by an
insurance carrier to which it has applied for any such insurance or with which
it has carried insurance during the last three years.
Section 4.27 Hedging Agreements. Schedule 4.27 sets forth, as of
the date hereof, a true and complete list of all hedging agreements, financing
transactions and swap transactions (including commodity price swap agreements,
forward agreements or contracts of sale which provide for prepayment for
deferred shipment or delivery of oil, gas or other commodities) of the Borrower
and each of its Subsidiaries, the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), the net
mark to market value thereof, all credit support agreements relating thereto
(including any margin required or supplied), and the counter party to each such
agreement.
Section 4.28 Capital Stock. As of the Closing Date, the authorized
Capital Stock of the Company consists of 500,000 shares of Common Stock, no par
value per share and 2,500 shares of serial preferred stock. No shares of Capital
Stock are issued other than those shares of Common Stock listed on the attached
Schedule 4.28 and the preferred shares issued pursuant to the Equity Documents.
All outstanding shares of the Company's Capital Stock are validly issued, fully
paid and nonassessable. Other than the preferred shares issued pursuant to the
Equity Documents, there are no (i) outstanding securities convertible or
exchangeable into Capital Stock of the Company or (ii) contracts, commitments,
agreements, understandings, or arrangements of any kind to which the Company is
a party relating to the issuance of any Capital Stock of the Company.
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ARTICLE 5
AFFIRMATIVE COVENANTS
From the Effective Date and for so long as any part of the Commitments
or the Subordinated Loan Obligations is outstanding, the Borrower shall and
shall cause each of its Subsidiaries to (and where applicable shall cause other
Persons to):
Section 5.1 Financial Statements and Reports. The Borrower shall
promptly furnish to the Subordinated Agent from time to time upon request such
information regarding the business and affairs and financial condition of the
Borrower and its Subsidiaries as the Subordinated Agent may request, and will
furnish to the Subordinated Agent:
(a) Annual Audited Financial Statements - as soon as
available, and in any event within ninety (90) days after the close of each
fiscal year, the annual audited Financial Statements (consolidated and
consolidating) of the Borrower, certified, without any qualification or limit of
the scope of the examination of matters relevant to the Financial Statements, by
KPMG Peat Marwick, L.L.P., any nationally recognized public accounting firm or
any other accounting firm approved by the Subordinated Agent, such consolidating
schedules being prepared in accordance with Exhibit 5.1(a).
(b) Quarterly Financial Statements - as soon as
available, and in any event within forty-five (45) days after the last day of
each calendar quarter (except the last calendar quarter in any fiscal year), the
quarterly unaudited Financial Statements (consolidated and consolidating) of the
Borrower and its Subsidiaries.
(c) Monthly Financial Statements - as soon as
available, and in any event within forty-five (45) days after the last day of
each calendar month (except the last calendar month in any fiscal year), the
monthly unaudited Financial Statements (consolidated and consolidating) of the
Borrower.
(d) Budgets - as soon as available and in any event
on or before the last Business Day of each November, the detailed income
statements and capital budgets for the coming calendar year as of the date of
the budget approved by the Board of Director's of Borrower for the Borrower and
its Subsidiaries, such budget being prepared in accordance with Exhibit 5.1(d).
(e) Field Office - promptly following the request of
the Subordinated Agent, the income statements for each field office of Borrower
or any of its Subsidiary.
(f) Additional Information - promptly upon request of
the Subordinated Agent from time to time any additional financial information or
other information that the Subordinated Agent may reasonably request.
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All such information, reports, and Financial Statements referred to in this
Section 5.1 shall be in such detail as the Subordinated Agent may reasonably
request and shall be prepared in a manner consistent with the requirements set
forth above and in Section 1.2.
Section 5.2 Certificates of Compliance. Concurrently with the
furnishing of the annual audited Financial Statements pursuant to Section 5.1(a)
hereof, the quarterly unaudited Financial Statements pursuant to Section 5.1(b),
and each of the monthly unaudited Financial Statements pursuant to Section
5.1(c) hereof, the Borrower will furnish or cause to be furnished to the
Subordinated Agent a certificate in the form of Exhibit 5.2. Borrower will
furnish to Subordinated Agent at Borrower's expense all certifications which the
Subordinated Agent from time to time reasonably requests, as to the accuracy and
validity of or compliance with all representations, warranties and covenants
made by Borrower in any of the Subordinated Loan Documents, the satisfaction of
all conditions contained therein and all other matters pertaining thereto.
Section 5.3 Accountants' Certificate. Concurrently with the
furnishing of the annual audited Financial Statements pursuant to Section 5.1(a)
hereof, the Borrower will furnish a statement from the firm of independent
public accountants which prepared such statements to the effect that nothing has
come to their attention to cause them to believe that there existed on the date
of such statements any Event of Default.
Section 5.4 Taxes Other Liens. The Borrower shall, and shall
cause each Subsidiary to, pay and discharge promptly all taxes, assessments, and
governmental charges or levies imposed upon the income or any assets or property
of any of such entities as well as all claims of any kind (including claims for
labor, materials, supplies, and rent) which, if unpaid, might become a Lien or
other encumbrance upon any or all of the assets or property of any of such
entities; provided, however, that the Borrower and each Subsidiary shall not be
required to pay any such tax, assessment, charge, levy, or claim if the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate proceedings diligently conducted, levy and execution thereon have
been stayed and continue to be stayed, and the Borrower and each Subsidiary, or
any of them, as the case may be, shall have set up adequate reserves therefor,
if required, under GAAP.
Section 5.5 Compliance with Laws. The Borrower shall, and shall
cause each Subsidiary to, observe and comply, in all material respects, with all
applicable laws, statutes, codes, acts, ordinances, orders, judgments, deuces,
injunctions, rules, regulations, orders, and restrictions of applicable
Governmental Authorities, including those relating to Environmental Laws.
Section 5.6 Further Assurances. The Borrower shall, and shall
cause each Subsidiary to, cure promptly any defects in the creation and issuance
of the Subordinated Loan Documents. The Borrower shall, and shall cause each
Subsidiary at their sole expense to, promptly execute and deliver to the
Subordinated Agent upon its reasonable request all such other and further
documents, agreements, and instruments in compliance with or accomplishment of
the covenants and agreements in the Subordinated Loan Documents including all
documents, agreements and instruments necessary
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to grant the Subordinated Agent for the benefit of the Subordinated Lenders a
first and prior lien on all assets of the Subordinated Loan Parties.
Section 5.7 Insurance. The Borrower will at all times keep all of
its and each Subsidiaries' properties which are of an insurable nature insured
with insurers reasonably believed by the Borrower to be financially sound,
reputable and responsible, against loss or damage to the extent that property of
similar character is usually so insured by corporations similarly situated and
owning like properties, as determined by the Subordinated Agent. The Borrower
shall, and shall cause each of its Subsidiaries to, maintain the insurance
required by the Security Documents.
Section 5.8 Accounts and Records. The Borrower shall, and shall
cause each of its Subsidiaries to, keep books, records, and accounts in which
full, true, and correct entries will be made of all dealings or transactions in
relation to its business and activities, prepared in a manner consistent with
the requirements of Section 1.2. Upon request of the Subordinated Agent, the
Borrower shall furnish profit and loss statements for each field office of the
Borrower and its Subsidiaries.
Section 5.9 Right of Inspection. The Borrower shall, and shall
cause each of its Subsidiaries to, permit any officer, employee, or agent of the
Subordinated Agent to examine their books, records, and accounts, and take
copies and extracts therefrom, all at such reasonable times and as often as the
Subordinated Agent may reasonably request. The Subordinated Agent will keep all
such information confidential and will not without prior written consent
disclose or reveal the information or any part thereof to any person other than
the Subordinated Lenders and each of the Subordinated Agent's and Subordinated
Lenders' officers, employees, legal counsel, regulatory authorities, or advisors
to whom it is necessary to reveal such information for the purpose of
effectuating the agreements and undertakings specified herein or as otherwise
required by law or in connection with the enforcement of the Subordinated
Agent's and the Subordinated Lenders' rights and remedies under the Subordinated
Loan Documents.
Section 5.10 Notice of Certain Events. The Borrower shall promptly
and in any event within five (5) days notify the Subordinated Agent if the
Borrower or any of its Subsidiaries learns of the occurrence of (i) an Event of
Default (including but not limited to, a Change of Control or Change of
Management) together with a detailed statement by the Borrower of the steps
being taken to cure the Event of Default; or (ii) any legal, judicial, or
regulatory proceedings affecting the Borrower or any of its Subsidiaries or any
of the assets or properties of the Borrower or any of its Subsidiaries; or (iii)
any dispute between the Borrower or any of its Subsidiaries and any Governmental
Authority or any other person or entity which, if adversely determined, could
cause a Material Adverse Effect; or (iv) any judgment, liability, casualty or
other loss that is not insured by the Borrower or its Subsidiaries; or (v) any
other matter that could reasonably be expected to have a Material Adverse
Effect.
Section 5.11 ERISA Information and Compliance. The Borrower shall
promptly furnish to the Subordinated Agent immediately upon becoming aware of
the occurrence of any "reportable
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event", as such term is defined in Section 4043 of ERISA, or of any "prohibited
transaction", as such term is defined in Section 4975 of the Internal Revenue
Code of 1986, as amended, in connection with any Plan or any trust created
thereunder, a written notice signed by the president or the chief financial
officer of the Borrower, specifying the nature thereof, what action the Borrower
is taking or proposes to take with respect thereto, and, when known, any action
taken by the Internal Revenue Service with respect thereto.
Section 5.12 Environmental Reports and Notices. The Borrower will
deliver to the Subordinated Agent (i) promptly upon its becoming available, one
copy of each report sent by the Borrower or any of its Subsidiaries to any
court, Governmental Agency, or instrumentality pursuant to any Environmental
Law, (ii) notice, in writing, promptly upon the Borrower's or any of its
Subsidiaries' learning that they have received notice or otherwise learned of
any claim, demand, action, event, condition, report, or investigation indicating
any potential or actual liability arising in connection with (x) the
non-compliance with or violation of the requirements of any Environmental Law;
(y) the release or threatened release of any toxic or hazardous waste into the
environment or which release the Borrower or any of its Subsidiaries would have
a duty to report to any court or Government Agency or instrumentality, or (iii)
prompt notice of the existence of any Lien related to violation of Environmental
Laws or any liabilities for cleanup thereunder on any properties or assets of
the Borrower or any of its Subsidiaries.
Section 5.13 Maintenance. The Borrower shall, and shall cause each
Subsidiary to (i) observe and comply in all material respects with all
Environmental Laws; (ii) (A) maintain all of the assets and properties of such
Person in good and workable condition at all times and (B) make all repairs,
replacements, additions, betterments, and improvements to such assets and
properties as are needed and proper so that with respect to clauses (A) and (B)
the business carried on by the Borrower and its Subsidiaries may be conducted
properly and efficiently at all times in accordance with the good faith
reasonable business judgment of the Borrower and its Subsidiaries provided,
however, that nothing in this Section shall prevent the Borrower and its
Subsidiaries from discontinuing the maintenance of any of their properties if
such discontinuance is, in the good faith reasonable business judgment of the
Borrower and its Subsidiaries, desirable in the conduct of the business of the
Borrower or any such Subsidiary and not disadvantageous in any material respect
to the Subordinated Lenders;(iii) take or cause to be taken whatever actions are
necessary or desirable to prevent an event or condition of default by the
Borrower or any Subsidiary under the provisions of any contract, agreement, or
lease comprising a part of the Collateral hereunder; and (iv) furnish to the
Subordinated Agent upon request evidence satisfactory to the Subordinated Agent
that there are no Liens, claims, or encumbrances superior to the Liens of the
Subordinated Lenders on such assets and properties, except Permitted Liens.
Section 5.14 New Subsidiary. Upon the formation or acquisition of
any new Subsidiary, the Borrower shall cause such Subsidiary to promptly execute
and deliver to the Subordinated Agent any joinder agreements requested by the
Subordinated Agent to cause such new Subsidiary to become a party to a Guaranty
and any security agreements, pledge agreements, mortgages, and other agreements
requested by the Subordinated Agent to cause such new Subsidiary to pledge its
assets
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to the Subordinated Agent for the benefit of the Subordinated Lenders. In
connection therewith, the Borrower shall provide corporate documentation and
opinion letters reasonably satisfactory to the Subordinated Agent reflecting the
corporate status of such new Subsidiary of the Borrower and the enforceability
of such agreements.
Section 5.15 Performance on Borrower's Behalf. If Borrower fails
to pay any taxes, insurance premiums or other amounts it is required to pay
under any Subordinated Loan Document, Subordinated Agent may pay the same.
Borrower shall immediately reimburse Subordinated Agent for any such payments
and each amount paid shall constitute a part of the Subordinated Loan
Obligations, shall be secured by the Security Documents and shall bear interest
at the rate described herein, from the date such amount is paid by Subordinated
Agent, until the date such amount is repaid to the Subordinated Agent.
Section 5.16 Change of Principal Place of Business. The Borrower
shall, and shall cause the Subsidiaries to, give Subordinated Agent at least
thirty (30) days prior written notice of its intention to move its principal
place of business from the address set forth in Section 4.15 hereof.
Section 5.17 New Bank Accounts. The Borrower shall, and shall
cause the Subsidiaries to, promptly give notice to the Subordinated Agent of the
creation of any bank accounts after the date hereof. Prior to any funding of
such account and in no event later than 3 Business Days after the opening of
such account, the Borrower shall provide the Subordinated Agent with such
information with respect to such accounts and other documentation relating
thereto as Subordinated Agent may request including a letter from the bank in
the form of the Bank Account Letter as attached as Exhibit A to the Security
Agreement.
Section 5.18 Year 2000 Compliant. The Borrower will, and will
cause each of its Subsidiaries to:
(a) Furnish such additional information, statements
and other reports with respect to the Borrower and each of its Subsidiaries
activities, course of action and progress towards becoming Year 2000 Compliant
as the Subordinated Agent may request from time to time.
(b) In the event of any change in circumstances that
causes or will likely cause any of the Borrower's representations and warranties
with respect to its or any of its Subsidiaries being or becoming Year 2000
Compliant to no longer be true (hereinafter, referred to as a "Change in
Circumstances") then the Borrower shall promptly, and in any event within ten
(10) days of receipt of information regarding a Change in Circumstances, provide
the Subordinated Agent with written notice (the "Notice") that describes in
reasonable detail the Change in Circumstances and how such Change in
Circumstances caused or will likely cause the Borrower's representations and
warranties with respect to being or becoming Year 2000 Compliant to no longer be
true. The
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Borrower shall, within ten (10) days of a request, also provide the Subordinated
Agent with any additional information the Subordinated Agent requests of the
Borrower in connection with the Notice and/or a Change in Circumstances.
(c) Upon reasonable notice, give any representative
of the Subordinated Agent access during all reasonable business hours to, and
permit such representative to examine, copy or make excerpts from, any and all
books, records and documents in the possession of Borrower or any of its
Subsidiaries and relating to their affairs, and to inspect any of the properties
and Systems of the Borrower or any of its Subsidiaries, and to project test the
Systems to determine if they are Year 2000 Compliant in an integrated
environment, all at the sole cost and expense of the Borrower.
ARTICLE 6
NEGATIVE COVENANTS
From the Effective Date and for so long as any part of the Commitments
or the Subordinated Loan Obligations is outstanding, the Borrower shall not and
shall cause each of its Subsidiaries not to (and where applicable shall cause
other Persons not to):
Section 6.1 Liens. The Borrower shall not, and shall not permit
any Subsidiary to, create, incur, assume, or permit to exist any Lien on any of
its assets or properties except for Permitted Liens.
Section 6.2 Mergers. The Borrower shall not, and shall not permit
any of its Subsidiaries to, consolidate or merge with or into any other Person,
to liquidate, dissolve or incur a name change, including a change of trade name.
Section 6.3 Indebtedness and Other Obligations. The Borrower
shall not, and shall not permit any of the Subsidiaries to incur, create,
assume, or in any manner become or be liable in respect of any Indebtedness,
liabilities, or other obligations, or guarantee or otherwise in any manner
become or be liable in respect of any Indebtedness, liabilities, or other
obligations of any other Person, whether by agreement to purchase the
Indebtedness, liabilities, or other obligations of any other Person or agreement
for the furnishing of funds to any other Person through the purchase or lease of
goods, supplies, or services (or by way of stock purchase, capital contribution,
advance, or loan) for the purpose of paying or discharging the Indebtedness,
liabilities, or other obligations of any other Person, or otherwise, except that
the foregoing restrictions shall not apply to:
(a) Indebtedness under the Subordinated Loan
Documents;
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(b) Indebtedness under the Senior Loan Documents (as
defined in the Senior Loan Agreement);
(c) Indebtedness disclosed in Schedule 6.3;
(d) Indebtedness in the form of Capitalized Lease
Obligations, including those shown on the Financial Statements, incurred in
connection with the financing of assets in an aggregate outstanding amount not
to exceed $1,500,000;
(e) taxes, assessments, or other government charges
which are not yet due or are being contested in good faith by appropriate action
promptly initiated and diligently conducted, if such reserve as shall be
required by GAAP shall have been made therefor and levy and execution thereon
have been stayed and continue to be stayed;
(f) obligations for trade payables and ordinary
operating liabilities payable within one hundred twenty (120) days from the date
incurred, incurred in the ordinary course of business as conducted on the
Effective Date; and
(g) any renewals, extensions, substitutions,
refinancings or replacements (each, for purposes of this clause, a
"refinancing") by the Borrower of any Indebtedness of the Borrower described in
clause (a) and (b) above, including any successive refinancings by the Borrower,
so long as in each case the refinanced Indebtedness meets the requirements of
the Indebtedness being refinanced as set forth above and, without limiting the
foregoing, (i) any such new Indebtedness shall be in a principal amount that
does not exceed the principal amount so refinanced, (ii) in the case of any
refinancing of nonrecourse indebtedness such new Indebtedness is also
nonrecourse indebtedness, and (iii) such new Indebtedness has a stated maturity
that is no shorter than the stated maturity of the Indebtedness being
refinanced.
Section 6.4 Dividends; Compensation. The Borrower shall not
declare or pay any cash dividend, purchase, redeem or otherwise acquire for
value any of its Capital Stock now or hereafter outstanding, return any capital
to stockholders, or make any distribution of its assets to its stockholders as
such. No salary, bonus or other compensation shall be paid by Borrower to an
officer or director of Borrower that is also a director of SWRH or SWRI, other
than standard board of director's fees.
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Section 6.5 Investments.
(a) Without the Majority Subordinated Lenders' prior
written consent, Borrower shall not, and shall not permit any Subsidiary to make
any Acquisition, make or hold any direct or indirect investment in any Person or
any Equipment, including capital contributions to the Person, investments in the
debt or equity securities of the Person, and loans, guaranties, trade credit, or
other extensions of credit to the Person, individually or in the aggregate, in
excess of $50,000 per year, without the Majority Subordinated Lenders prior
written consent except for (i) trade credit issued by the Borrower and its
Subsidiaries to any Person in the ordinary course of business in an aggregate
outstanding amount not to exceed $1,000,000 which is not outstanding greater
than sixty (60) days or more past the date of invoice and (ii) capital
expenditures of the Borrower and its Subsidiaries in an aggregate amount not to
exceed $1,500,000 during any fiscal year of the Borrower. Notwithstanding the
foregoing, all investments made by Borrower shall be in the oil-field service
industry.
(b) The Borrower shall not, and shall not permit any
Subsidiary to, make or hold any direct or indirect investment in any Affiliate
of the Borrower, including capital contributions to the Affiliate investments in
the debt or equity securities of the Affiliate and loans, guaranties, trade
credit, or other extensions of credit to the Affiliate without the Majority
Subordinated Lenders' prior written consent; provided that subject to Section
6.5(a), the Borrower may extend trade credit to SWRI and SWRH on terms
consistent with that required by Section 6.10.
Section 6.6 Sale or Discount of Receivables. The Borrower shall
not, and shall not permit any Subsidiary to, discount or sell with recourse, or
sell for less than the greater of the face or market value thereof, any of their
notes receivable or accounts receivable.
Section 6.7 Nature of Business. The Borrower shall not, and shall
not permit any Subsidiary to, allow any material change to be made in the
character of their business as carried on at the date hereof.
Section 6.8 Amendment of Articles of Incorporation or Bylaws. The
Borrower shall not, and shall not permit any Subsidiary to, allow any amendment
to, or other alteration of, their Articles of Incorporation, Bylaws or any
contract, agreement or instrument that could have a detrimental affect on the
Collateral.
Section 6.9 Asset Sales. With the exception of (i) the sales in
conjunction with the Auction Package, (ii) the sale of the Lampasas Ranch
property, and (iii) any sales of assets received by the Company in lieu of cash
from arms-length exchanges of services by the Company for assets, the Borrower
shall not and shall not permit any Subsidiary to, sell, transfer or otherwise
convey any interest of the Borrower or the Subsidiary in any of their respective
assets without the prior written
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consent of the Majority Subordinated Lenders if the aggregate amount of the
consideration received from all such sales, transfers, and conveyances during
any fiscal year of the Borrower would exceed $100,000. No sale, transfer or
conveyance shall be for less than the fair market value of the asset. The net
proceeds of any asset sale, transfer or conveyance which requires the Majority
Subordinated Lenders consent shall be delivered to the Subordinated Agent for
the ratable benefit of the Subordinated Lenders as a prepayment of interest and
principal on the Subordinated Loan in accordance with Section 2.2(c).
Section 6.10 Transactions with Affiliates. Without the prior
written consent of the Majority Subordinated Lenders, the Borrower shall not,
and shall not permit any of its Subsidiaries to, enter into any transaction with
any of its Affiliates, except transactions upon terms no less favorable to it
than would be obtained in a transaction negotiated at arm's length with an
unrelated third party.
Section 6.11 Partnerships. Neither the Borrower nor any of its
Subsidiaries will, without the prior written consent of the Majority
Subordinated Lenders, form any partnership, joint venture, or similar
partnership arrangement after the Effective Date that have the ability to incur
Indebtedness with recourse to the Borrower or any of its Subsidiaries, whether
contractual or through liability as a partner.
Section 6.12 Subsidiaries.
(a) The Borrower will not, without the prior written
consent of the Majority Subordinated Lenders, sell or otherwise dispose of any
of the equity securities of its Subsidiaries.
(b) The Borrower shall not, and shall not permit any
of the Borrower's Subsidiaries to, create or acquire any additional Subsidiaries
without the consent of the Majority Subordinated Lenders, such consent shall not
be unreasonably withheld.
Section 6.13 Equity Proceeds. The Borrower shall not, and shall
not permit any Subsidiary to, issue any additional Capital Stock or debt
securities following the Effective Date, without the prior written consent of
the Majority Subordinated Lenders. The net proceeds of any such issuance shall
be delivered to the Subordinated Agent for the ratable benefit of the
Subordinated Lenders as a prepayment of interest and principal on the
Subordinated Loan in accordance with Section 2.4(c).
Section 6.14 Public Disclosures. The Borrower will not, and will
not permit any Subsidiary to, disclose the identity of the Subordinated Agent or
any Subordinated Lender in any public announcement, governmental filing or
otherwise without the Subordinated Agent's and such Subordinated Lender, as
applicable, prior written consent unless such disclosure is compelled or
required by law, stock exchange rule or by order of a court of competent
jurisdiction.
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Section 6.15 Limitation on Payment Restrictions Affecting
Subsidiaries. The Borrower will not, and will not permit any of its Subsidiaries
to, create or otherwise cause to exist or become effective any consensual
encumbrance or consensual restriction of any kind, on the ability of any
Subsidiary of the Borrower to (a) pay dividends or make any other distribution
on its Capital Stock to the Borrower or any Subsidiary, (b) pay any Indebtedness
owed to the Borrower or any Subsidiary, (c) make investments in the Borrower or
any Subsidiary, or (d) transfer any of its property or assets to the Borrower or
any Subsidiary, except, in each case (i) any encumbrances or restrictions
binding upon a Person at the time such Person becomes a Subsidiary (unless the
agreement creating such encumbrance or restrictions was entered into in
connection with, or in contemplation of, such entity becoming Subsidiary),
provided that such encumbrances or restrictions shall not encumber or restrict
any assets of the Borrower or its other Subsidiaries other than such Subsidiary,
(ii) any encumbrance or restriction pursuant to any customary non-assignment
provisions in leases, (iii) any encumbrances or restrictions due to applicable
law, (iv) any such encumbrance or restriction with respect to a Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of all
or substantially all of the Capital Stock or assets of such Subsidiary or any
such encumbrance or restriction referred to in clause (d) above with respect to
the assets of a Subsidiary and imposed pursuant to an agreement entered into for
the sale of such assets (in either case, so long as such encumbrance or
restriction, by its terms, terminates on the earlier of the termination of such
agreement or the consummation of such agreement), and (v) any such encumbrance
or restriction pursuant to any agreement that amends, extends, refinances,
renews or replaces any agreement described in the foregoing clauses (i), (ii),
and (iii), provided that the terms and conditions of any such encumbrances or
restrictions are not materially less favorable to the Borrower than those under
or pursuant to the agreement amended, extended, refinanced, renewed or replaced.
Section 6.16 Fixed Charge Coverage Ratio. Beginning June 30, 2000
and as of the last day of each fiscal quarter of the Borrower thereafter, the
Borrower shall not permit the ratio of (i) the consolidated EBITDA of the
Borrower less cash income taxes for the preceding four fiscal quarters then most
recently ended to (ii) the consolidated Debt/Lease Service of the Borrower for
the preceding four fiscal quarters then most recently ended, to be less than
1.00 to 1.00.
ARTICLE 7
EVENTS OF DEFAULT
Section 7.1 Events of Default. The occurrence of any of the
following shall be an "Event of Default" for the purposes of this Subordinated
Loan Agreement and the other Subordinated Loan Documents:
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(a) Any Subordinated Loan Party shall fail to pay
when due or declared due any principal, interest, fee or any other amounts due
under this Subordinated Loan Agreement or any other Subordinated Loan Document;
or
(b) Any representation or warranty made by any
Subordinated Loan Party under this Subordinated Loan Agreement, any other
Subordinated Loan Document, the Equity Documents, or in any certificate or
statement furnished or made to the Subordinated Agent or any Subordinated Lender
pursuant thereto, or in connection therewith, or in connection with any document
furnished hereunder, shall prove to be untrue in any material respect as of the
date on which such representation or warranty is made (or deemed made), or any
representation, statement (including Financial Statements), certificate, report,
or other data furnished or to be furnished or made by the Borrower under any
Subordinated Loan Document proves to have been untrue in any material respect as
of the date as of which the facts therein set forth were stated or certified; or
(c) Any breach shall be made in the due observance or
performance of any of the affirmative covenants, negative covenants or the
agreements of any Subordinated Loan Party contained in the Subordinated Loan
Documents or the Equity Documents; or
(d) Default shall be made in respect of any
obligation for borrowed money, other than the Notes, for which any Subordinated
Loan Party is liable (directly, by assumption, as guarantor, or otherwise),
including any obligations secured by any Lien on any asset or property of any
Subordinated Loan Party, or in respect of any agreement relating to any such
obligations, and such default shall continue beyond the applicable grace period,
if any; or
(e) Any Subordinated Loan Party shall commence a
voluntary case or other proceedings seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency, or
other similar law now or hereafter in effect or seeking an appointment of a
trustee, receiver, liquidator, custodian, or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action or authorizing the foregoing; or
(f) An involuntary case or other proceeding, shall be
commenced against any Subordinated Loan Party seeking liquidation,
reorganization, or other relief with respect to it or its debts under any
bankruptcy, insolvency, or similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian, or other similar
official of it or any substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and unstayed for a period of
60 days; or an order for relief shall be entered against either
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of any Subordinated Loan Party under the federal bankruptcy laws as now or
hereinafter in effect; or
(g) A final judgment or order for the payment of
money in excess of $500,000 (or judgments or orders aggregating in excess of
$500,000) that is not fully insured shall be rendered against any Subordinated
Loan Party and such judgements or orders shall continue unsatisfied and unstayed
for a period of thirty 30 days; or
(h) A Change of Management shall occur; or
(i) Any Guaranty shall at any time and for any reason
cease to be in full force and effect or shall be contested by the guarantor
thereunder, or any guarantor under a Guaranty shall deny it has any further
liability or obligation thereunder; or
(j) Any Security Document shall at any time and for
any reason cease to create the Lien on the property purported to be subject to
such agreement in accordance with the terms of such agreement, cease to be in
full force and effect, or shall be contested by any party thereto; or
(k) A Material Adverse Effect shall occur; or
(l) Any "Event of Default" shall occur under the
Senior Loan Agreement; or
(m) Any audited Financial Statement of the Borrower
required to be delivered hereunder shall be qualified, in the Majority
Subordinated Lenders' opinion, in any material respect.
Section 7.2 Acceleration. Upon the occurrence of any Event of
Default under Sections 7.1(e) or (f) ("Bankruptcy Event of Default"), the
outstanding principal amount of the Notes, all accrued but unpaid interest
thereon, and all other Subordinated Loan Obligations shall immediately and
automatically become due and payable. During the existence of any Event of
Default, the Subordinated Agent shall at the request of the Majority
Subordinated Lenders declare by written notice to the Borrower the outstanding
principal amount of the Notes, all accrued but unpaid interest thereon, and all
other Subordinated Loan Obligations to be immediately due and payable. In
connection with any of the foregoing, except for the notice provided for above,
the Borrower waives notice of intent to demand, demand, presentment for payment,
notice of nonpayment, protest, notice of protest, grace, notice of dishonor,
notice of intent to accelerate, notice of acceleration, and all other notices.
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Section 7.3 Default Interest. During the existence of an Event of
Default, the Majority Banks may declare by written notice to the Borrower that
all Subordinated Loan Obligations (including the outstanding principal amount of
the Advances and, to the fullest extent permitted by law, all accrued but unpaid
interest thereon and all other Indebtedness) shall bear interest beginning on
the date of occurrence of such Event of Default, until paid in full, at the
applicable Default Rate, payable upon demand by the Subordinated Agent.
Section 7.4 Other Subordinated Loan Documents. During the
existence of an Event of Default, the Subordinated Agent shall at the request of
the Majority Banks take any and all actions permitted under the other
Subordinated Loan Documents, including the Security Documents.
Section 7.5 Right of Setoff. During the existence of an Event of
Default, the Subordinated Agent and each Subordinated Lender is hereby
authorized at any time, to the fullest extent permitted by law, to set off and
apply any indebtedness owed by the Subordinated Agent or such Subordinated
Lender to the Borrower against any and all of the obligations of the Borrower
under the Subordinated Loan Documents, irrespective of whether or not the
Subordinated Agent or such Subordinated Lender shall have made any demand under
the Subordinated Loan Documents and although such obligations may be contingent
and unmatured. The Subordinated Agent and each Subordinated Lender, as the case
may be, agree promptly to notify the Borrower after any such setoff and
application made by the Subordinated Agent or such Subordinated Lender provided
that the failure to give such notice shall not affect the validity of such
setoff and application.
Section 7.6 Cumulative Remedies. No right, power, or remedy
conferred in this Subordinated Loan Agreement or the Notes, or now or hereafter
existing at law, in equity, by statute, or otherwise shall be exclusive, and
each such right, power, or remedy shall to the full extent permitted by law be
cumulative and in addition to every other such right, power, or remedy. No
course of dealing and no delay in exercising any right, power, or remedy
conferred to the Subordinated Agent or any Subordinated Lender in this
Subordinated Loan Agreement or the Notes, or now or hereafter existing at law,
in equity, by statute, or otherwise shall operate as a waiver of or otherwise
prejudice any such right, power, or remedy.
Section 7.7 Application of Payments. Prior to any payment default
upon any maturity date or any acceleration of the Subordinated Loan Obligations,
all payments made on the Subordinated Loan Obligations hereunder shall be
applied to the Subordinated Loan Obligations as directed by the Borrower,
subject to the rules regarding the application of payments to certain
Indebtedness provided for hereunder and in the Subordinated Loan Documents.
Following any payment default upon any maturity date or any acceleration of the
Subordinated Loan Obligations, all payments and collections shall be applied to
the Subordinated Loan Obligations in the following order:
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First, to the payment of the costs, expenses, reimbursements,
and indemnifications of the Subordinated Agent that are due
and payable under the Subordinated Loan Documents;
Then, ratably to the payment of the costs, expenses,
reimbursements, and indemnifications of the Subordinated
Lenders that are due and payable under the Subordinated Loan
Documents;
Then, ratably to the payment of all outstanding principal due
and payable under the Subordinated Loan Documents;
Then, ratably to the payment of any other amounts due and
owing with respect to the Indebtedness; and
Finally, any surplus held by the Subordinated Agent and
remaining after payment in full of all the Subordinated Loan
Obligations and reserve for Indebtedness not yet due and
payable shall be promptly paid over to the Borrower or to
whomever may be lawfully entitled to receive such surplus.
ARTICLE 8
THE SUBORDINATED AGENT
Section 8.1 Authorization and Action. Each Subordinated Lender
hereby appoints and authorizes the Subordinated Agent to take such action as
agent on behalf of such Subordinated Lender and to exercise such powers under
this Subordinated Loan Agreement as are delegated to the Subordinated Agent by
the terms hereof and of the other Subordinated Loan Documents, together with
such powers as are reasonably incidental thereto. As to any matters not
expressly provided for by this Subordinated Loan Agreement or any other
Subordinated Loan Document (including, without limitation, enforcement or
collection of the Notes), the Subordinated Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Majority Subordinated Lenders, and
such instructions shall be binding upon all Subordinated Lenders and all holders
of the Notes; provided, however, that the Subordinated Agent shall not be
required to take any action which exposes the Subordinated Agent to personal
liability or which is contrary to this Subordinated Loan Agreement, any other
Subordinated Loan Document, or applicable law.
Section 8.2 Subordinated Agent's Reliance, Etc. Neither the
Subordinated Agent nor any of the Subordinated Agent's directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
(including the Subordinated Agent's own negligence) by it or them
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under or in connection with this Subordinated Loan Agreement or the other
Subordinated Loan Documents, except for its or their own gross negligence or
willful misconduct. Without limitation of the generality of the foregoing, the
Subordinated Agent: (a) may treat the payee of any Note as the holder thereof
until the Subordinated Agent receives written notice of the assignment or
transfer thereof signed by such payee and in form satisfactory to the
Subordinated Agent; (b) may consult with legal counsel (including counsel for
the Borrower), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts; (c) makes no warranty or representation to any Subordinated Lender and
shall not be responsible to any Subordinated Lender for any statements,
warranties or representations made in or in connection with this Subordinated
Loan Agreement or the other Subordinated Loan Documents; (d) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of this Subordinated Loan Agreement or any
other Subordinated Loan Document on the part of SWRI, the Borrower, or its
Subsidiaries or to inspect the property (including the books and records) of
such Persons; (e) shall not be responsible to any Subordinated Lender for the
due execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Subordinated Loan Agreement or any other Subordinated Loan
Document; and (f) shall incur no liability under or in respect of this
Subordinated Loan Agreement or any other Subordinated Loan Document by acting
upon any notice, consent, certificate or other instrument or writing (which may
be by telecopy, telegram, cable or telex) reasonably believed by it to be
genuine and signed or sent by the proper party or parties.
Section 8.3 The Subordinated Agent and Its Affiliates. With
respect to its Commitment, the Loans made by it and the Note issued to it, the
Subordinated Agent shall have the same rights and powers under this Subordinated
Loan Agreement as any other Subordinated Lender and may exercise the same as
though it were not an Subordinated Agent hereunder. The term "Subordinated
Lender" or "Subordinated Lenders" shall, unless otherwise expressly indicated,
include the Subordinated Agent in its individual capacity. The Subordinated
Agent and its Affiliates may accept deposits from, lend money to, act as trustee
under indentures of, and generally engage in any kind of business with the
Borrower or any of its Subsidiaries, and any Person who may do business with or
own securities of the Borrower, or any such Subsidiary, all as if the
Subordinated Agent were not an agent hereunder and without any duty to account
therefor to the Subordinated Lenders.
Section 8.4 Subordinated Lender Loan Decision. Each Subordinated
Lender acknowledges that it has, independently and without reliance upon the
Subordinated Agent or any other Subordinated Lender and based on the financial
statements referred to in Section 4.6 and such other documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Subordinated Loan Agreement. Each Subordinated Lender also
acknowledges that it will, independently and without reliance upon the
Subordinated Agent or any other Subordinated Lender and based on such documents
and information as it shall deem
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appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Subordinated Loan Agreement.
Section 8.5 Indemnification. The Subordinated Lenders severally
agree to indemnify the Subordinated Agent and each Affiliate thereof and their
respective directors, officers, employees and agents (to the extent not
reimbursed by the borrower), according to their respective pro rata shares from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Subordinated Agent in any way relating to or arising out of this Subordinated
Loan Agreement or any action taken or omitted by the Subordinated Agent under
this Subordinated Loan Agreement or any other Subordinated Loan Document
(INCLUDING THE AGENT'S OWN NEGLIGENCE), provided that no Subordinated Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Subordinated Agent's gross negligence or willful misconduct.
Without limitation of the foregoing, each Subordinated Lender agrees to
reimburse the Subordinated Agent promptly upon demand for its ratable share of
any out-of-pocket expenses (including counsel fees) incurred by the agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Subordinated Loan Agreement or any other
Subordinated Loan Document, to the extent that the Subordinated Agent is not
reimbursed for such expenses by the Borrower.
Section 8.6 Successor Subordinated Agent. The Subordinated Agent
may resign at any time by giving written notice thereof to the Majority
Subordinated Lenders and the Borrower and may be removed at any time with cause
by the Majority Subordinated Lenders upon receipt of written notice from the
Majority Subordinated Lenders to such effect. Upon receipt of notice of any such
resignation or removal, the Majority Subordinated Lenders shall have the right
to appoint a successor Subordinated Agent with, if no Default exists, the
consent of the Borrower, which consent shall not be unreasonably withheld. If no
successor Subordinated Agent shall have been so appointed by the Majority
Subordinated Lenders with the consent of the Borrower, if required, and shall
have accepted such appointment, within 30 days after the retiring Subordinated
Agent's giving of notice of resignation or the Majority Subordinated Lenders'
removal of the retiring Subordinated Agent, then the retiring Subordinated Agent
may, on behalf of the Subordinated Lenders and the Borrower, appoint a successor
Subordinated Agent, which shall be an Eligible Assignee. Upon the acceptance of
any appointment as Subordinated Agent by a successor Subordinated Agent, such
successor Subordinated Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Subordinated
Agent, and the retiring Subordinated Agent shall be discharged from its duties
and obligations under this Subordinated Loan Agreement and the other
Subordinated Loan Documents. After any retiring Subordinated Agent's resignation
or removal hereunder as Subordinated Agent, the provisions of this Article 8
shall inure to its benefit as to any
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actions taken or omitted to be taken by it while it was Subordinated Agent this
Subordinated Loan Agreement and the other Subordinated Loan Documents.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Interpretation and Survival of Provisions. Article,
Section, Schedule, and Exhibit references are to this Subordinated Loan
Agreement, unless otherwise specified. All references to instruments, documents,
contracts, and agreements are references to such instruments, documents,
contracts, and agreements as the same may be amended, supplemented, and
otherwise modified from time to time, unless otherwise specified. The word
"including" shall mean "including but not limited to." Whenever the Borrower has
an obligation under the Subordinated Loan Documents, the expense of complying
with that obligation shall be an expense of the Borrower unless otherwise
specified. Whenever any determination, consent, or approval is to be made or
given by the Subordinated Agent or the Subordinated Lenders, such action shall
be in the Subordinated Agent's or Subordinated Lenders', as applicable, sole
discretion unless otherwise specified in this Subordinated Loan Agreement. If
any provision in the Subordinated Loan Documents is held to be illegal, invalid,
not binding, or unenforceable, such provision shall be fully severable and the
Subordinated Loan Documents shall be construed and enforced as if such illegal,
invalid, not binding, or unenforceable provision had never comprised a part of
the Subordinated Loan Documents, and the remaining provisions shall remain in
full force and effect. The Subordinated Loan Documents have been reviewed and
negotiated by sophisticated parties with access to legal counsel and shall not
be construed against the drafter. The representations, warranties, and covenants
made in this Subordinated Loan Agreement and the Notes shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Borrower, the Subordinated Agent, or any Subordinated Lender. All
indemnification obligations of the Borrower hereunder and the provisions of
Section 9.2 shall remain operative and in full force and effect unless such
obligations are expressly terminated in a writing referencing such obligations,
regardless of any purported general termination of this Subordinated Loan
Agreement.
Section 9.2 Costs, Expenses and Taxes. The Borrower agrees to:
(a) pay all costs and expenses reasonably incurred by the
Subordinated Agent in connection with negotiation, preparation, printing,
execution and delivery of the Subordinated Loan Documents and the transactions
contemplated hereby and thereby. The Borrower shall also pay any expenses of the
Subordinated Agent reasonably incurred after the date hereof in connection with
any amendment or supplement to or modification of any of the foregoing and any
and all other documents furnished pursuant hereto or thereto or in connection
herewith or therewith. In addition, the Borrower, to the extent permitted by
applicable law, shall pay any and all stamp, transfer, and
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other similar taxes payable or determined to be payable in connection with the
execution and delivery of this Subordinated Loan Agreement and shall save and
hold the Subordinated Agent and the Subordinated Lenders harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying, or omission to pay, such taxes;
(b) indemnify the Subordinated Agent, each Subordinated
Lender, and its respective officers, directors, employees, representatives,
agents, attorneys, and Affiliates (collectively, "Related Parties") from, hold
each of them harmless against and promptly upon demand pay or reimburse each of
them for, any and all actions, suits, proceedings (including any investigations,
litigation, or inquiries), claims, demands, and causes of action, and, in
connection therewith, all reasonable costs, losses, liabilities, damages, or
expenses of any kind or nature whatsoever (collectively the "Indemnity Matters")
which may be incurred by or asserted against or involve any of them (whether or
not any of them is designated a party thereto) as a result of, arising out of,
or in any way related to (i) any actual or proposed use by Borrower of the
proceeds of the Subordinated Loan or the Senior Loan, (ii) the operations of the
business of Borrower or any Subsidiary, (iii) any bodily injury or death or
property damage occurring in or upon or in the vicinity of any Collateral, (iv)
any claim by any third Person against any Collateral assigned to, or paid to,
the Subordinated Agent, for the benefit of the Subordinated Lenders pursuant to
any Security Agreement, (v) the failure of a Borrower or any Subsidiary to
comply with any Governmental Requirement, or (vi) any other aspect of this
Subordinated Loan Agreement and the other Subordinated Loan Documents,
including, without limitation, the reasonable fees and disbursements of counsel
and all other expenses incurred in connection with investigating, defending or
preparing to defend any such action, suit, proceeding (including any
investigations, litigation, or inquiries), or claim and INCLUDING ALL INDEMNITY
MATTERS ARISING BY REASON OF THE NEGLIGENCE OF ANY INDEMNITEE (but not Indemnity
Matters related to the gross negligence or wilful misconduct of any Indemnitee);
(c) pay and hold the Subordinated Agent and each Subordinated
Lender harmless from and against any and all present and future stamp and other
similar taxes with respect to this Subordinated Loan Agreement and Subordinated
Loan Documents and save the Subordinated Agent and each Subordinated Lender
harmless from and against any and all liabilities with respect to or resulting
from any delay or omission to pay such taxes, and will indemnify the
Subordinated Agent and each Subordinated Lender for the full amount of taxes
paid by the Subordinated Agent and each Subordinated Lender in respect of
payments made or to be made under this Subordinated Loan Agreement, any of the
Notes, or any other Subordinated Loan Document and any liability (including
penalties, interest, and expenses) arising therefrom or with respect thereto,
whether or not such taxes were correctly or legally asserted;
(d) indemnify and hold harmless from time to time the
Subordinated Agent, each Subordinated Lender, and its respective Related Parties
from and against any and all losses, claims,
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cost recovery actions, administrative orders or proceedings, damages, and
liabilities to which any such Person may become subject (i) under any
Environmental Law applicable to Borrower, any Subsidiary or any of their
respective properties, (ii) as a result of the breach or non-compliance by
Borrower or any Subsidiary with any Environmental Law applicable to Borrower or
any Subsidiary, (iii) due to past ownership by Borrower or any Subsidiary of
their respective properties or past activity on any of their respective
properties, or past activity on any of their respective properties which, though
lawful and fully permissible at the time, could result in present liability,
(iv) the presence, use, release, storage, treatment, or disposal of hazardous
substances on or at any of the properties owned or operated by Borrower or any
Subsidiary, or (v) any other environmental, health, or safety condition in
connection with this Subordinated Loan Agreement or any other Subordinated Loan
Document, provided, however, no indemnity shall be afforded under this Section
9.2(d) in respect of any property for any occurrence arising solely and directly
from the acts or omissions of the Subordinated Lenders during the period after
which such Person, its successors or assigns shall have acquired such property
through foreclosure or deed in lieu of foreclosure;
(e) in the case of any indemnification hereunder, the
Subordinated Agent or other Person indemnified hereunder shall give notice to
the Borrower within a reasonable period of time of any such claim or demand
being made against the Subordinated Agent, the Subordinated Lenders or other
indemnified Person and the Borrower shall have the non-exclusive right to join
in the defense against any such claim or demand;
(f) no indemnitee may settle any claim to be indemnified
without the consent of the indemnitor, such consent not to be unreasonably
withheld; provided, that the indemnitor may not reasonably withhold consent to
any settlement that an indemnitee proposes, if the indemnitor does not have the
financial ability to pay all its obligations outstanding and asserted against
the indemnitee at that time, including the maximum potential claims against the
indemnitee to be indemnified pursuant to this Section 9.2;
(g) this Section 9.2 shall not apply to actions, suits,
proceedings, investigations, demands, losses, liabilities, claims, damages,
deficiencies, interest, judgments, costs, or expenses arising solely and
directly from the acts or omissions of the Subordinated Agent or any
Subordinated Lender during the period after which such Person, its successors or
assigns shall have acquired such property through foreclosure or deed in lieu of
foreclosure; and
(h) the Borrower's obligations under this Section 9.2 shall
survive any termination of this Subordinated Loan Agreement and the payment of
the Indebtedness.
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Section 9.3 No Waiver; Modifications in Writing.
(a) No failure or delay on the part of the Subordinated
Agent or any Subordinated Lender in exercising any right, power, or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power, or remedy preclude any other or further
exercise thereof or the exercise of any right, power, or remedy. The remedies
provided for herein are cumulative and are not exclusive of any remedies that
may be available to the Subordinated Agent or any Subordinated Lender at law or
in equity or otherwise.
(b) No modification or waiver of any provision of the
Subordinated Loan Agreement or the Notes, nor any consent required under the
Subordinated Loan Agreement or the Notes, shall be effective unless the same
shall be in writing and signed by the Subordinated Agent and Majority
Subordinated Lenders and the Borrower, and then such modification, waiver, or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no modification, waiver, or
consent shall, unless in writing and signed by the Subordinated Agent, all the
Subordinated Lenders, and the Borrower do any of the following: (a) increase any
Commitment of any Subordinated Lender, (b) forgive or reduce any amount or rate
of any principal, interest, or fees payable under the Subordinated Loan
Documents, or postpone or extend any time for payment thereof, (c) release any
Guaranty or all or substantially all of the collateral securing the Indebtedness
(except as otherwise permitted or required herein), or (d) change the percentage
of Subordinated Lenders required to take any action under the Subordinated Loan
Agreement, the Notes, or the Security Documents, including any amendment of the
definition of "Majority Subordinated Lenders" or this Section 9.3. No
modification, waiver, or consent shall, unless in writing and signed by the
Subordinated Agent affect the rights or obligations of the Subordinated Agent
under the Subordinated Loan Documents. The Subordinated Agent shall not modify
or waive or grant any consent under any other Subordinated Loan Document of such
action would be prohibited under this Section 8.3 with respect to the Loan
Agreement or the Notes.
Section 9.4 Binding Effect; Assignment. This Agreement and the
Subordinated Loan Documents shall bind and inure to the benefit of the Borrower
and its successors and assigns and the Subordinated Agent and the Subordinated
Lenders and their respective successors and assigns. The Borrower may not assign
its rights or delegate its duties under the Subordinated Loan Agreement or any
Subordinated Loan Document.
(a) Assignments. Any Subordinated Lender may assign
to one or more banks or other entities all or any portion of its rights and
obligations with respect to the Subordinated Loan Agreement (including the
Advances owing to it, the Note held by it, and its Commitment); provided,
however, that (i) the parties to each such assignment shall execute and deliver
to the Subordinated Agent, for its acceptance and recording in the Register, an
assignment and acceptance in form and substance reasonably satisfactory to the
Subordinated Agent ("Assignment and
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Acceptance"), together with the Notes subject to such assignment and (ii) each
assignee shall pay to the Subordinated Agent a $3,500 administrative fee. Upon
such execution, delivery, acceptance and recording, from and after the effective
date specified in each Assignment and Acceptance, which effective date shall be
at least three Business Days after the execution thereof, (A) the assignee
thereunder shall be a party hereto for all purposes and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Subordinated
Lender hereunder and (B) the assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Subordinated Loan Agreement (and, in the case of an
Assignment and Acceptance covering all of such Subordinated Lender's rights and
obligations under the Subordinated Loan Agreement, such Subordinated Lender
shall cease to be a party hereto).
(b) Term of Assignments. By executing and delivering
an Assignment and Acceptance, the assignor thereunder and the assignee
thereunder confirm to and agree with each other and the other parties hereto as
follows: (i) other than as provided in such Assignment and Acceptance, the
assignor makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with the Subordinated Loan Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency of value of the Subordinated
Loan Agreement or any other instrument or document furnished pursuant hereto;
(ii) the assignor makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Subordinated Loan
Party or the performance or observance by any Subordinated Loan Party of any of
its obligations under the Subordinated Loan Agreement or any other instrument or
document furnished pursuant hereto; (iii) the assignee confirms that it has
received a copy of the Subordinated Loan Agreement, together with such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) the
assignee shall, independently and without reliance upon the Subordinated Agent,
the assignor or any other Subordinated Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Subordinated Loan
Agreement; (v) the assignee appoints and authorizes the Subordinated Agent to
take such action as agent on its behalf and to exercise such powers under the
Subordinated Loan Agreement as are delegated to the Subordinated Agent by the
terms hereof, together with such powers as are reasonably incidental thereto;
and (vi) the assignee agrees that it shall perform in accordance with their
terms all of the obligations which by the terms of the Subordinated Loan
Agreement are required to be performed by it as a Subordinated Lender.
9.5 The Register. The Subordinated Agent shall maintain
at its address referred to in Section 9.8 a copy of each Assignment and
Acceptance delivered to and accepted by it and a register for the recordation of
the names and addresses of the Subordinated Lenders and the
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Commitments and Subordinated Notes of each Subordinated Lender from time to time
(the "Register"). The entries in the Register shall be conclusive and binding
for all purposes, absent manifest error, and the Borrower, the Subordinated
Agent, and the Subordinated Lenders may treat each Person whose name is recorded
in the Register as a Subordinated Lender hereunder for all purposes of the
Subordinated Loan Agreement. The Register shall be available for inspection by
the Borrower or any Subordinated Lender at any reasonable time and from time to
time upon reasonable prior notice.
9.6 Procedures. Upon its receipt of an Assignment and
Acceptance executed by the assignor thereunder and the assignee thereunder,
together with the Notes subject to such assignment, the Subordinated Agent
shall, if such Assignment and Acceptance has been completed in the appropriate
form, (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register, and (iii) give prompt notice thereof to the
Borrower. Within five Business Days after its receipt of such notice, the
Borrower shall execute and deliver to the Subordinated Agent in exchange for the
surrendered Note new Notes in the appropriate amounts to the order of the
assignee and, if the assignor has retained any rights and obligations hereunder,
new Notes in the appropriate amounts to the order of the assignor. Such new
Notes shall be dated the effective date of such Assignment and Acceptance and
shall be in the appropriate form.
9.7 Participation. Each Subordinated Lender may sell
participation to one or more banks or other entities in or to all or a portion
of its rights and obligations under the Subordinated Loan Agreement (including
the Advances owing to it, the Notes held by it, and its Commitments); provided,
however, that (i) such Subordinated Lender's obligations under the Subordinated
Loan Agreement (including its Commitments to the Borrower hereunder) shall
remain unchanged, (ii) such Subordinated Lender shall remain solely responsible
to the other parties hereto for the performance of such obligations, (iii) such
Subordinated Lender shall remain the holder of any Commitments and Notes for all
purposes of the Subordinated Loan Agreement, (iv) the Borrower, the Subordinated
Agent, and the other Subordinated Lenders shall continue to deal solely and
directly with such Subordinated Lender in connection with such Subordinated
Lender's rights and obligations under the Subordinated Loan Agreement, and (v)
such Subordinated Lender shall not require the participant's consent to any
matter under the Subordinated Loan Agreement except for those that require
approval of all of the Subordinated Lenders under Section 8.3. The Borrower
hereby agrees that participants shall have the same rights under Sections 2.6,
2.7, 2.8, and 9.2 as a Subordinated Lender to the extent of their respective
participation.
Section 9.8 Communications. All notices and demands provided for
hereunder shall be in writing, shall be given by registered or certified mail,
return receipt requested, telex, telegram, telecopy, air courier guaranteeing
overnight delivery or personal delivery, to the addresses specified under such
Person's signature block or to such other address as such Persons may designate
in writing. All other communications may be by regular mail. All such notices
and communications
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<PAGE> 54
and all notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; four days after being sent
by certified mail, return receipt requested, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and on the next Business Day
if timely delivered to an air courier guaranteeing overnight delivery.
Section 9.9 Interest. Notwithstanding anything herein or in the
other Subordinated Loan Documents or Equity Document to the contrary, it is the
intention of the parties hereto to conform strictly to usury laws applicable to
this transaction. Accordingly, if the transactions contemplated hereby would be
usurious under applicable law, then, in that event, notwithstanding anything to
the contrary in the Notes, this Subordinated Loan Agreement, any other
Subordinated Loan Document, or any Equity Document or agreement entered into in
connection with or as security for the Notes, it is agreed as follows: (a) the
aggregate of all consideration which constitutes interest under law applicable
to the Subordinated Lenders that is contracted for, taken, reserved, charged or
received under the Notes, this Subordinated Loan Agreement, any of the other
Subordinated Loan Documents, the Equity Documents or otherwise in connection
with this transaction shall under no circumstances exceed the maximum amount
allowed by such applicable law, and any excess shall be canceled automatically
and, if already paid, shall be credited by the Subordinated Lenders on the
principal amount of the Notes (or, to the extent that the principal amount of
the Notes shall have been or would thereby be paid in full, refunded to the
Borrower); and (b) in the event that the maturity of the Notes is accelerated
for any reason, or in the event of any required or permitted prepayment, then
such consideration that constitutes interest under law applicable to this
transaction may never include more than the maximum amount allowed by such
applicable law, and (c) excess interest, if any, provided for in this
Subordinated Loan Agreement or otherwise in connection with the Subordinated
Loans shall be canceled automatically and, if already paid, shall be credited by
the Subordinated Lenders on the principal amount of the Notes (or, to the extent
that the principal amount of the Notes shall have been or would thereby be paid
in full, refunded by the Subordinated Lenders to the Borrower). The right to
accelerate the maturity of the Notes does not include the right to accelerate
any interest which has not otherwise accrued on the date of such acceleration,
and the Subordinated Lenders do not intend to collect any unearned interest in
the event of acceleration. All sums paid or agreed to be paid to the
Subordinated Lenders for the use, forbearance or detention of sums included in
the Indebtedness shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the Notes until
payment in full so that the rate or amount of interest on account of the Notes
does not exceed the applicable usury ceiling, if any. As used in this Section
9.9, the term "applicable law" shall mean the laws which govern this
Subordinated Loan Agreement as described in Section 9.10 (or the law of any
other jurisdiction whose laws may be mandatorily applicable notwithstanding
other provisions of this Subordinated Loan Agreement), or law of the United
States of America applicable to the Subordinated Lenders and the Subordinated
Loan and the Senior Loan which would permit the Subordinated Lenders to contract
for, charge, take, reserve or receive a greater amount of interest than under
any other applicable law. If the stated rate of interest under this Subordinated
Loan Agreement ever exceeds
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<PAGE> 55
the Maximum Rate, then the outstanding principal amount of the Subordinated Loan
made hereunder shall bear interest at the Maximum Rate until the difference
between the interest which would have been due at the stated rates of interest
and the amount due at the Maximum Rate (the "Lost Interest") has been recaptured
by the Subordinated Lenders. If the Subordinated Loan made hereunder is repaid
in full and the Lost Interest has not been fully recaptured by the Subordinated
Lenders pursuant to the preceding sentence, then the Subordinated Loans made
hereunder shall be deemed to have accrued interest at the Maximum Rate since the
date the Subordinated Loan was made to the extent necessary to recapture the
Lost Interest not recaptured pursuant to the preceding sentence and, to the
extent allowed by law, the Borrower shall pay to the Subordinated Lenders the
amount of the Lost Interest remaining to be recaptured by the Subordinated
Lenders.
Section 9.10 Governing Law. The laws of the State of New York will
govern this Subordinated Loan Agreement without regard to principles of
conflicts of laws.
SECTION 9.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
SUBORDINATED AGENT, AND THE SUBORDINATED LENDERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO ANY SUBORDINATED LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
SECTION 9.12 LIMITATION ON DAMAGES. IN NO EVENT SHALL ANY PARTY
HERETO BE LIABLE TO ANY OTHER PARTY HERETO FOR ANY SPECIAL, INDIRECT,
CONSEQUENTIAL, INCIDENTAL, PUNITIVE, OR EXEMPLARY DAMAGES, INCLUDING WITHOUT
LIMITATION, LOST PROFITS OR SAVINGS, REGARDLESS OF THE FORM OF ACTION GIVING
RISE TO SUCH A CLAIM FOR SUCH DAMAGES, WHETHER IN CONTRACT OR TORT, INCLUDING
NEGLIGENCE, EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Section 9.13 Execution in Counterparts. This Subordinated Loan
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which counterparts, when so executed
and delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Subordinated Loan
Agreement.
-50-
<PAGE> 56
[SIGNATURE PAGE - SUBORDINATED LOAN AGREEMENT]
IN WITNESS WHEREOF, the parties hereto execute this
Subordinated Loan Agreement, effective as of the date first above written.
Borrower: SIERRA WELL SERVICE, INC.,
A Delaware corporation
By: /s/ Bill E. Coggin
------------------------------------------------------
Name: Bill E. Coggin
Title: Vice Chairman
Address for notification:
Sierra Well Service, Inc.
406 North Big Spring
Midland, Texas 79701-4326
Attention: Mr. Bill E. Coggin
Telecopier: (915) 688-0191
Subordinated Agent: JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP, AS
SUBORDINATED AGENT
By: Enron Capital Management II Limited
Partnership, its sole general partner
By: Enron Capital II Corp., its sole general
partner
By: /s/ John D. Curtin III
------------------------------------------
Name: John D. Curtin III
Title: Agent and Attorney-in-Fact
S-1
<PAGE> 57
[SIGNATURE PAGE - SUBORDINATED LOAN AGREEMENT]
Address for notification:
c/o Enron Capital & Trade Resources Corp.
Legal Department
1400 Smith Street
Houston, Texas 77002
Attention: Gareth S. Bahlmann
Telecopier: (713) 646-3393
c/o Enron Capital & Trade Resources Corp.
Compliance Department
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telecopier: (713) 646-4039 or
(713) 646-4946
Subordinated Lender: JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP
By: Enron Capital Management II Limited
Partnership, its sole general partner
By: Enron Capital II Corp., its sole general
partner
By: /s/ John D. Curtin III
------------------------------------------
Name: John D. Curtin III
Title: Agent and Attorney-in-Fact
Address for notification:
c/o Enron Capital & Trade Resources Corp.
Legal Department
1400 Smith Street
Houston, Texas 77002
Attention: Gareth S. Bahlmann
Telecopier: (713) 646-3393
c/o Enron Capital & Trade Resources Corp.
S-2
<PAGE> 58
[SIGNATURE PAGE - SUBORDINATED LOAN AGREEMENT]
Compliance
Department 1400
Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telecopier: (713) 646-4039 or
(713) 646-4946
S-3
<PAGE> 1
EXHIBIT 10.13
[EXECUTION VERSION]
SUBORDINATED PROMISSORY NOTE
$ 25,000,000.00 New York, New York March 31, 1999
SIERRA WELL SERVICE, INC., a Delaware corporation ("Borrower"), for
value received, hereby promises to pay to the order of Joint Energy Development
Investments II Limited Partnership, a Delaware limited partnership, ("Lender")
the principal amount of TWENTY-FIVE MILLION AND NO /100 DOLLARS ($25,000,000.00
) and interest on the unpaid balance of such principal amount in accordance with
Subordinated Loan Agreement referred to below.
This Note is a "Subordinated Note" issued pursuant to the Subordinated
Loan Agreement dated as of March 31, 1999 (as modified from time to time, the
"Subordinated Loan Agreement"), between the Borrower, the Subordinated Lenders
named therein, and Joint Energy Development Investments II Limited Partnership,
as Subordinated Agent. All capitalized terms used herein shall have the meaning
ascribed to such term in the Subordinated Loan Agreement unless otherwise
defined herein. This Note is subject to and entitled to the benefits of the
Subordinated Loan Agreement and the support therefor and the holder of this Note
may enforce such rights in accordance with the Subordinated Loan Agreement.
Without limiting the foregoing, upon the occurrence of an Event of Default,
payments due under this Note may be accelerated in the manner and with the
effect provided in the Subordinated Loan Agreement.
This Note is subject to mandatory and optional repayments, in whole or
in part, as specified in the Subordinated Loan Agreement. Payments of principal
and interest due on this Note paid in lawful money of the United States of
America to the Subordinated Agent in accordance with the terms of the
Subordinated Loan Agreement.
Reference is made to the $30,000,000 Senior Secured Note (Tranche B)
dated as of September 30, 1997 ("Prior Note"), made by the Borrower and payable
to the order of Joint Energy Development Investments Limited Partnership. The
Prior Note was assigned to Joint Energy Development Investments II Limited
Partnership. The indebtedness under the Prior Note continues under the
Subordinated Notes and the execution of the Subordinated Notes does not indicate
a payment, satisfaction, novation, or discharge thereof.
The Lender is hereby authorized to record all Loans and all payments
and prepayments hereunder. The failure of the Lender to record any such amounts
shall not diminish or impair the Borrower's obligation to repay all principal
advanced and to pay all interest accruing under this Note.
<PAGE> 2
The Borrower and any and each co-maker, guarantor, accommodation party,
endorser or other Person liable for the payment or collection of this Note
expressly waive demand and presentment for payment, notice of nonpayment, notice
of intent to accelerate, notice of acceleration, protest, notice of protest,
notice of dishonor, bringing of suit, and diligence in taking any action to
collect amounts called for hereunder and in the handling of Collateral at any
time existing as security in connection herewith, and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder or in connection
with any Lien at any time had or existing as security for any amount called for
hereunder.
It is the intention of the Subordinated Lenders and the Borrower to
conform strictly to any applicable usury laws. Accordingly, the terms of the
Subordinated Loan Agreement relating to the prevention of usury will be strictly
followed.
THE INDEBTEDNESS EVIDENCED BY THIS AGREEMENT IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF THE SENIOR DEBT (AS DEFINED IN THE SUBORDINATION AND
INTERCREDITOR AGREEMENT DEFINED BELOW) PURSUANT TO, AND TO THE EXTENT PROVIDED
IN, THE SUBORDINATION AND INTERCREDITOR AGREEMENT DATED AS OF EVEN DATE HEREWITH
BY AND AMONG THE SIERRA WELL SERVICE, INC., THE SUBORDINATED AGENT (AS DEFINED
THEREIN), AND THE SENIOR AGENT (AS DEFINED THEREIN).
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CHOICE OF
LAWS.
SIERRA WELL SERVICE, INC.
By: /s/ Bill E. Coggin
-----------------------
Name: Bill E. Coggin
Title: Vice Chairman
<PAGE> 1
EXHIBIT 10.14
================================================================================
[EXECUTION VERSION]
SENIOR LOAN AGREEMENT
AMONG
SIERRA WELL SERVICE, INC.
AS BORROWER
THE SENIOR LENDERS NAMED IN THIS AGREEMENT,
AS SENIOR LENDERS
AND
JOINT ENERGY DEVELOPMENT INVESTMENTS II
LIMITED PARTNERSHIP
AS SENIOR AGENT
DATED AS OF MARCH 31, 1999
$24,408,000 SENIOR LOAN FACILITY
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1
<S> <C> <C>
DEFINITIONS ..................................................1
Section 1.1 Certain Definitions ........................1
Section 1.2 Accounting Principles .....................11
ARTICLE 2
AMOUNT AND TERM OF THE SENIOR LOAN ..........................11
Section 2.1 Senior Loan ...............................11
Section 2.2 Repayment Obligations; Prepayments ........11
Section 2.3 Payments and Computations .................13
Section 2.4 Interest ..................................14
Section 2.5 Senior Notes ..............................14
Section 2.6 Taxes .....................................15
Section 2.7 Increased Costs ...........................15
Section 2.8 Illegality ................................16
ARTICLE 3
CONDITIONS OF CLOSING .......................................16
ARTICLE 4
REPRESENTATIONS AND WARRANTIES ..............................19
Section 4.1 Corporate Existence. ......................19
Section 4.2 Corporate Power and Authorization .........19
Section 4.3 Binding Obligations .......................20
Section 4.4 No Legal Bar Or Resultant Lien ............20
Section 4.5 No Consent ................................20
Section 4.6 Financial Condition .......................20
Section 4.7 Liabilities ...............................20
Section 4.8 Litigation ................................21
Section 4.9 Taxes; Governmental Charges ...............21
Section 4.10 Ownership of Property; Liens;
Leases of Equipment .......................21
Section 4.11 Intellectual Property .....................21
Section 4.12 Defaults ..................................21
Section 4.13 Casualties; Taking of Properties ..........22
Section 4.14 Margin Stock ..............................22
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.15 Location of Business and Offices ..........22
Section 4.16 Compliance with the Law ...................22
Section 4.17 No Material Misstatements .................23
Section 4.18 ERISA .....................................23
Section 4.19 Environmental Matters .....................23
Section 4.20 Subsidiaries; Partnerships ................25
Section 4.21 Certain Fees ..............................25
Section 4.22 Purpose of Loans ..........................25
Section 4.23 Support and Security Documents ............25
Section 4.24 Employment ................................25
Section 4.25 Year 2000 Compliance ......................26
Section 4.26 Insurance .................................26
Section 4.27 Hedging Agreements ........................27
Section 4.28 Capital Stock .............................27
ARTICLE 5
AFFIRMATIVE COVENANTS .......................................28
Section 5.1 Financial Statements and Reports ..........28
Section 5.2 Certificates of Compliance ................29
Section 5.3 Accountants' Certificate ..................29
Section 5.4 Taxes Other Liens .........................29
Section 5.5 Compliance with Laws ......................29
Section 5.6 Further Assurances ........................29
Section 5.7 Insurance .................................30
Section 5.8 Accounts and Records ......................30
Section 5.9 Right of Inspection .......................30
Section 5.10 Notice of Certain Events ..................30
Section 5.11 ERISA Information and Compliance ..........31
Section 5.12 Environmental Reports and Notices .........31
Section 5.13 Maintenance ...............................31
Section 5.14 New Subsidiary ............................31
Section 5.15 Performance on Borrower's Behalf ..........32
Section 5.16 Change of Principal Place of Business .....32
Section 5.17 New Bank Accounts .........................32
Section 5.18 Year 2000 Compliant .......................32
ARTICLE 6.............................................................33
NEGATIVE COVENANTS ..........................................33
Section 6.2 Mergers ...................................33
Section 6.3 Indebtedness and Other Obligations ........33
Section 6.4 Dividends; Compensation ...................34
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 6.5 Investments ...............................34
Section 6.6 Sale or Discount of Receivables ...........35
Section 6.7 Nature of Business ........................35
Section 6.8 Amendment of Articles of
Incorporation or Bylaws ...................35
Section 6.9 Asset Sales ...............................35
Section 6.10 Transactions with Affiliates ..............35
Section 6.11 Partnerships ..............................36
Section 6.12 Subsidiaries ..............................36
Section 6.13 Equity Proceeds ...........................36
Section 6.14 Public Disclosures ........................36
Section 6.15 Limitation on Payment Restrictions
Affecting Subsidiaries ....................36
Section 6.16 Fixed Charge Coverage Ratio ...............37
ARTICLE 7
EVENTS OF DEFAULT............................................37
Section 7.1 Events of Default .........................37
Section 7.2 Acceleration ..............................39
Section 7.3 Default Interest ..........................39
Section 7.4 Other Senior Loan Documents ...............39
Section 7.5 Right of Setoff ...........................39
Section 7.6 Cumulative Remedies .......................40
Section 7.7 Application of Payments ...................40
ARTICLE 8
THE SENIOR AGENT.............................................40
Section 8.1 Authorization and Action ..................40
Section 8.2 Senior Agent's Reliance, Etc. .............41
Section 8.3 The Senior Agent and Its Affiliates .......41
Section 8.4 Senior Lender Loan Decision ...............42
Section 8.5 Indemnification ...........................42
Section 8.6 Successor Senior Agent ....................42
ARTICLE 9
MISCELLANEOUS................................................43
Section 9.1 Interpretation and Survival
of Provisions .............................43
Section 9.2 Costs, Expenses and Taxes .................43
Section 9.3 No Waiver; Modifications in Writing .......45
Section 9.4 Binding Effect; Assignment ................46
Section 9.5 The Register ..............................47
Section 9.6 Procedures ................................48
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 9.7 Participation .............................48
Section 9.8 Communications ............................48
Section 9.9 Interest ..................................49
Section 9.10 Governing Law .............................50
Section 9.11 WAIVER OF JURY TRIAL ......................50
Section 9.12 LIMITATION ON DAMAGES .....................50
Section 9.13 Execution in Counterparts .................50
EXHIBITS:
Exhibit A - Form of Senior Note
Exhibit 5.1(a) - Consolidating Schedules
Exhibit 5.1(d) - Budget Requirements
Exhibit 5.2 - Form of Compliance Certificate
SCHEDULES:
Schedule 4.7 - Liabilities
Schedule 4.8 - Litigation
Schedule 4.10 - Certain Assets; Permitted Liens
Schedule 4.19 - Environmental
Schedule 4.20(a) - Subsidiaries
Schedule 4.20(b) - Partnerships; Joint Ventures
Schedule 4.26 - Insurance
Schedule 4.27 - Hedging Arrangements
Schedule 4.28 - Capital Stock
Schedule 6.3 - Certain Indebtedness
Schedule 6.9 - Excluded Asset Sales
</TABLE>
<PAGE> 6
SENIOR LOAN AGREEMENT
This Senior Loan Agreement (the "Senior Loan Agreement") is made and
entered into as of March 31, 1999, among SIERRA WELL SERVICE, INC., a Delaware
corporation, as borrower, the SENIOR LENDERS, as defined below, and JOINT ENERGY
DEVELOPMENT INVESTMENTS II LIMITED PARTNERSHIP, a Delaware limited partnership,
as agent for the Senior Lenders ("Senior Agent").
The Loan Agreement dated September 30, 1997 (the "Original Loan
Agreement") was entered into between the Borrower and Joint Energy Development
Investments Limited Partnership ("JEDI"). The Original Loan Agreement was
assigned to Joint Energy Development Investments II Limited Partnership ("JEDI
II") from JEDI pursuant to the Notice of Assignment and Amendment. In
conjunction with the restructuring of the Borrower's capital structure, the
Borrower, the Senior Lenders and the Senior Agent have agreed to amend, restate,
and convert the Original Loan Agreement into two separate loan facilities: (1)
this Senior Loan Agreement and (2) the Subordinated Loan Agreement dated as of
even date herewith among the Borrower, the Subordinated Lenders identified
therein, and the Subordinated Agent (the "Subordinated Loan Agreement").
In consideration of the mutual covenants and agreements herein
contained and of the loans hereinafter referred to, the parties agree as
follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Certain Definitions.
As used in this Agreement the following terms shall have the following
meanings:
"Acquisition" shall mean any direct or indirect acquisition, whether in
one or more related transactions, of all or substantially all of the assets,
liabilities, or securities of a Person, a division or business unit of a Person,
or any related group of the foregoing.
"Advance" shall mean the outstanding principal from a Senior Lender
which represents such Senior Lender's Pro Rata Share of the Senior Loan.
"Affiliate" of any specified Person shall mean 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 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;
provided that no Person which would otherwise be an Affiliate of Enron Capital &
Trade Resources Corp. if not for this proviso shall be considered as an
Affiliate of the Borrower or its Subsidiaries.
<PAGE> 7
"Auction Package" means the auction of various vehicles and
miscellaneous obsolete equipment on or before May 31, 1999 in an amount not to
exceed $150,000.
"Bank Account Letter" shall mean the letter dated of even date herewith
executed by the Senior Agent and Bank One, Texas, N.A.
"Basic Documents" shall mean, collectively, the Senior Loan Documents
and the Equity Documents.
"Board of Directors" shall mean the Board of Directors of SWRH, SWRI or
the Borrower, as applicable, or any committee thereof duly authorized to act on
behalf of the applicable Board of Directors.
"Borrower" shall mean Sierra Well Service, Inc., a Delaware
corporation.
"Business Day" shall mean any day other than Saturday, Sunday, or a day
on which banking institutions in New York City are not required to open for
business.
"Capital Lease" shall mean any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"Capitalized Lease Obligation" shall mean the amount of the liability
under any Capital Lease that, in accordance with GAAP, is required to be
capitalized and reflected as a liability on the balance sheet.
"Capital Stock" of any Person shall mean any and all shares, interests,
participations, or other equivalents (however designated) of, or rights or
warrants, or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Change of Control" shall mean (i) the occurrence of any time when H.H.
Wommack III ever owns less than 51% of the voting securities of SWRH, (ii) any
time at which a wholly owned subsidiary of SWRH ceases to be the general partner
of Southwest Partners II, L.P. and Southwest Partners III, L.P., or (iii) any
time at which SWRH, SWRI, Southwest Partners II, L.P. and Southwest Partners
III, L.P. collectively own less than 45% of the voting securities of the
Borrower, or (iv) during any period of twelve (12) consecutive months beginning
with and after the Effective Date, the individuals who at the beginning of such
twelve (12) month period were directors of SWRH, or of the Borrower, shall cease
for any reason to constitute a majority of the Board of Directors of either SWRH
or the Borrower at any time during such period; provided, however, that "Change
of Control" shall not include any change of control occasioned by any of the
Senior Loan Documents, the Subordinated Loan Documents or the Equity Documents.
<PAGE> 8
"Change of Management" shall mean the occurrence of any time when H.H.
Wommack III ceases to act as chief executive officer of SWRH, whether in the
capacity of President or Chairman.
"Closing Date" shall mean the date upon which each of the conditions
precedent contained in Article 3 have been either (a) satisfied in full to the
Senior Agent's satisfaction or (b) waived by the Senior Agent in its sole
discretion; provided that in no event shall the Closing Date be a date occurring
after May 15, 1999.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, any successor statute, and the rules and regulation thereunder.
"Collateral" shall mean any real or personal property which may now or
hereafter be subject to a Lien securing the Senior Loan Obligations, including
the Liens granted by the Borrower concurrently with the execution of this Senior
Loan Agreement for the benefit of the Senior Lenders.
"Commitment" shall mean, for any Senior Lender, such Senior Lender's
commitment to make its Pro Rata Share of the Senior Loan pursuant to the terms
of this Senior Loan Agreement in an aggregate outstanding amount not to exceed
the Senior Lender's Maximum Commitment.
"Common Stock" shall mean the common stock, no par value per share, of
the Borrower or such other Capital Stock or other securities as shall constitute
the common equity of the Company.
"Debt/Lease Service" means, with respect to the Borrower and its
Subsidiaries and for any period of its determination, the sum of (a) the
aggregate amount of consolidated principal payments that became due and payable
or that were paid on account of long-term Indebtedness of the Borrower and its
Subsidiaries during such period, including any such amounts related to the
Capital Leases of the Borrower and its Subsidiaries, plus (b) the aggregate
consolidated lease expense of the Borrower and its Subsidiaries that became due
and payable or that was paid during such period, plus (c) the aggregate
consolidated interest expense of the Borrower and its Subsidiaries that became
due and payable or that was paid during such period, plus (d) the consolidated
Capital Expenditures of the Borrower and its Subsidiaries during such period. In
clarification of the foregoing, any interest amount deferred pursuant to Section
2.4(b) of the Subordinated Loan Agreement shall not be included in clause (c) of
this definition until the earlier of (i) the date such interest amount becomes
due and payable or (ii) the date such interest amount is paid.
"Default" shall mean any event which is, or after notice or passage of
time, or both, would be, an Event of Default.
"Default Rate" shall mean, for the applicable period, a per annum
interest rate equal to the applicable interest rate on the outstanding principal
balance of the respective Senior Notes as set forth in Section 2.6(c) for such
period plus 3.00% per annum.
<PAGE> 9
"EBITDA" means, with respect to any Person and for any period of its
determination, the consolidated net income of such Person for such period, plus
the consolidated interest expense, income taxes, and depreciation and
amortization of such Person for such period, in each case excluding (a)
unrealized gains or losses with respect to such Person's investment portfolio,
(b) any extraordinary gains or losses, (c) any gains or losses on the sale of
fixed assets and (d) any non-cash impairments of assets.
"Effective Date" shall mean the date of this Senior Loan Agreement.
"Environmental Laws" shall mean any and all laws, statutes, ordinances,
rules, regulations, orders, or determinations of any Governmental Authority
pertaining to health or the environment in effect in any and all jurisdictions
in which the Borrower or its Subsidiaries are conducting or at any time have
conducted business, or where any property of the Borrower or its Subsidiaries is
located, or where any hazardous substances generated by or disposed of by the
Borrower or its Subsidiaries are located, including but not limited to the Oil
Pollution Act of 1990 ("OPA"), as amended, the Clean Air Act, as amended, the
Comprehensive Environmental, Response, Compensation, and Liability Act of 1980
("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, and other
environmental conservation or protection laws. The term "oil" has the meaning
specified in OPA; the terms "hazardous substance," "release" and "threatened
release" have the meanings specified in CERCLA, and the terms "solid waste,"
"disposal" and "disposed" have the meanings specified in RCRA; provided,
however, if either CERCLA, RCRA or OPA is amended so as to broaden the meaning
of any term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment, and provided, further, that, to the extent the
laws of the state in which any property of the Borrower or its Subsidiaries is
located establish a meaning for "oil," "hazardous substance," "release," "solid
waste" or "disposal" which is broader than that specified in either OPA, CERCLA
or RCRA, such broader meaning shall apply with respect to such property.
"Equipment" shall mean all of Borrower's and its Subsidiaries' present
and future owned or leased fixtures, equipment, mobile equipment, vehicles,
interstate commercial vehicles, workover rigs and inventory comprised of such
items, wherever located, including Vehicles, tongs, hooks, tubing elevators,
pumps, pipes, engines, containers, tires, parts inventory, and other oil-field
service equipment, and all parts thereof and all accessions and additions
thereto.
"Equity Documents" shall mean the Securities Purchase Agreement between
the Borrower and JEDI II dated as of the Effective Date, the Certificate of
Designation of Preferred Stock - Series A, the Certificate of Designation of
Preferred Stock - Series B, the Certificate of Designation of Preferred Stock -
Series C, and the Stockholders' Agreement, and Registration Rights Agreement,
each as defined therein.
<PAGE> 10
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, any successor statute, and the rules and
regulations thereunder.
"Event of Default" shall have the meaning specified in Section 7.1.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for any such day on
such transactions received by the Senior Agent from three Federal funds brokers
of recognized standing selected by it.
"Final Maturity Date" shall mean June 30, 2004.
"Financial Statements" shall mean consolidated balance sheets,
statements of operation and statements of cash flow, the consolidating schedules
used to prepare the same and, on an annual basis, appropriate footnotes prepared
in accordance with GAAP.
"Financing Statement" shall mean any document executed by either the
Borrower or any of its Subsidiaries required to perfect the pledge or security
interest granted by the Senior Loan Parties in any of the Collateral.
"Financing Statement Amendments" shall mean the amendments executed of
even date herewith amending the Financing Statement to, among other items, give
effect to the terms of this Senior Loan Agreement and the Subordinated Loan
Agreement.
"GAAP" shall mean generally accepted accounting principles, applied on
a consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants or in statements of
the Financial Accounting Standards Board or their respective successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
observed in a current period are comparable in all material respects to those
accounting principles applied in preceding periods.
"Governmental Authority" shall mean any (domestic or foreign) federal,
native American Indian, state, province, county, city, municipal, or other
political subdivision or government, department, commission, board, bureau,
court, agency, or any other instrumentality of any of them, which exercises
jurisdiction over the Borrower, any of its Subsidiaries, or any of their
respective property.
"Guaranteed Debt" of any Person shall mean, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any manner
by such Person, or in effect guaranteed
<PAGE> 11
directly or indirectly by such Person through an agreement (i) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the holder
of such Indebtedness against loss, (iii) to supply funds to, or in any other
manner invest in, the debtor (including any agreement to pay for property or
services to be acquired by such debtor irrespective of whether such property is
received or such services are rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor, or (v) otherwise to assure a
creditor against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit, in either case in the ordinary course of
business, or any obligation or liability of such Person in respect of leasehold
interests assigned by such Person to any other Person.
"Guaranty" shall mean any present or future guaranty in favor of the
Senior Agent for the benefit of the Senior Lenders guaranteeing the payment and
performance of the Senior Loan Obligations.
"Indebtedness" shall mean, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade accounts
payable and other accrued current liabilities incurred in the ordinary course of
business, (ii) all obligations of such Person evidenced by bonds, notes,
debentures, or other similar instruments, (iii) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (iv) all Capitalized Lease
Obligations of such Person, (v) all indebtedness referred to in (but not
excluded from) clause (i), (ii), (iii), or (iv) above of other Persons, the
payment of which is secured by (or for which the holder of such indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
in property (including, without limitation, accounts and contract rights) owned
by such Person, even though such Person has not assumed or become liable for the
payment of such indebtedness, (vi) all Guaranteed Debt of such Person, (vii) all
Redeemable Capital Stock that has any redemptions, dividend payments, or other
obligations that are or could become due before the Final Maturity Date issued
by such Person.
"LIBOR Rate" shall mean, the interest rate per annum equal to the rate
per annum reported, on the day three Business Days prior to the day of its
determination, on Telerate Access Service Page 3750 (British Bankers Association
Interest Settlement Rates) provided by Telerate Systems Incorporated (or, if
such Telerate Page shall cease to be publicly available, as reported by Reuters
or any publicly available source of similar market data selected by the Senior
Agent) as the London Interbank Offered Rate for U.S. dollar deposits having a
term equal to six (6) months and in an amount substantially equal to the
outstanding principal amount of the Senior Loan.
<PAGE> 12
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), or preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any Capital Lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under any applicable version of the Uniform Commercial Code in effect
from time to time or any comparable law of any jurisdiction in respect of any of
the foregoing).
"Majority Senior Lenders" shall mean, at any time, Senior Lenders
holding more than 50% of the then aggregate unpaid principal amount of the
Senior Loan at such time.
"Material Adverse Effect" shall mean any circumstances or events which
could (i) have a material adverse effect on the assets or properties,
liabilities, financial condition, business, operations, affairs, or
circumstances of the Borrower from the facts represented or warranted in any
Senior Loan Document or Equity Document (other than any representation or
warranty related solely to a different point in time), or (ii) materially impair
the ability of the Borrower to carry out its business as it exists on the date
of this Senior Loan Agreement or proposed at the date of this Senior Loan
Agreement to be conducted or to meet its obligations under the Senior Loan
Documents or Equity Documents on a timely basis.
"Maximum Rate" shall mean, at any particular time in question, the
maximum rate of interest which under applicable law may then be charged on the
Senior Notes. If such maximum rate changes after the date hereof, the Maximum
Rate shall be automatically increased or decreased, as the case may be, without
notice to the Borrower from time to time as of the effective date of each change
in such maximum rate.
"Mortgages" shall mean (a) such Security Documents requested by the
Senior Agent in form and substance satisfactory to the Senior Agent which shall
replace and/or amend and restate the existing Deeds of Trust, Security
Agreements, and Fixture Filings and Mortgages, Security Agreements, and Fixture
Filings executed in connection with the Original Loan Agreement, and (b) any
present or future deeds of trust, mortgages, or similar agreements made by the
Borrower or any Subsidiary, granting a first and prior lien and security
interest, subject only to Permitted Liens, in all real property, fixtures and
improvements owned by the respective Senior Loan Parties, including any
leasehold estate in real property, fixtures and improvements, in favor of the
Senior Agent for the benefit of the Senior Lenders securing the Senior Loan
Obligations.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Payment Date" shall mean the last Business Day of each March, June,
September, and December following the Effective Date until the Final Maturity
Date.
<PAGE> 13
"Permitted Liens" shall mean (i) Liens disclosed in Schedule 4.10, (ii)
ad valorem taxes not yet due and payable, laborers', vendors', repairmen's,
mechanics', worker's, or materialmen's liens arising by operation of law or
incident to the construction or improvement of property if the obligations
secured thereby are not yet due or are being contested in good faith by
appropriate legal proceedings (iii) minor irregularities in title to real
property which do not materially interfere with the occupation, use and
enjoyment by the Borrower or any Subsidiary of any of their respective
properties in the normal course of business as presently conducted or materially
impair the value thereof for such business, and (iv) so long as such liens are
not superior to the Liens created pursuant to the Security Instruments, Liens
securing the Subordinated Loan Obligations (as defined in the Subordinated Loan
Agreement).
"Person" shall mean any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, or Government Authority.
"Plan" shall mean any plan subject to Title IV of ERISA and maintained
by the Borrower or any Subsidiary, or any such plan to which the Borrower or any
Subsidiary is required to contribute on behalf of their employees.
"Pledge Agreements" shall mean the Pledge Agreements dated as of the
Effective Date made by each of the Pledgors in favor of the Senior Agent for the
benefit of the Senior Lenders pledging the Capital Stock of the Borrower owned
by the Pledgors to the Senior Agent for the benefit of the Senior Lenders.
"Pledgors" shall mean (a) Southwest Partners II, L.P., a Delaware
limited partnership, (b) Southwest Partners III, L.P., a Delaware limited
partnership, (c) Joey D. Fields, and (d) Dub W. Harrison.
"Pro Rata Share" shall mean, with respect to any Senior Lender, (i)
while no Advances are outstanding, the ratio (expressed as a percentage) of such
Senior Lender's Maximum Commitment, at any given time, to the total of the
Maximum Commitments at such time and (ii) while Advances are outstanding, the
the ratio (expressed as a percentage) outstanding principal amount of Advances
of such Senior Lender at such time to the aggregate outstanding amount of
Advances at such time.
"Redeemable Capital Stock" of any Person means any Capital Stock of
such Person or any Subsidiary of such Person that, either by its terms, by the
terms of any security into which it is convertible or exchangeable or otherwise,
(i), is, or upon the happening of an event or passage of time would be, required
to be redeemed on or prior to the Final Maturity Date, or (ii) is redeemable at
the option of the holder thereof at any time prior to the Final Maturity Date,
or (iii) is convertible into or exchangeable for debt securities at any time
prior to the Final Maturity Date.
"Requirement of Law" shall mean as to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of such
Person, and any law, treaty, rule, or
<PAGE> 14
regulation or determination of an arbitrator or a court or other Governmental
Authority, domestic or foreign, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Responsible Officer" shall mean the chief executive officer,
president, executive vice president, general counsel, treasurer, or corporate
secretary of the Borrower or any of its Subsidiaries, as the case may be.
"Security Agreements" shall mean (a) the Security Agreement dated as of
the Effective Date, made by the Borrower, in favor of the Senior Agent for the
benefit of the Senior Lenders as security for the payment or performance of the
Senior Loan Obligations and (b) any future security agreements made by the
Borrower or any of the Subsidiaries, granting a first and prior security
interest in all of the assets and properties of the Senior Loan Parties, in
favor of the Senior Agent for the benefit of the Senior Lenders as security for
the payment or performance of the Senior Loan Obligations.
"Security Documents" shall mean this Senior Loan Agreement, the
Subordinated Loan Agreement, the Mortgages, the Security Agreements, the
Financing Statement Amendments, the Guaranties, the Security Agreements, the
Financing Statements, the Pledge Agreements, the Bank Account Letter and any and
all other agreements or instruments now or hereafter executed and delivered by
the Borrower, the Subsidiaries, or any other Person as security or support for
the payment or performance of the Senior Loan Obligations.
"Senior Agent's Account" shall mean an account located in New York as
specified by the Senior Agent as the Senior Agent's Account by written notice to
the Borrower.
"Senior Lenders" shall mean the Senior Lenders listed on the signature
pages of this Senior Loan Agreement and each assignee that shall become a party
to this Senior Loan Agreement pursuant to Section 9.4.
"Senior Lender's Account" shall mean, for any Senior Lender, the
account specified by such Senior Lender as its Senior Lender's Account by notice
in writing to the Senior Agent.
"Senior Loan" shall mean the loan evidenced by this Senior Loan
Agreement consisting of the Advances by the Senior Lenders.
"Senior Loan Documents" shall mean, collectively, the Senior Loan
Agreement, the Senior Notes, the Structuring Fee Agreement, the Security
Documents, the Subordination Agreement, and all other documents, agreements, and
other instruments executed in connection with the Senior Loan Agreement.
<PAGE> 15
"Senior Loan Obligations" shall mean all principal, interest, fees,
reimbursements, indemnifications, and other amounts or obligations now or
hereafter owed or performable by the Senior Loan Parties under the Senior Loan
Documents.
"Senior Loan Parties" shall mean the Borrower and the Subsidiaries.
"Senior Note" shall mean a promissory note in substantially the form of
Exhibit A made by the Borrower and payable to the order of any Senior Lender
evidencing indebtedness of the Borrower to such Senior Lender resulting from the
Senior Loan.
"Structuring Fee Agreements" means (a) the letter agreement dated as of
even date herewith between the Borrower and ECT Securities Limited Partnership
and (b) the letter agreement dated as of even date herewith between the Borrower
and JEDI II.
"Subsidiary" shall mean as to any Person, a corporation, partnership,
or other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests having
such power only by reason of the happening of a contingency) to elect a majority
of the board of directors or other managers of such corporation, partnership, or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly, through one or more intermediaries, or both,
by such Person. Unless otherwise qualified, all references to a "Subsidiary" or
to "Subsidiaries" in this Senior Loan Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower.
"Subordinated Loan Documents" shall have such meaning as defined in the
Subordinated Loan Agreement.
"Subordination Agreement" shall mean the Subordination and
Intercreditor Agreement dated as of even date herewith among the Borrower, the
Senior Agent, and the agent for the lenders under the Subordinated Loan
Agreement.
"SWRH" shall mean Southwest Royalties Holdings, Inc., a Delaware
corporation.
"SWRI" shall mean Southwest Royalties, Inc., a Delaware corporation.
"Vehicles" means all of Borrower's present and future owned or leased
crew cabs, pick-ups, vans, trucks, automobiles, tractors, trailers, and other
mobile equipment.
Section 1.2 Accounting Principles.
(a) The Borrower shall not, and shall not permit any of its
Subsidiaries to, materially change any method of accounting employed in
the preparation of their Financial Statements from the methods employed
in the preparation of the audited consolidated
<PAGE> 16
Financial Statements dated as of December 31, 1998, unless required to
conform to GAAP or approved in writing by the Senior Agent.
(b) Except as expressly provided for in this Senior Loan
Agreement, all accounting terms, definitions, ratios, and other tests
described herein shall be construed in accordance with GAAP with the
same basis applied in the Financial Statements described in paragraph
(a) above.
(c) When the Financial Statements or financial results of any
group of Persons are described as "combined," that reference is to the
financial statements or financial results of such Persons, but not
their Subsidiaries, taken together on a combined basis after
eliminating significant inter-entity balances and transactions.
ARTICLE 2
AMOUNT AND TERM OF THE SENIOR LOAN
Section 2.1 Senior Loan. Subject to the terms, conditions and notice
requirements and relying on the representations and warranties contained in this
Senior Loan Agreement and the other Senior Loan Documents, on the Closing Date
but effective as of the Effective Date Twenty-Four Million Four Hundred Eight
Thousand and No/100 Dollars ($24,408,000) of the outstanding principal amount
owed by the Borrower under the Original Loan Agreement shall be converted into
the Senior Loan which shall consist of Advances owed to each Senior Lender in an
amount equal to such Senior Lender's Pro Rata Share of $24,408,000.
Section 2.2 Repayment Obligations; Prepayments.
(a) Principal.
(i) The outstanding principal balance of the Senior
Loan shall be due and payable to the Senior Agent for the
ratable benefit of the Senior Lenders beginning on September
30, 2000, and each Payment Date thereafter until the Final
Maturity Date in equal principal installments of $871,714.29.
The Borrower shall pay to the Senior Agent for the ratable
benefit of the Senior Lenders the aggregate outstanding
principal amount of the Senior Loan on the Final Maturity
Date.
(ii) In the event of a Change of Control, Borrower
shall repay to the Senior Agent for the ratable benefit of the
Senior Lenders within thirty days (30) of the Majority Senior
Lenders demand therefore, the aggregate outstanding principal
amount of the Senior Loan and all unpaid interest thereon. The
Majority Senior Lenders reserve the right to exercise the
terms and provision of this section at any time following a
Change of Control, regardless of the length of time following
the Change of Control that the Majority Senior Lenders
exercises their rights hereunder.
<PAGE> 17
Until such time as the Majority Senior Lenders make a demand
pursuant to the terms of this section, the Borrower shall
repay the principal amount of the Senior Loan in accordance
with the terms of Section 2.2(a)(i).
(b) Voluntary Prepayments. The Senior Loan may be prepaid in
whole or in part, from time to time, without penalty or premium,
following ten (10) days prior written notice to the Senior Agent. Any
voluntary partial prepayments of principal must be in whole multiples
of $100,000 and voluntary prepayments may only be made on a Payment
Date and shall include all interest accrued on the Senior Loan and
unpaid to the date of payment. Voluntary prepayments of principal may
not be reborrowed. Any prepayments shall be made to the Senior Agent
for the ratable benefit of the Senior Lenders.
(c) Mandatory Prepayments. In the event of any disposition or
transfer, including, without limitation, any transfer by merger or
operation of law, by the Borrower or any Subsidiary of any of their
respective assets, Capital Stock or debt securities, or should the
Borrower or any Subsidiary secure any loans other than the Senior Loan
or the Subordinated Loan, and whether such sales or loans are
undertaken with or without the consent of the Majority Senior Lenders,
the net proceeds thereof (after deducting all reasonable costs and
expenses incurred by the Borrower or Subsidiary in connection
therewith) shall be delivered to the Senior Agent for the ratable
benefit of the Senior Lenders as a mandatory prepayment of the Senior
Loan; provided that (i) with regard to any disposition or transfer of
any assets of the Borrower or its Subsidiaries, such prepayment shall
only be required to the extent that such disposition or transfer does
require the Senior Majority Lenders consent pursuant to Section 6.9 and
(ii) the mandatory prepayment provision contained within this Section
shall not apply to the Borrower's sale of its Lampasas Ranch property.
All mandatory prepayments shall be applied to the Senior Loan
Obligations in accordance with Section 7.7. Mandatory prepayments of
principal may not be reborrowed. Any disposition or transfer of
Equipment of which the proceeds are reinvested in like-kind Equipment
within 60 days shall not be subject to the terms hereof.
2.3 Section Payments and Computations.
(a) All payment hereunder shall be made in U.S. Dollars. The
Borrower shall make each payment under the Senior Loan Agreement and
under the Senior Notes not later than 12:00 noon (New York, New York
time) on the day when due to the Senior Agent's Account in immediately
available funds. All payments by the Borrower hereunder shall be made
without any offset, abatement, withholding, deduction, counterclaim, or
reduction. Upon receipt of payment from the Borrower of any principal,
interest, or fees due to the Senior Lenders, the Senior Agent shall
promptly after receipt thereof distribute to the Senior Lenders their
ratable share of such payments for the account of their respective
Senior Lender's Account. If and to the extent that the Senior Agent
shall not have so distributed to any Senior Lender its ratable share of
such payments, the Senior Agent agrees that it shall pay interest on
such amount for each day after the day when such amount is made
available
<PAGE> 18
to the Senior Agent by the Borrower until the date such amount is paid
to such Senior Lender by the Senior Agent at the Federal Funds Rate in
effect from time to time. Interest on such amount shall be due and
payable by the Senior Agent upon demand by such Senior Lender. Upon
receipt of other amounts due solely to the Senior Agent or a specific
Senior Lender, the Senior Agent shall distribute such amounts to the
appropriate party to be applied in accordance with the terms of the
Senior Loan Agreement. Whenever any payment shall be stated to be due
on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest. If the time
for payment for an amount payable is not specified in the Senior Loan
Documents, or in any other document, the payment shall be due and
payable ten (10) days after the date on which the Senior Agent or
applicable Senior Lender demands payment therefor.
(b) Unless the Senior Agent shall have received written notice
from the Borrower prior to any date on which any payment is due to the
Senior Lender that the Borrower shall not make such payment in full,
the Senior Agent may assume that the Borrower has made such payment in
full to the Senior Agent on such date and the Senior Agent may, in
reliance upon such assumption, cause to be distributed to each Senior
Lender on such date an amount equal to the amount then due such Senior
Lender. If and to the extent the Borrower shall not have so made such
payment in full to the Senior Agent, each Senior Lender shall repay to
the Senior Agent forthwith on demand such amount distributed to such
Senior Lender, together with interest thereon from the date such amount
is distributed to such Senior Lender until the date such Senior Lender
repays such amount to the Senior Agent, at an interest rate equal to,
the Federal Funds Rate in effect from time to time.
(c) Each Senior Lender agrees that if it should receive any
payment (whether by voluntary payment, by realization upon security, by
the exercise of the right of setoff or banker's lien, by counterclaim
or cross action, by the enforcement of any right under the Senior Loan
Documents, or otherwise) in respect of any obligation of the Borrower
to pay principal, interest, fees, or any other obligation incurred
under the Senior Loan Documents in a proportion greater than the total
amount of such principal, interest, fees, or other obligation then owed
and due by the Borrower to such Senior Lender bears to the total amount
of principal, interest, fees, or other obligation then owed and due by
the Borrower to the Senior Lenders immediately prior to such receipt,
then such Senior Lender receiving such excess payment shall purchase
for cash without recourse from the other Senior Lenders an interest in
the obligations of the Borrower to such Senior Lenders in such amount
as shall result in a participation by all of the Senior Lenders, in
proportion with the Senior Lenders' respective pro rata shares, in the
aggregate unpaid amount of principal, interest, fees, or any such other
obligation, as the case may be, owed by the Borrower to all of the
Senior Lenders; provided that if all or any portion of such excess
payment is thereafter recovered from such Senior Lender, such purchase
shall be rescinded and the purchase price restored to the extent of
such recovery, in proportion with the Senior Lenders' respective Pro
Rata Shares.
<PAGE> 19
2.4 Section Interest.
(a) The outstanding principal balance of the Senior Loan shall
bear interest at a fluctuating rate per annum equal to the lesser of
(i) the LIBOR Rate in effect from time to time plus two and one-half
percent (2.5%) and (ii) the Maximum Rate. The Borrower shall pay to the
Senior Agent for the ratable benefit of the Senior Lenders all accrued
but unpaid interest on the Senior Loan on each Payment Date and on the
Final Maturity Date.
(b) Past due interest, principal and other amounts hereunder
shall bear interest at a fluctuating interest rate per annum that is
equal to the lesser of (i) the Default Rate or (ii) the Maximum Rate
from the date due until paid.
(c) The interest rate for the Senior Loan shall be
redetermined on the last Business Day of every March and September,
beginning with September of 1999, to give effect to any change in the
LIBOR Rate. All computations of interest based on the LIBOR Rate shall
be made on the basis of a 360 day year. All such computations shall be
made for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such
computation is being performed. Interest provided for under this Senior
Loan Agreement and the Senior Notes shall be calculated on the unpaid
sums actually loaned and outstanding pursuant to the terms of this
Senior Loan Agreement and the Senior Notes and only for the period from
the date or dates advanced until repaid. Each determination by the
Senior Agent of an interest rate shall be conclusive and binding for
all purposes, absent manifest error.
Section 2.5 Senior Notes. To evidence the Advance made by each of the
Senior Lenders pursuant to this Senior Loan Agreement, the Borrower will issue,
execute and deliver a Senior Note to each Senior Lender in the principal amount
of each Senior Lender's Maximum Commitment dated as of the Effective Date. The
records of the Senior Agent shall be deemed rebuttably presumptive evidence of
the principal amount owing on the Senior Notes. The liability for payment of
principal and interest evidenced by Senior Notes shall be limited to the
principal amounts actually loaned and outstanding under the Senior Notes and
this Senior Loan Agreement and interest on such amounts calculated in accordance
with the Senior Notes and this Senior Loan Agreement.
Section 2.6 Taxes.
(a) Any and all payments by the Senior Loan Parties shall be
made free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges, or withholdings,
and all liabilities with respect thereto, excluding, in the case of the
Senior Lenders, taxes imposed on its income and franchise taxes imposed
on it by any jurisdiction of which any the Senior Lenders is a citizen
or resident or any political subdivision of such jurisdiction (all such
nonexcluded taxes, levies, imposts, deductions, charges, withholdings,
and liabilities being hereinafter referred to as "Taxes"). If any
Senior Loan Party shall be required by law to deduct any Taxes from or
in respect of any sum
<PAGE> 20
payable to any Senior Lender, (i) the sum payable shall be increased as
may be necessary so that, after making all required deductions
(including deductions applicable to additional sums payable under this
Section 2.6), such Senior Lender receive an amount equal to the sum it
would have received had no such deductions been made; (ii) such Senior
Loan Party shall make such deductions; and (iii) such Senior Loan Party
shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) The Borrower agrees to pay and hold each Senior Lender
harmless from and against any and all present and future stamp and
other similar taxes with respect to this Senior Loan Agreement and any
other Senior Loan Documents and save each Senior Lender harmless from
and against any and all liabilities with respect to or resulting from
any delay or omission to pay such taxes, and indemnify each Senior
Lender for the full amount of taxes paid by the Senior Lenders in
respect of payments made or to be made under this Senior Loan Agreement
or any other Senior Loan Document and any liability (including
penalties, interest, and expenses) arising therefrom or with respect
thereto, whether or not such taxes were correctly or legally asserted
(excluding taxes imposed on its income and franchise taxes imposed on
it by any jurisdiction of which such Senior Lender is a citizen or
resident or any political subdivision of such jurisdiction).
Section 2.7 Increased Costs.
(a) Cost of Funds. If, due to either the introduction of or
any change in or in the interpretation, application, or applicability
of, any law or regulation, or the compliance with any guideline or
request from any Governmental Authority (whether or not having the
force of law), there shall be any increase in the cost to such Senior
Lender of funding or maintaining the Senior Loan, or any reduction of
any Senior Lender's reasonably anticipated return on its investment,
then the Borrower shall from time to time upon demand by such Senior
Lender pay to such Senior Lender such additional amounts sufficient to
compensate such Senior Lender for such increased cost or reduced
return. A certificate as to the amount of such increased cost or
reduced return detailing the calculation thereof prepared by the Senior
Lenders and submitted to the Borrower shall be conclusive and binding
for all purposes, absent manifest error.
(b) Capital Adequacy. If due to any change in any law or
regulation or any interpretation, directive, or request of any court or
governmental or monetary authority, whether or not having the force of
law, there shall be any increase by an amount which any Senior Lender
reasonably deems to be material in the capital requirements of such
Senior Lender or its parent or holding company related to its
commitments to make or the making, funding, or maintaining the Senior
Loan hereunder, as such capital requirements are reasonably allocated
by such Senior Lender, then the Borrower shall from time to time upon
demand by such Senior Lender pay to the Senior Lenders additional
amounts sufficient to compensate such Senior Lender or its respective
parent or holding companies for such increase in costs (including an
amount equal to any reduction of the rate of return on assets
<PAGE> 21
or equity of the Senior Lenders or their respective parent or holding
companies to a level below that which the Senior Lenders or their
respective parent or holding companies could have achieved but for such
change in law, regulation, interpretation, directive, or request). A
certificate as to such amounts and detailing the calculation of such
amounts prepared by such Senior Lender and submitted to the Borrower
shall be conclusive and binding for all purposes, absent manifest
error.
Section 2.8 Illegality. Notwithstanding any other provision in this
Senior Loan Agreement, if it becomes unlawful for any Senior Lender to maintain
the Senior Loan or to give effect to its obligations hereunder, the Senior
Lender will so notify the Borrower and the Senior Agent, and to the extent
necessary to prevent the violation of law the aggregate outstanding principal
amount of the Senior Loan made by the Senior Lenders, all accrued but unpaid
interest thereon, and any other amounts payable to the Senior Lenders under this
Senior Loan Agreement and the other Senior Loan Documents will be prepaid as
provided in such notice.
ARTICLE 3
CONDITIONS OF CLOSING
Section 3.1 The amendment and restatement of the Original Loan
Agreement pursuant to this Senior Loan Agreement is subject to the following
conditions precedent:
(a) The Senior Agent shall have received copies of each of the
following documents in form and content satisfactory to the Senior
Agent and its counsel, duly executed by the parties thereto and, where
applicable, acknowledged:
(i) The Senior Loan Documents.
(ii) b Opinions of counsel to the Borrower delivered
on the Effective Date and on the Closing Date as the Senior
Agent may request and that are acceptable to the Senior Agent
addressing the existence and good standing of the Borrower and
each Subsidiary, the authorization of the Senior Loan
Documents, the enforceability of the Senior Loan Documents,
and the perfection of the liens under the Senior Loan
Documents, the absence of conflicts with law, other material
agreements, and court orders, the absence of litigation, and
such other matters as the Senior Agent may request.
(iii) Certificates, dated as of the Effective Date,
of the Secretary or an Assistant Secretary of each of the
Borrower and the Subsidiaries (A) certifying as true, complete
and correct the charter and by-laws of the Borrower and each
Subsidiary, and resolutions of the Board of Directors of the
Borrower and each respective Subsidiary attached thereto, (B)
as to the absence of proceedings or other action for
dissolution, liquidation or reorganization of the Borrower and
each
<PAGE> 22
Subsidiary, (C) as to the incumbency of the officers of the
Borrower and the Subsidiaries who shall have executed
instruments, agreements, and other documents in connection
with the transactions contemplated hereby or by the Senior
Loan Documents, and (D) covering such other matters, and with
such other attachments thereto, as the Senior Agent may
request, and such certificate and the attachments thereto
shall be satisfactory in form and substance to the Senior
Agent.
(iv) Original Certificates of Title to each of the
certificated vehicles owned by the Borrower or any of the
Subsidiaries, each endorsed by the applicable Senior Loan
Party to evidence that such vehicle is subject to a security
interest in favor of the Senior Agent for the benefit of the
Senior Lenders.
(v) All other documents reasonably requested by the
Senior Agent in connection with the transaction contemplated
by this Senior Loan Agreement.
(b) Each of the Mortgages, Financing Statements, Financing
Statement Amendments and Certificates of Title referenced in
subparagraph (a) above, and any other document reasonably required by
the Senior Agent to be filed of record, shall have been filed of record
with the appropriate party in order to put third parties on notice of
the liens, security interests or other rights granted by the Senior
Loan Parties in the Collateral.
(c) Stock certificates of the Capital Stock of the Borrower
pledged pursuant to the Pledge Agreements, along with stock powers
endorsed in blank and financing statements executed by the each of the
Pledgors in connection with the perfection of the Liens created by the
Pledge Agreements.
(d) The Senior Agent shall have completed its due diligence
review of such matters as it shall deem appropriate, and all other
documents relating thereto, the Borrower's and each Subsidiaries'
properties and operations thereof, compliance with Environmental Laws,
and any available reports related thereto, and the results of such due
diligence review shall be satisfactory to the Senior Agent.
(e) The Senior Agent shall have received insurance
certificates for the Borrower and its Subsidiaries reflecting the
insurance coverage required under this Subordinated Loan Agreement.
(f) The Borrower shall have provided the Senior Agent with a
copy of a twelve (12) month projected income statement and capital
budget, commencing with the Effective Date, which has been approved by
Board of Director's of Borrower and which is satisfactory to the Senior
Agent in its sole discretion.
(g) The Borrower shall have delivered to the Senior Agent
copies of audited Financial Statements of the Borrower as of December
31, 1998, unaudited Financial
<PAGE> 23
Statements of the Borrower as of January 31, 1999, and there shall not
have occurred any Material Adverse Effect in the business, assets or
financial condition of any of the Borrower or any of its Subsidiaries
since January 31, 1999.
(h) As of the Effective Date and the Closing Date, no Default
exists or would reasonably be expected to occur by virtue of making the
Senior Loan or the Subordinated Loan or after giving effect to the
transactions contemplated by the Basic Documents.
(i) All of the representations and warranties of the Borrower
and the Pledgors contained in the Basic Documents shall be true and
correct as of the Effective Date and as of the Closing Date, and the
making of any extension of credit hereunder, shall be deemed to be a
restatement, representation, and additional warranty of the
representations and warranties made by the Borrower and the Pledgors in
each Basic Document as of each such date (taking into account certain
fixed dates specified for certain representations and warranties in the
Basic Documents). The Basic Documents shall have been executed and
delivered by the Senior Loan Parties as appropriate and such documents
shall be in full force and effect.
(j) As of the Effective Date and the Closing Date, the
Borrower shall have performed and complied with all agreements and
conditions set forth in or contemplated hereunder or in any other
Senior Loan Document or in the Equity Documents required to be
performed or complied with by it at or prior to each of such dates.
(k) As of the Effective Date and the Closing Date, no Change
of Control or Change of Management shall have occurred and all attached
and requested information in accordance with Section 2.3.
(l) The Borrower shall have paid to Senior Agent for the
benefit of the Senior Lenders all amounts payable pursuant to Section
9.2 of this Senior Loan Agreement and shall have paid to ECT Securities
Limited Partnership and JEDI II all payments required under the terms
of the Structuring Fee Agreement.
(m) The Borrower shall have provided schedules to the Basic
Documents in form and substance satisfactory to the Senior Agent.
(n) (i) The Subordinated Loan Agreement shall have been
executed and delivered and the conditions precedent set forth in
Article 3 of the Subordinated Loan Agreement shall have been satisfied
and (ii) the conditions precedent set forth in Article V of the
Securities Purchase Agreement shall have been satisfied.
(o) The Borrower shall have paid to the lender under the
Original Loan Agreement, all accrued interest, fees, and other amounts
owed thereunder as of the date of this Agreement.
<PAGE> 24
(p) The Borrower shall have provided to the Senior Agent such
other information, documents, and agreements as it may reasonably have
requested.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
In order to induce the Senior Lenders to enter into this Senior Loan
Agreement and to make the Senior Loan hereunder, the Borrower represents and
warrants to the Senior Agent and each of the Senior Lenders that as of the
Effective Date and as of the Closing Date:
Section 4.1 Corporate Existence. The Borrower and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was incorporated and is
duly qualified as a foreign corporation in all jurisdictions in which
qualification is required.
Section 4.2 Corporate Power and Authorization. The Borrower is duly
authorized and empowered to create and issue the Senior Notes and is duly
authorized and empowered to execute, deliver, and perform its obligation
pursuant to, each of the Senior Loan Documents to which it is a party. Each
Subsidiary is duly authorized and empowered to execute, deliver, and perform its
obligations pursuant to, each of the Senior Loan Documents to which it is a
party. All corporate and other action on the Borrower's and each Subsidiaries'
part, requisite for the due execution, delivery, and performance of the Senior
Loan Documents to which each is a party has been duly and effectively taken.
Section 4.3 Binding Obligations. The Senior Loan Documents constitute
valid and binding obligations of the Borrower and each Subsidiary, respectively,
enforceable in accordance with their respective terms (except that enforcement
may be subject to any applicable bankruptcy, insolvency, or similar debtor
relief laws now or hereafter in effect and relating to or affecting the
enforcement of creditors rights generally).
Section 4.4 No Legal Bar Or Resultant Lien. The Senior Loan Documents
do not and will not violate any provisions of any contract, agreement, law,
regulation, order, injunction, judgment, decree, or writ to which the Borrower
or any of its Subsidiaries is subject, or result in the creation or imposition
of any lien or other encumbrance upon any assets or properties of the Borrower
or any of its Subsidiaries other than those contemplated by this Senior Loan
Agreement.
Section 4.5 No Consent. The execution, delivery, and performance by
the Borrower and each Subsidiary of the Senior Loan Documents to which each is a
party does not require the consent or approval of any other person or entity,
including without limitation any Governmental Authority.
<PAGE> 25
Section 4.6 Financial Condition. The audited consolidated Financial
Statements of the Borrower dated December 31, 1998, which have been delivered to
the Senior Agent are complete and correct in all material respects, and fully
and accurately reflect in all material respects the financial condition and
results of the operations of the Borrower and the Subsidiaries as of the date or
dates and for the period or periods stated, and such Financial Statements have
been prepared in accordance with GAAP. The unaudited consolidated Financial
Statements of the Borrower dated January 31, 1999, which have been delivered to
the Senior Agent are complete and correct in all material respects, and fully
and accurately reflect in all material respects the financial condition and
results of the operations of the Borrower and the Subsidiaries as of the date or
dates and for the period or periods stated, and such Financial Statements have
been prepared in accordance with GAAP. Since January 31, 1999, no change has
occurred in the condition, financial or otherwise, of the Borrower or any of the
Subsidiaries which could have a Material Adverse Effect.
Section 4.7 Liabilities. Neither the Borrower nor any of its
Subsidiaries have any material (individually or in the aggregate) liability,
direct or contingent, except as disclosed in the Financial Statements described
in Section 4.6 and on Schedule 4.7 attached hereto. No unusual or unduly
burdensome restrictions, restraint, or hazard exists by contract, law or
governmental regulation, or otherwise relative to the business, assets, or
properties of the Borrower or any of its Subsidiaries.
Section 4.8 Litigation. Except as described in the consolidated
Financial Statements of the Borrower described in Section 4.6, or as otherwise
disclosed in Schedule 4.8 attached hereto, there is no litigation, legal or
administrative proceeding, investigation, or other action of any nature pending
or, to the knowledge of the officers of the Borrower, threatened against or
affecting the Borrower or any of its Subsidiaries which involves the possibility
of any judgment or liability not fully covered by insurance.
Section 4.9 Taxes; Governmental Charges. The Borrower and each of its
Subsidiaries have filed all tax returns and reports required to be filed and has
paid all taxes, assessments, fees, and other governmental charges levied upon it
or its assets, properties, or income which are due and payable, including
interest and penalties or has provided adequate reserves, if required, in
accordance with GAAP for the payment thereof, except such as are being contested
in good faith by appropriate proceedings and for which adequate reserves for the
payment thereof as required by GAAP has been provided and levy and execution
thereon have been stayed and continue to be stayed.
Section 4.10 Ownership of Property; Liens; Leases of Equipment.
Attached hereto as Schedule 4.10 is a true and correct list of (i) all real
property owned by the Borrower and each Subsidiary, (ii) all real property
leased by the Borrower and each Subsidiary, (iii) all Capital Leases of the
Borrower and each Subsidiary, and (iv) all motorized vehicles owned by the
Borrower and each Subsidiary, whether such vehicle is certificated or not, and
in each instance identifying such vehicle by year, type and make (where
available), its vehicle registration number (where certificated) and its serial
number (where not certificated), including all work-over rigs, semis, trailers,
trucks and other rolling stock. Each of the Borrower and its Subsidiaries has
good and marketable title in fee
<PAGE> 26
simple (except for exceptions to title as will not in the aggregate materially
interfere with the present or contemplated use of the property affected thereby)
to, or a valid leasehold interest in, all its real property, and good and
marketable title to all its other property, and in all cases enjoys peaceful and
undisturbed possession thereof, and none of such property is subject to any Lien
except Permitted Liens. None of the equipment or inventory owned by Borrower or
any of its Subsidiaries has been leased by such Person as lessor.
Section 4.11 Intellectual Property. Borrower and each Subsidiary owns,
or is licensed to use, all trademarks, trade names, trade secrets, copyrights,
technology, know-how, and processes necessary for the conduct of its business as
currently conducted (the "Intellectual Property"). No claim has been asserted
and is pending by any Person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of any such Intellectual
Property, nor does the Borrower know of any valid basis for any such claim. The
use of such Intellectual Property by the Senior Loan Parties does not infringe
on the rights of any Person.
Section 4.12 Defaults. Neither the Borrower nor any of its Subsidiaries
are in default and no event or circumstance has occurred which, but for the
passage of time or the giving of notice, or both, would constitute a default
under any loan or credit agreement, indenture, mortgage, deed of trust, security
agreement, or other agreement or instrument to which the Borrower or any of its
Subsidiaries is a party. No Event of Default hereunder has occurred and is
continuing.
Section 4.13 Casualties; Taking of Properties. Since the date of the
Financial Statements described in Section 4.6, neither the business nor the
assets or properties of the Borrower or any of its Subsidiaries have been
affected, as a result of any fire, explosion, earthquake, flood, drought,
windstorm, accident, strike, or other labor disturbance, embargo, requisition,
or taking of property or cancellation of contracts, permits, or concessions by
any domestic or foreign Governmental Agency thereof, riot, activities of armed
forces, or acts of God or of any public enemy.
Section 4.14 Margin Stock. The Borrower is not engaged principally or
as one of its important activities in the business of extending credit for the
purpose of purchasing or carrying any "margin stock" as defined in Regulation U
of the Board of Governors of the Federal Reserve System (12 C.F.R. part 221), or
for the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry a margin stock or for any other purpose which
might constitute this transaction a "purpose credit" within the meaning of said
Regulation U. Neither the Borrower nor any person or entity acting on behalf of
the Borrower have taken or will take any action which might cause the loans
hereunder or any of the Senior Loan Documents to violate Regulation U or any
other regulation of the Board of Governors of the Federal Reserve System or to
violate the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereafter be in
effect.
Section 4.15 Location of Business and Offices. The principal place of
business of the Borrower is located at 406 N. Big Spring, Midland, Texas
79701-4326.
<PAGE> 27
Section 4.16 Compliance with the Law. Neither the Borrower nor any of
its Subsidiaries:
(a) is in violation of any law, judgment, decree, order,
ordinance, or governmental rule or regulation to which the Borrower or
any of its Subsidiaries, or any of their assets or properties are
subject;
(b) have failed to obtain any license, permit, franchise or
other governmental authorization necessary to the ownership of any of
its assets or properties or the conduct of their business;
which violation or failure is individually, or in the aggregate, reasonably
expected to have a Material Adverse Effect.
Section 4.17 No Material Misstatements.
(a) There are no facts or conditions relating to the Senior
Loan Documents or the financial condition, assets, or business
prospects of the Borrower or any of its Subsidiaries that could,
collectively or individually, have a Material Adverse Effect. No
certificate or representation or warranty of Borrower or its
Subsidiaries in the Basic Documents contains an untrue statement of a
material fact or omits to state a material fact necessary to make the
statements in such Basic Documents not misleading.
(b) The Financial Statements and other related financial data
(excluding all projections and pro forma financial data) furnished to
the Senior Agent by or at the direction of the Borrower or any of its
Subsidiaries in connection with the negotiation of this Senior Loan
Agreement do not contain any material misstatement of fact and, when
considered with all other written statements furnished to the Senior
Agent in that connection, such Financial Statements, related financial
data (excluding all projections and pro forma financial data) do not
omit to state a material fact or any fact necessary to make the
statement contained therein not misleading.
Section 4.18 ERISA. The Borrower and of its Subsidiaries are in
compliance in all respects with the applicable provisions of ERISA, and no
"reportable event", as such term is defined in Section 4043 of ERISA, has
occurred with respect to any Plan of the Borrower or any of its Subsidiaries.
Section 4.19 Environmental Matters. Except as disclosed on Schedule
4.19:
(a) Environmental Laws, etc. None of the property of the
Borrower or any of its Subsidiaries nor the operations conducted
thereon violate any applicable order of any court or Governmental
Authority or Environmental Laws which could reasonably be expected to
result in remedial obligations assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions, and
circumstances, if any, pertaining to the relevant property.
<PAGE> 28
(b) No Litigation. Without limitation of paragraph (a) above,
no property of the Borrower or any of its Subsidiaries, nor the
operations currently conducted thereon or by any prior owner or
operator of such property or operation, are in violation of or subject
to any existing, pending, or threatened action, suit, investigation,
inquiry, or proceeding by or before any Governmental Authority or to
any remedial obligations under Environmental Laws which could
reasonably be expected to result in remedial obligations assuming
disclosure to the applicable Governmental Authority of all relevant
facts, conditions, and circumstances, if any, pertaining to the
relevant property.
(c) Notices, Permits, etc. All notices, permits, licenses, or
similar authorizations, if any, required to be obtained or filed by the
Borrower or any of its Subsidiaries in connection with the operation or
use of any and all property of the Borrower or any of its Subsidiaries,
including but not limited to past or present treatment, storage,
disposal, or release of a hazardous substance or solid waste into the
environment, have been duly obtained or filed which could reasonably be
expected to result in remedial obligations assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions,
and circumstances, if any, pertaining to the relevant property.
(d) Hazardous Substances Carriers. All hazardous substances or
solid waste generated at any and all property of the Borrower or any of
its Subsidiaries have in the past been transported, treated, and
disposed of only by carriers maintaining valid permits under any
Environmental Law and only at treatment, storage, and disposal
facilities maintaining valid permits under any Environmental Law, which
carriers and facilities have been and are operating in compliance with
such permits which could reasonably be expected to result in remedial
obligations assuming disclosure to the applicable Governmental
Authority of all relevant facts, conditions, and circumstances, if any,
pertaining to the relevant property.
(e) Hazardous Substances Disposal. The Borrower and
Subsidiaries have taken all reasonable steps necessary to determine and
have determined that no hazardous substances or solid waste have been
disposed of or otherwise released and there has been no threatened
release of any hazardous substances on or to any property of the
Borrower or any of its Subsidiaries, except in compliance with
Environmental Laws which could reasonably be expected to result in
remedial obligations assuming disclosure to the applicable Governmental
Authority of all relevant facts, conditions, and circumstances, if any,
pertaining to the relevant property.
(f) OPA Requirements. To the extent applicable, the Borrower
and each of its Subsidiaries have complied with all design, operation,
and equipment requirements imposed by OPA or scheduled to be imposed by
OPA, and the Borrower does not have reason to believe that either it or
its Subsidiaries will not be able to maintain such compliance with OPA
requirements through the Final Maturity Date.
<PAGE> 29
(g) No Contingent Liability. Neither the Borrower nor any of
its Subsidiaries have any contingent liabilities in connection with any
release or threatened release of any hazardous substance or solid waste
into the environment other than such contingent liabilities at any one
time and from time to time which could reasonably be expected to exceed
an aggregate of $500,000 in excess of applicable insurance coverage and
for which adequate reserves for the payment thereof as required by GAAP
have not been provided, or which could reasonably be expected to result
in remedial obligations assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions, and
circumstances, if any, pertaining to such release or threatened
release.
Section 4.20 Subsidiaries; Partnerships.
(a) There are no Subsidiaries of the Borrower other than as
set forth on Schedule 4.20(a). All of the issued and outstanding shares
of Capital Stock of the Subsidiaries of the Borrower have been duly and
validly authorized and issued and are fully paid and non-assessable and
free of preemptive rights, and, such shares are owned by the Borrower
or one of its Subsidiaries free and clear of any Lien. Except as set
forth on Schedule 4.20(a), there are no outstanding warrants, options,
or other rights to purchase or acquire any of the shares of Capital
Stock of any Subsidiary, nor any outstanding securities convertible
into such shares or outstanding warrants, options, or other rights to
acquire any such convertible securities.
(b) There are no partnerships, joint ventures, or similar
arrangements involving the Borrower or any of its Subsidiaries except
as set forth in Schedule 4.20(b).
Section 4.21 Certain Fees. Except for the structuring fee payable to
ECT Securities Limited Partnership pursuant to the Structuring Fee Agreement, no
fees or commissions will be payable by the Borrower to brokers, finders,
investment bankers, the Senior Agent or Senior Lenders with respect the
consummation of the transactions contemplated by this Senior Loan Agreement. The
Borrower agrees that it will indemnify and hold harmless the Senior Agent and
the Senior Lenders from and against any and all claims, demands, or liabilities
for broker's, finders, placement or other similar fees or commissions incurred
by the Borrower or alleged to have been incurred by the Borrower in connection
with the consummation of the transactions contemplated by this Senior Loan
Agreement.
Section 4.22 Purpose of Loans. As more fully set forth in Section 2.2,
the proceeds of the Senior Loan and the Subordinated Loan shall be used only for
restructuring the Indebtedness owed to JEDI II under the terms of the Original
Loan Agreement and for the reasonable fees, expenses, and financing costs
incurred by the Borrower in connection with the foregoing. The proceeds of the
Senior Loan shall not be used for any purpose which violates applicable
Requirements of Law, including laws regulating investments in foreign
jurisdictions.
<PAGE> 30
Section 4.23 Support and Security Documents. The Security Documents are
effective to create in favor of the Senior Agent for the benefit of the Senior
Lenders, a legal, valid, and enforceable mortgage lien, security interest, or
other interest in the Collateral pledged thereunder and the proceeds thereof in
accordance with the terms of the Security Documents.
Section 4.24 Employment. All inventory of Borrower and each Subsidiary
has been and will hereafter be produced, and all services of Borrower and each
Subsidiary has been and will hereafter be rendered, in compliance with all
applicable material laws, rules, regulations, and governmental standards,
including, without limitation, the minimum wage and overtime provisions of the
Fair Labor Standards Act, as amended (29 U.S.C. Sections 201-219), and the
regulations promulgated thereunder.
Section 4.25 Year 2000 Compliance.
(a) To the Borrower's knowledge after due inquiry, all
devices, systems, machinery, information technology, computer software
and hardware, and other date sensitive technology (jointly and
severally the "Systems") used by the Borrower and each of its
Subsidiaries to carry on their businesses as presently conducted and as
contemplated to be conducted in the future are Year 2000 Compliant or
will be Year 2000 Compliant within a period of time calculated to
result in no material disruption of any of the Borrower and each of its
Subsidiaries' business operations. For purposes of these provisions,
"Year 2000 Compliant" means that such Systems are designed to be used
prior to, during and after the Gregorian calendar year 2000 A.D. and
will operate during each such time period without error relating to
date data, specifically including any error relating to, or the product
of, date data which represents or references different centuries or
more than one century.
(b) The Borrower and its Subsidiaries have or will by
September 30, 1999: (1) undertaken a detailed inventory, review, and
assessment of all areas within their businesses and operations that
could be adversely affected by the failure of the Borrower and each of
its Subsidiaries to be Year 2000 Compliant on a timely basis; (2)
developed a detailed plan and time line for becoming Year 2000
Compliant on a timely basis, and (3) to date, implemented that plan in
accordance with that timetable in all material respects.
(c) The Borrower and its Subsidiaries have made or will make
by September 30, 1999 inquiry of each of its key suppliers, vendors,
and customers, and is undertaking to obtain in writing confirmations
from all such Persons as to whether such Persons have initiated
programs to become Year 2000 Compliant and on the basis of such
confirmations, the Borrower and each of its Subsidiaries reasonably
believe that all such Persons will be or become so compliant. For
purposes hereof, "key suppliers, vendors, and customers" refers to
those suppliers, vendors, and customers of the Borrower and each of its
Subsidiaries whose business failure would, with reasonable probability,
result in a material adverse change in the business, properties,
condition (financial or otherwise), or prospects of any of the Borrower
and each of its Subsidiaries.
<PAGE> 31
(d) The fair market value of all real and personal property
pledged to the Senior Agent as Collateral to secure the Senior Loan
hereunder is not and shall not be less than currently anticipated or
subject to substantial deterioration in value because of the failure of
such Collateral to be Year 2000 Compliant.
Section 4.26 Insurance. Schedule 4.26 contains an accurate and complete
description of all material policies of fire, liability, workmen's compensation
and other forms of insurance owned or held by the Borrower and each of its
Subsidiaries. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the Effective Date and
the Closing Date have been or will be paid, and no notice of cancellation or
termination has been received with respect to any such policy. Such policies are
sufficient for compliance with all requirements of law and of all agreements to
which the Borrower and each of its Subsidiaries is a party; are valid,
outstanding and enforceable policies; provide adequate insurance coverage in at
least such amounts and against at least such risks (but including in any event
public liability) as are usually insured against in the same general area by
companies engaged in the same or a similar business for the assets and
operations of the Borrower and each of its Subsidiaries; will remain in full
force and effect through the respective dates set forth in Schedule 4.26 without
the payment of additional premiums; and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this Senior
Loan Agreement. None of the Borrower nor any of its Subsidiaries has been
refused any insurance with respect to its Property or operations, nor has its
coverage been limited below usual and customary policy limits, by an insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance during the last three years.
Section 4.27 Hedging Agreements. Schedule 4.27 sets forth, as of the
date hereof, a true and complete list of all hedging agreements, financing
transactions and swap transactions (including commodity price swap agreements,
forward agreements or contracts of sale which provide for prepayment for
deferred shipment or delivery of oil, gas or other commodities) of the Borrower
and each of its Subsidiaries, the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), the net
mark to market value thereof, all credit support agreements relating thereto
(including any margin required or supplied), and the counter party to each such
agreement.
Section 4.28 Capital Stock. As of the Closing Date, the authorized
Capital Stock of the Company consists of 500,000 shares of Common Stock, no par
value per share and 2,500 shares of serial preferred stock. No shares of Capital
Stock are issued other than those shares of Common Stock listed on the attached
Schedule 4.28 and the preferred shares issued pursuant to the Equity Documents.
All outstanding shares of the Company's Capital Stock are validly issued, fully
paid and nonassessable. Other than the preferred shares issued pursuant to the
Equity Documents, there are no (i) outstanding securities convertible or
exchangeable into Capital Stock of the Company or (ii) contracts, commitments,
agreements, understandings, or arrangements of any kind to which the Company is
a party relating to the issuance of any Capital Stock of the Company.
<PAGE> 32
ARTICLE 5
AFFIRMATIVE COVENANTS
From the Effective Date and for so long as any part of the Commitments
or the Senior Loan Obligations is outstanding, the Borrower shall and shall
cause each of its Subsidiaries to (and where applicable shall cause other
Persons to):
Section 5.1 Financial Statements and Reports. The Borrower shall
promptly furnish to the Senior Agent from time to time upon request such
information regarding the business and affairs and financial condition of the
Borrower and its Subsidiaries as the Senior Agent may request, and will furnish
to the Senior Agent:
(a) Annual Audited Financial Statements - as soon as
available, and in any event within ninety (90) days after the close of
each fiscal year, the annual audited Financial Statements (consolidated
and consolidating) of the Borrower, certified, without any
qualification or limit of the scope of the examination of matters
relevant to the Financial Statements, by KPMG Peat Marwick, L.L.P., any
nationally recognized public accounting firm or any other accounting
firm approved by the Senior Agent, such consolidating schedules being
prepared in accordance with Exhibit 5.1(a).
(b) Quarterly Financial Statements - as soon as available, and
in any event within forty-five (45) days after the last day of each
calendar quarter (except the last calendar quarter in any fiscal year),
the quarterly unaudited Financial Statements (consolidated and
consolidating) of the Borrower and its Subsidiaries.
(c) Monthly Financial Statements - as soon as available, and
in any event within forty-five (45) days after the last day of each
calendar month (except the last calendar month in any fiscal year), the
monthly unaudited Financial Statements (consolidated and consolidating)
of the Borrower.
(d) Budgets - as soon as available and in any event on or
before last Business Day of each November, the detailed income
statements and capital budgets for the coming calendar year as of the
date of the budget approved by the Board of Director's of Borrower for
the Borrower and its Subsidiaries, such budget being prepared in
accordance with Exhibit 5.1(d).
(e) Field Office - promptly following the request of the
Senior Agent, the income statements for each field office of Borrower
or any of its Subsidiary.
(f) Additional Information - promptly upon request of the
Senior Agent from time to time any additional financial information or
other information that the Senior Agent may reasonably request.
<PAGE> 33
All such information, reports, and Financial Statements referred to in this
Section 5.1 shall be in such detail as the Senior Agent may reasonably request
and shall be prepared in a manner consistent with the requirements set forth
above and in Section 1.2.
Section 5.2 Certificates of Compliance. Concurrently with the
furnishing of the annual audited Financial Statements pursuant to Section 5.1(a)
hereof, the quarterly unaudited Financial Statements pursuant to Section 5.1(b),
and each of the monthly unaudited Financial Statements pursuant to Section
5.1(c) hereof, the Borrower will furnish or cause to be furnished to the Senior
Agent a certificate in the form of Exhibit 5.2. Borrower will furnish to Senior
Agent at Borrower's expense all certifications which the Senior Agent from time
to time reasonably requests, as to the accuracy and validity of or compliance
with all representations, warranties and covenants made by Borrower in any of
the Senior Loan Documents, the satisfaction of all conditions contained therein
and all other matters pertaining thereto.
Section 5.3 Accountants' Certificate. Concurrently with the furnishing
of the annual audited Financial Statements pursuant to Section 5.1(a) hereof,
the Borrower will furnish a statement from the firm of independent public
accountants which prepared such statements to the effect that nothing has come
to their attention to cause them to believe that there existed on the date of
such statements any Event of Default.
Section 5.4 Taxes Other Liens. The Borrower shall, and shall cause each
Subsidiary to, pay and discharge promptly all taxes, assessments, and
governmental charges or levies imposed upon the income or any assets or property
of any of such entities as well as all claims of any kind (including claims for
labor, materials, supplies, and rent) which, if unpaid, might become a Lien or
other encumbrance upon any or all of the assets or property of any of such
entities; provided, however, that the Borrower and each Subsidiary shall not be
required to pay any such tax, assessment, charge, levy, or claim if the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate proceedings diligently conducted, levy and execution thereon have
been stayed and continue to be stayed, and the Borrower and each Subsidiary, or
any of them, as the case may be, shall have set up adequate reserves therefor,
if required, under GAAP.
Section 5.5 Compliance with Laws. The Borrower shall, and shall cause
each Subsidiary to, observe and comply, in all material respects, with all
applicable laws, statutes, codes, acts, ordinances, orders, judgments, deuces,
injunctions, rules, regulations, orders, and restrictions of applicable
Governmental Authorities, including those relating to Environmental Laws.
Section 5.6 Further Assurances. The Borrower shall, and shall cause
each Subsidiary to, cure promptly any defects in the creation and issuance of
the Senior Loan Documents. The Borrower shall, and shall cause each Subsidiary
at their sole expense to, promptly execute and deliver to the Senior Agent upon
its reasonable request all such other and further documents, agreements, and
instruments in compliance with or accomplishment of the covenants and agreements
in the Senior Loan Documents including all documents, agreements and instruments
necessary to grant the Senior
<PAGE> 34
Agent for the benefit of the Senior Lenders a first and prior lien on all assets
of the Senior Loan Parties.
Section 5.7 Insurance. The Borrower will at all times keep all of its
and each Subsidiaries' properties which are of an insurable nature insured with
insurers reasonably believed by the Borrower to be financially sound, reputable
and responsible, against loss or damage to the extent that property of similar
character is usually so insured by corporations similarly situated and owning
like properties, as determined by the Senior Agent. The Borrower shall, and
shall cause each of its Subsidiaries to, maintain the insurance required by the
Security Documents.
Section 5.8 Accounts and Records. The Borrower shall, and shall cause
each of its Subsidiaries to, keep books, records, and accounts in which full,
true, and correct entries will be made of all dealings or transactions in
relation to its business and activities, prepared in a manner consistent with
the requirements of Section 1.2. Upon request of the Senior Agent, the Borrower
shall furnish profit and loss statements for each field office of the Borrower
and its Subsidiaries.
Section 5.9 Right of Inspection. The Borrower shall, and shall cause
each of its Subsidiaries to, permit any officer, employee, or agent of the
Senior Agent to examine their books, records, and accounts, and take copies and
extracts therefrom, all at such reasonable times and as often as the Senior
Agent may reasonably request. The Senior Agent will keep all such information
confidential and will not without prior written consent disclose or reveal the
information or any part thereof to any person other than the Senior Lenders and
each of the Senior Agent's and Senior Lenders' officers, employees, legal
counsel, regulatory authorities, or advisors to whom it is necessary to reveal
such information for the purpose of effectuating the agreements and undertakings
specified herein or as otherwise required by law or in connection with the
enforcement of the Senior Agent's and the Senior Lenders' rights and remedies
under the Senior Loan Documents.
Section 5.10 Notice of Certain Events. The Borrower shall promptly and
in any event within five (5) days notify the Senior Agent if the Borrower or any
of its Subsidiaries learns of the occurrence of (i) an Event of Default
(including but not limited to, a Change of Control or Change of Management)
together with a detailed statement by the Borrower of the steps being taken to
cure the Event of Default; or (ii) any legal, judicial, or regulatory
proceedings affecting the Borrower or any of its Subsidiaries or any of the
assets or properties of the Borrower or any of its Subsidiaries; or (iii) any
dispute between the Borrower or any of its Subsidiaries and any Governmental
Authority or any other person or entity which, if adversely determined, could
cause a Material Adverse Effect; or (iv) any judgment, liability, casualty or
other loss that is not insured by the Borrower or its Subsidiaries; or (v) any
other matter that could reasonably be expected to have a Material Adverse
Effect.
Section 5.11 ERISA Information and Compliance. The Borrower shall
promptly furnish to the Senior Agent immediately upon becoming aware of the
occurrence of any "reportable event", as such term is defined in Section 4043 of
ERISA, or of any "prohibited transaction", as such term is defined in Section
4975 of the Internal Revenue Code of 1986, as amended, in connection with any
Plan or any trust created thereunder, a written notice signed by the president
or the chief
<PAGE> 35
financial officer of the Borrower, specifying the nature thereof, what action
the Borrower is taking or proposes to take with respect thereto, and, when
known, any action taken by the Internal Revenue Service with respect thereto.
Section 5.12 Environmental Reports and Notices. The Borrower will
deliver to the Senior Agent (i) promptly upon its becoming available, one copy
of each report sent by the Borrower or any of its Subsidiaries to any court,
Governmental Agency, or instrumentality pursuant to any Environmental Law, (ii)
notice, in writing, promptly upon the Borrower's or any of its Subsidiaries'
learning that they have received notice or otherwise learned of any claim,
demand, action, event, condition, report, or investigation indicating any
potential or actual liability arising in connection with (x) the non-compliance
with or violation of the requirements of any Environmental Law; (y) the release
or threatened release of any toxic or hazardous waste into the environment or
which release the Borrower or any of its Subsidiaries would have a duty to
report to any court or Government Agency or instrumentality, or (iii) prompt
notice of the existence of any Lien related to violation of Environmental Laws
or any liabilities for cleanup thereunder on any properties or assets of the
Borrower or any of its Subsidiaries.
Section 5.13 Maintenance. The Borrower shall, and shall cause each
Subsidiary to (i) observe and comply in all material respects with all
Environmental Laws; (ii) (A) maintain all of the assets and properties of such
Person in good and workable condition at all times and (B) make all repairs,
replacements, additions, betterments, and improvements to such assets and
properties as are needed and proper so that with respect to clauses (A) and (B)
the business carried on by the Borrower and its Subsidiaries may be conducted
properly and efficiently at all times in accordance with the good faith
reasonable business judgment of the Borrower and its Subsidiaries provided,
however, that nothing in this Section shall prevent the Borrower and its
Subsidiaries from discontinuing the maintenance of any of their properties if
such discontinuance is, in the good faith reasonable business judgment of the
Borrower and its Subsidiaries, desirable in the conduct of the business of the
Borrower or any such Subsidiary and not disadvantageous in any material respect
to the Senior Lenders; (iii) take or cause to be taken whatever actions are
necessary or desirable to prevent an event or condition of default by the
Borrower or any Subsidiary under the provisions of any contract, agreement, or
lease comprising a part of the Collateral hereunder; and (iv) furnish to the
Senior Agent upon request evidence satisfactory to the Senior Agent that there
are no Liens, claims, or encumbrances superior to the Liens of the Senior
Lenders on such assets and properties, except Permitted Liens.
Section 5.14 New Subsidiary. Upon the formation or acquisition of any
new Subsidiary, the Borrower shall cause such Subsidiary to promptly execute and
deliver to the Senior Agent any joinder agreements requested by the Senior Agent
to cause such new Subsidiary to become a party to a Guaranty and any security
agreements, pledge agreements, mortgages, and other agreements requested by the
Senior Agent to cause such new Subsidiary to pledge its assets to the Senior
Agent for the benefit of the Senior Lenders. In connection therewith, the
Borrower shall provide corporate documentation and opinion letters reasonably
satisfactory to the Senior Agent reflecting the corporate status of such new
Subsidiary of the Borrower and the enforceability of such agreements.
<PAGE> 36
Section 5.15 Performance on Borrower's Behalf. If Borrower fails to pay
any taxes, insurance premiums or other amounts it is required to pay under any
Senior Loan Document, Senior Agent may pay the same. Borrower shall immediately
reimburse Senior Agent for any such payments and each amount paid shall
constitute a part of the Senior Loan Obligations, shall be secured by the
Security Documents and shall bear interest at the rate described herein, from
the date such amount is paid by Senior Agent, until the date such amount is
repaid to the Senior Agent.
Section 5.16 Change of Principal Place of Business. The Borrower shall,
and shall cause the Subsidiaries to, give Senior Agent at least thirty (30) days
prior written notice of its intention to move its principal place of business
from the address set forth in Section 4.15 hereof.
Section 5.17 New Bank Accounts. The Borrower shall, and shall cause the
Subsidiaries to, promptly give notice to the Senior Agent of the creation of any
bank accounts after the date hereof. Prior to any funding of such account and in
no event later than 3 Business Days after the opening of such account, the
Borrower shall provide the Senior Agent with such information with respect to
such accounts and other documentation relating thereto as Senior Agent may
request including a letter from the bank in the form of the Bank Account Letter
as attached as Exhibit A to the Security Agreement.
Section 5.18 Year 2000 Compliant. The Borrower will, and will cause
each of its Subsidiaries to:
(a) Furnish such additional information, statements and other
reports with respect to the Borrower and each of its Subsidiaries
activities, course of action and progress towards becoming Year 2000
Compliant as the Senior Agent may request from time to time.
(b) In the event of any change in circumstances that causes or
will likely cause any of the Borrower's representations and warranties
with respect to its or any of its Subsidiaries being or becoming Year
2000 Compliant to no longer be true (hereinafter, referred to as a
"Change in Circumstances") then the Borrower shall promptly, and in any
event within ten (10) days of receipt of information regarding a Change
in Circumstances, provide the Senior Agent with written notice (the
"Notice") that describes in reasonable detail the Change in
Circumstances and how such Change in Circumstances caused or will
likely cause the Borrower's representations and warranties with respect
to being or becoming Year 2000 Compliant to no longer be true. The
Borrower shall, within ten (10) days of a request, also provide the
Senior Agent with any additional information the Senior Agent requests
of the Borrower in connection with the Notice and/or a Change in
Circumstances.
(c) Upon reasonable notice, give any representative of the
Senior Agent access during all reasonable business hours to, and permit
such representative to examine, copy or make excerpts from, any and all
books, records and documents in the possession of Borrower or any of
its Subsidiaries and relating to their affairs, and to inspect any of
the properties and
<PAGE> 37
Systems of the Borrower or any of its Subsidiaries, and to project test
the Systems to determine if they are Year 2000 Compliant in an
integrated environment, all at the sole cost and expense of the
Borrower.
ARTICLE 6
NEGATIVE COVENANTS
From the Effective Date and for so long as any part of the Commitments or the
Senior Loan Obligations is outstanding, the Borrower shall not and shall cause
each of its Subsidiaries not to (and where applicable shall cause other Persons
not to):
Section 6.1 Liens. The Borrower shall not, and shall not permit any
Subsidiary to, create, incur, assume, or permit to exist any Lien on any of its
assets or properties except for Permitted Liens.
Section 6.2 Mergers. The Borrower shall not, and shall not permit any
of its Subsidiaries to, consolidate or merge with or into any other Person, to
liquidate, dissolve or incur a name change, including a change of trade name.
Section 6.3 Indebtedness and Other Obligations. The Borrower shall not,
and shall not permit any of the Subsidiaries to incur, create, assume, or in any
manner become or be liable in respect of any Indebtedness, liabilities, or other
obligations, or guarantee or otherwise in any manner become or be liable in
respect of any Indebtedness, liabilities, or other obligations of any other
Person, whether by agreement to purchase the Indebtedness, liabilities, or other
obligations of any other Person or agreement for the furnishing of funds to any
other Person through the purchase or lease of goods, supplies, or services (or
by way of stock purchase, capital contribution, advance, or loan) for the
purpose of paying or discharging the Indebtedness, liabilities, or other
obligations of any other Person, or otherwise, except that the foregoing
restrictions shall not apply to:
(a) Indebtedness under the Senior Loan Documents;
(b) Indebtedness under the Subordinated Loan Documents (as
defined in the Subordinated Loan Agreement);
(c) Indebtedness disclosed in Schedule 6.3;
(d) Indebtedness in the form of Capitalized Lease Obligations,
including those shown on the Financial Statements, incurred in
connection with the financing of assets in an aggregate outstanding
amount not to exceed $1,500,000;
<PAGE> 38
(e) taxes, assessments, or other government charges which are
not yet due or are being contested in good faith by appropriate action
promptly initiated and diligently conducted, if such reserve as shall
be required by GAAP shall have been made therefor and levy and
execution thereon have been stayed and continue to be stayed;
(f) obligations for trade payables and ordinary operating
liabilities payable within one hundred twenty (120) days from the date
incurred, incurred in the ordinary course of business as conducted on
the Effective Date; and
(g) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by
the Borrower of any Indebtedness of the Borrower described in clause
(a) and (b) above, including any successive refinancings by the
Borrower, so long as in each case the refinanced Indebtedness meets the
requirements of the Indebtedness being refinanced as set forth above
and, without limiting the foregoing, (i) any such new Indebtedness
shall be in a principal amount that does not exceed the principal
amount so refinanced, (ii) in the case of any refinancing of
nonrecourse indebtedness such new Indebtedness is also nonrecourse
indebtedness, and (iii) such new Indebtedness has a stated maturity
that is no shorter than the stated maturity of the Indebtedness being
refinanced.
Section 6.4 Dividends; Compensation. The Borrower shall not declare or
pay any cash dividend, purchase, redeem or otherwise acquire for value any of
its Capital Stock now or hereafter outstanding, return any capital to
stockholders, or make any distribution of its assets to its stockholders as
such. No salary, bonus or other compensation shall be paid by Borrower to an
officer or director of Borrower that is also a director of SWRH or SWRI, other
than standard board of director's fees.
Section 6.5 Investments.
(a) Without the Majority Senior Lenders' prior written
consent, Borrower shall not, and shall not permit any Subsidiary to
make any Acquisition, make or hold any direct or indirect investment in
any Person or any Equipment, including capital contributions to the
Person, investments in the debt or equity securities of the Person, and
loans, guaranties, trade credit, or other extensions of credit to the
Person, individually or in the aggregate, in excess of $50,000 per
year, without the Majority Senior Lenders prior written consent except
for (i) trade credit issued by the Borrower and its Subsidiaries to any
Person in the ordinary course of business in an aggregate outstanding
amount not to exceed $1,000,000 which is not outstanding greater than
sixty (60) days or more past the date of invoice and (ii) capital
expenditures of the Borrower and its Subsidiaries in an aggregate
amount not to exceed $1,500,000 during any fiscal year of the Borrower.
Notwithstanding the foregoing, all investments made by Borrower shall
be in the oil-field service industry.
<PAGE> 39
(b) The Borrower shall not, and shall not permit any
Subsidiary to, make or hold any direct or indirect investment in any
Affiliate of the Borrower, including capital contributions to the
Affiliate investments in the debt or equity securities of the Affiliate
and loans, guaranties, trade credit, or other extensions of credit to
the Affiliate without the Majority Senior Lenders' prior written
consent; provided that subject to Section 6.5(a), the Borrower may
extend trade credit to SWRI and SWRH on terms consistent with that
required by Section 6.10.
Section 6.6 Sale or Discount of Receivables. The Borrower shall not,
and shall not permit any Subsidiary to, discount or sell with recourse, or sell
for less than the greater of the face or market value thereof, any of their
notes receivable or accounts receivable.
Section 6.7 Nature of Business. The Borrower shall not, and shall not
permit any Subsidiary to, allow any material adverse change to be made in the
character of their business as carried on at the date hereof.
Section 6.8 Amendment of Articles of Incorporation or Bylaws. The
Borrower shall not, and shall not permit any Subsidiary to, allow any amendment
to, or other alteration of, their Articles of Incorporation, Bylaws or any
contract, agreement or instrument that could have a detrimental affect on the
Collateral.
Section 6.9 Asset Sales. With the exception of (i) the sales in
conjunction with the Auction Package, (ii) the sale of the Lampasas Ranch
property and (iii) any sales of assets received by the Company in lieu of cash
from arms-length exchanges of services by the Company for assets, the Borrower
shall not and shall not permit any Subsidiary to, sell, transfer or otherwise
convey any interest of the Borrower or the Subsidiary in any of their respective
assets without the prior written consent of the Majority Senior Lenders if the
aggregate amount of the consideration received from all such sales, transfers,
and conveyances during any fiscal year of the Borrower would exceed $100,000. No
sale, transfer or conveyance shall be for less than the fair market value of the
asset. The net proceeds of any asset sale, transfer, or conveyance which
requires the Majority Senior Lenders consent shall be delivered to the Senior
Agent for the ratable benefit of the Senior Lenders as a prepayment of interest
and principal on the Senior Loan in accordance with Section 2.2(c).
Section 6.10 Transactions with Affiliates. Without the prior written
consent of the Majority Senior Lenders, the Borrower shall not, and shall not
permit any of its Subsidiaries to, enter into any transaction with any of its
Affiliates, except transactions upon terms no less favorable to it than would be
obtained in a transaction negotiated at arm's length with an unrelated third
party.
Section 6.11 Partnerships. Neither the Borrower nor any of its
Subsidiaries will, without the prior written consent of the Majority Senior
Lenders, form any partnership, joint venture, or similar partnership arrangement
after the Effective Date that have the ability to incur Indebtedness with
recourse to the Borrower or any of its Subsidiaries, whether contractual or
through liability as a partner.
<PAGE> 40
Section 6.12 Subsidiaries.
(a) The Borrower will not, without the prior written consent
of the Majority Senior Lenders, sell or otherwise dispose of any of the
equity securities of its Subsidiaries.
(b) The Borrower shall not, and shall not permit any of the
Borrower's Subsidiaries to, create or acquire any additional
Subsidiaries without the consent of the Majority Senior Lenders, such
consent shall not be unreasonably withheld.
Section 6.13 Equity Proceeds. The Borrower shall not, and shall not
permit any Subsidiary to, issue any additional Capital Stock or debt securities
following the Effective Date, without the prior written consent of the Majority
Senior Lenders. The net proceeds of any such issuance shall be delivered to the
Senior Agent for the ratable benefit of the Senior Lenders as a prepayment of
interest and principal on the Senior Loan in accordance with Section 2.4(c).
Section 6.14 Public Disclosures. The Borrower will not, and will not
permit any Subsidiary to, disclose the identity of the Senior Agent or any
Senior Lender in any public announcement, governmental filing or otherwise
without the Senior Agent's and such Senior Lender, as applicable, prior written
consent unless such disclosure is compelled or required by law, stock exchange
rule or by order of a court of competent jurisdiction.
Section 6.15 Limitation on Payment Restrictions Affecting Subsidiaries.
The Borrower will not, and will not permit any of its Subsidiaries to, create or
otherwise cause to exist or become effective any consensual encumbrance or
consensual restriction of any kind, on the ability of any Subsidiary of the
Borrower to (a) pay dividends or make any other distribution on its Capital
Stock to the Borrower or any Subsidiary, (b) pay any Indebtedness owed to the
Borrower or any Subsidiary, (c) make investments in the Borrower or any
Subsidiary, or (d) transfer any of its property or assets to the Borrower or any
Subsidiary, except, in each case (i) any encumbrances or restrictions binding
upon a Person at the time such Person becomes a Subsidiary (unless the agreement
creating such encumbrance or restrictions was entered into in connection with,
or in contemplation of, such entity becoming Subsidiary), provided that such
encumbrances or restrictions shall not encumber or restrict any assets of the
Borrower or its other Subsidiaries other than such Subsidiary, (ii) any
encumbrance or restriction pursuant to any customary non-assignment provisions
in leases, (iii) any encumbrances or restrictions due to applicable law, (iv)
any such encumbrance or restriction with respect to a Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary or any such
encumbrance or restriction referred to in clause (d) above with respect to the
assets of a Subsidiary and imposed pursuant to an agreement entered into for the
sale of such assets (in either case, so long as such encumbrance or restriction,
by its terms, terminates on the earlier of the termination of such agreement or
the consummation of such agreement), and (v) any such encumbrance or restriction
pursuant to any agreement that amends, extends, refinances, renews or replaces
any agreement described in the foregoing clauses (i), (ii), and (iii), provided
that the terms and conditions of any
<PAGE> 41
such encumbrances or restrictions are not materially less favorable to the
Borrower than those under or pursuant to the agreement amended, extended,
refinanced, renewed or replaced.
Section 6.16 Fixed Charge Coverage Ratio. Beginning June 30, 2000 and
as of the last day of each fiscal quarter of the Borrower thereafter, the
Borrower shall not permit the ratio of (i) the consolidated EBITDA of the
Borrower less cash income taxes for the preceding four fiscal quarters then most
recently ended to (ii) the consolidated Debt/Lease Service of the Borrower for
the preceding four fiscal quarters then most recently ended, to be less than
1.00 to 1.00.
ARTICLE 7
EVENTS OF DEFAULT
Section 7.1 Events of Default. The occurrence of any of the following
shall be an "Event of Default" for the purposes of this Senior Loan Agreement
and the other Senior Loan Documents:
(a) Any Senior Loan Party shall fail to pay when due or
declared due any principal, interest, fee or any other amounts due
under this Senior Loan Agreement or any other Senior Loan Document; or
(b) Any representation or warranty made by any Senior Loan
Party under this Senior Loan Agreement, any other Senior Loan Document,
the Equity Documents, or in any certificate or statement furnished or
made to the Senior Agent or any Senior Lender pursuant thereto, or in
connection therewith, or in connection with any document furnished
hereunder, shall prove to be untrue in any material respect as of the
date on which such representation or warranty is made (or deemed made),
or any representation, statement (including Financial Statements),
certificate, report, or other data furnished or to be furnished or made
by the Borrower under any Senior Loan Document proves to have been
untrue in any material respect as of the date as of which the facts
therein set forth were stated or certified; or
(c) Any breach shall be made in the due observance or
performance of any of the affirmative covenants, negative covenants or
the agreements of any Senior Loan Party contained in the Senior Loan
Documents or the Equity Documents; or
(d) Default shall be made in respect of any obligation for
borrowed money, other than the Notes, for which any Senior Loan Party
is liable (directly, by assumption, as guarantor, or otherwise),
including any obligations secured by any Lien on any asset or property
of any Senior Loan Party, or in respect of any agreement relating to
any such obligations, and such default shall continue beyond the
applicable grace period, if any; or
(e) Any Senior Loan Party shall commence a voluntary case or
other proceedings seeking liquidation, reorganization or other relief
with respect to itself or its debts under any
<PAGE> 42
bankruptcy, insolvency, or other similar law now or hereafter in effect
or seeking an appointment of a trustee, receiver, liquidator,
custodian, or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment
of or taking possession by any such official in an involuntary case or
other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any corporate action or
authorizing the foregoing; or
(f) An involuntary case or other proceeding, shall be
commenced against any Senior Loan Party seeking liquidation,
reorganization, or other relief with respect to it or its debts under
any bankruptcy, insolvency, or similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian, or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 60 days; or an order
for relief shall be entered against any Senior Loan Party under the
federal bankruptcy laws as now or hereinafter in effect; or
(g) A final judgment or order for the payment of money in
excess of $500,000 (or judgments or orders aggregating in excess of
$500,000) that is not fully insured shall be rendered against any
Senior Loan Party and such judgements or orders shall continue
unsatisfied and unstayed for a period of thirty 30 days; or
(h) A Change of Management shall occur; or
(i) Any Guaranty shall at any time and for any reason cease to
be in full force and effect or shall be contested by the guarantor
thereunder, or any guarantor under a Guaranty shall deny it has any
further liability or obligation thereunder; or
(j) Any Security Document shall at any time and for any reason
cease to create the Lien on the property purported to be subject to
such agreement in accordance with the terms of such agreement, cease to
be in full force and effect, or shall be contested by any party
thereto; or
(k) A Material Adverse Effect shall occur; or
(l) Any "Event of Default" shall occur under the Subordinated
Loan Agreement; or
(m) Any audited Financial Statement of the Borrower required
to be delivered hereunder shall be qualified, in the Majority Senior
Lenders' opinion, in any material respect.
Section 7.2 Acceleration. Upon the occurrence of any Event of Default
under Sections 7.1(e) or (f) ("Bankruptcy Event of Default"), the outstanding
principal amount of the Notes, all
<PAGE> 43
accrued but unpaid interest thereon, and all other Senior Loan Obligations shall
immediately and automatically become due and payable. During the existence of
any Event of Default, the Senior Agent shall at the request of the Majority
Senior Lenders declare by written notice to the Borrower the outstanding
principal amount of the Notes, all accrued but unpaid interest thereon, and all
other Senior Loan Obligations to be immediately due and payable. In connection
with any of the foregoing, except for the notice provided for above, the
Borrower waives notice of intent to demand, demand, presentment for payment,
notice of nonpayment, protest, notice of protest, grace, notice of dishonor,
notice of intent to accelerate, notice of acceleration, and all other notices.
Section 7.3 Default Interest. During the existence of an Event of
Default, the Majority Banks may declare by written notice to the Borrower that
all Senior Loan Obligations (including the outstanding principal amount of the
Advances and, to the fullest extent permitted by law, all accrued but unpaid
interest thereon and all other Indebtedness) shall bear interest beginning on
the date of occurrence of such Event of Default, until paid in full, at the
applicable Default Rate, payable upon demand by the Senior Agent.
Section 7.4 Other Senior Loan Documents. During the existence of an
Event of Default, the Senior Agent shall at the request of the Majority Banks
take any and all actions permitted under the other Senior Loan Documents,
including the Security Documents.
Section 7.5 Right of Setoff. During the existence of an Event of
Default, the Senior Agent and each Senior Lender is hereby authorized at any
time, to the fullest extent permitted by law, to set off and apply any
indebtedness owed by the Senior Agent or such Senior Lender to the Borrower
against any and all of the obligations of the Borrower under the Senior Loan
Documents, irrespective of whether or not the Senior Agent or such Senior Lender
shall have made any demand under the Senior Loan Documents and although such
obligations may be contingent and unmatured. The Senior Agent and each Senior
Lender, as the case may be, agree promptly to notify the Borrower after any such
setoff and application made by the Senior Agent or such Senior Lender provided
that the failure to give such notice shall not affect the validity of such
setoff and application.
Section 7.6 Cumulative Remedies. No right, power, or remedy conferred
in this Senior Loan Agreement or the Notes, or now or hereafter existing at law,
in equity, by statute, or otherwise shall be exclusive, and each such right,
power, or remedy shall to the full extent permitted by law be cumulative and in
addition to every other such right, power, or remedy. No course of dealing and
no delay in exercising any right, power, or remedy conferred to the Senior Agent
or any Senior Lender in this Senior Loan Agreement or the Notes, or now or
hereafter existing at law, in equity, by statute, or otherwise shall operate as
a waiver of or otherwise prejudice any such right, power, or remedy.
Section 7.7 Application of Payments. Prior to any payment default upon
any maturity date or any acceleration of the Senior Loan Obligations, all
payments made on the Senior Loan Obligations hereunder shall be applied to the
Senior Loan Obligations as directed by the Borrower, subject to the rules
regarding the application of payments to certain Indebtedness provided for
<PAGE> 44
hereunder and in the Senior Loan Documents. Following any payment default upon
any maturity date or any acceleration of the Senior Loan Obligations, all
payments and collections shall be applied to the Senior Loan Obligations in the
following order:
First, to the payment of the costs, expenses, reimbursements, and
indemnifications of the Senior Agent that are due and payable under the
Senior Loan Documents;
Then, ratably to the payment of the costs, expenses, reimbursements,
and indemnifications of the Senior Lenders that are due and payable
under the Senior Loan Documents;
Then, ratably to the payment of all outstanding principal due and
payable under the Senior Loan Documents;
Then, ratably to the payment of any other amounts due and owing with
respect to the Indebtedness; and
Finally, any surplus held by the Senior Agent and remaining after
payment in full of all the Senior Loan Obligations and reserve for
Indebtedness not yet due and payable shall be promptly paid over to the
Borrower or to whomever may be lawfully entitled to receive such
surplus.
ARTICLE 8
THE SENIOR AGENT
Section 8.1 Authorization and Action. Each Senior Lender hereby
appoints and authorizes the Senior Agent to take such action as agent on behalf
of such Senior Lender and to exercise such powers under this Senior Loan
Agreement as are delegated to the Senior Agent by the terms hereof and of the
other Senior Loan Documents, together with such powers as are reasonably
incidental thereto. As to any matters not expressly provided for by this Senior
Loan Agreement or any other Senior Loan Document (including, without limitation,
enforcement or collection of the Notes), the Senior Agent shall not be required
to exercise any discretion or take any action, but shall be required to act or
to refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Majority Senior Lenders, and such
instructions shall be binding upon all Senior Lenders and all holders of the
Notes; provided, however, that the Senior Agent shall not be required to take
any action which exposes the Senior Agent to personal liability or which is
contrary to this Senior Loan Agreement, any other Senior Loan Document, or
applicable law.
Section 8.2 Senior Agent's Reliance, Etc. Neither the Senior Agent nor
any of the Senior Agent's directors, officers, agents or employees shall be
liable for any action taken or omitted to be taken (including the Senior Agent's
own negligence) by it or them under or in connection with this Senior Loan
Agreement or the other Senior Loan Documents, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Senior
<PAGE> 45
Agent: (a) may treat the payee of any Note as the holder thereof until the
Senior Agent receives written notice of the assignment or transfer thereof
signed by such payee and in form satisfactory to the Senior Agent; (b) may
consult with legal counsel (including counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Senior Lender and shall not be responsible to any Senior
Lender for any statements, warranties or representations made in or in
connection with this Senior Loan Agreement or the other Senior Loan Documents;
(d) shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Senior Loan
Agreement or any other Senior Loan Document on the part of SWRI, the Borrower,
or its Subsidiaries or to inspect the property (including the books and records)
of such Persons; (e) shall not be responsible to any Senior Lender for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Senior Loan Agreement or any other Senior Loan Document; and (f) shall
incur no liability under or in respect of this Senior Loan Agreement or any
other Senior Loan Document by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopy, telegram, cable or telex)
reasonably believed by it to be genuine and signed or sent by the proper party
or parties.
Section 8.3 The Senior Agent and Its Affiliates. With respect to its
Commitment, the Loans made by it and the Note issued to it, the Senior Agent
shall have the same rights and powers under this Senior Loan Agreement as any
other Senior Lender and may exercise the same as though it were not an Senior
Agent hereunder. The term "Senior Lender" or "Senior Lenders" shall, unless
otherwise expressly indicated, include the Senior Agent in its individual
capacity. The Senior Agent and its Affiliates may accept deposits from, lend
money to, act as trustee under indentures of, and generally engage in any kind
of business with the Borrower or any of its Subsidiaries, and any Person who may
do business with or own securities of the Borrower, or any such Subsidiary, all
as if the Senior Agent were not an agent hereunder and without any duty to
account therefor to the Senior Lenders.
Section 8.4 Senior Lender Loan Decision. Each Senior Lender
acknowledges that it has, independently and without reliance upon the Senior
Agent or any other Senior Lender and based on the financial statements referred
to in Section 4.6 and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this Senior
Loan Agreement. Each Senior Lender also acknowledges that it will, independently
and without reliance upon the Senior Agent or any other Senior Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Senior Loan Agreement.
Section 8.5 Indemnification. The Senior Lenders severally agree to
indemnify the Senior Agent and each Affiliate thereof and their respective
directors, officers, employees and agents (to the extent not reimbursed by the
borrower), according to their respective pro rata shares from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by,
<PAGE> 46
or asserted against the Senior Agent in any way relating to or arising out of
this Senior Loan Agreement or any action taken or omitted by the Senior Agent
under this Senior Loan Agreement or any other Senior Loan Document (INCLUDING
THE SENIOR AGENT'S OWN NEGLIGENCE), provided that no Senior Lender shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Senior Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Senior Lender agrees to reimburse the Senior
Agent promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by the agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Senior Loan
Agreement or any other Senior Loan Document, to the extent that the Senior Agent
is not reimbursed for such expenses by the Borrower.
Section 8.6 Successor Senior Agent. The Senior Agent may resign at any
time by giving written notice thereof to the Majority Senior Lenders and the
Borrower and may be removed at any time with cause by the Majority Senior
Lenders upon receipt of written notice from the Majority Senior Lenders to such
effect. Upon receipt of notice of any such resignation or removal, the Majority
Senior Lenders shall have the right to appoint a successor Senior Agent with, if
no Default exists, the consent of the Borrower, which consent shall not be
unreasonably withheld. If no successor Senior Agent shall have been so appointed
by the Majority Senior Lenders with the consent of the Borrower, if required,
and shall have accepted such appointment, within 30 days after the retiring
Senior Agent's giving of notice of resignation or the Majority Senior Lenders'
removal of the retiring Senior Agent, then the retiring Senior Agent may, on
behalf of the Senior Lenders and the Borrower, appoint a successor Senior Agent,
which shall be an Eligible Assignee. Upon the acceptance of any appointment as
Senior Agent by a successor Senior Agent, such successor Senior Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Senior Agent, and the retiring Senior Agent shall be
discharged from its duties and obligations under this Senior Loan Agreement and
the other Senior Loan Documents. After any retiring Senior Agent's resignation
or removal hereunder as Senior Agent, the provisions of this Article 8 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Senior Agent this Senior Loan Agreement and the other Senior Loan
Documents.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Interpretation and Survival of Provisions. Article,
Section, Schedule, and Exhibit references are to this Senior Loan Agreement,
unless otherwise specified. All references to instruments, documents, contracts,
and agreements are references to such instruments, documents, contracts, and
agreements as the same may be amended, supplemented, and otherwise modified from
time to time, unless otherwise specified. The word "including" shall mean
"including but not limited to." Whenever the Borrower has an obligation under
the Senior Loan Documents, the expense of
<PAGE> 47
complying with that obligation shall be an expense of the Borrower unless
otherwise specified. Whenever any determination, consent, or approval is to be
made or given by the Senior Agent or the Senior Lenders, such action shall be in
the Senior Agent's or Senior Lenders', as applicable, sole discretion unless
otherwise specified in this Senior Loan Agreement. If any provision in the
Senior Loan Documents is held to be illegal, invalid, not binding, or
unenforceable, such provision shall be fully severable and the Senior Loan
Documents shall be construed and enforced as if such illegal, invalid, not
binding, or unenforceable provision had never comprised a part of the Senior
Loan Documents, and the remaining provisions shall remain in full force and
effect. The Senior Loan Documents have been reviewed and negotiated by
sophisticated parties with access to legal counsel and shall not be construed
against the drafter. The representations, warranties, and covenants made in this
Senior Loan Agreement and the Notes shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Borrower, the
Senior Agent, or any Senior Lender. All indemnification obligations of the
Borrower hereunder and the provisions of Section 9.2 shall remain operative and
in full force and effect unless such obligations are expressly terminated in a
writing referencing such obligations, regardless of any purported general
termination of this Senior Loan Agreement.
Section 9.2 Costs, Expenses and Taxes. The Borrower agrees to:
(a) pay all costs and expenses reasonably incurred by the
Senior Agent in connection with negotiation, preparation, printing,
execution and delivery of the Senior Loan Documents and the
transactions contemplated hereby and thereby. The Borrower shall also
pay any expenses of the Senior Agent reasonably incurred after the date
hereof in connection with any amendment or supplement to or
modification of any of the foregoing and any and all other documents
furnished pursuant hereto or thereto or in connection herewith or
therewith. In addition, the Borrower, to the extent permitted by
applicable law, shall pay any and all stamp, transfer, and other
similar taxes payable or determined to be payable in connection with
the execution and delivery of this Senior Loan Agreement and shall save
and hold the Senior Agent and the Senior Lenders harmless from and
against any and all liabilities with respect to or resulting from any
delay in paying, or omission to pay, such taxes;
(b) indemnify the Senior Agent, each Senior Lender, and its
respective officers, directors, employees, representatives, agents,
attorneys, and Affiliates (collectively, "Related Parties") from, hold
each of them harmless against and promptly upon demand pay or reimburse
each of them for, any and all actions, suits, proceedings (including
any investigations, litigation, or inquiries), claims, demands, and
causes of action, and, in connection therewith, all reasonable costs,
losses, liabilities, damages, or expenses of any kind or nature
whatsoever (collectively the "Indemnity Matters") which may be incurred
by or asserted against or involve any of them (whether or not any of
them is designated a party thereto) as a result of, arising out of, or
in any way related to (i) any actual or proposed use by Borrower of the
proceeds of the Senior Loan or the Subordinated Loan, (ii) the
operations of the business of Borrower or any Subsidiary, (iii) any
bodily injury or death or property
<PAGE> 48
damage occurring in or upon or in the vicinity of any Collateral, (iv)
any claim by any third Person against any Collateral assigned to, or
paid to, the Senior Agent, for the benefit of the Senior Lenders
pursuant to any Security Agreement, (v) the failure of a Borrower or
any Subsidiary to comply with any Governmental Requirement, or (vi) any
other aspect of this Senior Loan Agreement and the other Senior Loan
Documents, including, without limitation, the reasonable fees and
disbursements of counsel and all other expenses incurred in connection
with investigating, defending or preparing to defend any such action,
suit, proceeding (including any investigations, litigation, or
inquiries), or claim and INCLUDING ALL INDEMNITY MATTERS ARISING BY
REASON OF THE NEGLIGENCE OF ANY INDEMNITEE (but not Indemnity Matters
related to the gross negligence or wilful misconduct of any
Indemnitee);
(c) pay and hold the Senior Agent and each Senior Lender
harmless from and against any and all present and future stamp and
other similar taxes with respect to this Senior Loan Agreement and
Senior Loan Documents and save the Senior Agent and each Senior Lender
harmless from and against any and all liabilities with respect to or
resulting from any delay or omission to pay such taxes, and will
indemnify the Senior Agent and each Senior Lender for the full amount
of taxes paid by the Senior Agent and each Senior Lender in respect of
payments made or to be made under this Senior Loan Agreement, any of
the Notes, or any other Senior Loan Document and any liability
(including penalties, interest, and expenses) arising therefrom or with
respect thereto, whether or not such taxes were correctly or legally
asserted;
(d) indemnify and hold harmless from time to time the Senior
Agent, each Senior Lender, and its respective Related Parties from and
against any and all losses, claims, cost recovery actions,
administrative orders or proceedings, damages, and liabilities to which
any such Person may become subject (i) under any Environmental Law
applicable to Borrower, any Subsidiary or any of their respective
properties, (ii) as a result of the breach or non-compliance by
Borrower or any Subsidiary with any Environmental Law applicable to
Borrower or any Subsidiary, (iii) due to past ownership by Borrower or
any Subsidiary of their respective properties or past activity on any
of their respective properties, or past activity on any of their
respective properties which, though lawful and fully permissible at the
time, could result in present liability, (iv) the presence, use,
release, storage, treatment, or disposal of hazardous substances on or
at any of the properties owned or operated by Borrower or any
Subsidiary, or (v) any other environmental, health, or safety condition
in connection with this Senior Loan Agreement or any other Senior Loan
Document, provided, however, no indemnity shall be afforded under this
Section 9.2(d) in respect of any property for any occurrence arising
solely and directly from the acts or omissions of the Senior Lenders
during the period after which such Person, its successors or assigns
shall have acquired such property through foreclosure or deed in lieu
of foreclosure;
(e) in the case of any indemnification hereunder, the Senior
Agent or other Person indemnified hereunder shall give notice to the
Borrower within a reasonable period of time of any such claim or demand
being made against the Senior Agent, the Senior Lenders or
<PAGE> 49
other indemnified Person and the Borrower shall have the non-exclusive
right to join in the defense against any such claim or demand;
(f) no indemnitee may settle any claim to be indemnified
without the consent of the indemnitor, such consent not to be
unreasonably withheld; provided, that the indemnitor may not reasonably
withhold consent to any settlement that an indemnitee proposes, if the
indemnitor does not have the financial ability to pay all its
obligations outstanding and asserted against the indemnitee at that
time, including the maximum potential claims against the indemnitee to
be indemnified pursuant to this Section 9.2;
(g) this Section 9.2 shall not apply to actions, suits,
proceedings, investigations, demands, losses, liabilities, claims,
damages, deficiencies, interest, judgments, costs, or expenses arising
solely and directly from the acts or omissions of the Senior Agent or
any Senior Lender during the period after which such Person, its
successors or assigns shall have acquired such property through
foreclosure or deed in lieu of foreclosure; and
(h) the Borrower's obligations under this Section 9.2 shall
survive any termination of this Senior Loan Agreement and the payment
of the Indebtedness.
Section 9.3 No Waiver; Modifications in Writing.
(a) No failure or delay on the part of the Senior Agent or any
Senior Lender in exercising any right, power, or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise
of any such right, power, or remedy preclude any other or further
exercise thereof or the exercise of any right, power, or remedy. The
remedies provided for herein are cumulative and are not exclusive of
any remedies that may be available to the Senior Agent or any Senior
Lender at law or in equity or otherwise.
(b) No modification or waiver of any provision of the Senior
Loan Agreement or the Notes, nor any consent required under the Senior
Loan Agreement or the Notes, shall be effective unless the same shall
be in writing and signed by the Senior Agent and Majority Senior
Lenders and the Borrower, and then such modification, waiver, or
consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no
modification, waiver, or consent shall, unless in writing and signed by
the Senior Agent, all the Senior Lenders, and the Borrower do any of
the following: (a) increase any Commitment of any Senior Lender, (b)
forgive or reduce any amount or rate of any principal, interest, or
fees payable under the Senior Loan Documents, or postpone or extend any
time for payment thereof, (c) release any Guaranty or all or
substantially all of the collateral securing the Indebtedness (except
as otherwise permitted or required herein), or (d) change the
percentage of Senior Lenders required to take any action under the
Senior Loan Agreement, the Notes, or the Security Documents, including
any amendment of the definition of "Majority Senior Lenders" or this
Section 9.3. No modification, waiver, or consent shall, unless in
writing and signed by the Senior Agent affect the rights or obligations
<PAGE> 50
of the Senior Agent under the Senior Loan Documents. The Senior Agent
shall not modify or waive or grant any consent under any other Senior
Loan Document of such action would be prohibited under this Section 8.3
with respect to the Loan Agreement or the Notes.
Section 9.4 Binding Effect; Assignment. This Agreement and the Senior
Loan Documents shall bind and inure to the benefit of the Borrower and its
successors and assigns and the Senior Agent and the Senior Lenders and their
respective successors and assigns. The Borrower may not assign its rights or
delegate its duties under the Senior Loan Agreement or any Senior Loan Document.
(a) Assignments. Any Senior Lender may assign to any Person
all or any portion of its rights and obligations with respect to the
Senior Loan Agreement (including the Advances owing to it, the Note
held by it, and its Commitment) provided that (i) the parties to each
such assignment shall execute and deliver to the Senior Agent, for its
acceptance and recording in the Register, an assignment and acceptance
in form and substance reasonably satisfactory to the Senior Agent
(Assignment and Acceptance"), together with the Notes subject to such
assignment and (ii) each assignee shall pay to the Senior Agent a
$3,500 administrative fee. Upon such execution, delivery, acceptance
and recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least three
Business Days after the execution thereof, (A) the assignee thereunder
shall be a party hereto for all purposes and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Senior
Lender hereunder and (B) the assignor thereunder shall, to the extent
that rights and obligations hereunder have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Senior Loan Agreement (and, in
the case of an Assignment and Acceptance covering all of such Senior
Lender's rights and obligations under the Senior Loan Agreement, such
Senior Lender shall cease to be a party hereto).
(b) Term of Assignments. By executing and delivering an
Assignment and Acceptance, the assignor thereunder and the assignee
thereunder confirm to and agree with each other and the other parties
hereto as follows: (i) other than as provided in such Assignment and
Acceptance, the assignor makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Senior Loan Agreement
or the execution, legality, validity, enforceability, genuineness,
sufficiency of value of the Senior Loan Agreement or any other
instrument or document furnished pursuant hereto; (ii) the assignor
makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Senior Loan Party or the
performance or observance by any Senior Loan Party of any of its
obligations under the Senior Loan Agreement or any other instrument or
document furnished pursuant hereto; (iii) the assignee confirms that it
has received a copy of the Senior Loan Agreement, together with such
other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Assignment and
<PAGE> 51
Acceptance; (iv) the assignee shall, independently and without reliance
upon the Senior Agent, the assignor or any other Senior Lender and
based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not
taking action under the Senior Loan Agreement; (v) the assignee
appoints and authorizes the Senior Agent to take such action as agent
on its behalf and to exercise such powers under the Senior Loan
Agreement as are delegated to the Senior Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and
(vi) the assignee agrees that it shall perform in accordance with their
terms all of the obligations which by the terms of the Senior Loan
Agreement are required to be performed by it as a Senior Lender.
Section 9.5 The Register. The Senior Agent shall maintain at its
address referred to in Section 9.8 a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Senior Lenders and the Commitments and Senior Notes of each
Senior Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Senior Agent, and the Senior Lenders may treat each Person whose
name is recorded in the Register as a Senior Lender hereunder for all purposes
of the Senior Loan Agreement. The Register shall be available for inspection by
the Borrower or any Senior Lender at any reasonable time and from time to time
upon reasonable prior notice.
Section 9.6 Procedures. Upon its receipt of an Assignment and
Acceptance executed by the assignor thereunder and the assignee thereunder,
together with the Notes subject to such assignment, the Senior Agent shall, if
such Assignment and Acceptance has been completed in the appropriate form, (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register, and (iii) give prompt notice thereof to the Borrower.
Within five Business Days after its receipt of such notice, the Borrower shall
execute and deliver to the Senior Agent in exchange for the surrendered Note new
Notes in the appropriate amounts to the order of the assignee and, if the
assignor has retained any rights and obligations hereunder, new Notes in the
appropriate amounts to the order of the assignor. Such new Notes shall be dated
the effective date of such Assignment and Acceptance and shall be in the
appropriate form.
Section 9.7 Participation. Each Senior Lender may sell participation to
one or more banks or other entities in or to all or a portion of its rights and
obligations under the Senior Loan Agreement (including the Advances owing to it,
the Notes held by it, and its Commitments); provided, however, that (i) such
Senior Lender's obligations under the Senior Loan Agreement (including its
Commitments to the Borrower hereunder) shall remain unchanged, (ii) such Senior
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Senior Lender shall remain the
holder of any Commitments and Notes for all purposes of the Senior Loan
Agreement, (iv) the Borrower, the Senior Agent, and the other Senior Lenders
shall continue to deal solely and directly with such Senior Lender in connection
with such Senior Lender's rights and obligations under the Senior Loan
Agreement, and (v) such Senior Lender shall not require the participant's
consent to any matter under the Senior Loan Agreement except for
<PAGE> 52
those that require approval of all of the Senior Lenders under Section 8.3. The
Borrower hereby agrees that participants shall have the same rights under
Sections 2.6, 2.7, 2.8, and 9.2 as a Senior Lender to the extent of their
respective participation.
Section 9.8 Communications. All notices and demands provided for
hereunder shall be in writing, shall be given by registered or certified mail,
return receipt requested, telex, telegram, telecopy, air courier guaranteeing
overnight delivery or personal delivery, to the addresses specified under such
Person's signature block or to such other address as such Persons may designate
in writing. All other communications may be by regular mail. All such notices
and communications and all notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; four
days after being sent by certified mail, return receipt requested, if mailed;
when answered back, if telexed; when receipt acknowledged, if telecopied; and on
the next Business Day if timely delivered to an air courier guaranteeing
overnight delivery.
Section 9.9 Interest. Notwithstanding anything herein or in the other
Senior Loan Documents or Equity Document to the contrary, it is the intention of
the parties hereto to conform strictly to usury laws applicable to this
transaction. Accordingly, if the transactions contemplated hereby would be
usurious under applicable law, then, in that event, notwithstanding anything to
the contrary in the Notes, this Senior Loan Agreement, any other Senior Loan
Document, or any Equity Document or agreement entered into in connection with or
as security for the Notes, it is agreed as follows: (a) the aggregate of all
consideration which constitutes interest under law applicable to the Senior
Lenders that is contracted for, taken, reserved, charged or received under the
Notes, this Senior Loan Agreement, any of the other Senior Loan Documents, the
Equity Documents or otherwise in connection with this transaction shall under no
circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be canceled automatically and, if already paid, shall be credited
by the Senior Lenders on the principal amount of the Notes (or, to the extent
that the principal amount of the Notes shall have been or would thereby be paid
in full, refunded to the Borrower); and (b) in the event that the maturity of
the Notes is accelerated for any reason, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to this transaction may never include more than the maximum
amount allowed by such applicable law, and (c) excess interest, if any, provided
for in this Senior Loan Agreement or otherwise in connection with the Senior
Loans shall be canceled automatically and, if already paid, shall be credited by
the Senior Lenders on the principal amount of the Notes (or, to the extent that
the principal amount of the Notes shall have been or would thereby be paid in
full, refunded by the Senior Lenders to the Borrower). The right to accelerate
the maturity of the Notes does not include the right to accelerate any interest
which has not otherwise accrued on the date of such acceleration, and the Senior
Lenders do not intend to collect any unearned interest in the event of
acceleration. All sums paid or agreed to be paid to the Senior Lenders for the
use, forbearance or detention of sums included in the Indebtedness shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term
<PAGE> 53
of the Notes until payment in full so that the rate or amount of interest on
account of the Notes does not exceed the applicable usury ceiling, if any. As
used in this Section 9.9, the term "applicable law" shall mean the laws which
govern this Senior Loan Agreement as described in Section 9.10 (or the law of
any other jurisdiction whose laws may be mandatorily applicable notwithstanding
other provisions of this Senior Loan Agreement), or law of the United States of
America applicable to the Senior Lenders and the Senior Loan and the
Subordinated Loan which would permit the Senior Lenders to contract for, charge,
take, reserve or receive a greater amount of interest than under any other
applicable law. If the stated rate of interest under this Senior Loan Agreement
ever exceeds the Maximum Rate, then the outstanding principal amount of the
Senior Loan made hereunder shall bear interest at the Maximum Rate until the
difference between the interest which would have been due at the stated rates of
interest and the amount due at the Maximum Rate (the "Lost Interest") has been
recaptured by the Senior Lenders. If the Senior Loan made hereunder is repaid in
full and the Lost Interest has not been fully recaptured by the Senior Lenders
pursuant to the preceding sentence, then the Senior Loans made hereunder shall
be deemed to have accrued interest at the Maximum Rate since the date the Senior
Loan was made to the extent necessary to recapture the Lost Interest not
recaptured pursuant to the preceding sentence and, to the extent allowed by law,
the Borrower shall pay to the Senior Lenders the amount of the Lost Interest
remaining to be recaptured by the Senior Lenders.
Section 9.10 Governing Law. The laws of the State of New York will
govern this Senior Loan Agreement without regard to principles of conflicts of
laws.
Section 9.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE SENIOR
AGENT, AND THE SENIOR LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO ANY SENIOR LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
Section 9.12 LIMITATION ON DAMAGES. IN NO EVENT SHALL ANY PARTY HERETO
BE LIABLE TO ANY OTHER PARTY HERETO FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL,
INCIDENTAL, PUNITIVE, OR EXEMPLARY DAMAGES, INCLUDING WITHOUT LIMITATION, LOST
PROFITS OR SAVINGS, REGARDLESS OF THE FORM OF ACTION GIVING RISE TO SUCH A CLAIM
FOR SUCH DAMAGES, WHETHER IN CONTRACT OR TORT, INCLUDING NEGLIGENCE, EVEN IF A
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Section 9.13 Execution in Counterparts. This Senior Loan Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Senior Loan Agreement.
<PAGE> 54
[SIGNATURE PAGE - SENIOR LOAN AGREEMENT]
IN WITNESS WHEREOF, the parties hereto execute this Senior Loan
Agreement, effective as of the date first above written.
Borrower: SIERRA WELL SERVICE, INC.,
A Delaware corporation
By: /s/ Bill E. Coggin
-------------------------------------
Name: Bill E. Coggin
Title: Vice Chairman
Address for notification:
Sierra Well Service, Inc.
406 North Big Spring
Midland, Texas 79701-4326
Attention: Mr. Bill E. Coggin
Telecopier: (915) 688-0191
Senior Agent: JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP, as
Senior Agent
By: Enron Capital Management II Limited
Partnership, its sole general partner
By: Enron Capital II Corp., its sole
general partner
By: /s/ John D. Curtin III
--------------------------------------
Name: John D. Curtin III
Title: Agent and Attorney-in-Fact
<PAGE> 55
[SIGNATURE PAGE - SENIOR LOAN AGREEMENT]
Address for notification:
c/o Enron Capital & Trade Resources Corp.
Legal Department
1400 Smith Street
Houston, Texas 77002
Attention: Gareth S. Bahlmann
Telecopier: (713) 646-3393
c/o Enron Capital & Trade Resources Corp.
Compliance Department
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telecopier: (713) 646-4039 or
(713) 646-4946
Senior Lender: JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP
By: Enron Capital Management II Limited
Partnership, its sole general partner
By: Enron Capital II Corp., its
sole general partner
By: /s/ John D. Curtin III
--------------------------------------
Name: John D. Curtin III
Title: Agent and Attorney-in-Fact
Address for notification:
c/o Enron Capital & Trade Resources Corp.
Legal Department
1400 Smith Street
Houston, Texas 77002
Attention: Gareth S. Bahlmann
Telecopier: (713) 646-3393
<PAGE> 56
[SIGNATURE PAGE - SENIOR LOAN AGREEMENT]
c/o Enron Capital & Trade Resources Corp.
Compliance Department
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telecopier: (713) 646-4039 or
(713) 646-4946
<PAGE> 1
EXHIBIT 10.15
[EXECUTION VERSION]
SENIOR PROMISSORY NOTE
$24,408,000.00 New York, New York March 31, 1999
SIERRA WELL SERVICE, INC., a Delaware corporation ("Borrower"), for
value received, hereby promises to pay to the order of Joint Energy Development
Investments II Limited Partnership, a Delaware limited partnership, ("Lender")
the principal amount of TWENTY-FOUR MILLION FOUR HUNDRED AND EIGHT THOUSAND AND
NO/100 DOLLARS ($24,408,000.00) and interest on the unpaid balance of such
principal amount in accordance with Senior Loan Agreement referred to below.
This Note is a "Senior Note" issued pursuant to the Senior Loan
Agreement dated as of March 31, 1999 (as modified from time to time, the "Senior
Loan Agreement"), between the Borrower, the Senior Lenders named therein, and
Joint Energy Development Investments II Limited Partnership, as Senior Agent.
All capitalized terms used herein shall have the meaning ascribed to such term
in the Senior Loan Agreement unless otherwise defined herein. This Note is
subject to and entitled to the benefits of the Senior Loan Agreement and the
support therefor and the holder of this Note may enforce such rights in
accordance with the Senior Loan Agreement. Without limiting the foregoing, upon
the occurrence of an Event of Default, payments due under this Note may be
accelerated in the manner and with the effect provided in the Senior Loan
Agreement.
This Note is subject to mandatory and optional repayments, in whole or
in part, as specified in the Senior Loan Agreement. Payments of principal and
interest due on this Note paid in lawful money of the United States of America
to the Senior Agent in accordance with the terms of the Senior Loan Agreement.
Reference is made to the $30,000,000 Senior Secured Note (Tranche A)
dated as of September 30, 1997 ("Prior Note"), made by the Borrower and payable
to the order of Joint Energy Development Investments Limited Partnership. The
Prior Note was assigned to Joint Energy Development Investments II Limited
Partnership. The indebtedness under the Prior Note continues under the Senior
Notes and the execution of the Senior Notes does not indicate a payment,
satisfaction, novation, or discharge thereof.
The Lender is hereby authorized to record all Loans and all payments
and prepayments hereunder. The failure of the Lender to record any such amounts
shall not diminish or impair the Borrower's obligation to repay all principal
advanced and to pay all interest accruing under this Note.
<PAGE> 2
The Borrower and any and each co-maker, guarantor, accommodation party,
endorser or other Person liable for the payment or collection of this Note
expressly waive demand and presentment for payment, notice of nonpayment, notice
of intent to accelerate, notice of acceleration, protest, notice of protest,
notice of dishonor, bringing of suit, and diligence in taking any action to
collect amounts called for hereunder and in the handling of Collateral at any
time existing as security in connection herewith, and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder or in connection
with any Lien at any time had or existing as security for any amount called for
hereunder.
It is the intention of the Senior Lenders and the Borrower to conform
strictly to any applicable usury laws. Accordingly, the terms of the Senior Loan
Agreement relating to the prevention of usury will be strictly followed.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CHOICE OF
LAWS.
SIERRA WELL SERVICE, INC.
By: /s/ Bill E. Coggin
-----------------------
Name: Bill E. Coggin
Title: Vice Chairman
-2-
<PAGE> 1
EXHIBIT 10.17
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as
of the 1st day of March 2000, by and between THOMAS A. BEST, INDIVIDUALLY, and
PAM TAYLOR, TRUSTEE OF THE BEST CHILDREN'S TRUST (collectively, "Seller"), TAT
(TURN AROUND TRUCKING), INC., a Texas corporation (the "Company"), and SIERRA
WELL SERVICE, INC., a Delaware corporation ("Purchaser").
RECITALS:
A. The Company is based out of Kingsville, Texas, and is principally
engaged in the oilfield servicing business in South Texas (the "Business").
B. Seller owns all of the issued and outstanding capital stock of the
Company (the "Stock").
C. Seller desires to sell the Stock, and Purchaser desires to purchase
the same, upon and subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, and covenants which are hereinafter set forth, and
other good and valuable consideration, the legal sufficiency of which are hereby
acknowledged, the parties hereto have agreed and do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
Section 1.01 THE STOCK. Subject to all of the terms and conditions of
this Agreement, Seller hereby agrees to sell, transfer, and deliver, and
Purchaser hereby agrees to purchase, pay for, and accept, at the Closing
(hereinafter defined), all of the Stock.
Section 1.02 PRE-CLOSING DISTRIBUTION OF CERTAIN ASSETS. At or prior to
Closing, the Company shall distribute to Seller, without representation,
warranty, or recourse by or upon the Company, and without adverse tax effect
upon the Company, all of its right, title and interest in and to the assets
listed on attached SCHEDULE 1.02 (collectively, the "Excluded Assets"). In
connection with such distribution, upon Closing, Seller agrees to indemnify and
hold the Company and Purchaser harmless from and against any and all claims,
demands, causes of action, liabilities, losses, and/or expenses (including,
without limitation, reasonable attorneys' fees and other expenses of litigation)
arising from or in connection with the acquisition, ownership, operation, use,
or distribution of the Excluded Assets by the Company, specifically including,
without limitation, any adverse tax consequences occasioned to or suffered by
the Company or Purchaser as a consequence of the distribution of the Excluded
Assets to Seller pursuant to this Section 1.02.
<PAGE> 2
Section 1.03 PURCHASE PRICE. Subject to adjustment as hereinafter
provided in this Agreement, the total purchase price ("Purchase Price") for the
Stock is a sum equal to (A) $6,450,000.00, plus or minus (B) the "net financial
assets" (as defined below) of the Company as of the Closing Date ("NFA"), and
(C) minus, to the extent not reflected as a liability on the Preliminary Audited
Balance Sheet (hereinafter defined), the amounts necessary to fully retire all
future payment obligations under any vehicle lease obligations of the Company as
of the Closing Date, payable by Purchaser to Seller as follows:
(1) Purchaser shall pay to Thomas A. Best, as Collection
Agent for Seller, in immediately available funds at
the Closing a sum equal to (a) $5,150,000.00, plus or
minus (b) NFA, as preliminarily estimated and finally
adjusted pursuant to Section 5.09, minus (c) to the
extent not reflected as a liability on the
Preliminary Audited Balance Sheet, the amounts
necessary to fully retire all future payment
obligations under any vehicle lease obligations of
the Company as of the Closing Date, minus (d) the
Escrowed Funds (hereinafter defined) as provided for
in Section 1.04; and
(2) Purchaser shall execute and deliver to Thomas A.
Best, as Collection Agent for Seller, at Closing its
promissory note (the "Note") in the original
principal amount of $1,300,000.00, bearing interest
at a floating rate equal to the prime rate of
interest quoted in the Wall Street Journal published
on the Friday most immediately preceding the
applicable quarterly adjustment date, and payable to
the order of said Collection Agent on or before one
year from date, said Note to be substantially
identical in form and substance to that attached
hereto as EXHIBIT A, to be convertible into equity in
Sierra under certain circumstances as therein
specified, and to be secured by a lien and security
interest upon the tangible assets of the Company as
of Closing that is junior in priority to any liens
upon such assets as of the Closing, as created by
security documents substantially identical in form
and substance to those attached hereto as EXHIBIT B
(collectively, the "Security Documents").
As used in this Agreement, "net financial assets" means the difference
between (a) "Total Current Assets" and (b) "Total Liabilities", as such account
groups are shown on the Preliminary Audited Balance Sheet and then adjusted or
converted as of the Closing Date pursuant to Section 5.09.
As covenants which shall survive Closing hereunder without time
limitation, upon Closing, Seller hereby agrees to indemnify and hold Purchaser
and the Company harmless from and against any and all claims, demands, causes of
action, liabilities, losses, and/or expenses (including reasonable attorneys'
fees and expenses) arising from or attributable to payment of the Purchase Price
and the Note to Thomas A. Best, as Collection Agent for Seller, in accordance
with this Section 1.02 and the Note, and Seller further agrees to look solely to
Thomas A. Best, in his capacity as Collection
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT PAGE 2
<PAGE> 3
Agent, for disbursement of the Purchase Price, including, but not limited to the
proceeds of the Note, to and among Seller as Seller shall direct him in writing
at or prior to Closing.
Section 1.04 ESCROWED FUNDS. At the Closing, Seller, Purchaser, and the
Escrow Agent (as defined in the Escrow Agreement) shall enter into an escrow
agreement that is substantially identical in form and substance to that attached
hereto as EXHIBIT C (the "Escrow Agreement"), pursuant to which Purchaser shall
deposit (out of the Purchase Price) the sum of $200,000 (the "Escrowed Funds")
into the account established thereunder (the "Escrow Account"), to serve as a
source of security for the payment of any claims asserted by Purchaser within
six (6) months from the Closing Date (hereinafter defined) (the "Escrow Period")
against Seller for the breach of any of the respective representations,
warranties, and/or covenants made by Seller and/or the Company to Purchaser
under this Agreement. The establishment of the Escrow Account and any exercise
of recourse thereon by Purchaser shall not operate or be deemed to operate to
limit or restrict any other legal or equitable rights or remedies available to
Purchaser for any such breach by Seller or the Company, subject to the terms
hereof. The Escrow Account shall be administered as set forth in Article X of
this Agreement and as set forth in the Escrow Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
SELLER AND THE COMPANY
Seller and the Company hereby jointly and severally represent and
warrant to Purchaser as of the date of this Agreement as follows:
Section 2.01 ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation and has the requisite
power and authority to own, lease, and operate its assets and to carry on its
business as now being conducted. The Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorizations. The Company is duly qualified or licensed to do business and is
in good standing in each jurisdiction where the character of the assets owned,
leased, or operated by it or the nature of its activities makes such
qualification or licensing necessary. The Company does not have any
subsidiaries. The Company does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, or other business association or entity.
Section 2.02 GOVERNING DOCUMENTS. The articles of incorporation and the
bylaws of the Company, true and correct copies of which have been furnished to
Purchaser, are in full force and effect and have not been modified, amended, or
rescinded. The Company is not in violation of its articles of incorporation or
bylaws.
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT PAGE 3
<PAGE> 4
Section 2.03 CAPITALIZATION OF THE COMPANY. The authorized capital
stock of the Company consists of 1,000 shares of common stock, par value $1.00
per share. As of the date hereof, 1,000 shares of common stock of the Company
are issued and outstanding, all of which are validly issued, fully paid, and
nonassessable (and collectively constitute the Stock). There are no options,
warrants, or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company or
obligating the Company to issue or sell any shares of capital stock of, or other
equity interests in, the Company. There are no obligations, contingent or
otherwise, of the Company to repurchase, redeem, or otherwise acquire any shares
of the Stock or to provide funds to or make any investment (in the form of a
loan, capital contribution, or otherwise) in any other person or entity.
Section 2.04 AUTHORITY RELATIVE TO THIS AGREEMENT. Seller and the
Company have full power and authority to execute and deliver this Agreement and
to perform their obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Seller and
the Company and their consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary action and no other
proceedings on the part of Seller or the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Seller and the Company and
constitutes the legal, valid, and binding obligations of Seller and the Company,
except as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to or limiting
creditors' rights or by legal principles of general applicability governing
availability of equitable remedies.
Section 2.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Seller and
the Company do not, and the performance of this Agreement by Seller and the
Company will not (i) conflict with or violate the articles of incorporation,
bylaws, or other governing documents of the Company, (ii) conflict with or
violate any laws, statutes, rules, regulations, or pronouncements of any court,
tribunal, or governmental agency, whether federal, state, or local,
(collectively, "Laws") applicable to Seller or the Company, or by which they or
their respective assets are bound or affected, or (iii) result in any material
breach of or constitute a material default (or an event that with notice or
lapse of time or both would become a material default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any of the assets of Seller or the
Company pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise, or other instrument or obligation to which
Seller or the Company is a party or by which any of them or their respective
assets are bound or affected.
(b) The execution and delivery of this Agreement by Seller and
the Company do not, and the performance of this Agreement by Seller and the
Company will not, require any consent, approval, authorization, or permit of, or
filing with or notification to, any governmental or regulatory authority,
domestic or foreign.
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT PAGE 4
<PAGE> 5
Section 2.06 COMPLIANCE; PERMITS. The Company is not in conflict with,
or in default under or violation of, (i) any federal, state, or local laws
applicable to the Company or by which the Company or any of the assets of the
Company are bound or affected or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or its assets
are bound or affected. The Company possesses all permits, licenses, leases,
agreements, and authorizations of governmental authorities and any other
applicable persons or entities necessary to or for the operation of its assets,
properties, and business, all of which permits, licenses, leases, agreements,
and authorizations are in full force and effect.
Section 2.07 REPORTS AND FINANCIAL STATEMENTS OF THE COMPANY. The
preliminary balance sheet for the period ending as of September 30, 1999 (the
"Preliminary Audited Balance Sheet"), and the preliminary statements of
operations, cash flows, and stockholders' equity for the period ending as of
September 30, 1999, copies of all of which are attached hereto as EXHIBIT D
(collectively, the "Financial Statements"), are true and complete in all
material respects, fairly represent the financial position and results of
operations of the Company as of and for the periods shown, and were prepared in
accordance with generally accepted accounting principles. None of the Financial
Statements contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein not misleading.
Except as and to the extent of (i) liabilities reflected or reserved
against in the Preliminary Audited Balance Sheet and (ii) liabilities which have
arisen since the date of the Preliminary Audited Balance Sheet in the ordinary
course of business and which have been fully disclosed to Purchaser in writing,
the Company does not have any liabilities or obligations (whether accrued,
absolute or contingent), and including without limitation, any liabilities
resulting from failure to comply with any laws or any federal, state, or local
tax liabilities due or to become due whether (a) incurred in respect of or
measured by income for any financial statement or balance sheet period, or (b)
arising out of transactions entered into, or any state of facts existing, prior
or subsequent thereto.
Section 2.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30,
1999, except as shown on attached SCHEDULE 2.08 or as otherwise expressly
permitted under this Agreement, the Company has conducted its businesses only in
the ordinary course and in a manner consistent with past practice and, since
such date, except as shown on SCHEDULE 2.08, there has not been (a) any material
adverse change in the financial condition, results of operations, or business of
the Company, (b) any material damage, destruction, or loss (whether or not
covered by insurance) with respect to any assets of the Company, (c) any change
by the Company in its accounting methods, principles, or practices, (d) any
entry by the Company into any commitments or transactions material to the
Company, (e) any declaration, setting aside, or payment of any dividends or
distributions in respect of shares of the Stock or any redemption, purchase, or
other acquisition of any of the capital stock of the Company, (f) any increase
or decrease in or establishment or termination of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase, or other employee benefit plan of the Company,
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT PAGE 5
<PAGE> 6
or any other increase in the compensation payable or to become payable to any
officers or key employees of the Company, (g) any incurrence of any indebtedness
or other obligations or liabilities by the Company, (h) any proposed law or
regulation or any actual event or condition of any character that is known to
the Seller or the Company that materially adversely affects the business or
future prospects of the Company, (h) any claim, litigation, event, or condition
of any character that materially adversely affects the business or future
prospects of the Company, (i) any issuance or purchase of, or agreement to issue
or purchase shares of the capital stock or other securities of the Company, (j)
any mortgage, pledge, lien, or encumbrance made or agreed to be made on any of
the Company's assets or properties, (k) any sale, transfer, other disposition
of, or agreement to sell, transfer, or dispose of the Company's properties or
assets, tangible or intangible, except as expressly permitted by this Agreement
and except in the ordinary course of business and then only for full and fair
value received, (l) any loans, advances, or agreements with respect to any loans
or advances, other than to customers in the ordinary course of business and that
have been properly reflected as "accounts receivable" on the Company's books;
(m) any transaction outside the ordinary course of business, (n) any capital
expenditure by the Company in excess of $15,000, or (o) any agreement by Seller
or the Company to do any of the items described in Subparagraphs (a) through (n)
above.
Section 2.09 ABSENCE OF LITIGATION. There are no claims, actions,
proceedings, or investigations pending or, to the knowledge of Seller or the
Company, threatened against the Company or any of the assets of the Company
before any court, arbitrator, or administrative, governmental, or regulatory
authority or body, domestic or foreign. As of the date hereof, neither the
Company nor its assets are subject to any order, writ, judgment, injunction,
decree, determination, or award.
Section 2.10 EMPLOYEE BENEFIT PLANS. Except as set forth on attached
SCHEDULE 2.10 (collectively, the "Plans"), the Company does not have any
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended and the regulations thereunder), any
bonus, stock option, stock purchase, restricted stock, incentive, deferred
compensation, medical, accident, life insurance, disability income, retiree
medical or life insurance, supplemental retirement, severance, and other benefit
plans, programs, or arrangements, or any sick leave and vacation plans. The
Company has operated the Plans in compliance with all applicable federal, state,
and local laws and regulations, has received no notice of any claims or
violations of any laws and regulations applicable to the Plans, and, has no
existing obligations or liabilities under the Plans which have not been fully
funded or reserved for on the Financial Statements. Any and all such plans,
programs, and arrangements previously adopted and subsequently terminated by the
Company were duly and validly terminated in accordance with all applicable laws
and the Company has no continuing obligations or liabilities and has received no
notice of any claims or violations with respect to such former plans, programs,
and arrangements.
Section 2.11 TITLE TO STOCK. Seller owns good and marketable title to
all of the Stock (in the proportions among Seller as shown on attached SCHEDULE
211), free and clear of liens, claims, and encumbrances of any kind or
character.
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT PAGE 6
<PAGE> 7
Section 2.12 ASSETS OF THE COMPANY.
(a) SCHEDULE 2.12(a) attached hereto contains a complete and
correct description of all real property owned by or leased to the Company or in
which the Company otherwise holds contractual rights, together with all
applicable real property leases and contracts (the "Company Real Estate"). All
such leases and contracts are valid and in full force and effect and all rents,
royalties, and other sums payable by the Company thereunder have been timely
paid. There exists no default or event or circumstance which, with notice or
lapse of time or both, will constitute a default under any of such lease
agreements.
(b) SCHEDULE 2.12(b) attached hereto contains a complete and
accurate description of all vehicles, equipment, furniture, fixtures, and other
personal property of any kind or character, tangible or intangible, that is
owned by, in the possession of, or used by the Company in connection with the
Company's business. Except as shown on SCHEDULE 2.12(b), no personal property
owned or used by the Company in connection with its business is held under any
lease, security agreement, conditional sales contract, or other title retention
or financing agreement or is located any place other than in the possession of
the Company.
Section 2.13 TITLE TO AND CONDITION OF ASSETS. The Company has, or will
have at Closing, good and marketable title to all of its assets and properties,
real and personal, tangible and intangible, that are material to the Company's
business and future prospects, free and clear of liens, claims, charges, and
encumbrances of any kind or nature, save and except (a) the liens and security
interests shown on attached SCHEDULE 2.13, (b) liens for real and personal
property taxes that are not yet due and payable and (c) possible minor matters
that, in the aggregate, are not substantial in amount and do not materially
interfere with or detract from the present or intended use of any of the assets
and properties nor materially impair the business operations of the Company. The
tangible assets of the Company are in good operating condition and repair,
normal wear and tear excepted.
Section 2.14 TAXES. The Company is and at all times in the past has
been a "C" corporation within the meaning of Section 1361 of the Internal
Revenue Code of 1986, as amended. The Company presently maintains and at all
times in the past has maintained a fiscal year ending as of December 31 for
federal income tax purposes. The Company has filed all state and federal Tax
Returns (defined below) required to be filed by them, and the Company has paid
and discharged all Taxes (as defined below) shown due thereon and have paid all
other Taxes as are due. The liability for Taxes set forth in each such Tax
Return does not materially understate the Taxes required to be reflected on such
Tax Return. For purposes of this Agreement, "Tax" or "Taxes" means taxes of any
kind, payable to any federal, state, local, or foreign taxing authority,
including (without limitation) (i) income, franchise, profits, gross receipts,
ad valorem, value added, sales, use, service, real or personal property,
payroll, withholding, employment, social security, unemployment compensation,
and production taxes, and (ii) interest, penalties, and additions to tax imposed
with respect thereto, whether disputed or not; and "Tax Returns" means all
returns, reports, declarations, claims for refund, and information statements
with respect to Taxes required to be filed with the Internal Revenue Service or
any other taxing authority, domestic or foreign, through the time of Closing
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STOCK PURCHASE AGREEMENT PAGE 7
<PAGE> 8
hereunder, including, without limitation, consolidated, combined, and unitary
tax returns and any schedule or amendment thereto. The Company has not (i)
granted any waiver of any statute of limitations with respect to, any Tax, or
(ii) obtained an extension of time with respect to the filing of any Tax Return
other than Tax Returns that were duly filed within the applicable extension
period. No claim has been made by an authority in a jurisdiction where the
Company does not file Tax Returns that the Company may be subject to taxation by
that jurisdiction. There are no liens or security interests on any of the assets
of the Company that arose in connection with any failure (or alleged failure) to
pay any Tax. The Company has disclosed on all federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Section 6662 of the Code. The Company
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor, independent
contractor, or other third-party. There is no dispute or claim concerning any
liability for Tax of the Company (i) claimed or raised by any authority in
writing or (ii) as to which the Company or any officers (and employees
responsible for Tax matters) of the Company have knowledge.
Section 2.15 ENVIRONMENTAL MATTERS.
(a) The Company has conducted all operations and activities in
material compliance with all applicable Environmental Laws (as defined below),
and none of the assets of the Company is being or has been operated in violation
of any Environmental Laws.
(b) The Company possesses all permits required under
Environmental Laws for the operation of its assets.
(c) The assets of the Company, and the operations conducted
thereon or therewith, are not subject to any existing, unfulfilled
administrative or judicial order requiring remedial action under any
Environmental Law.
(d) Neither Seller nor the Company has received any notice of
any investigation or inquiry regarding failure of the assets of the Company, or
the operations conducted thereon or therewith, to comply with Environmental
Laws.
As used in this Section 2.15, "Environmental Laws" shall mean the
federal Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendments and Reauthorization Act, as amended, Safe
Drinking Water Act, Texas Solid Waste Disposal Act, the Resource Conservation
and Recovery Act, as amended, the Hazardous and Solid Waste Amendments Act, as
amended, the Toxic Substances Control Act, as amended, the Clean Water Act, as
amended, and the Clean Air Act, as amended, and any other applicable federal,
state, or local environmental law and all rules, regulations and administrative
orders related thereto, as such laws, rules, regulations and administrative
orders exist as of the Closing Date.
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STOCK PURCHASE AGREEMENT PAGE 8
<PAGE> 9
Section 2.16 BROKERS. No broker, finder, or investment banker is
entitled to any brokerage, finder's, or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Seller or the Company.
Section 2.17 CONTRACTS. Attached hereto as SCHEDULE 2.17 is a list of
all currently effective agreements respecting property, goods, and/or services
of or binding upon the Company or its assets (the "Contracts"). None of the
Contracts has been modified, amended, supplemented or altered except as
specifically shown on attached SCHEDULE 2.17. The Company has made copies of all
of the Contracts (including all modifications, amendments, and supplements
thereto) available to Purchaser. All of the Contracts are in full force and
effect and the Company is not in default under any of the Contracts.
Section 2.18 NO UNION CONTRACTS. There is no collective bargaining or
other union agreement to or by which the Company is a party or is bound, nor is
a collective-bargaining agreement currently being negotiated; and all non-exempt
employees have been paid in accordance with the Fair Labor Standards Act of 1938
and the Portal-to-Portal Act of 1947. The Company is in compliance with all
federal, state, or other applicable laws, domestic or foreign, respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and has not and is not engaged in any unfair labor practice.
The Company has not experienced any material labor difficulty during the last
three years.
Section 2.19 INSURANCE. SCHEDULE 2.19 attached hereto lists all
insurance policies (the "Insurance Policies") held by the Company and all such
listed policies are in the respective principal amounts set forth therein. The
Company maintains (a) insurance on all of its business, operations, and assets
of a type customarily insured, covering property damage and loss of income by
fire or other casualty and (b) insurance protection against all liabilities,
claims, and risks against which it is customary to insure. All premiums due and
payable under the Insurance Policies have been paid. The Company is not, and but
for a requirement that notice be given or that a period of time elapse or both
would not be, in violation under any such Insurance Policies.
Schedule 2.20 BANK ACCOUNTS. SCHEDULE 2.20 attached hereto contains a
true and correct list of the names and addresses of all banks, financial
institutions, and other depositories in which the Company has an account,
deposit, or safe deposit box and the names of all persons authorized to draw on
those accounts or deposits or who have access to them and the account numbers of
each account.
Schedule 2.21 OTHER LIABILITIES AND OBLIGATIONS. SCHEDULE 2.21 attached
hereto contains a true and correct list of all liabilities and obligations of
the Company not disclosed elsewhere in this Agreement of any kind, character,
and description, whether accrued, absolute, contingent, or otherwise, and
whether or not required to be disclosed or accrued in the financial statements
of the Company that exceed $5,000 to any one creditor. In the case of
liabilities that may not be fixed, an estimate of the maximum amount that may be
payable is also included.
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STOCK PURCHASE AGREEMENT PAGE 9
<PAGE> 10
Section 2.22 DISCLOSURE. No representations or warranties made by
Seller or the Company in this Agreement, and no statements of Seller or the
Company contained in any document executed or delivered by any of them to
Purchaser pursuant hereto or in connection with the transactions contemplated
hereby, contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements herein or therein not misleading.
Section 2.23 TRANSACTIONS WITH AFFILIATES. The Company is not a party
to any transaction, contract, or agreement with any (i) current or former
officer or director of the Company or (ii) any parent, spouse, child, brother,
sister or other family relation of any such officer or director, or (iii) any
corporation or partnership of which any such officer or director or any such
family relation is an officer, director, partner or greater than 10% stockholder
(based on percentage ownership of voting stock) or (iv) any "affiliate", or
"associate" of any such persons or entities (as such terms are defined in the
rules and regulations promulgated under the Securities Act of 1934, including,
without limitation, any transaction involving a contract, agreement, or other
arrangement providing for the employment of, furnishing of materials, products,
or services by, rental of real or personal property from, or otherwise requiring
payments to, any such person or entity, except with respect to services provided
on reasonable terms which would not materially alter the presentation of the
Financial Statements, if such transactions had been entered into with an
unrelated third party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as of the date of
this Agreement as follows:
Section 3.01 ORGANIZATION AND QUALIFICATION. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware. Purchaser is duly qualified or licensed to do business and is in good
standing in each jurisdiction where the character of the assets owned or
operated by Purchaser or the nature of its activities makes such qualification
or licensing necessary.
Section 3.02 AUTHORITY RELATIVE TO THIS AGREEMENT. Purchaser has the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Purchaser
and the consummation by Purchaser of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Purchaser are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Purchaser and, assuming the due
authorization, execution and delivery by all other parties hereto, constitutes
the legal, valid and binding obligation of Purchaser, except as the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
now or
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STOCK PURCHASE AGREEMENT PAGE 10
<PAGE> 11
hereafter in effect relating to or limiting creditors, rights or by legal
principles of general applicability governing the availability of equitable
remedies.
Section 3.03 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Purchaser
do not, and the performance of this Agreement by Purchaser will not (i) conflict
with or violate the certificate of incorporation or bylaws of Purchaser, (ii) to
the knowledge of Purchaser, conflict with or violate any law applicable to
Purchaser or by which any of its assets are bound or affected or (iii) to the
knowledge of Purchaser, result in any breach or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the material assets of Purchaser pursuant to, any note, bond, mortgage,
indenture, or any material contract, agreement, lease, license, permit,
franchise, or other instrument or obligation to which Purchaser is a party or by
which Purchaser or any of its assets are bound or affected.
(b) To the knowledge of Purchaser, the execution and delivery
of this Agreement by Purchaser do not, and the performance of this Agreement by
Purchaser will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
domestic or foreign.
Section 3.04 BROKERS. No broker, finder, or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Purchaser.
ARTICLE IV
CONDUCT OF BUSINESS OF THE COMPANY
PENDING THE CLOSING DATE
Pending the Closing Date or earlier termination of this Agreement, and
except as otherwise specifically contemplated in this Agreement or the schedules
hereto or as may be consented to and approved in writing by Purchaser, the
Company covenants and agrees as follows:
Section 4.01 ORDINARY COURSE OF BUSINESS. The Company will carry on its
business substantially in the same manner as heretofore conducted, and will not
engage in any transaction or activity, enter into any agreement or make any
commitment, except in the ordinary course of business. Without limiting the
generality of the foregoing, the Company will:
(a) operate and maintain its assets diligently and in a good
and workmanlike manner and comply in all material respects with all applicable
laws and with the terms of any agreements binding upon those assets;
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STOCK PURCHASE AGREEMENT PAGE 11
<PAGE> 12
(b) maintain and keep in full force and effect all of the
Contracts and all permits, licenses and similar rights and privileges of the
Company and each subsidiary of the Company and comply in all material respects
with all of its material obligations therein and thereunder;
(c) maintain all of its tangible assets in at least as good a
condition as they were in at the date hereof, ordinary wear and tear excepted,
and remove no material items therefrom;
(d) maintain the Insurance Policies in full force and effect;
and
(e) pay, perform, and discharge, on a basis consistent with
the Company's prior practices, all obligations of the Company under the notes,
leases, and other instruments evidencing the indebtedness or other liabilities
of the Company which are shown on the Preliminary Audited Balance Sheet and/or
on the schedules attached to this Agreement in accordance with their respective
terms (but without right of prepayment);
Section 4.02 RESTRICTED ACTIONS. Without the prior written consent of
Purchaser, such consent not to be unreasonably withheld, and except as otherwise
expressly provided by this Agreement, the Company will not (a) enter into any
agreement or commitment, the result of which would be to incur or expand the
existing indebtedness or liabilities of the Company; (b) incur any additional
indebtedness other than trade payables incurred in the ordinary course of
business; (c) sell, transfer, assign, convey or otherwise dispose of any of the
assets of the Company other than dispositions of (i) equipment or other personal
property which is replaced with property and equipment of comparable or better
value and utility in the ordinary and routine maintenance and operation of its
business and (ii) personal property and equipment no longer used or useful in
the ordinary course of business; or (d) create or permit the creation of any new
lien, security interest, or other encumbrances on any asset of the Company.
Section 4.03 AMENDMENTS TO GOVERNING DOCUMENTS. No change or amendment
shall be made in the articles of incorporation or bylaws of the Company.
Section 4.04 ORGANIZATION. The Company will preserve its corporate
existence and will keep its business organization intact and use its reasonable
efforts to preserve its relationships with its suppliers, customers, and others
having business relations with the Company.
Section 4.05 EMPLOYMENT AGREEMENTS. The Company will not enter into any
agreement relating to employment with any person.
Section 4.06 ISSUANCE OF SHARES; DIVIDENDS. The Company will not issue
shares of capital stock, or grant any options, warrants or other rights to
purchase or acquire the capital stock of the Company. The Company will neither
declare nor pay or set aside for payment any dividend or other distribution on
its outstanding shares of capital stock, nor redeem, purchase or otherwise
acquire any of its capital stock.
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STOCK PURCHASE AGREEMENT PAGE 12
<PAGE> 13
Section 4.07 NO DEFAULT. The Company will not knowingly take any action
or knowingly take any action that causes a material breach of any
representation, warranty, covenant or agreement of the Company under this
Agreement.
Section 4.08 INVESTMENT. The Company will not make any new capital
investment in, make any loan to, or acquire the securities or assets of any
other person or entity.
Section 4.09 USES OF CASH. Other than in the ordinary course of
business, the Company will not make any payments during the period between the
date hereof and the Closing Date except for the purpose of paying Taxes, paying
rentals or other sums owing by the Company under the Contracts as and when due,
discharging rentals and trade payables incurred in the ordinary course of
business, and retiring or discharging presently existing indebtedness to
financial institutions or other third parties as and when due in accordance with
the terms of the notes or other instruments evidencing such indebtedness (but
without right of prepayment).
ARTICLE V
OTHER AGREEMENTS OF THE PARTIES
Section 5.01 ENVIRONMENTAL REPORT. Within forty-five (45) days from the
date of this Agreement, Seller and the Company, at Seller's expense, shall
furnish to Purchaser a Phase I environmental study and report covering all of
the Company Real Estate and prepared by an environmental consulting firm
mutually acceptable to Seller and Purchaser (the "Environmental Report"). If the
Environmental Report shows any environmental condition that is unacceptable to
Purchaser, Purchaser shall, within ten (10) days of its receipt of the
Environmental Report, notify Seller of such condition(s) and the reasons for
Purchaser's objections thereto ("Purchaser's Environmental Objections"). Upon
expiration of such ten-day notification period, Purchaser shall be deemed to
have accepted the form and substance of the Environmental Report, except,
however, those matters to which Purchaser has timely objected in accordance with
the preceding sentence. Seller shall have no obligation to bring any action or
proceeding or otherwise to incur any expense whatsoever to eliminate or modify
any of Purchaser's Environmental Objections. Within five days following receipt
of Purchaser's Environmental Objections, Seller shall give notice to Purchaser
of what actions, if any, that Seller proposes to take in order to cure
Purchaser's Environmental Objections. If Seller is unable or unwilling to remedy
Purchaser's Environmental Objections to the reasonable satisfaction of
Purchaser, Purchaser may terminate this Agreement by notice in writing to Seller
by the earliest to occur of (i) the Closing Date or (ii) five (5) business days
following notice from Seller that it is unable or unwilling to remedy
Purchaser's Environmental Objections, in which event, except as expressly
provided otherwise in this Agreement, none of the parties hereto shall have any
further rights or obligations under this Agreement. If this Agreement is
terminated for any reason, Purchaser agrees to immediately return the Current
Environmental Report to the Company and to hold the contents thereof strictly
confidential. Likewise, pending and following Closing
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STOCK PURCHASE AGREEMENT PAGE 13
<PAGE> 14
hereunder, Seller, shall hold the Environmental Report strictly confidential and
shall not disclose the same or its contents to any third party without the prior
written consent of Purchaser.
Section 5.02 PURCHASER'S INSPECTION RIGHTS. Pending Closing, Purchaser
shall have the right to inspect, review, and audit the assets of the Company and
all books, records, data, and other information of Seller and the Company
relating to the business and financial affairs of the Company, the title to and
ownership of the assets of the Company, and the conduct of the Business. All
expenses incurred by the Purchaser relating to its inspections, reviews, and
audits shall be borne and paid exclusively by the Purchaser. Seller and the
Company shall cooperate with Purchaser in all reasonable respects in
facilitating such inspections, reviews, and audits. Without limiting the
foregoing, Seller and the Company agree that, during the Inspection Period and
thereafter until Closing, they will (a) provide or cause to be provided to
Purchaser and its counsel, accountants, consultants, and other authorized
representatives, during normal business hours or otherwise, if necessary, full
access to all of their, assets, books, agreements, commitments and records; and
(b) furnish Purchaser and its representatives with such data, records, and other
information concerning any of their operations and affairs as Purchaser may
reasonably request.
Seller further agrees that, upon request by Purchaser following
Closing, he will execute and deliver to Purchaser or its accountants such audit
response letters and further confirmations as Purchaser or its accountants may
reasonably require for purposes of verification of the accuracy, validity, and
completeness of all financial and other information provided or made available
by Seller and the Company to Purchaser in connection with the transactions
contemplated by this Agreement.
Section 5.03 EXCLUSIVE DEALING. Unless and until this Agreement shall
have been terminated in accordance with the terms hereof, neither Seller nor the
Company shall directly or indirectly, solicit, initiate, or participate in
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than the Purchaser or an affiliate or an
associate of the Purchaser) concerning, or enter into any agreement providing
for any sale of the assets of the Company, any sale of shares of capital stock
in the Company, or any similar transactions involving the Company.
Section 5.04 CONSENTS, APPROVALS, AND FILINGS. Seller, the Company, and
Purchaser shall each use its reasonable efforts to obtain at the earliest
practicable date and, in any event, prior to the Closing Date, all consents and
approvals, including any third party consents, and to make all filings required
to be obtained or made under any federal, state, or local laws or any agreement
or other instrument (including, without limitation, any consent or approval
necessary to avoid the loss of any rights under any agreement) prior to
consummating the transactions contemplated hereby, whether such consent,
approval or filing is to be obtained from or made with private parties or
applicable governmental authorities.
Section 5.05 BROKERS AND FINDERS. Purchaser, on the one hand, and
Seller and the Company, on the other hand, shall indemnify each other and hold
each other harmless from any
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STOCK PURCHASE AGREEMENT PAGE 14
<PAGE> 15
claim against the other for a broker's or finder's fee, commission, or other
like payment in connection with the transactions contemplated by this Agreement
which arises from or is based upon arrangements made by or through the
indemnifying party.
Section 5.06 PUBLIC ANNOUNCEMENTS. Pending Closing, except as may be
required by applicable law, no party hereto shall issue any press release or
make any other public pronouncements concerning this Agreement or the
transactions contemplated hereby without the written consent and approval of all
other parties.
Section 5.07 RESIGNATION OF OFFICERS AND DIRECTORS. Seller and the
Company will secure the resignation of each then-serving officer and director of
the Company effective as of the Closing Date.
Section 5.08 NOTICE OF DEVELOPMENTS. Prior to the Closing, Seller and
the Company will give prompt notice to Purchaser of any material event affecting
the assets, liabilities, business, financial condition, operations, results of
operations, or future prospects of the Company. No disclosure pursuant to this
Section 5.08 shall, however, be deemed to amend or supplement this Agreement or
the schedules hereto or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant under this Agreement.
Section 5.09 PRELIMINARY AND FINAL COMPUTATIONS OF NFA. As part of its
diligence processes in this transaction, Purchaser intends to have the books and
records of the Company audited by certified professional accountants and to have
audited financial statements prepared for the Company in compliance with
generally accepted accounting principles ("GAAP"), all at the expense of
Purchaser. Sellers, the Company, and Purchaser recognize that the financial data
necessary to permit computation of NFA at the Closing may not be complete or
final at such time. The parties accordingly shall estimate NFA at Closing and
shall then finalize their calculation of NFA on a post-Closing basis within
sixty (60) days following the Closing. At least three (3) business days prior to
the Closing, Purchaser shall deliver to Sellers a preliminary settlement
statement, reflecting its good faith estimate of NFA as of the Closing Date
based upon the best information then available to Purchaser. At or prior to
Closing, Sellers and Purchaser shall attempt to reconcile any differences they
may have regarding the preliminary settlement statement. If there are any items
the parties are unable to reconcile prior to Closing, Purchaser's position shall
prevail to enable Closing to proceed, but without prejudice to the right of
either party to dispute any item of the final settlement statement. Within
forty-five (45) days after the Closing Date, Purchaser shall deliver to Sellers
an audited balance sheet of the Company for the period ended as of the Closing
Date, prepared in accordance with GAAP, and a proposed final settlement
statement including Purchaser's final computation of NFA. Sellers shall have ten
(10) days from its receipt of the such balance sheet and proposed settlement
statement to notify Purchaser of their objections, if any, to the information
set forth therein, failing which Sellers shall be deemed to have irrevocably
accepted the computations and substance of those documents for all purposes of
this Agreement. If Sellers timely and properly contest any items within such
balance sheet or proposed final settlement statement, Sellers and Purchaser
shall promptly meet and utilize their best efforts to resolve their
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STOCK PURCHASE AGREEMENT PAGE 15
<PAGE> 16
differences, it being the intention of the parties to finalize all post-Closing
adjustments within sixty (60) days following the Closing Date. If the parties
are unable to reach final agreement on any such post-Closing matters, they shall
resolve their differences by means of the dispute resolution procedures set
forth in Section 10.03 and final settlement between the parties shall be
deferred pending conclusion of such procedures. At the conclusion of the
post-Closing accounting contemplated by this Section 5.09, Sellers or Purchaser,
as appropriate, shall immediately remit to the other, in immediately available
funds, the net sum determined owning by such party in the final settlement
statement, whether finalized by agreement of the parties or through dispute
resolution processes. As used in this Agreement, "Final Balance Sheet" and
"Final Settlement Statement" shall mean the final balance sheet and the final
settlement statement proposed by Purchaser, as the same may be modified either
by agreement of the parties or dispute resolution pursuant to the foregoing.
Section 5.09 RECEIVABLES. Seller expressly represents and warrants that
all receivables of the Company reflected on the Final Balance Sheet as of the
Closing Date are collectible in the normal course of business within 150 days
from the Closing Date without resort to litigation or the retention of
collection services (save and except to the extent any portion thereof is
expressly reserved for as bad debt in the Final Balance Sheet). Following
Closing, the Company shall apply partial payments by customers to the respective
outstanding receivables of such customers in the order of their aging (i.e.
older accounts paid first). To the extent any such receivables remain unpaid
following such 150-day period, Purchaser, without limitation of its other legal
rights and remedies, may require Seller to immediately purchase the same from
the Company at full face value and without subsequent recourse of any kind upon
the Company or Purchaser or may offset the face amount of such unpaid
receivables against Purchaser's payment obligations under the Note.
Section 5.10 TAXES AND TAX RETURNS. Seller shall be responsible for the
timely preparation and filing (without extension, unless otherwise agreed by
Purchaser in writing) of all federal, state, and local Tax Returns covering or
for (or based upon income received or realized during) all periods prior to and
including the Closing Date, except that, if Closing occurs, Purchaser shall be
responsible for the timely preparation and filing of the federal income tax
returns of the Company for calendar year 2000 and ensuing years and the Texas
state franchise tax returns of the Company due on or before May 15, 2001 and
ensuing years. Seller shall prepare all such Tax Returns for which Seller is
responsible in accordance with applicable law and shall submit such Tax Returns
to the Company and Purchaser for their review and concurrence at least ten (10)
business days prior to filing. If, after the Closing Date, any applicable taxing
authority shall determine there to be a deficiency in the amount of any federal,
state, or local Tax paid or payable by the Company which is not reserved for or
reflected on the Final Balance Sheet and which relates to any period prior to
the Closing Date, Seller shall be fully responsible for the payment of any such
deficiency. Following Closing, if any Tax Return covering a period of time prior
to the Closing Date shall be audited by an applicable taxing authority, the
Company shall promptly notify Seller of such audit. Seller and Purchaser and the
Company shall jointly and not severally conduct all discussions and negotiations
with applicable taxing authorities regarding each such audited Tax Return as it
may relate to periods prior to the Closing Date. The Company shall have
exclusive authority to conduct all discussions and negotiations with applicable
taxing authorities regarding Tax Returns relating to
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STOCK PURCHASE AGREEMENT PAGE 16
<PAGE> 17
periods from and after the Closing Date and shall be solely responsible for the
payment of all Taxes attributable to such periods.
Section 5.11 INDEMNIFICATION.
(a) Indemnification by Seller. Seller agrees to indemnify and
hold harmless Purchaser and the Company after the Closing Date against and in
respect of any of the following matters which may be asserted or established:
(i) All liabilities of the Company of any nature,
whether accrued, absolute, contingent, or otherwise, which existed as
of the Closing Date and are not provided for or reflected on the Final
Balance Sheet;
(ii) Any and all damages, losses, expenses, or
deficiencies resulting from any breach of the warranties,
representations and covenants of Seller and the Company contained in
this Agreement or in any schedule hereto; and
(iii) All demands, assessments, judgments, costs, and
expenses (including reasonable legal fees and other expenses of
litigation, both at the trial and appellate level) arising from or in
connection with any action, suit, proceeding, or claim incident to any
of the foregoing.
(b) Indemnification by Purchaser. Purchaser agrees to
indemnify and hold harmless Seller after the Closing Date against or in respect
of any of the following matters:
(i) Any and all damages, losses, expenses, or
deficiencies resulting from any breach of the warranties,
representations and covenants of Purchaser contained in this Agreement
or in any schedule hereto; and
(ii) All demands, assessments, judgments, costs, and
expenses (including reasonable legal fees and other expenses of
litigation, both at the trial and appellate level) arising from or in
connection with any action, suit, proceeding, or claim incident to any
of the foregoing.
Section 5.12 RELEASE AND WAIVER BY SELLER. Any provisions of this
Agreement to the contrary notwithstanding, following Closing hereunder, Seller
shall have no right of contribution, indemnity, reimbursement, or other legal or
equitable right of recourse upon the Company based upon or attributable to the
breach or non-performance by Seller or the Company of any of their jointly made
representations, warranties, and covenants under this Agreement, and Seller, as
of Closing hereunder, expressly releases and waives any and all such rights of
contribution, indemnity, reimbursement or other recourse upon or against the
Company.
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STOCK PURCHASE AGREEMENT PAGE 17
<PAGE> 18
Section 5.13 RELEASE OF PERSONAL GUARANTIES. Upon Closing, Purchaser
shall cooperate fully with Seller and shall utilize its best efforts in
attempting to obtain the prompt release by applicable third parties of the
personal guaranties by Seller of indebtedness of the Company which are shown on
attached SCHEDULE 5.13.
Section 5.14 INVESTMENT REPRESENTATIONS BY SELLER. Upon Closing and in
connection with any conversion of the unpaid balance of the Note into common
stock of Purchaser as more particularly provided in the Note, Seller expressly
represents, warrants, acknowledges, and agrees to and with Purchaser and the
Company that:
(a) any such stock so acquired by Seller (the "Stock")
may not have been registered under the Securities Act
of 1933 or any other state securities laws
(collectively, the "Securities Acts") because
Purchaser may or will issue the Stock in reliance
upon this Section 5.14 and the exemptions from the
registration requirements of the Securities Acts
providing for issuance of securities not involving a
public offering;
(b) Seller will acquire any Stock for Seller's own
account, for investment, and not with a view to the
resale or distribution thereof;
(c) Seller will not transfer, sell or offer for sale any
portion of the Stock unless there is an effective
registration or other qualification relating thereto
under the Securities Act of 1933 and under any
applicable state securities laws or unless the holder
of the Stock delivers to Purchaser an opinion of
counsel, satisfactory to Purchaser, that such
registration or other qualification under such Act
and applicable state securities laws is not required
in connection with such transfer, offer or sale;
(d) Except as provided in Section 5.15, Purchaser is
under no obligation to register the Stock or to
assist Seller in complying with any exemption from
registration under the Acts if Seller should at a
later date wish to dispose of the Stock;
(e) prior to entering into this Agreement, Seller has
made an investigation of Purchaser and its business
and has obtained or had made available to Seller all
information with respect thereto which Seller needed
to make an informed decision to structure the
transactions contemplated hereby as provided in this
Agreement;
(f) Seller possesses adequate experience and
sophistication as investors for the evaluation of the
merits and risks of investment in the Stock;
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STOCK PURCHASE AGREEMENT PAGE 18
<PAGE> 19
(g) Thomas A. Best is an "accredited investor," as
defined in Regulation D as promulgated under the
Securities Act of 1933, as amended, (the "1933 Act");
and
(h) the provisions of this Section 5.14 shall survive the
Closing without time limitation.
Section 5.15 REGISTRATION OF THE STOCK. As a material consideration of
this Agreement to Seller, and notwithstanding any provisions of this Agreement
to the contrary, Purchaser agrees that, within one (1) year following any
issuance of the Stock to Seller, Purchaser will cause such stock to be
registered under the 1933 Act and any other applicable state securities laws at
the sole cost and expense of Purchaser.
ARTICLE VI
CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE
The obligation of Purchaser to close under this Agreement shall, unless
waived in writing by Purchaser, be subject to the satisfaction on or before the
Closing Date of each of the following conditions, and Seller and the Company
shall use their reasonable efforts to cause each such condition to be so
satisfied.
Section 6.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of Seller and the Company contained in this Agreement shall be
true and correct in all respects as of the date of this Agreement and as of the
Closing Date, as though such representations and warranties were made at and as
of such date, except for changes expressly permitted or contemplated by this
Agreement.
Section 6.02 PERFORMANCE. Seller and the Company shall have performed
and complied in all material respects with all covenants, agreements,
obligations and conditions required by this Agreement to be performed or
complied with by them on or prior to the Closing Date.
Section 6.03 CONSENTS. The consents, approvals, and filings described
in Section 5.04 shall have been obtained or made, as the case may be, without
the imposition of conditions or limitations having a material adverse effect.
Section 6.04 OPINION OF COUNSEL TO SELLER AND THE COMPANY. Seller and
the Company shall have delivered to Purchaser the opinion of their legal
counsel, John M. Edgmon, in form and substance reasonably acceptable to
Purchaser and its counsel, and favorably addressing the organization,
qualification, good standing, and capitalization of the Company, the due and
proper authorization, execution, and delivery and the enforceability of this
Agreement and all instruments
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STOCK PURCHASE AGREEMENT PAGE 19
<PAGE> 20
and documents executed by Seller and the Company in connection herewith, and
such other matters as Purchaser or its counsel may reasonably require.
Section 6.05 NO INJUNCTION. There shall not be in effect any
preliminary or permanent injunction or temporary restraining order issued by any
state or federal court that prevents the consummation of the transactions
contemplated hereby.
Section 6.06 OTHER DOCUMENTS. All documents required to be delivered to
Purchaser by Seller and the Company on or prior to the Closing Date shall have
been so delivered.
Section 6.07 MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have been any material adverse change in, to, or affecting the
Company, its operations, or its assets.
Section 6.08 CERTIFICATES. Seller and the Company shall have delivered
to Purchaser certificates confirming the continuing validity of their
representations and warranties pursuant to Section 6.01 and certifying their
performance hereunder as contemplated by Section 6.02.
Section 6.09 TITLE POLICY/WRITTEN LEASE AGREEMENTS. Seller and the
Company shall have (a) delivered to Purchaser, at their expense, an owner's
policy or policies of title insurance issued by a national title insurer
insuring the title of the Company to any of the Company Real Estate which is
owned by the Company in respective amounts not less than the current ad valorem
tax valuations of each parcel comprising the same, free and clear of liens,
claims, and encumbrances other than liens for ad valorem taxes not yet due,
standard printed form exceptions, and any existing mineral reservations,
easements, and restrictions which are not such as to materially interfere with
or materially impair the current use, operation, or value of such Company Real
Estate; and (b) to the extent any leases of Company Real Estate may be verbal,
shall have caused such lease arrangements to be evidenced by written lease
agreements in form and substance duly satisfactory to Purchaser, duly executed
by the owners of the properties, as lessor, and the Company, as tenant.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF SELLER
AND THE COMPANY TO CLOSE
The obligations of Seller and the Company to consummate the
transactions contemplated by this Agreement shall, unless waived in writing by
them, be subject to the satisfaction on or before the Closing Date of each of
the following conditions, and Purchaser shall use its reasonable efforts to
cause each such condition to be so satisfied:
Section 7.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of Purchaser contained in this Agreement shall be true and
correct in all respects as of the date made
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STOCK PURCHASE AGREEMENT PAGE 20
<PAGE> 21
and as of the Closing Date, as though such representations and warranties were
made at and as of such date, except for changes permitted or contemplated by
this Agreement.
Section 7.02 PERFORMANCE. Purchaser shall have performed and complied
in all material respects with all covenants, agreements, obligations, and
conditions required by this Agreement to be performed or complied with by
Purchaser on or prior to the Closing Date.
Section 7.03 CONSENTS AND APPROVALS. The consents, approvals, and
filings described in Section 5.04 shall have been obtained or made, as the case
may be, without the imposition of conditions or limitations having a material
adverse effect.
Section 7.04 NO INJUNCTION. There shall not be in effect any
preliminary or permanent injunction or temporary restraining order issued by any
state or federal court that prevents the consummation of the transactions
contemplated hereby.
Section 7.05 OTHER DOCUMENTS. All documents required to be delivered to
Seller or the Company by Purchaser on or prior to the Closing Date shall have
been so delivered.
Section 7.06 CERTIFICATES. Purchaser shall have delivered to Seller and
the Company certificates confirming the continuing validity of its
representations and warranties pursuant to Section 7.01 and certifying its
performance hereunder as contemplated by Section 7.02.
ARTICLE VIII
THE CLOSING
Section 8.01 CLOSING. The closing ("Closing") of the transaction
contemplated hereby shall take place at the offices of Purchaser at 406 N. Big
Spring, Midland, Texas, on a business date of Purchaser's unilateral selection
within thirty (30) days following any successful completion by Purchaser of an
initial public offering of common stock in the Company through a recognized
national stock exchange (the "Sierra IPO"), but in no event later than May 1,
2000, or at such other place and time as the parties hereto might hereafter
mutually agree in writing. Such date or any alternative date so selected by the
parties is referred to in this Agreement as the "Closing Date." Purchaser shall
afford Seller and the Company at least ten (10) days prior written notice of its
desired Closing Date pursuant to the foregoing.
Section 8.02 DELIVERIES. At the Closing, the following shall occur:
(a) Seller shall endorse and deliver the certificate(s)
evidencing the Stock to Purchaser, free and clear of liens, claims, and
encumbrances;
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STOCK PURCHASE AGREEMENT PAGE 21
<PAGE> 22
(b) Seller and the Company shall deliver to Purchaser their
closing certificates in compliance with the provisions of Section 6.08;
(c) Seller and the Company shall deliver, or cause to be
delivered, to Purchaser the legal opinion of their counsel, as specified in
Section 6.04;
(d) Seller and Purchaser shall execute and deliver an
employment agreement which is substantially identical in form and substance to
that attached hereto as EXHIBIT E;
(e) Lorenzo Villareal and Purchaser shall execute and deliver
an employment agreement which is substantially identical in form and substance
to that attached hereto as EXHIBIT F;
(f) Seller and Purchaser shall execute and deliver a
non-competition agreement which is substantially identical in form and substance
to that attached hereto as EXHIBIT G;
(g) At the option of Purchaser, Seller and the Company shall
execute and deliver a lease agreement covering the "Kingsville Yard" that is
substantially identical in form and substance to that attached hereto as EXHIBIT
H;
(h) The parties shall attempt to agree upon an estimate of NFA
and shall execute a preliminary closing statement as contemplated by Section
5.09;
(i) Purchaser shall pay to Seller by wire transfer the cash
portion of the Purchase Price payable at Closing pursuant to Section 1.03(1);
(j) Purchaser shall execute and deliver the Note to Seller;
(k) The Company and Seller shall execute and deliver the
Security Documents;
(l) Purchaser shall deliver to Seller its closing certificate
in compliance with the provisions of Section 7.06; and
(m) Seller and the Company shall execute such notifications to
depository institutions and such changes of authorized signatories upon the
accounts of the Company as Purchaser may reasonably request.
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STOCK PURCHASE AGREEMENT PAGE 22
<PAGE> 23
ARTICLE IX
TERMINATION AND ABANDONMENT
Section 9.01 Termination and Abandonment. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual agreement of all of the parties hereto;
(b) by Seller if Closing shall not have occurred on or prior
to May 1, 2000, other than due to breach or non-performance by Seller hereunder;
(c) by Purchaser, if the conditions set forth in Article VI
shall not have been complied with and performed in any material respect and such
noncompliance or nonperformance shall not have been cured or eliminated (or by
its nature cannot be cured or eliminated) on or before the Closing Date;
(d) by Seller and the Company if the conditions set forth in
Article VII have not been complied with and performed in any material respect
and such noncompliance or nonperformance shall not have been cured or eliminated
(or by its nature cannot be cured or eliminated) on or before the Closing Date;
or
(e) by either Purchaser or Seller and the Company, by written
notice to the other, if any action or proceeding shall have been instituted
before any court or other governmental body or, to the knowledge of the party
giving such notice, shall have been threatened formally in writing by any public
authority with requisite jurisdiction, to restrain or prohibit the transactions
contemplated by this Agreement or to subject one or more of the parties or their
directors or their officers to liability on the grounds that it or they have
breached any law or regulation or otherwise acted improperly in connection with
such transactions, and such action or proceeding shall not have been dismissed
or such written threat shall not have been withdrawn or rescinded on or before
the Closing Date.
Section 9.02 REMEDIES, RIGHTS AND OBLIGATIONS ON TERMINATION. If this
Agreement is terminated and abandoned as provided in this Article IX:
(a) Redelivery. Each party will redeliver all documents, work
papers, and other materials of any other party relating to the transactions
contemplated by this Agreement, whether obtained before or after the execution
of this Agreement, to the party furnishing the same, and all information
received by any party to this Agreement with respect to the business of any
other party shall not at any time be used for the advantage of, or disclosed to
third parties by, such party to the detriment of the party furnishing such
information; provided, however, that this subsection (a) shall not apply to any
documents, work papers, material, or information which is a matter of public
knowledge or which has heretofore been or is hereafter published in any
publication for public distribution or filed as public information with any
governmental authority or is otherwise in the public domain.
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STOCK PURCHASE AGREEMENT PAGE 23
<PAGE> 24
(b)(1) Default by Purchaser. If Purchaser fails or refuses to
close in accordance with the terms of this Agreement and if Seller and the
Company have timely satisfied all the conditions to Purchaser's obligation to
close hereunder and are not in default hereunder, then, and as the exclusive
remedy of Seller and the Company for such breach, Seller and the Company shall
have the right to declare this Agreement terminated and to receive the sum of
$50,000.00 from Purchaser as liquidated damages and not a penalty for the breach
hereof by Purchaser (the same as if Purchaser had deposited such sum with Seller
as a down payment or earnest money hereunder). In this regard, the parties
acknowledge and agree that the damages occasioned to Seller and the Company by
any such breach are difficult of ascertainment or calculation and that the
specified sum of liquidated damages represents a fair and reasonable estimate of
such damages.
(b)(2) Default by Seller and/or the Company. If Seller and/or
the Company fails or refuses to close in accordance with the terms of this
Agreement and if Purchaser has timely satisfied all the conditions to
Purchaser's obligation to close hereunder and is not in default hereunder,
Purchaser shall have the right either (i) to declare this Agreement canceled or
(ii) to seek enforcement of this Agreement at law or in equity, including,
without limitation, an action for specific performance of the terms of this
Agreement by Seller and the Company or for recovery of the actual damages
occasioned to Purchaser by such breach. The provisions of Section 10.03 hereof
shall have no application to any claim or action by Purchaser under this Section
9.02(b)(2).
(c) Continuing Liability. The continuing liability of the
parties to this Agreement with respect to any breach of any representation,
warranty, covenant, or agreement contained therein shall not be affected by such
termination or abandonment, unless this Agreement is terminated or abandoned by
agreement of the parties pursuant to Section 9.01(a).
ARTICLE X
POST CLOSING REMEDIES
Section 10.01 SURVIVAL/THRESHOLD. The parties agree that, except as
otherwise specifically provided in this Agreement, all of the representations,
warranties and covenants contained in this Agreement or in any document,
certificate, instrument, schedule or exhibit delivered pursuant to this
Agreement shall survive the Closing only for a period of two (2) years from and
after the Closing Date unless the party claiming a breach shall assert the same
by written notice to the other party within such two-year period; provided,
however, that the representations and warranties of Seller under Sections
2.01-2.04, 2.11, and 2.14, the representations and warranties of Purchaser in
Sections 3.01 and 3.02, the covenants of the parties in Section 5.10, the
provisions of this Article X and of Article XI, and the covenants of
indemnification for any breach of the foregoing under Section 5.11 shall survive
Closing without time limitation. Notwithstanding anything in this Agreement to
the contrary, Seller will have no liability to Purchaser for the breach or
inaccuracy of any of its representations or warranties under this Agreement
unless the total of all damages incurred by Purchaser as a consequence of such
breaches exceeds $50,000.
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STOCK PURCHASE AGREEMENT PAGE 24
<PAGE> 25
Section 10.02 OFFSET/WAIVER. Subject to the provisions of Sections
10.01 and 10.03, after the Closing, Purchaser, without limitation of its other
rights and remedies, shall have recourse upon the Escrowed Funds and a right of
offset against its obligations under the Note for any breach of the
representations, warranties, and covenants of Seller and the Company under this
Agreement. In any proceedings by the Purchaser to assert or prosecute any claims
under, or to otherwise enforce, this Agreement, Seller agrees that he will not
assert as a defense, or as a bar to recovery, and hereby waives any right to so
assert such defense or such bar to recovery, that (a) prior to the Closing, the
Company shall have had knowledge of the circumstances giving rise to the claim
being pursued by Purchaser, or (b) prior to the Closing, the Company engaged in
conduct or took action that caused or brought about the circumstances giving
rise to such claim, or otherwise contributed thereto.
Section 10.03 DISPUTE RESOLUTION.
(a) Unless expressly provided otherwise in this Agreement, any
and all claims, disputes, controversies, and other matters in question involving
the parties hereto and arising out of or relating to this Agreement and the
transactions contemplated hereby, any provision hereof, the alleged breach of
such provision, or in any way relating to the subject matter of this Agreement
(collectively, "Disputes"), whether such Disputes sound in contract, tort, or
otherwise, at law or in equity, under State or federal law, whether provided by
statute or common law, for damages or any other relief, shall be resolved in
accordance with this Section 10.03.
(b) The parties shall attempt in good faith to resolve any
Dispute promptly by negotiations between representatives who have authority to
settle the controversy. Any party may give the other party written notice of any
Dispute not resolved in the normal course of business, together with a request
that the parties meet and confer ("Notice of Dispute"). Within fifteen (15) days
after delivery of a Notice of Dispute, the parties or their representatives
shall meet at a mutually acceptable time and place, and thereafter as often as
they reasonably deem necessary, to exchange relevant information and to attempt
to resolve the Dispute. If the matter has not been resolved within thirty (30)
days after delivery of the Notice of Dispute, or if the parties fail to meet
within fifteen (15) days after delivery of the Notice of Dispute, either party
may initiate mediation of the claim or dispute as provided hereafter. If a party
or its representative intends to be accompanied at a meeting by an attorney, the
other parties shall be given advance notice of such intention and may also be
accompanied by an attorney. All negotiations pursuant to this clause are
confidential and shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and any state's rules of evidence.
(c) If a Dispute has not been resolved by negotiation as
provided in Section 10.03(b), the parties shall endeavor to settle the claim or
dispute by mediation under the Center for Public Resources ("CPR") Model
Procedure for Mediation of Business Disputes. A neutral third party will be
selected from the CPR panel of neutrals. If the parties encounter difficulty in
agreeing on a neutral third party, they will seek the assistance of CPR in the
selection process. Mediation under this Section 10.03(c) will commence within
sixty (60) days of the Notice of Dispute.
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STOCK PURCHASE AGREEMENT PAGE 25
<PAGE> 26
(d) If the Dispute has not been resolved by non-binding means
pursuant to Sections 10.03(b) or (c) within thirty (30) days of the initiation
of mediation, either party may submit such Dispute for resolution by binding
arbitration as follows:
(i) It is the intention of the parties that the
arbitration shall be conducted pursuant to
the Texas Arbitration Act, Tex. Civ. Prac. &
Rem. Code Ann., Sections 171.001 et seq.
(Vernon 1997 & Supp. 1999) (the "Act"), as
modified by this Agreement. The validity,
construction, and interpretation of this
Section 10.03(d), and all procedural
aspects of the arbitration conducted
pursuant to this Section 10.03(d),
including, but not limited to, the
determination of issues that are subject to
arbitration (i.e. arbitrability), the scope
of the arbitrable issues, allegations of
fraud in the inducement to enter into this
Agreement, or this arbitration provision,
allegations of waiver, laches, delay, or
other defenses to arbitrability, and the
rules governing the conduct of the
arbitration (including the time for filing
an answer, the time for filing
counterclaims, the times for amending
pleadings, the specificity of the pleadings,
the extent and scope of discovery, the
issuance of subpoenas, the times for
designation of experts, whether the
arbitration is to be stayed pending
resolution of related litigation involving
third parties not bound by this Agreement,
the receipt of evidence and the like), shall
be decided by the arbitrators. The
arbitration shall be administered by the
American Arbitration Association ("AAA"),
and shall be conducted pursuant to the
Commercial Arbitration Rules of the AAA, as
modified by this Agreement. Notwithstanding
any provision of this Agreement to the
contrary, the parties expressly agree that
the arbitrators shall have absolutely no
authority to award incidental, special,
treble, exemplary, or punitive damages of
any type under any circumstances regardless
of whether such damages may be available
under Texas law, the law of any other state,
or federal law, or under the Act, or the
Commercial Arbitration Rules of the AAA, the
parties hereby waiving their right, if any,
to recover incidental, special, treble,
exemplary, or punitive damages in connection
with any such Disputes.
(ii) The arbitration proceeding shall be
conducted in Midland, Texas before a panel
of three (3) arbitrators appointed in
accordance with the Commercial Arbitration
Rules of the AAA. The arbitrators shall
conduct a hearing as soon as reasonably
practicable after appointment of the third
arbitrator, and a final decision completely
disposing of all Disputes that are the
subject of the arbitration proceedings shall
be rendered by the arbitrators as soon as
reasonably practicable after the hearing.
There shall be no transcript of the hearing
before the
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STOCK PURCHASE AGREEMENT PAGE 26
<PAGE> 27
arbitrators. The arbitrators' ultimate
decision after final hearing shall be in
writing, but shall be as brief as possible,
and the arbitrators shall not assign reasons
for their ultimate decision.
(iii) The fees and expenses of the arbitrators
shall be borne equally by the parties, but
the decision of the arbitrators may include
such award of the arbitrators' fees and
expenses and of other costs and attorneys'
fees as the arbitrators determine
appropriate.
(iv) To the fullest extent permitted by law, the
arbitration proceeding and the arbitrators'
award shall be maintained in confidence by
the parties.
(v) The award of the arbitrators shall be
binding upon the parties and final and
nonappealable to the maximum extent
permitted by law, and judgment thereon may
be entered by a court of competent
jurisdiction and enforced by any party as a
final judgment of such court.
(e) All applicable statutes of limitation and defenses based
upon the passage of time shall be tolled while the procedures specified in
Sections 10.03(b) and (c) are pending. The parties will take such actions, if
any, as may be required to effectuate such tolling.
(f) Each party is required to continue to perform its
obligations under this Agreement pending final resolution of any Dispute covered
by this Article X.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01 AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified, or supplemented only by writing duly
executed by all of the parties hereto.
Section 11.02 WAIVER OF COMPLIANCE. Any failure of the Seller or the
Company, on the one hand, or Purchaser, on the other, to comply with any
obligation, covenant, agreement or condition contained herein may be expressly
waived in writing by Purchaser or Seller and the Company, respectively;
provided, however, such waiver or failure to insist upon strict compliance shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
Section 11.03 NOTICES. All notices, requests, demands, and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand (including, without
limitation, by overnight courier), transmitted by facsimile, or mailed,
certified or registered mail (return receipt requested) with postage prepaid:
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STOCK PURCHASE AGREEMENT PAGE 27
<PAGE> 28
(a) if to Seller or the Company (only until the Closing Date),
to:
Mr. Thomas A. Best
TAT (Turn Around Trucking), Inc.
100 E. Kleburg, Suite 307
Kingsville, Texas 78363
Telephone: (____) _______
Fax: (____) _____________
with a copy to:
John M. Edgmon
3003 N.W. Loop 410
San Antonio, Texas 78230
Telephone: (210) 349-3892
Fax: (210) 349-0615
or to such other person or addresses as Seller or the Company shall furnish
Purchaser in writing in accordance with this Section 11.03; and
(b) if to Purchaser (or to the Company after Closing), to:
Sierra Well Service, Inc.
406 N. Big Spring
Midland, Texas 79701
Telephone: (915) 570-0829
Fax: (915) 570-0598
Attention: Kenneth V. Huseman, President
with a copy to:
Kerr & Ward, L. L. P.
500 W. Texas, Suite 1310
Midland, Texas 79701
Telephone: (915) 684-9990
Fax: (915) 684-9997
Attention: William M. Kerr, Jr.
or to such other persons or addresses as Purchaser shall furnish to Seller and
the Company in writing in accordance with this Section 11.03.
Delivery of notices shall be effective only upon actual receipt by the
intended recipient (or, in the case of facsimile transmission, the completion of
such transmission during the recipient's normal business hours).
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STOCK PURCHASE AGREEMENT PAGE 28
<PAGE> 29
Section 11.04 EXPENSES. Purchaser shall pay its own fees and expenses,
including, without limitation, professional fees and expenses, incurred in
connection with the negotiation, execution, and performance of this Agreement
and the transactions contemplated hereby. All fees and expenses of Seller and
all fees and expenses of the Company for periods to and including the Closing
Date, including, without limitation, professional fees and expenses, incurred in
connection with the negotiation, execution, and performance of this Agreement
and the transactions contemplated hereby, shall be borne and paid exclusively by
Seller.
Section 11.05 BINDING NATURE; NO THIRD PARTY BENEFICIARIES. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained herein, express or implied, is intended to confer on
any person other than the parties hereto or their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
Section 11.06 GOVERNING LAW. This Agreement, and the legal relations
among the parties hereto arising from this Agreement, shall be governed by and
construed in accordance with the laws of the State of Texas, without regard to
its conflicts of laws rules.
Section 11.07 ENTIRE AGREEMENT. This Agreement (including the exhibits
and schedules hereto and the other instruments referred to herein) embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties with respect to such subject matter.
Section 11.08 HEADINGS. The headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 11.09 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
Section 11.10 SEVERABILITY. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future law, such
provision shall be fully severable and this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part hereof, and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically, as part of this Agreement, a provision as similar in terms and
substance to such illegal, invalid, or unenforceable provision as may be
possible and legal, valid, and enforceable.
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT PAGE 29
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and made and entered into as of the date first set forth above.
SELLER:
/s/ THOMAS A. BEST
-----------------------------------
THOMAS A. BEST
/s/ PAM TAYLOR
-----------------------------------
PAM TAYLOR, TRUSTEE OF THE
BEST CHILDREN'S TRUST
THE COMPANY:
TAT (TURN AROUND TRUCKING),
INC., a Texas corporation
By: /s/ THOMAS A. BEST
--------------------------------
Printed Name: THOMAS A. BEST
----------------------
Title: PRESIDENT
-----------------------------
PURCHASER:
SIERRA WELL SERVICE, INC., a
Delaware corporation
By: /s/ CHARLES SWIFT
--------------------------------
Printed Name: CHARLES SWIFT
----------------------
Title: VICE PRESIDENT
-----------------------------
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STOCK PURCHASE AGREEMENT PAGE 30
<PAGE> 31
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A THE NOTE
EXHIBIT B-1 THE DEED OF TRUST
EXHIBIT B-2 THE SECURITY AGREEMENT
EXHIBIT C THE ESCROW AGREEMENT
EXHIBIT D THE FINANCIAL STATEMENTS
EXHIBIT E THE BEST EMPLOYMENT AGREEMENT
EXHIBIT F THE VILLAREAL EMPLOYMENT AGREEMENT
EXHIBIT G NON-COMPETITION AGREEMENT
EXHIBIT H YARD LEASE
SCHEDULE 1.02 EXCLUDED ASSETS
SCHEDULE 2.08 EXTRAORDINARY TRANSACTIONS
SCHEDULE 2.10 EMPLOYEE BENEFIT PLANS
SCHEDULE 2.11 OWNERSHIP OF THE STOCK
SCHEDULE 2.12(a) REAL PROPERTY
SCHEDULE 2.12(b) PERSONAL PROPERTY
SCHEDULE 2.13 EXISTING LIENS
SCHEDULE 2.17 CONTRACTS
SCHEDULE 2.19 INSURANCE POLICIES
SCHEDULE 2.20 BANK ACCOUNTS
SCHEDULE 2.21 OTHER LIABILITIES
SCHEDULE 5.13 PERSONAL GUARANTIES OF SELLER
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT PAGE 31
<PAGE> 32
EXHIBIT A
SECURED PROMISSORY NOTE
$1,300,000.00 Kingsville, Texas ____________, 2000
FOR VALUE RECEIVED, the undersigned, SIERRA WELL SERVICE, INC., a
Delaware corporation ("Maker"), promises to pay to the order of THOMAS A. BEST,
AS COLLECTION AGENT FOR THOMAS A. BEST, INDIVIDUALLY, AND PAM TAYLOR TRUSTEE OF
THE BEST CHILDREN'S TRUST, ("Payee") at 100 E. Kleburg, Suite 307, Kingsville,
Texas 78363, the principal sum of ONE MILLION THREE HUNDRED THOUSAND AND NO/100
DOLLARS ($1,300,000.00), together with interest on the unpaid principal balance
from day to day outstanding prior to default or maturity at a floating per annum
rate which shall from quarter to quarter be equal to the lesser of (i) the Prime
Rate (hereinafter defined) in effect hereunder (the "Established Rate")
(calculated on the basis of actual days elapsed in a year consisting of 365 or
366 days, as appropriate) or (ii) the Maximum Rate (hereinafter defined)
(calculated on the basis of actual days elapsed in a year consisting of 365 or
366 days, as appropriate). The interest rate on this Note shall initially be
determined as of the first Friday most immediately preceding the date of this
Note that is a business day (the "Initial Determination Date") and shall
thereafter be redetermined quarterly until maturity based upon the Prime Rate in
effect as of the first Friday most immediately preceding each ensuing calendar
quarter from the date hereof that is a business day (each such date being
hereinafter referred to as a "Redetermination Date"). Each change in the rate of
interest charged hereunder shall, subject to the terms hereof, become effective,
without notice to Maker, upon the applicable quarterly adjustment date (as
opposed to the Redetermination Date). If at any time and from time to time the
Established Rate exceeds the Maximum Rate, thereby causing the interest payable
to be limited to the Maximum Rate, then any subsequent reduction in the
Established Rate shall not reduce the rate of interest hereunder below the
Maximum Rate until the total amount of interest accrued hereon equals the amount
of interest that would have accrued if the Established Rate had at all times
been in effect. All past due principal of and accrued interest on this Note
shall bear interest at the Maximum Rate.
As used herein, "Prime Rate" shall mean the floating rate of interest
denominated and published as such by the Wall Street Journal on the Initial
Determination Date and thereafter on each applicable Redetermination Date.
As used herein, "Maximum Rate" shall mean the maximum non-usurious rate
of interest that at any time, or from time to time, may be contracted for,
taken, reserved, charged, or received under applicable law on the indebtedness
evidenced by this Note, after taking into account, to the extent required by
applicable law, any and all relevant payments, charges, or other amounts under
this Note and all instruments securing payment of this Note. To the extent that
Chapter 303 of the Texas Finance Code, as amended, is relevant for purposes of
determining the Maximum Rate, Payee hereby notifies Maker that the applicable
rate ceiling shall be the "applicable interest rate ceiling" from time to time
in effect, as limited by Section 303.009 of the Texas Finance Code, as amended;
provided, however, that to the extent permitted by applicable law, Payee
reserves the right to change the applicable rate ceiling from time to time by
further notice to Maker; and, provided further, that the Maximum Rate shall not
be limited to the applicable interest rate ceiling under Chapter 303 if federal
laws or other state laws now or hereafter in effect and applicable to this Note
(and the interest contracted for, charged and collected hereunder) shall permit
a higher rate of interest.
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT PAGE 32
<PAGE> 33
The principal of and accrued interest on this Note are due and payable
one year from the date hereof. This Note may be prepaid in whole or in part
without penalty. Partial prepayments shall be applied first to any accrued and
unpaid interest and the balance remaining, if any, to principal.
This Note is secured by that certain Security Agreement of even date
herewith, between TAT (Turn Around Trucking), Inc., as Grantor, and Payee, as
Secured Party, covering all of the collateral therein described.
It is understood and agreed that in the event of default in the payment
of this Note or any installment hereof, principal or interest, and if such
default shall continue unremedied for more than ten (10) days following written
notice thereof from Payee to Maker, or in the event of any default (other than
non-payment of this Note) in any instrument securing payment of this Note and if
such default shall continue unremedied for more than thirty (30) days following
written notice thereof from Payee to Maker, the entire principal balance of and
all accrued and unpaid interest on this Note shall at once become due and
payable without notice, at the option of Payee. Failure by Payee to exercise
this option on any one or more occasions shall not constitute a waiver of the
right to exercise such option in the event of subsequent default.
Except as otherwise herein expressly provided, the makers, signers,
sureties, and endorsers of this Note jointly and severally waive demand,
presentment, notice of dishonor, notice of intent to demand or accelerate
payment hereof, diligence in collecting, grace, notice, and protest, and agree
to one or more extensions for any period or periods of time and partial
payments, before or after maturity, without prejudice to Payee; and if this Note
shall be collected by legal proceedings or through probate or bankruptcy court,
or shall be placed in the hands of an attorney for collection after default or
maturity, Maker agrees to pay all costs of collection, including reasonable
attorney's fees.
All agreements between Maker and Payee, whether now existing or
hereafter arising and whether written or oral, are hereby limited so that under
no contingency, whether by reason or demand for payment or acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged, or
received by Payee exceed the Maximum Rate. If, for any circumstance whatsoever,
interest would otherwise be payable to Payee in excess of the Maximum Rate, the
interest payable to Payee hereunder shall be reduced to the Maximum Rate; and if
for any circumstance Payee shall ever receive anything of value deemed interest
by applicable law in excess of the Maximum Rate, then an amount equal to any
such excess shall be applied to the reduction of the principal hereof and not
the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal hereof, such excess shall be refunded to Maker. All
interest paid or agreed to be paid to Payee shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full period until payment in full of the principal (including the period of any
renewal or extension hereof) so that the interest hereon for such full period
shall not exceed the Maximum Rate.
Any provisions of this Agreement to the contrary notwithstanding, if
Maker shall successfully conclude an initial public offering of common stock in
Maker through a nationally recognized stock exchange at any time prior to
maturity or payment in full of this Note, whether stated or by acceleration,
(the "Sierra IPO"), Maker and Payee agree to convert the unpaid balance of this
Note to unregistered common stock in Maker at a per share price equivalent to
the per share price at which Maker issued its common stock in the Sierra IPO
within forty-five (45) days following successful conclusion of the Sierra IPO.
Maker and Payee shall effectuate such conversion of indebtedness for stock
through the delivery of this Note by Payee to Maker, marked "PAID," in return
for the delivery by Maker of the requisite number of shares of its unregistered
common stock to Payee.
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STOCK PURCHASE AGREEMENT PAGE 33
<PAGE> 34
This Note is in all respects subject to that certain Stock Purchase
Agreement dated as of March 1, 2000, between Thomas A. Best et al., as Seller,
TAT (Turn Around Trucking), Inc., as the Company, and Maker, as Purchaser.
This Note shall be governed by and construed in accordance with the
laws of the State of Texas.
SIERRA WELL SERVICE, INC.
By:
--------------------------------------
Printed Name:
----------------------------
Title:
-----------------------------------
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STOCK PURCHASE AGREEMENT PAGE 34
<PAGE> 35
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT ("First Amendment") is
made and entered into as of the 20th day of March 2000, between THOMAS A. BEST,
INDIVIDUALLY, and PAM TAYLOR, TRUSTEE OF THE BEST CHILDREN'S TRUST
(collectively, "Seller"), TAT (TURN AROUND TRUCKING), INC., a Texas corporation
(the "Company"), and SIERRA WELL SERVICE, INC., a Delaware corporation
("Purchaser"), with reference to the following:
RECITALS
A. Seller, the Company, and Purchaser are parties to that certain Stock
Purchase Agreement (the "Agreement") dated as of March 1, 2000, relating to the
sale and purchase of all of the issued and outstanding capital stock of the
Company.
B. Seller and Purchaser wish to amend the Agreement upon the terms
which follow.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. EXTENSION OF CLOSING DATE. Seller, the Company, and Purchaser hereby
modify and amend existing Section 8.01 of the Agreement to read as follows:
Section 8.01 CLOSING. The closing ("Closing") of the
transaction contemplated hereby shall take place at the
offices of Purchaser at 406 N. Big Spring, Midland, Texas, on
a business date of Purchaser's unilateral selection within
thirty (30) days following any successful completion by
Purchaser of an initial public offering of common stock in the
Company through a recognized national stock exchange (the
"Sierra IPO"), but in no event later than June 30, 2000, or at
such other place and time as the parties hereto might
hereafter mutually agree in writing. Such date or any
alternative date so selected by the parties is referred to in
this Agreement as the "Closing Date." Purchaser shall afford
Seller and the Company at least ten (10) days prior written
notice of its desired Closing Date pursuant to the foregoing.
2. DEFINITIONS. Except as expressly indicated otherwise herein,
capitalized terms in this First Amendment shall have the same meanings as are
ascribed to them in the Agreement.
3. CONFIRMATION. The parties hereto hereby ratify, confirm, and adopt
the Agreement, as amended hereby. Except as modified hereby, the Agreement
remains in full force and effect.
<PAGE> 36
4. FAX; COUNTERPARTS. This First Amendment may be executed by fax and
in multiple counterparts.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
First Amendment as of the day and year first above written.
SELLER:
/s/ THOMAS A. BEST
-------------------------------------
THOMAS A. BEST
/s/ PAM TAYLOR
-------------------------------------
PAM TAYLOR, TRUSTEE OF THE
BEST CHILDREN'S TRUST
THE COMPANY:
TAT (TURN AROUND TRUCKING),
INC., a Texas corporation
By: /s/ THOMAS A. BEST
---------------------------------
Printed Name: THOMAS A. BEST
------------------------
Title: President
------------------------------
PURCHASER:
SIERRA WELL SERVICE, INC., a Delaware
corporation
By: /s/ CHARLES SWIFT
---------------------------------
Printed Name: CHARLES SWIFT
------------------------
Title: Vice President
------------------------------
- --------------------------------------------------------------------------------
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT PAGE 2
<PAGE> 1
EXHIBIT 10.18
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into as
of the 10th day of February 2000, by and between WILLIAM K. DURHAM d/b/a TRINITY
SERVICES ("Seller") and SIERRA WELL SERVICE, INC., a Delaware corporation
("Purchaser").
RECITALS:
A. Seller owns and operates a well servicing business based out of
Kingsville, Texas (the "Business").
B. Purchaser desires to purchase and acquire, and Seller is willing to
sell and transfer, certain of the properties and assets comprising the Business
as hereinbelow more particularly described.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.01 TRANSFER OF ASSETS. At the Closing, which shall occur on the
Closing Date (both terms as defined in Section 7.01 hereof), and subject to the
terms and conditions of this Agreement, Seller shall grant, sell, convey,
assign, and deliver to Purchaser, and Purchaser shall pay for and accept from
Seller, all of the following assets:
(a) All of the assets, properties, equipment,
inventories, and rights of every kind, character, and
description, whether tangible or intangible,
comprising or used in the business operated by Seller
under the name "Trinity Services," save and except
the Excluded Assets (hereinafter defined), all such
items being sold hereunder being hereinafter
collectively referred to as the "Assets." Seller is
not selling and the Assets shall not include (i) any
accounts receivable, notes receivable, deposits,
prepayments, bank accounts, cash, and other liquid
assets of a similar nature of Seller as of the
Closing Date, (ii) any contracts that by their terms
are non-assignable or for which Seller is unable to
obtain requisite consents to assignment at or prior
to Closing notwithstanding its good faith efforts or
that Purchaser may elect not to assume under the
terms of this Agreement, and (iii) any personal items
belonging to Seller or his family which are not
necessary to the operation of the Business, as listed
on EXHIBIT A attached hereto and made a part hereof
(items (i)-(iii) being hereinafter collectively
referred to as the "Excluded Assets").
<PAGE> 2
(b) Without limiting the foregoing, the Assets shall
include the following assets, properties, and rights
of Seller:
(i) all of the machinery, equipment, tools,
vehicles, rolling stock, furnishings, goods,
and other tangible personal property
described on EXHIBIT B attached hereto and
made a part hereof for all purposes,
together with all attachments and accessions
thereto and all associated personal property
used or obtained for use in connection
therewith (the "Tangible Personalty");
(ii) all of Seller's rights under the service and
supply contracts, leases, commitments, and
agreements which may relate to the clients
listed on EXHIBIT C attached hereto and made
a part hereof for all purposes, together
with any other such agreements entered into
by Seller between the date hereof and the
Closing in accordance with this Agreement,
(collectively, the "Contracts") save and
except any such Contracts which by their
terms are non-assignable or for which Seller
is unable to obtain requisite consents to
assignment at or prior to Closing or which
Purchaser may elect not to assume under the
terms of this Agreement;
(iii) any usable and salable raw materials and
supplies of the Business as of the Closing
(the "Inventory");
(iv) all technologies, methods, formulations,
data bases, patents, trademarks, trade
secrets, know-how and other intellectual
property used in the Business;
(v) all existing and assignable guaranties and
warranties (express or implied), if any,
issued in connection with the purchase,
lease, construction, alteration, and/or
repair of any property included within the
Assets;
(vi) all information, files, records, data,
plans, and recorded information, including
supplier lists and customer lists, relating
to the ownership and operation of the
Business, provided that Seller shall be
entitled to keep, retain and utilize copies
of all accounting and tax records maintained
by Seller;
(vii) all goodwill of the Business and all right,
title, and interest of Seller in and to the
name "Trinity Services" and any other trade
or assumed names used by Seller in the
operation of the Business; and
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ASSET PURCHASE AGREEMENT PAGE 2
<PAGE> 3
(viii) any and all other assets of Seller
comprising or used in the Business other
than Excluded Assets.
1.02 PURCHASE PRICE. At the Closing, in accordance with the terms and
conditions of this Agreement and in reliance on the representations, warranties
and covenants of Seller, and subject to adjustment as hereinafter provided,
Purchaser shall purchase the Assets from Seller for a purchase price (the
"Purchase Price") of ONE MILLION SEVEN HUNDRED FORTY-NINE THOUSAND AND NO/100
DOLLARS ($1,749,000.00), together with the additional amounts described below,
payable as follows:
(a) Purchaser shall pay the sum of $1,499,000.00 to
Seller in immediately available funds at the Closing;
(b) Purchaser shall execute and deliver to Seller at
Closing its promissory note in the face principal
amount of $250,000.00, bearing interest and payable
to the order of Seller as therein provided, said note
to be substantially identical in form and substance
to that attached hereto as EXHIBIT D (the "Note") and
to be secured by a security agreement which covers
the Assets and is substantially identical in form and
substance to that attached hereto as EXHIBIT E (the
"Security Agreement");
(c) Purchaser shall reimburse Seller for certain costs of
repairs and refurbishments as more particularly
provided in Section 5.12; and
(d) Purchaser may pay certain Extension Fees (as defined
in Section 7.01) to the Escrow Agent (hereinafter
defined) and such Extension Fees shall either be
delivered to Seller as additional consideration for
this sale of the Assets or shall be otherwise
disposed of as provided in this Agreement and the
Escrow Agreement.
Seller and Purchaser hereby allocate the Purchase Price among the Assets as set
forth on SCHEDULE 1.02 attached hereto and made a part hereof and agree to be
bound by such allocation for federal income tax and all other purposes incident
to this agreement.
1.03 ESCROW AGREEMENT/BREAK-UP FEE. Contemporaneously with the
execution and delivery of this Agreement, Seller, Purchaser, and The Kleberg
First National Bank (the "Escrow Agent") are entering into an escrow agreement
that is substantially identical in form and substance to that attached hereto as
EXHIBIT F, pursuant to which Purchaser shall deposit the sum of Fifty Thousand
and No/100 Dollars ($50,000) in immediately available funds with the Escrow
Agent for retention, investment, and ultimate disposition by the Escrow Agent as
provided therein. As used in this Agreement, "Break-Up Fee" shall mean and refer
to such $50,000 deposit, together with all interest accruing thereon while held
by the Escrow Agent. If the sale contemplated hereby is closed pursuant to the
terms of this Agreement, the Break-Up Fee shall be applied to a corresponding
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT PAGE 3
<PAGE> 4
amount of the Purchase Price payable by Purchaser to Seller at the Closing. The
Break-Up Fee shall otherwise be applied, remitted, or paid as elsewhere provided
in this Agreement and the Escrow Agreement.
1.04 WARRANT. As a material consideration of this Agreement to Seller,
upon the occurrence of any Sierra IPO (as defined in Section 7.01), Purchaser
shall issue to Seller a warrant for the purchase of common stock in Seller that
is substantially identical in form and substance to that attached hereto as
EXHIBIT G (the "Warrant"). The number of shares of common stock that is subject
to the Warrant shall be determined by dividing 250,000 by the share price at
which common stock is issued in any Sierra IPO. Seller shall have the option and
right to offset any indebtedness owing by Purchaser to Seller under the Note
against the purchase price payable by Seller to Purchaser in exercising its
rights under the Warrant.
1.05 ASSUMED LIABILITIES. At the Closing, Purchaser shall assume and
agree to pay, discharge, or perform, as appropriate, all liabilities and
obligations of Seller arising following the Closing Date under only any
Contracts which Purchaser elects to assume pursuant to this Agreement and for
which Seller obtains requisite consents to assignment and assumption by
Purchaser.
1.06 LIABILITIES NOT ASSUMED. Except as expressly provided in Section
1.05 hereof, Purchaser does not assume or agree hereunder to pay, perform, or
discharge any debt, obligation, tax, or liability, known or unknown, contingent
or otherwise, of Seller of any kind or nature whatsoever. Without limiting the
foregoing, in no event shall Purchaser assume or incur any liability or
obligation under this Agreement or otherwise in respect of any of the following:
(a) any claim for injury to person or property,
regardless of when made or asserted, which arises
out of or is based upon any express or implied
representation, warranty, agreement, or guarantee
made by Seller, or alleged to have been made by
Seller, or which is imposed or asserted to be imposed
by operation of law, in connection with any service
performed or product sold or leased by or on behalf
of Seller or arising from events occurring on or
prior to the Closing Date or any action or inaction
of Seller;
(b) any federal, state, or local income or other tax
payable with respect to the business, assets,
properties or operations of Seller or any member of
any affiliated group of which Seller is a member, or
incident to or arising as a consequence of the
negotiation or consummation by Seller of this
Agreement and the transaction contemplated hereby,
save and except: (i) any applicable property taxes
for calendar year 2000 which will be prorated by the
parties as of the Closing Date with an appropriate
credit to Purchaser at the Closing, and (ii) any
sales or transfer taxes resulting from the
consummation of this transaction, which will be the
sole responsibility of Purchaser;
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ASSET PURCHASE AGREEMENT PAGE 4
<PAGE> 5
(c) any liability or obligation arising prior to the
Closing Date under any law, ordinance, or
governmental or regulatory rule or regulation,
whether federal, state, or local, to which Seller or
Seller's business operations, assets, or properties
are subject relating to pollution or protection of
the environment;
(d) any liability or obligation arising prior to or as a
result of the Closing to any employees, agents, or
independent contractors of Seller, whether or not
employed by Purchaser after the Closing Date, or
under any benefit arrangement with respect thereto,
including any obligations of Seller under any defined
benefit plan, employee benefit plan, or severance
plan;
(e) any liability or obligation of Seller incurred in
connection with the negotiation, preparation, and
execution of this Agreement and the transactions
contemplated hereby, including fees and expenses of
counsel, accountants, and other professionals, except
as specifically provided in Section 6.02(c).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents, warrants, and covenants to and with Purchaser as of
the date hereof and the Closing Date, as follows:
2.01 AUTHORITY; ENFORCEABILITY. Seller has full power, authority, and
legal right to enter into this Agreement and to consummate the transactions
provided for herein. All actions on the part of Seller necessary to consummate
the transaction contemplated by this Agreement have been duly taken as required
by applicable law and any applicable agreements. This Agreement has been, and
the other agreements, documents, and instruments required to be delivered by
Seller in accordance with the provisions hereof have been or will be, duly
executed and delivered by Seller and constitute (or will at Closing constitute)
the valid and binding obligations of Seller, enforceable against Seller in
accordance with their terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or similar laws now or
hereafter in effect relating to or limiting creditors' rights or by legal
principles of general applicability governing the availability of equitable
remedies.
2.02 ABSENCE OF VIOLATION OR CONFLICTS. To the best of Seller's
knowledge, the execution, delivery and performance of the transactions
contemplated by this Agreement by Seller do not and will not (a) violate,
conflict with, or result in the breach of any term, condition, or provision of,
or require the consent of any other person under, (i) any law, ordinance, or
governmental rule or regulation known to Seller and to which Seller, the Assets,
or the Business is subject, (ii) any judgment, order, writ, injunction, decree,
or award of any court, arbitrator, or governmental or
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT PAGE 5
<PAGE> 6
regulatory official, body, or authority which is known to Seller and which is
applicable to Seller, the Assets, or the Business, (iii) any mortgage,
indenture, or other instrument, document, or understanding, oral or written, to
which Seller is a party, by which Seller may have rights, or by which any of the
Assets or the Business may be bound or affected, and (b) give any party with
rights thereunder the right to terminate, modify, accelerate, or otherwise
change the existing rights or obligations of Seller thereunder. To the best of
Seller's knowledge, no authorization, approval, or consent of, and no
registration or filing with, any governmental or regulatory official, body, or
authority is required in connection with the execution, delivery or performance
of this Agreement by Seller.
2.03 TITLE TO ASSETS. Seller has (or will have at Closing) good and
marketable title to all the Assets, free and clear of all mortgages, liens,
pledges, security interests, charges, claims, restrictions, and other
encumbrances and defects of title of any nature whatsoever, except for (i) liens
for current ad valorem or similar taxes which are not yet due and payable and
(ii) required consents to assignment of the Contracts (collectively, the
"Permitted Encumbrances").
2.04 CONTRACTS. To the best of Seller's knowledge, Seller is not in
material default (nor is there any event which with notice or lapse of time or
both would constitute a material default) under any of the Contracts.
2.05 COMPLIANCE WITH LAW; AUTHORIZATIONS. To the best of Seller's
knowledge, Seller has complied with each, and is not in violation of any, law,
ordinance, or governmental or regulatory rule or regulation, whether federal,
state, local or foreign, to which Seller and Seller's business, operations,
assets, and properties are subject ("Regulations"). To the best of Seller's
knowledge, Seller owns, holds, possesses, or lawfully uses in the operation of
the Assets and the Business all licenses, permits, easements, rights,
applications, filings, registrations and other authorizations ("Authorizations")
which are in any manner necessary for such ownership and use by Seller, free and
clear of all liens, charges, restrictions, and encumbrances and in compliance
with all Regulations. To the best of Seller's knowledge, Seller is not in
default, nor has it received any notice of any claim of default, with respect to
any such Authorization.
2.06 LITIGATION. No litigation, including any arbitration,
investigation, or other proceeding of or before any court, arbitrator or
governmental or regulatory official, body, or authority, is pending in which
Seller is a party and in which Seller has been served with process or otherwise
notified or, to the knowledge of Seller, threatened against Seller which relates
to the Assets, the Business, or the transactions contemplated by this Agreement,
nor does Seller know of any reasonably likely basis for any such litigation,
arbitration, investigation, or proceeding, the result of which could materially
adversely affect the Assets, the Business, or the transaction contemplated
hereby. Seller is neither party to nor subject to the provisions of any
judgment, order, writ, injunction, decree, or award of any court, arbitrator, or
governmental or regulatory official, body, or authority which may materially
adversely affect Seller, the Assets, the Business, or the transaction
contemplated hereby.
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ASSET PURCHASE AGREEMENT PAGE 6
<PAGE> 7
2.07 ENVIRONMENTAL MATTERS. There is no civil, criminal or
administrative action, suit, demand, claim, hearing, notice or demand letter,
notice of violation, investigation of which Seller has been notified, or
proceeding pending or, to the knowledge of Seller, threatened, against Seller in
connection with the ownership, use, or operation of the Assets or the Business
or with the transaction contemplated hereby, relating in any way to
Environmental Laws and Regulations (hereinafter defined).
As used herein, "Environmental Laws and Regulations" shall include, but
not be limited to:
(i) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42
U.S.C.ss.ss.9601-9657, and any amendments thereto;
(ii) the Resource Conservation and Recovery Act, 42
U.S.C.ss.ss.6901-6987 and any amendments thereto;
(iii) Safe Drinking Water Act, 42 U.S.C.ss.300(f) et seq.
and any amendments thereto;
(iv) Any and all environmental acts, statutes, and other
laws of the State of Texas; and
(v) Any and all regulations, rules, and administrative
orders issued or promulgated pursuant to any of the
foregoing.
(b) Seller agrees to cooperate reasonably with Purchaser
in connection with Purchaser's application for the
transfer, renewal or issuance of any permits,
licenses, approvals, or other authorizations or to
satisfy any regulatory requirements involving the
transfer of the Business to Purchaser.
2.08 TAX AND OTHER RETURNS AND REPORTS. Seller has not received any
notice of assessment or proposed assessment in connection with any of the
Assets or the Business and, to the knowledge of Seller, there are no pending tax
examinations or tax claims asserted against any of the Assets or the Business.
There are no tax liens (other than any lien for current ad valorem taxes not yet
due and payable) on any of the Assets or the Business.
2.09 CONSENTS. Seller is not aware of any consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any federal, state or local governmental authority or any other
person on the part of Seller which is required in connection with the completion
of the transactions contemplated by this Agreement and the operation by
Purchaser of the Business in the manner in which it is currently conducted.
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ASSET PURCHASE AGREEMENT PAGE 7
<PAGE> 8
2.10 FINANCIAL MATTERS.
(a) Financial Statements. Seller has previously furnished to
Purchaser unaudited financial statements of Seller for the years ended December
31, 1998 and 1997 and for the interim period ended September 30, 1999. These
financial statements have been prepared in a manner that is consistent with the
books and records of Seller and present fairly the information contained therein
in the same manner as such information has been historically reported by Seller.
(b) Liabilities. To the best of Seller's knowledge, except for
the liabilities reflected on the financial statements specified above, there are
no, and on the Closing Date will be, no other material liabilities of any
nature, whether accrued, absolute, contingent, or otherwise and whether due or
to become due, or arising out of transactions entered into, or any state of
facts existing, prior to the Closing Date which will encumber the Assets or
impair the use, value, or ownership thereof by the Purchaser following the
Closing. There has been no material adverse change in the financial condition,
results of operations, assets, liabilities, business or prospects of the
Business since September 30, 1999, except that certain pay raises, as previously
disclosed by Seller to Purchaser in writing, have been provided to employees of
Seller in the ordinary course of Seller's business.
2.12 ABSENCE OF CERTAIN CHANGES. Since September 30, 1999, except as
disclosed in writing to Purchaser or as otherwise permitted or contemplated by
this Agreement, there has not been (i) any amendment, termination, or
revocation, or threatened termination, revocation or modification of any
license, permit, or franchise required for the continued operation of the
Business; (ii) any sale or transfer of the Assets; (iii) any pledge or
subjection to lien, charge or encumbrance of any kind, of, on or affecting any
of the Assets; or (iv) any material damage, destruction, or loss of or to the
Assets, whether or not covered by insurance.
2.13 OTHER. No representation or warranty by the Seller in this
Agreement and no written information furnished by Seller to Purchaser pursuant
to or in connection with the transactions contemplated by this Agreement
contains as of the date made any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein not
misleading.
ARTICLE III
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser hereby represents and warrants to Seller as of the date
hereof and the Closing Date, as follows:
3.01 ORGANIZATION. Purchaser is a corporation duly organized and
existing in good standing under the laws of the State of Delaware and has the
power and authority to carry on its business as contemplated by this Agreement.
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ASSET PURCHASE AGREEMENT PAGE 8
<PAGE> 9
3.02 AUTHORITY. Purchaser has full power, authority, and legal right to
enter into this Agreement and to consummate the transaction provided for herein.
The execution and delivery of this Agreement and the other instruments specified
herein, and the consummation of the transaction provided for herein, by
Purchaser have been duly and validly authorized by all necessary action on the
part of Purchaser and are in compliance with applicable law. This Agreement has
been, and the other agreements, documents and instruments required to be
delivered by Purchaser in accordance with the provisions hereof have been or
will be, duly executed and delivered by Purchaser and constitute (or will at
Closing constitute) the valid and binding obligations of Purchaser, enforceable
against Purchaser in accordance with their terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium, or similar
laws now or hereafter in effect relating to or limiting creditors' rights or by
legal principles of general applicability governing the availability of
equitable remedies.
3.03 ABSENCE OF VIOLATIONS OR CONFLICTS. The execution, delivery, and
performance of the transaction contemplated by this Agreement by Purchaser do
not and will not violate, conflict with, or result in the breach of any term,
condition, or provision of, or require the consent of any other person under,
(a) any law, ordinance, or governmental rule or regulation known to Purchaser
and to which Purchaser is subject, (b) any judgment, order, writ, injunction,
decree, or award of any court, arbitrator, or governmental or regulatory
official, body, or authority which is applicable to Purchaser (c) the governing
documents of Purchaser or any securities issued by Purchaser, or (d) any
mortgage, indenture, or other instrument, document, or understanding, oral or
written, to which Purchaser is a party or by which Purchaser may have rights. No
authorization, approval, or consent of, and no registration or filing with, any
governmental or regulatory official, body, or authority is required in
connection with the execution, delivery or performance of this Agreement by
Purchaser
3.04 OTHER. No representation or warranty by Purchaser in this
Agreement and no written information furnished by Purchaser to Seller pursuant
to or in connection with the transactions contemplated by this Agreement
contains as of the date made any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein not
misleading.
3.05 DUE DILIGENCE. Upon Closing hereunder, Purchaser will have
conducted such examinations, inquiries, and other due diligence as Purchaser
deems necessary and appropriate to conclude the transaction contemplated hereby
in light of the express representations, warranties, and covenants of Seller
under this Agreement. Purchaser is not presently aware of any material
inaccuracy of any of Seller's representations and warranties in this Agreement.
ARTICLE IV
SURVIVAL AND INDEMNIFICATION
4.01 SURVIVAL. The parties agree that all of the representations,
warranties and covenants contained in this Agreement or in any document,
certificate, instrument, schedule or exhibit delivered
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ASSET PURCHASE AGREEMENT PAGE 9
<PAGE> 10
pursuant to this Agreement shall survive the Closing without time limitation,
except that (a) the representations and warranties of Seller in Sections 2.04 -
2.13 and the representations and warranties of Purchaser in Section 3.04 shall
survive only for a period of one (1) year following the Closing unless the party
claiming a breach shall assert the same by written notice to the other party
within such one-year period and (b) Seller will have no liability for the breach
or inaccuracy of any of its representations or warranties under Article II of
this Agreement unless, prior to any termination or expiration of such
representations or warranties pursuant to the foregoing, Purchaser notifies
Seller in writing of the alleged breach or inaccuracy, specifying the factual
basis of the claim with reasonable certainty to the extent then known by
Purchaser and the amount of actual damages incurred by Purchaser as a result
thereof to the extent then known by Purchaser. Notwithstanding any provisions of
this Agreement to the contrary, (a) Seller shall have no liability for the
breach of any of its representations or warranties under Article II of this
Agreement unless the total of all damages incurred by Purchaser as a result
thereof exceeds $20,000; and (b) in no event shall Seller's liability for the
breach or inaccuracy of its representations and warranties under Article II of
this Agreement or for indemnification under Section 4.02(a) ever exceed the
principal sum of $250,000, exclusive of interest, attorneys' fees, and expenses
of litigation; provided, however, that such limitations shall be inapplicable to
any damages incurred or sustained by Purchaser as a consequence of the breach of
Seller's title covenants and warranties in Section 2.03 of this Agreement.
4.02 INDEMNIFICATION BY SELLER. Subject to the limitations of Section
4.01, Seller agrees to indemnify, hold harmless, and defend Purchaser after the
Closing Date against and in respect of any of the following matters which may be
asserted or established:
(a) Any and all damages, losses, expenses, liabilities,
or deficiencies resulting from any breach of the
warranties, representations and covenants of Seller
contained in this Agreement or in any schedule
hereto;
(b) Any and all liabilities, damages, losses, or expenses
incurred or paid by Purchaser as a result of the
nonpayment or assessment of taxes with respect to the
Assets or the Business attributable to periods prior
to and including the Closing Date;
(c) Any and all damages, losses, expenses, liabilities,
or deficiencies incurred or paid by Purchaser as a
result of a claim of any kind arising from the
ownership or operation of the Assets or the Business
prior to and including the Closing Date (except for
those obligations and liabilities of Seller, if any,
that are expressly assumed by the Purchaser pursuant
to Section 1.05 hereof); and
(d) All demands, assessments, judgments, costs, and
expenses (including reasonable legal fees and other
expenses of litigation, both at the trial and
appellate level) arising from or in connection with
any action, suit,
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ASSET PURCHASE AGREEMENT PAGE 10
<PAGE> 11
proceeding, or claim incident to any of the matters
indemnified in subparts (a)-(c) of this Section 4.02.
4.03 INDEMNIFICATION BY PURCHASER. Subject to the limitations of
Section 4.01, Purchaser agrees to indemnify, hold harmless, and defend Seller
after the Closing Date against and in respect of any of the following matters
which may be asserted or established:
(a) Any and all damages, losses, expenses, or
deficiencies resulting from any breach of the
warranties, representations and covenants of
Purchaser contained in this Agreement or in any
schedule hereto;
(b) Any and all liabilities, damages, losses, or expenses
incurred or paid by Seller as a result of the
nonpayment of taxes with respect to the Assets or the
Business attributable to periods after the Closing
Date or any transfer taxes attributable to this
transaction as specified in Section 5.05;
(c) Any and all damages, losses, expenses, liabilities,
or deficiencies incurred or paid by Seller as a
result of a claim of any kind arising from the
ownership or operation of the Assets or the Business
by Purchaser after the Closing Date; and
(d) All demands, assessments, judgments, costs, and
expenses (including reasonable legal fees and other
expenses of litigation, both at the trial and
appellate level) arising from or in connection with
any action, suit, proceeding, or claim incident to
any of the foregoing.
ARTICLE V
OTHER AGREEMENTS
5.01 CONTINUING OPERATION OF BUSINESS. Seller hereby agrees, on and
after the date of this Agreement and until the Closing hereunder (except upon
the prior written consent of Purchaser and except as otherwise contemplated in
this Agreement or the exhibits or schedules hereto):
(a) To operate the Business in the ordinary and regular
course and not to engage in any transaction or
activity or enter into any agreement or make any
commitment except in the ordinary and regular course
of business or enter into any material agreement or
make any material commitment;
(b) To operate the Business in the same manner as
heretofore conducted, and not to institute any new
methods of processing, purchase, sale, lease,
management, accounting, or operation;
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ASSET PURCHASE AGREEMENT PAGE 11
<PAGE> 12
(c) Except as otherwise specifically provided in Section
5.12, to maintain and repair the Assets, at Seller's
sole cost and expense, in the same manner as Seller
has heretofore maintained and repaired the same;
(d) To maintain all leases, easements, rights-of-way,
permits, Contracts, and other rights necessary for
the operation of the Assets in full force and effect;
(e) To use its best efforts to preserve the business
organization of the Business and to preserve its
relationship with customers, suppliers, and others
having business relations with it;
(f) Not to make any sale or distribution of, or grant any
other interest in, the Assets, except for the sale of
inventory in the ordinary course of business;
(g) Not to grant any increase in the compensation of the
employees of Seller, whether now or hereafter
payable; provided that in no event is anything in
this Agreement to be construed that Purchaser has
agreed to assume any of the Seller's obligations,
contractual or otherwise, with respect to any of the
Seller's employees;
(h) To maintain in full force and effect all existing
policies of liability, casualty, and other insurance
presently maintained by Seller with respect to the
Assets and the Business, including, without
limitation, the policies described on attached
SCHEDULE 5.01(H).
5.02 PURCHASER'S CONTINUING INSPECTION RIGHTS. Seller agrees that,
pending Closing, it will (a) provide or cause to be provided to Purchaser, or
its representatives, during normal business hours or otherwise, if necessary,
full access to all of its properties, assets, books, agreements, commitments and
records; (b) furnish Purchaser and its representatives with such information
concerning any of its operations and affairs as they may reasonably request; and
(c) furnish to Purchaser true copies of all financial and operating statements
of Seller.
5.03 EXCLUSIVE DEALING. During the period from the date of this
Agreement through the Closing Date, Seller shall not, directly or indirectly,
encourage, initiate, or engage in discussions or negotiations with, or provide
any information to, or enter into any agreement to sell the Assets with, any
person, firm, company, or other entity, other than Purchaser.
5.04 EMPLOYEES. Except as may be specifically provided in this
Agreement, Purchaser shall assume no liability for any agreements, arrangements,
commitments, policies, or understandings of any kind relating to employment,
compensation, or benefits for present or former employees of Seller prior to the
Closing Date, including, but not limited to, severance pay, retirement benefits,
accrued vacation pay, or benefits or medical claims incurred before the Closing
Date. Without limiting the foregoing, Seller shall bear the full cost and
expense of any severance expenses
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ASSET PURCHASE AGREEMENT PAGE 12
<PAGE> 13
and benefits which result from the termination of any employees of the Business
not hired by Purchaser or otherwise retained in Seller's employ. To the extent
Purchaser may elect to employ any current employees of Seller upon Closing, each
employee so employed by Purchaser upon Closing shall be eligible for
participation in Purchaser's current employee benefit programs with full credit
for length of service prior to Closing with the Company. Seller acknowledges and
agrees that the decision to hire any current employees of Seller is solely in
the discretion of Purchaser and that Purchaser has no obligation of any kind to
employ any of the existing employees of Seller following Closing.
5.05 EXPENSES. Except as otherwise provided herein, each party hereto
shall pay its own expenses and costs incurred in connection with the negotiation
and consummation of this Agreement and the transaction contemplated hereby.
Purchaser shall pay all federal, state, and local sales, documentary and other
transfer taxes, if any, due as a result of the purchase, sale, or transfer of
the Assets.
5.06 BROKERS. Each of the parties represents and warrants that it has
dealt with no broker or finder in connection with the transaction contemplated
by this Agreement, and insofar as it knows, no broker or other person is
entitled to any commission or finder's fee in connection with this transaction.
Each of the parties shall be solely responsible for any brokerage commissions or
finder's fees arising from this transaction based upon arrangements made by or
on behalf of such party and agrees to indemnify and hold the other party
harmless from any claims or liabilities (including reasonable attorneys' fees
and court costs) with respect thereto.
5.07 LOSS. If, before the Closing Date, the Assets are destroyed, or if
there has been damage to the Assets which would cost in excess of $250,000 to
repair or replace, and such repair or replacement shall not have been completed
by the Closing Date to Purchaser's reasonable satisfaction, then Purchaser, at
its option, may either (a) proceed to Closing, in which event Seller shall
assign to Purchaser at Closing all insurance proceeds payable with respect to
such loss and Purchaser shall receive a credit at Closing against the Purchase
Price for any remaining sums necessary to effectuate such repairs (including,
without limitation, applicable deductibles) or (b) terminate this Agreement, in
which event the Break-Up Fee shall be immediately refunded to Purchaser and,
except as otherwise expressly provided in this Agreement, neither party shall
have any further rights or obligations hereunder. If, before the Closing Date,
there has been damage to the Assets which would cost $250,000 or less to repair
or replace, and such repair or replacement shall not have been completed by the
Closing Date to Purchaser's reasonable satisfaction, then the parties shall
remain obligated to close this transaction, but Purchaser shall be entitled to
an assignment at Closing of all insurance proceeds payable with respect to such
loss and shall additionally receive a credit at Closing against the Purchase
Price in an amount to be agreed upon by Purchaser and Seller for any remaining
sums necessary to effectuate such repairs (including, without limitation,
applicable deductibles). If Purchaser and Seller are unable to agree upon the
remaining sum necessary to effectuate repairs, they shall refer such
determination to Superior Auctioneers of San Antonio, Texas, or other mutually
acceptable equipment appraiser, whose decision shall be final, binding, and
conclusive as to and upon all concerned.
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ASSET PURCHASE AGREEMENT PAGE 13
<PAGE> 14
5.08 ASSIGNMENT OF CONTRACTS. At least five (5) days prior to the
Closing Date, Seller shall provide a written listing and copies of all then
operative or effective Contracts to Purchaser. At or prior to Closing, Purchaser
shall notify Seller of those Contracts, if any, which Purchaser desires to
assume at Closing. If Purchaser does not issue such notification, Purchaser
shall be deemed to desire to assume all of the Contracts listed and provided by
Seller on its notification to Purchaser. Seller will use its best efforts to
procure any necessary consents for the assignment of all Contracts which
Purchaser desires to assume at the Closing. The failure of Seller,
notwithstanding such efforts, to secure any required consent to the assignment
of such Contracts shall not be a condition to Closing or a breach by Seller
hereunder.
5.09 POST-CLOSING OPERATIONS BY SELLER. Purchaser acknowledges that
Seller will continue to operate its business following Closing for the limited
purposes of collecting accounts receivable and other obligations owed to it and
discharging any liabilities it might have. Following Closing, Seller may
continue to utilize the name "Trinity Services" in connection with the above-
specified activities and the winding up of its business and affairs, but for no
other purposes without the prior written consent of Purchaser. Any checks or
other payments received by Seller or Purchaser which are in payment of
receivables or other obligations owed to Seller shall be the property of Seller.
Any checks or other payments received by Seller or Purchaser which are in
payment of receivables or other obligations owed to Purchaser shall be the
property of Purchaser. Purchaser and Seller each agrees to remit any such
payments which are received by either of them and which are the property of the
other party to the other party promptly upon receipt of the same. Purchaser
further agrees that Seller may furnish notice to its vendors, suppliers, and
customers advising of the sale of the Assets to Purchaser and requesting such
vendors, suppliers, and customers to make payment of any obligations owed to
Seller directly to Seller following Closing, provided that Seller shall obtain
Purchaser's approval of its proposed form(s) of notification prior to any
mailing or other delivery of the same.
5.10 INVESTMENT REPRESENTATIONS BY SELLERS. In connection with any
exercise of its rights under the Warrant and as matters which shall survive
Closing hereunder without time limitation, Seller expressly represents,
warrants, acknowledges, and agrees to and with Purchaser that:
(a) any stock acquired by Seller pursuant to the Warrant
(the "Stock") may not have been registered under the
Securities Act of 1933 or any other state securities
laws (collectively, the "Securities Acts") because
Purchaser may or will issue the Stock in reliance
upon this Section 5.10 and the exemptions from the
registration requirements of the Securities Acts
providing for issuance of securities not involving a
public offering;
(b) Seller will acquire any Stock for Seller's own
account, for investment, and not with a view to the
resale or distribution thereof;
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ASSET PURCHASE AGREEMENT PAGE 14
<PAGE> 15
(c) Seller will not transfer, sell or offer for sale any
portion of the Stock unless there is an effective
registration or other qualification relating thereto
under the Securities Act of 1933 and under any
applicable state securities laws or unless the holder
of the Stock delivers to Purchaser an opinion of
counsel, satisfactory to Purchaser, that such
registration or other qualification under such Act
and applicable state securities laws is not required
in connection with such transfer, offer or sale;
(d) Purchaser is under no obligation to register the
Stock or to assist Seller in complying with any
exemption from registration under the Acts if Seller
should at a later date wish to dispose of the Stock;
(e) Prior to entering into this Agreement, Seller has
made an investigation of Purchaser and its business
and has obtained or had made available to Seller all
information with respect thereto which Seller needed
to make an informed decision to structure the
transactions contemplated hereby as provided in this
Agreement;
(f) Seller possesses adequate experience and
sophistication as investors for the evaluation of the
merits and risks of investment in the Stock; and
(g) Seller is an "accredited investor," as defined in
Regulation D as promulgated under the Securities Act
of 1933, as amended, (the "1933 Act").
5.11 DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, UPON CLOSING HEREUNDER, PURCHASER ACCEPTS THE ASSETS IN THEIR "AS IS,
WHERE IS" CONDITION, WITH ALL FAULTS, AND WITHOUT REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO CONDITION, MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, OR CONFORMITY TO MODELS OR SAMPLES.
5.12 REIMBURSEMENT FOR CERTAIN CAPITAL EXPENDITURES. If this
transaction closes, Purchaser shall reimburse Seller at the Closing for the
out-of-pocket expenses incurred by Seller during negotiation of this transaction
which are specifically listed on attached SCHEDULE 5.12, together with any other
out-of-pocket expenses of a capital nature which are pre-approved by Purchaser
in writing and which may be incurred by Seller between the date hereof and the
Closing Date to increase the number of active well servicing units in the
Business from the number active as of the date of this Agreement or upon
maintenance or repairs of a capital nature incident to the refurbishing of any
of Seller's existing well servicing units.
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ASSET PURCHASE AGREEMENT PAGE 15
<PAGE> 16
ARTICLE VI
TERMINATION AND ABANDONMENT
6.01 TERMINATION AND ABANDONMENT. This Agreement may be terminated and
the purchase and sale of the Assets abandoned at any time prior to the Closing:
(a) by mutual agreement of Seller and the Purchaser;
(b) by Purchaser, if the conditions set forth in Section
7.02 and the deliveries required by Section 7.04
shall not have been complied with and performed in
any material respect and such noncompliance or
nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or
eliminated) on or before the Closing Date; and
(c) by Seller, if the conditions set forth in Section
7.03 and the deliveries required by Section 7.05 have
not been complied with and performed in any material
respect and such noncompliance or nonperformance
shall not have been cured or eliminated (or by its
nature cannot be cured or eliminated) on or before
the Closing Date.
6.02 RIGHTS AND OBLIGATIONS ON TERMINATION.
(a) If Purchaser fails or refuses to satisfy the conditions
set forth in Section 7.03(a) and (b) hereof and if Seller has timely satisfied
all the conditions to Purchaser's obligation to close hereunder and is not in
default hereunder, Seller, as its exclusive remedy therefor, shall be entitled
to receive the Break-Up Fee and any Extension Fees (as defined in Section 7.01)
as liquidated damages and not a penalty for Purchaser's breach hereof.
(b) If Seller fails or refuses to satisfy the conditions set
forth in Section 7.02(a) and (b) hereof and if Purchaser has timely satisfied
all the conditions to Seller's obligation to close hereunder and is not in
default hereunder, Purchaser shall be entitled to have the Break-Up Fee and any
Extension Fees refunded and, in addition, shall have the right to either (i)
bring claims for actual damages against the Seller for breaches of
representations, warranties, covenants, or agreements made in this Agreement or
in any instrument or document executed in connection herewith, subject to the
limitations of Section 4.01 hereof, or (ii) seek enforcement of this Agreement
at law or equity, including, without limitation, an action for specific
performance of the terms of this Agreement by Seller.
(c) Any provisions of this Agreement to the contrary
notwithstanding, if Purchaser exercises its right of termination due to
non-satisfaction of the condition set forth in Section 7.02(g) relating to
successful completion of the Sierra IPO, Seller shall be entitled to receive any
Extension Fees and, in addition, to be reimbursed from the Break-up Fee for all
fees and expenses incurred by Seller in connection with this transaction up to a
maximum of $20,000.00.
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ASSET PURCHASE AGREEMENT PAGE 16
<PAGE> 17
(d) Under no circumstances shall any party ever be entitled to
recover exemplary or punitive damages in any action for the construction or
enforcement of this Agreement or otherwise arising hereunder.
ARTICLE VII
THE CLOSING
7.01 TIME, DATE AND PLACE OF CLOSING. Closing ("the Closing") of the
transaction contemplated hereby shall take place (a) at the offices of Purchaser
at 406 N. Big Spring in Midland, Texas, contemporaneously with or within thirty
(30) days following any successful completion through a national stock exchange
of an initial public offering of equity in Purchaser (the "Sierra IPO"), but in
no event later than February 28, 2000, said date to be at the unilateral
selection of Purchaser with at least ten (10) days advance notice to Seller, or
(b) at such other time and place as the parties may hereafter mutually agree in
writing. Notwithstanding the foregoing, Purchaser may unilaterally on one or
more occasions extend the Closing Date for up to four additional months from the
last day of February 2000 through the last day of June 2000 by depositing an
extension payment in the amount of $25,000 per month with the Escrow Agent on or
before the end of the calendar month for which such extension is desired (e.g.
on or before February 28, 2000 for an extension through March 31, 2000). As used
in this Agreement, "Extension Fees" shall mean and refer to each such $25,000
extension payment, together with all interest accruing thereon while held by the
Escrow Agent. If the sale contemplated hereby is closed pursuant to the terms of
this Agreement, the Extension Fees shall be paid to Seller at the Closing as
additional consideration for the sale of the Assets to Purchaser. The Extension
Fees shall otherwise be applied, remitted, or paid as elsewhere provided in this
Agreement and the Escrow Agreement. As used herein, "Closing Date" shall mean
and refer to the date upon which Closing is to occur under this Agreement, as
determined in accordance with the foregoing provisions of this Section 7.01.
7.02 CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligation of
Purchaser to close under this Agreement is subject to the fulfillment prior to
or at the Closing Date of each of the following conditions, any one or more of
which may be waived by Purchaser:
(a) The representations, warranties and covenants of
Seller contained herein or otherwise delivered
pursuant hereto shall be true in all material
respects as of the date when made, shall be deemed to
be made again at and as of the Closing Date, and
shall be true at and as of the Closing Date;
(b) Seller shall have performed and complied with all
agreements and conditions required by this Agreement
to be performed or complied with by Seller prior to
or at the Closing Date;
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ASSET PURCHASE AGREEMENT PAGE 17
<PAGE> 18
(c) No material adverse change in the Business or in the
Assets shall have occurred between the date hereof
and the Closing Date;
(d) No federal, state, or local governmental unit,
agency, body or authority with competent jurisdiction
over the subject matter shall have given official
written notice of its intention to institute
proceedings to prohibit the transaction contemplated
by this Agreement, or which would interfere with the
use of the Assets or the operation of the Business;
(e) No judgment, order, or decree shall have been
rendered by any governmental authority and no action
shall have been instituted or threatened by any
person which has the effect of enjoining or which
seeks to enjoin the consummation of the transaction
contemplated by this Agreement;
(f) All deliveries pursuant to Section 7.04 shall have
been made and shall be reasonably acceptable to
Purchaser; and
(g) Purchaser shall have successfully consummated and
completed the Sierra IPO.
7.03 CONDITIONS TO OBLIGATIONS OF SELLER. The obligation of Seller to
close under this Agreement is subject to the fulfillment prior to or at the
Closing Date of each of the following conditions, any one or more of which may
be waived by the Seller:
(a) The representations, warranties, and covenants of
Purchaser contained herein or otherwise delivered
pursuant hereto shall be true as of the date when
made, shall be deemed to be made again at and as of
the Closing Date, and shall be true at and as of the
Closing Date;
(b) Purchaser shall have performed and complied with all
agreements and conditions required by this Agreement
to be performed or complied with by Purchaser prior
to or at the Closing Date;
(c) No federal, state, or local governmental unit,
agency, body, or authority with competent
jurisdiction over the subject matter shall have given
official written notice of its intention to institute
proceedings to prohibit the transaction contemplated
by this Agreement, or which would interfere with the
use of the Assets or the operation of the Business;
and
(d) No judgment, order, or decree shall have been
rendered by any governmental authority and no action
shall have been instituted or threatened by any
person which has the effect of enjoining or which
seeks to enjoin the consummation of the transaction
contemplated by this Agreement.
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ASSET PURCHASE AGREEMENT PAGE 18
<PAGE> 19
7.04 DELIVERIES BY SELLER AT THE CLOSING. At the Closing, Seller shall
execute, acknowledge, and/or deliver, as appropriate, to Purchaser the
following:
(a) The certificate of Seller confirming the truth and
accuracy of all representations and warranties of
Seller under this Agreement as of the Closing Date
and the performance by Seller of all material
obligations required to be performed by Seller under
this Agreement at or prior to Closing;
(b) Evidence that all consents necessary in connection
with this transaction have been obtained (which shall
consist of the original copies of all consents
required to be obtained in writing and a certificate
from Seller stating that all other consents have been
obtained);
(c) Evidence that all liens or encumbrances of any kind
on the Assets shall have been released and/or a
termination statement shall have been filed as of the
Closing Date;
(d) An assignment and bill of sale substantially
identical in form and substance to that attached
hereto as EXHIBIT H (the "Assignment and Bill of
Sale"), conveying all of the Assets other than any
Contracts which Purchaser has not elected to assume
pursuant to this Agreement or for which Seller has
been unable to obtain requisite consents to
assignment from applicable third parties;
(e) All titles and other registration documents necessary
to transfer title to the rigs, motor vehicles, and
other tangible personalty shown on attached EXHIBIT B
to Purchaser;
(f) A non-competition agreement that is substantially
identical in form and substance to that attached
hereto as EXHIBIT I (the "Non-Competition
Agreement");
(g) At the option of Purchaser, a lease that is
substantially identical in form and substance to that
attached hereto as EXHIBIT J, duly executed by the
fee owner(s) of such property (the "Yard Lease"),
together with a Phase I environmental assessment
covering the leased premises that is reasonably
satisfactory to Purchaser.
7.05 DELIVERIES BY PURCHASER AT THE CLOSING. At the Closing, Purchaser
shall execute, acknowledge, and/or deliver, as appropriate, to Seller the
following:
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ASSET PURCHASE AGREEMENT PAGE 19
<PAGE> 20
(a) The certificate of Purchaser confirming the truth and
accuracy of all representations and warranties of
Purchaser under this Agreement as of the Closing Date
and the performance by Purchaser of all material
obligations required to be performed by Purchaser
under this Agreement at or prior to Closing;
(b) Appropriate evidence of the authority of Purchaser to
enter into and perform its obligations under this
Agreement and of each signatory officer to act on
behalf of Purchaser in connection therewith;
(c) The Purchase Price in immediately available funds;
(d) The Note;
(e) The Security Agreement
(f) The Warrant;
(g) The Assignment and Bill of Sale;
(h) The Non-Competition Agreement; and
(i) At the option of Purchaser, the Yard Lease.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.01 FURTHER ASSURANCES; FURTHER COOPERATION. The parties to this
Agreement shall undertake to perform their obligations under this Agreement, to
satisfy all conditions, and to cause the transaction contemplated by this
Agreement to be carried out in accordance with the terms of this Agreement. Upon
the execution of this Agreement and thereafter, each party shall do such things
as may be reasonably requested by the other party hereto in order more
effectively to consummate or document the transaction contemplated by this
Agreement. Seller agrees to cooperate reasonably with Purchaser in connection
with Purchaser's application for the transfer, renewal or issuance of any
permits, licenses, approvals, or other authorizations or to satisfy any
regulatory requirements involving the transfer of the Business to Purchaser.
8.02 NOTICES. Any notice or communication required or permitted
hereunder shall be given in writing, shall refer specifically to the section of
this Agreement under which it is given or to which it is applicable, and shall
be sent by (a) personal delivery, (b) expedited delivery service with proof of
delivery, (c) United States mail, postage prepaid, registered or certified mail,
or (d)
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ASSET PURCHASE AGREEMENT PAGE 20
<PAGE> 21
telecopy (provided that such telecopy is confirmed by expedited delivery service
or by mail in the manner previously described) addressed as follows:
If to Seller: William K. Durham
P. O. Box 153
Kingsville, Texas 78364
Telephone: (800) 542-3130
Facsimile: (361) 592-3166
With a copy: E. V. Bonner, Jr.
Porter, Rogers, Dahlman & Gordon
800 N. Shoreline, Suite 800
Corpus Christi, Texas 78401
Telephone: (361) 880-5828
Facsimile: (361) 880-5844
If to Purchaser: Sierra Well Service, Inc.
406 N. Big Spring
Midland, Texas 79701
Attn: Ken Huseman, President
Telephone: (915) 570-0829
Facsimile: (915) 570-0487
With a copy: William M. Kerr, Jr.
Kerr & Ward, L.L.P.
P. O. Box 2858
Midland, Texas 79702
Telephone: (915) 684-9990
Facsimile: (915) 684-9997
or to such other address or to the attention of such other persons as hereafter
shall be designated in writing by the applicable party sent in accordance
herewith. Any such notice or communication shall be deemed to have been given
either at the time of personal delivery or, in the case of delivery service or
mail, as of the date of first attempted delivery at the address and in the
manner provided herein, or in the case of telecopy upon receipt.
8.03 BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
8.04 CAPTIONS; DEFINITIONS. The titles or captions of articles,
sections, and subsections contained in this Agreement are inserted only as a
matter of convenience and for reference and in no way define, limit, extend, or
describe the scope of this Agreement or the intent of any provision
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT PAGE 21
<PAGE> 22
hereof. The parties agree to all definitions in the statement of parties to this
Agreement and in the other introductory language to this Agreement.
8.05 CONTROLLING LAW; AMENDMENT; WAIVER; REMEDIES CUMULATIVE. This
Agreement shall be construed and enforced in accordance with the laws of the
State of Texas. This Agreement may not be altered or amended except in writing
signed by Purchaser and Seller. The failure of any party hereto at any time to
require performance of any provisions hereof shall in no manner affect the right
to enforce the same. Except as set forth in Section 4.01, no waiver by any party
hereto of any condition, or of the breach of any term, provision, warranty,
representation, agreement, or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances shall be deemed or construed
as a further or continuing waiver of any such condition or breach or a waiver of
any other condition or of the breach of any other term, provision, warranty,
representation, agreement, or covenant herein contained.
8.06 POST CLOSING ACCESS. Seller and the Purchaser shall have
reasonable access to all books and records of the Business, and the parties
hereto shall furnish to each other any information or copies of any document
which may be relevant in connection with any tax matter requiring such
information and shall provide such other assistance in this connection as the
parties reasonably request, at no cost to the party to which the request is
made. Without limiting the foregoing, Seller further agrees that, upon request
by Purchaser following Closing, it will execute and deliver to Purchaser or its
accountants such audit response letters and further confirmations as Purchaser
or its accountants may reasonably require for purposes of verification of the
accuracy, validity, and completeness of all financial and other information
provided or made available by Seller in connection with the transactions
contemplated by this Agreement, provided, however, that the recourse of Seller
under any such letters or confirmations shall be limited to accord with the
limitations of recourse upon Seller under this Agreement.
8.07 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto with respect to the transaction contemplated and
supersedes all prior negotiations, understandings, and agreements, both written
and oral, among the parties with respect thereto.
8.08 NO PRESUMPTION. Neither this Agreement nor any other agreement
between the parties nor any uncertainty or ambiguity herein or therein shall be
construed or resolved using any presumption against any party hereto or thereto,
whether under any rule of construction or otherwise. On the contrary, this
Agreement and the other agreements between the parties have been reviewed by the
parties and their counsel and, in the case of any ambiguity or uncertainty,
shall be construed according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
8.09 COUNTERPARTS. This Agreement may be executed by each party upon a
separate copy, and in such case one counterpart of this Agreement shall consist
of enough of such copies to reflect the signatures of all of the parties to this
Agreement. This Agreement shall become effective when one or more counterparts
have been signed by each of the parties to this Agreement and delivered
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ASSET PURCHASE AGREEMENT PAGE 22
<PAGE> 23
to each of the other parties to this Agreement. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement or the terms of this
Agreement to produce or account for more than one of such counterparts.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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ASSET PURCHASE AGREEMENT PAGE 23
<PAGE> 24
DULY EXECUTED by the parties hereto as of the day and year first above
written.
SELLER:
/s/ WILLIAM K. DURHAM
-----------------------------------
WILLIAM K. DURHAM d/b/a TRINITY
SERVICES
PURCHASER:
SIERRA WELL SERVICE, INC.
By: /s/ CHARLES SWIFT
--------------------------------
Printed Name: CHARLES SWIFT
----------------------
Title: Vice President
-----------------------------
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A EXCLUDED PERSONAL ITEMS
EXHIBIT B THE TANGIBLE PERSONALTY
EXHIBIT C THE CONTRACTS
EXHIBIT D THE NOTE
EXHIBIT E THE SECURITY AGREEMENT
EXHIBIT F THE ESCROW AGREEMENT
EXHIBIT G THE WARRANT
EXHIBIT H THE ASSIGNMENT AND BILL OF SALE
EXHIBIT I THE NON-COMPETITION AGREEMENT
EXHIBIT J THE YARD LEASE
SCHEDULE 1.02 ALLOCATION OF PURCHASE PRICE
SCHEDULE 5.01(h) EXISTING INSURANCE POLICIES
SCHEDULE 5.12 REIMBURSABLE EXPENSES
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT PAGE 24
<PAGE> 25
EXHIBIT D
SECURED PROMISSORY NOTE
$250,000.00 Kingsville, Texas ____________, 2000
FOR VALUE RECEIVED, the undersigned, SIERRA WELL SERVICE, INC., a
Delaware corporation ("Maker"), promises to pay to the order of WILLIAM K.
DURHAM d/b/a TRINITY SERVICES ("Payee"), at P. O. Box 153, Kingsville, Texas
78364, the principal sum of TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($250,000.00), together with interest on the unpaid principal balance from day
to day outstanding prior to default or maturity at a floating per annum rate
which shall from quarter to quarter be equal to the lesser of (i) the Prime Rate
(hereinafter defined) in effect hereunder (the "Established Rate") (calculated
on the basis of actual days elapsed in a year consisting of 365 or 366 days, as
appropriate) or (ii) the Maximum Rate (hereinafter defined) (calculated on the
basis of actual days elapsed in a year consisting of 365 or 366 days, as
appropriate). The interest rate on this Note shall initially be determined as of
the first Friday most immediately preceding the date of this Note that is a
business day (the "Initial Determination Date") and shall thereafter be
redetermined quarterly until maturity based upon the Prime Rate in effect as of
the first Friday most immediately preceding each ensuing calendar quarter from
the date hereof that is a business day (each such date being hereinafter
referred to as a "Redetermination Date"). Each change in the rate of interest
charged hereunder shall, subject to the terms hereof, become effective, without
notice to Maker, upon the applicable quarterly adjustment date (as opposed to
the Redetermination Date). If at any time and from time to time the Established
Rate exceeds the Maximum Rate, thereby causing the interest payable to be
limited to the Maximum Rate, then any subsequent reduction in the Established
Rate shall not reduce the rate of interest hereunder below the Maximum Rate
until the total amount of interest accrued hereon equals the amount of interest
that would have accrued if the Established Rate had at all times been in effect.
All past due principal of and accrued interest on this Note shall bear interest
at the Maximum Rate.
As used herein, "Prime Rate" shall mean the floating rate of interest
denominated and published as such by the Wall Street Journal on the Initial
Determination Date and thereafter on each applicable Redetermination Date.
As used herein, "Maximum Rate" shall mean the maximum non-usurious rate
of interest that at any time, or from time to time, may be contracted for,
taken, reserved, charged, or received under applicable law on the indebtedness
evidenced by this Note, after taking into account, to the extent required by
applicable law, any and all relevant payments, charges, or other amounts under
this Note and all instruments securing payment of this Note. To the extent that
Chapter 303 of the Texas Finance Code, as amended, is relevant for purposes of
determining the Maximum Rate, Payee hereby notifies Maker that the applicable
rate ceiling shall be the "applicable interest rate ceiling" from time to time
in effect, as limited by Section 303.009 of the Texas Finance Code, as amended;
provided, however, that to the extent permitted by applicable law, Payee
reserves the right to change the applicable rate ceiling from time to time by
further notice to Maker; and, provided further, that the Maximum Rate shall not
be limited to the applicable interest rate ceiling under Chapter 303 if federal
laws or other state laws now or hereafter in effect and applicable to this Note
(and the interest contracted for, charged and collected hereunder) shall permit
a higher rate of interest.
The principal of this Note is due and payable fifteen (15) months from
the date hereof. Interest on this note is due and payable monthly as it accrues,
commencing on the first day of the first month following the month of Closing
under the Asset Purchase Agreement (hereinafter defined) and continuing on the
first day of each month thereafter until the entire principal balance and all
accrued and unpaid interest on this note have
<PAGE> 26
been paid in full. This Note may be prepaid in whole or in part without penalty.
Partial prepayments shall be applied first to any accrued and unpaid interest
and the balance remaining, if any, to principal.
This Note is secured by that certain Security Agreement of even date
herewith, between Maker, as Debtor, and Payee, as Secured Party, covering all of
the collateral therein described.
It is understood and agreed that in the event of default in the payment
of this Note or any installment hereof, principal or interest, and if such
default shall continue unremedied for more than ten (10) days following written
notice thereof from Payee to Maker, or in the event of any default (other than
non-payment of this Note) in any instrument securing payment of this Note and if
such default shall continue unremedied for more than thirty (30) days following
written notice thereof from Payee to Maker, the entire principal balance of and
all accrued and unpaid interest on this Note shall at once become due and
payable without notice, at the option of Payee. Failure by Payee to exercise
this option on any one or more occasions shall not constitute a waiver of the
right to exercise such option in the event of subsequent default.
Except as otherwise herein expressly provided, the makers, signers,
sureties, and endorsers of this Note jointly and severally waive demand,
presentment, notice of dishonor, notice of intent to demand or accelerate
payment hereof, diligence in collecting, grace, notice, and protest, and agree
to one or more extensions for any period or periods of time and partial
payments, before or after maturity, without prejudice to Payee; and if this Note
shall be collected by legal proceedings or through probate or bankruptcy court,
or shall be placed in the hands of an attorney for collection after default or
maturity, Maker agrees to pay all costs of collection, including reasonable
attorney's fees.
All agreements between Maker and Payee, whether now existing or
hereafter arising and whether written or oral, are hereby limited so that under
no contingency, whether by reason or demand for payment or acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged, or
received by Payee exceed the Maximum Rate. If, for any circumstance whatsoever,
interest would otherwise be payable to Payee in excess of the Maximum Rate, the
interest payable to Payee hereunder shall be reduced to the Maximum Rate; and if
for any circumstance Payee shall ever receive anything of value deemed interest
by applicable law in excess of the Maximum Rate, then an amount equal to any
such excess shall be applied to the reduction of the principal hereof and not
the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal hereof, such excess shall be refunded to Maker. All
interest paid or agreed to be paid to Payee shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full period until payment in full of the principal (including the period of any
renewal or extension hereof) so that the interest hereon for such full period
shall not exceed the Maximum Rate.
This Note is in all respects subject to that certain Asset Purchase
Agreement (the "Asset Purchase Agreement") dated as of February 10, 2000,
between Payee, as Seller, and Maker, as Purchaser.
This Note shall be governed by and construed in accordance with the
laws of the State of Texas.
SIERRA WELL SERVICE, INC.
By:
--------------------------------
Printed Name:
----------------------
Title:
-----------------------------
<PAGE> 27
EXHIBIT G
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS
(COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT PURSUANT TO THE ACTS OR
IN RELIANCE ON EXEMPTIONS THEREFROM.
WARRANT CERTIFICATE
Number of Warrants:__________ Warrant No. _____
This Warrant Certificate ("Warrant Certificate") certifies that, for
value received,
WILLIAM K. DURHAM
is the registered holder of the number of Warrants (the "Warrants") set forth
above. Each Warrant entitles the holder thereof, at any time or from time to
time on or before the Expiration Date, to purchase from the Company one fully
paid and nonassessable share of Common Stock at the Exercise Price, subject to
adjustment as provided herein.
As used in this Warrant Certificate, the following terms shall have the
following respective meanings:
"Asset Purchase Agreement" means that certain Asset Purchase Agreement
dated as of February 10, 2000, between William K. Durham d/b/a Trinity Services,
as Seller, and the Company, as Purchaser.
"Common Stock" means the common stock, no par value per share, of the
Company, or such other class of securities as shall then represent the common
equity of the Company.
"Company" means Sierra Well Service, Inc., a Delaware corporation.
"Exercise Price," subject in all circumstances to adjustment in
accordance with Section 3, means $______ per share.
"Expiration Date" means 5:00 p.m., New York City Time, on the day which
is the later of (i) eighteen (18) months following the date of any Sierra IPO
(as defined in the Asset Purchase Agreement) or (ii) one (1) year following
retirement in full of the indebtedness evidenced by the Note (as defined in the
Asset Purchase Agreement).
"Issuance Date" means _____________________, 2000.
<PAGE> 28
1. EXERCISE OF WARRANTS. (a) The Warrants may be exercised in whole or
in part by presentation and surrender at the office of the Company specified
herein of (i) this Warrant Certificate with the Election To Exercise, attached
hereto as Exhibit A, duly completed and executed, and (ii) payment of the
Exercise Price, by bank draft or cashier's check, for the number of Warrants
being exercised. If the holder of this Warrant Certificate at any time exercises
less than all the Warrants, the Company shall issue to such holder a Warrant
Certificate identical in form to this Warrant Certificate, but evidencing a
number of Warrants equal to the number of Warrants originally represented by
this Warrant Certificate less the number of Warrants previously exercised.
Likewise, upon the presentation and surrender of this Warrant Certificate at the
office of the Company and at the request of the holder, the Company will, at the
option of the holder, issue to the holder in substitution for this Warrant
Certificate one or more warrant certificates in identical form and for an
aggregate number of Warrants equal to the number of Warrants evidenced by this
Warrant Certificate.
(b) To the extent that the Warrants have not been exercised at
or prior to the Expiration Date, such Warrants shall expire and the rights of
the holder shall become void and of no effect.
2. RESTRICTIONS ON TRANSFER. The Warrants evidenced hereby have not
been registered under the Securities Act of 1933, as amended, or under any state
securities law (collectively, the "Acts"), in reliance on exemptions from the
registration provisions thereof. The holder hereof acknowledges that the
Warrants may not be directly or indirectly sold, transferred or otherwise
disposed of in violation of the provisions of the Acts. Any purported sale,
transfer or other disposition of the Warrants in violation of this provision
shall be void and the Company shall not be required to recognize the same.
Compliance with this provision is the responsibility of the holder. The Company
shall deem and treat the registered holder of this Warrant Certificate as the
true and lawful owner of the Warrants for all purposes, any claims of another
person to the contrary notwithstanding.
3. ANTIDILUTION ADJUSTMENTS. The shares of Common Stock purchasable on
exercise of the Warrants are shares of Common Stock as constituted as of the
Issuance Date. The number and kind of securities purchasable upon the exercise
of the Warrants, and the Exercise Price, shall be subject to adjustment from
time to time upon the happening of certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case of
any reclassification or change of outstanding securities issuable upon exercise
of the Warrants at any time after the Issuance Date (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination to which subsection 3(b) applies),
or in case of any consolidation or merger of the Company with or into another
entity or other person (other than a merger with another entity or other person
in which the Company is the surviving corporation and which does not result in
any reclassification or change in the securities issuable upon exercise of this
Warrant), the holder of the Warrants shall have, and the Company, or such
successor corporation or other entity, shall covenant in the constituent
documents effecting any of the foregoing transactions that such holder does
have, the right to obtain upon the exercise of the Warrants, in lieu of each
share of Common Stock, other securities, money or other property
<PAGE> 29
theretofor issuable upon exercise of a Warrant, the kind and amount of shares of
stock, other securities, money or other property receivable upon such
reclassification, change, consolidation or merger by a holder of the shares of
Common Stock, other securities, money or other property issuable upon exercise
of a Warrant if the Warrants had been exercised immediately prior to such
reclassification, change, consolidation or merger. The constituent documents
effecting any such reclassification, change, consolidation or merger shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided in this subsection 3(a). The provisions
of this subsection 3(a) shall similarly apply to successive reclassifications,
changes, consolidations or mergers.
(b) Subdivision and Combinations. If the Company, at any time
after the issuance Date, shall subdivide its shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced, and the number of shares of Common
Stock purchasable upon exercise of the Warrants shall be proportionately
increased, as at the effective date of such subdivision, or if the Company shall
take a record of holders of its Common Stock for such purpose, as at such record
date, whichever is earlier. If the Company, at any time after the Issuance Date,
shall combine its shares of Common Stock into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination shall be
proportionately increased, and the number of shares of Common Stock purchasable
upon exercise of the Warrants shall be proportionately reduced, as at the
effective date of such combination, or if the Company shall take a record of
holders of its Common Stock for purposes of such combination, as at such record
date, whichever is earlier.
(c) Dividends and Distributions. If the Company at any time
after the Issuance Date shall declare a dividend on its Common Stock payable in
stock or other securities of the Company or of any other corporation or other
entity, or in property or otherwise than in cash, to the holders of its Common
Stock, the holder of a Warrant shall, without additional cost, be entitled to
receive upon any exercise of a Warrant, in addition to the Common Stock to which
such holder would otherwise be entitled upon such exercise, the number of shares
of stock or other securities or property which such holder would have been
entitled to receive if he had been a holder immediately prior to the record date
for such dividend (or, if no record date shall have been established, the
payment date for such dividend) of the number of shares of Common Stock
purchasable on exercise of such Warrant immediately prior to such record date or
payment date, as the case may be.
(d) Items Constituting Common Stock. For the purposes of this
Section 3, the term "shares of Common Stock" shall mean shares of (i) the class
of stock designated as the Common Stock at the date hereof or (ii) any other
class of stock resulting from successive changes or reclassifications of such
shares consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value. If at any time, because of an
adjustment pursuant to subsection (a), the Warrants shall entitle the holders to
purchase any securities other than shares of Common Stock, thereafter the number
of such other securities so purchasable upon exercise of each Warrant and the
Exercise Price of such securities shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Section 3.
<PAGE> 30
(e) Calculation of Exercise Price. The Exercise Price in
effect from time to time shall be calculated to four decimal places and rounded
to the nearest thousandth.
4. NOTICE OF ADJUSTMENTS. Whenever the Exercise Price or the number of
shares of Common Stock is required to be adjusted as provided in Section 3, the
Company shall forthwith compute the adjusted Exercise Price or the number of
shares of Common Stock issuable and shall prepare and mail to the holder hereof
a certificate setting forth such adjusted Exercise Price or such number of
shares of Common Stock, showing in reasonable detail the facts upon which the
adjustment is based.
5. NOTICES TO WARRANT HOLDERS. In the event:
(a) of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required, or
of the conveyance or sale of all or substantially all of the assets of the
Company, or of any reclassification or change of the Common Stock or other
securities issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or a tender offer or exchange
offer for shares of Common Stock (or other securities issuable upon the exercise
of the Warrants); or
(b) the Company shall declare any dividend (or any other
distribution) on the Common Stock, other than regular cash dividends; or
(c) the Company shall authorize the granting to the holders of
Common Stock of rights or warrants to subscribe for or purchase any shares of
any class or series of capital stock; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then the Company shall cause to be sent to the holder hereof, at least 30 days
prior to the applicable record date hereinafter specified, or promptly in the
case of events for which there is no record date, a written notice stating (x)
the date for the determination of the holders of record of shares of Common
Stock (or other securities issuable upon the exercise of the Warrants) entitled
to receive any such dividends or other distribution, (y) the initial expiration
date set forth in any tender offer or exchange offer for shares of Common Stock
(or other securities issuable upon the exercise of the Warrants), or (z) the
date on which any of the events specified in subsections (a)-(e) is expected to
become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock (or other securities issuable upon
the exercise of the Warrants) shall be entitled to exchange such shares for
securities or other property, if any, deliverable upon any such event. Failure
to give such notice or any defect therein shall not affect the legality or
validity of any such event, or the vote upon any such action.
6. REPORTS TO WARRANT HOLDERS. The Company will cause to be delivered,
by first class mail, postage prepaid, to the holder at such holder's address
appearing hereon, or such other address
<PAGE> 31
as the holder shall specify, a copy of any reports delivered by the Company to
the holders of Common Stock.
8. COVENANTS OF THE COMPANY. The Company covenants and agrees that:
(a) Until the Expiration Date, the Company shall at
all times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock (and other securities),
for the purpose of enabling it to satisfy any obligation to issue shares of
Common Stock (and other securities) upon the exercise of the Warrants, the
number of shares of Common Stock (and other securities) issuable upon the
exercise of such Warrants.
(b) The Company shall pay all expenses, taxes (other
than stock transfer taxes or charges) and other charges payable in connection
with the preparation, issuance and delivery of new warrant certificates on
transfer of the Warrants.
(c) All Common Stock (and other securities) which may
be issued upon exercise of the Warrants shall upon issuance be validly issued,
fully paid, non-assessable and free from all preemptive rights and all taxes,
liens and charges with respect to the issuance thereof, and will not be subject
to any restrictions on voting or transfer thereof except as set forth in any
stockholders agreement.
(d) All original issue taxes payable in respect of
the issuance of shares of Common Stock to the registered holder hereof upon the
exercise of the Warrants shall be borne by the Company; provided, that the
Company shall not be required to pay any tax or charge imposed in connection
with any transfer involved in the issuance of any certificate representing
shares of Common Stock (and other securities) in any name other than that of the
registered holder hereof, and in such case the Company shall not be required to
issue or deliver any certificate representing shares of Common Stock (and other
securities) until such tax or other charge has been paid or it has been
established to the Company's satisfaction that no such tax or charge is due.
8. NO RIGHTS AS STOCKHOLDER. The holder of the Warrants shall not, by
virtue of holding such Warrants, be entitled to any rights of a stockholder of
the Company either at law or in equity, and the rights of the holder of the
Warrants are limited to those expressed herein.
9. NOTICES. All notices provided for hereunder shall be in writing and
may be given by registered or certified mail, return receipt requested, telex,
telegram, telecopier, air courier guaranteeing overnight delivery of personal
delivery, if to the holder at the following address:
William K. Durham
P.O. Box 153
Kingsville, Texas 78364
Telephone:
------------------
Facsimile:
------------------
and, if to the Company:
<PAGE> 32
Sierra Well Service, Inc.
406 N. Big Spring, Suite 300
Midland, Texas 79701
Attention: President
Telecopier (915) 570-0598
10. GOVERNING LAW. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Texas without regard to
principles of conflict of laws.
11. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT CERTIFICATES. Upon
receipt by the Company of evidence reasonably satisfactory to it of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
Certificate, then, in the absence of notice to the Company that such Warrant
Certificate has been acquired by a bona fide purchaser, the Company shall
execute and deliver, in exchange for or in lieu of the lost, stolen, destroyed
or mutilated Warrant Certificate, a substitute Warrant Certificate of the same
tenor and evidencing a like number of Warrants.
12. ASSET PURCHASE AGREEMENT. This Warrant Certificate and the
obligations of the Company hereunder are issued and incurred pursuant to, and
are in all respects subject to, the Asset Purchase Agreement, the terms of which
are incorporated herein by reference for all purposes.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed this ___________day of ____________________, 2000, by the
undersigned, thereunto duly authorized.
SIERRA WELL SERVICE, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 1
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT ("Agreement") is made and entered into as of
the 14th day of March 2000, by and between ROYCE CROWELL (SR.), EMMA JO CROWELL,
DEAN CROWELL, PAMELA FISHER, and ROYCE E. CROWELL, JR. (the "Stock Sellers"),
GOLD STAR SERVICE COMPANY, INC., a New Mexico corporation (the "Company"), GOLD
STAR SWD, LTD. CO., a New Mexico limited liability company ("GSSWD"), and SIERRA
WELL SERVICE, INC., a Delaware corporation ("Purchaser").
RECITALS:
A. The Company is based out of Eunice, New Mexico, and is principally
engaged in the well servicing and transportation businesses in West Texas and
Southeastern New Mexico (the "Businesses").
B. The Stock Sellers own all of the issued and outstanding capital
stock of the Company (the "Stock").
C. GSSWD is an affiliate of the Company and owns and operates a salt
water disposal well, a brine station, and related assets in Lea County, New
Mexico, as hereinafter more particularly described.
D. Purchaser desires to acquire all of the Stock and all of the assets
of GSSWD, and the Stock Sellers and GSSWD are respectively willing to sell the
same to Purchaser, upon and subject to the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, and covenants which are hereinafter set forth, and
other good and valuable consideration, the legal sufficiency of which are hereby
acknowledged, the parties hereto have agreed and do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
Section 1.01 THE TRANSACTIONS. Subject to all of the terms and
conditions of this Agreement, the Stock Sellers and GSSWD hereby agree to sell,
transfer, and deliver, and Purchaser hereby agrees to purchase, pay for, and
accept, at the Closing (hereinafter defined), all of the Stock and all of the
assets of GSSWD as of Closing, whether tangible or intangible (the "GSSWD
Assets"), including, without limitation, all rights of GSSWD in the salt water
disposal well, the brine station and the related facilities and equipment that
are more particularly described on EXHIBIT A attached hereto and made a part
hereof (the "Disposal and Brine Facilities").
<PAGE> 2
Section 1.02 PRE-CLOSING DISTRIBUTION OF CERTAIN ASSETS. At or prior to
Closing, the Company shall distribute to the Stock Sellers, without
representation, warranty, or recourse by or upon the Company, and without
adverse tax effect upon the Company, all of its right, title and interest in and
to the assets listed on attached SCHEDULE 1.02 (collectively, the "Excluded
Assets"). In connection with such distribution, upon Closing, the Stock Sellers
agree to indemnify and hold the Company and Purchaser harmless from and against
any and all claims, demands, causes of action, liabilities, losses, and/or
expenses (including, without limitation, reasonable attorneys' fees and other
expenses of litigation) arising from or in connection with the acquisition,
ownership, operation, use, or distribution of the Excluded Assets, regardless of
whether arising prior or subsequent to the distribution thereof to the Stock
Sellers, specifically including, without limitation, any adverse tax
consequences occasioned to or suffered by the Company or Purchaser as a
consequence of the distribution of the Excluded Assets to the Stock Sellers
pursuant to this Section 1.02.
Section 1.03 PURCHASE PRICE. Subject to adjustment as hereinafter
provided in this Agreement, the total purchase price ("Purchase Price") for the
Stock and the GSSWD Tangible Assets (exclusive of the $50,000 total compensation
payable by Purchaser for certain covenants of non-competition and
non-interference pursuant to Section 8.02(e)) is a sum equal to (A)
$1,800,000.00, plus or minus (B) the "net financial assets" (as defined below)
of the Company and its subsidiaries and GSSWD as of the Closing Date ("NFA"),
and (C) minus, to the extent not reflected as a liability on the Audited Balance
Sheet (hereinafter defined), all amounts necessary to fully retire any vehicle
lease obligations of the Company and its subsidiaries and GSSWD as of the
Closing Date, payable by Purchaser to the Stock Sellers and GSSWD as follows:
(1) Purchaser shall pay to the Stock Sellers in
immediately available funds at the Closing a sum
equal to (a) $1,075,000.00, plus or minus (b) fifty
percent (50%) of NFA allocable to the Company and its
subsidiaries, as preliminarily estimated and finally
adjusted pursuant to Section 5.09, minus, to the
extent not reflected as a liability on the Audited
Balance Sheet (hereinafter defined), minus (c) all
amounts necessary to fully retire any vehicle lease
obligations of the Company and its subsidiaries as of
the Closing Date;
(2) Purchaser shall execute and deliver to the Stock
Sellers at Closing its promissory note (the "Note")
in the original principal amount of $600,000.00,
bearing interest at a floating rate equal to the
prime rate of interest quoted in the Wall Street
Journal published on the Friday most immediately
preceding the applicable quarterly adjustment date,
and payable to the order of the Stock Sellers on or
before one year from date, said Note to be
substantially identical in form and substance to that
attached hereto as EXHIBIT B, to be convertible into
equity in Sierra under certain circumstances as
therein specified, and to be secured by a security
interest upon the vehicles and other rolling stock of
the Company as of Closing that is junior in priority
to any liens upon such assets as of the Closing, as
created by security agreement
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ACQUISITION AGREEMENT PAGE 2
<PAGE> 3
substantially identical in form and substance to that
attached hereto as EXHIBIT C (the "Security
Agreement");
(3) Purchaser shall pay to GSSWD in immediately available
funds at the Closing a sum equal to (a) $125,000.00,
plus or minus (b) any NFA allocable to the GSSWD, as
preliminarily estimated and finally adjusted pursuant
to Section 5.09; and
(4) Purchaser shall pay the balance, if any, of the
Purchase Price to the Stock Sellers in immediately
available funds pursuant to and at the conclusion of
the post-Closing accounting procedures set forth in
Section 5.09 below.
As used in this Agreement, "net financial assets" means the monetary
difference between the account group "Total Current Assets" and the account
group "Total Liabilities" (excluding "Deferred Income Taxes") as such account
groups are shown on the Audited Balance Sheet and then adjusted or converted as
of the Closing Date pursuant to Section 5.09 [i.e. (TCA) -(TL-DIT) = net
financial assets].
Notwithstanding the foregoing, as among the Stock Sellers, that portion
of the Purchase Price attributable to the Stock shall be paid and payable to and
among the Stock Sellers, in accordance with their respective interests in the
Stock as shown on attached SCHEDULE 2.11, as the Stock Sellers shall jointly
direct Purchaser in writing at Closing under this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE STOCK SELLERS, THE COMPANY, AND GSSWD
The Stock Sellers, the Company, and GSSWD hereby jointly and severally
represent and warrant to Purchaser as of the date of this Agreement and as of
the Closing Date as follows:
Section 2.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The Company
and its subsidiary, Kerby Brothers, Inc., a New Mexico corporation ("Kerby"),
are corporations duly organized, validly existing, and in good standing under
the laws of New Mexico and have the requisite power and authority to own, lease,
and operate its assets and to carry on its business as now being conducted.
GSSWD is a limited liability company duly organized, validly existing, and in
good standing under the laws of New Mexico and has the requisite power and
authority to own, lease, and operate its assets and to carry on its business as
now being conducted. The Company, Kerby, and GSSWD have not received any notice
of proceedings relating to the revocation or modification of any such
authorizations. The Company, Kerby, and GSSWD are duly qualified or licensed to
do business and are in good standing in each jurisdiction where the character of
the assets owned, leased, or operated by them or the nature of their activities
makes such qualification or
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ACQUISITION AGREEMENT PAGE 3
<PAGE> 4
licensing necessary. Kerby is a wholly owned subsidiary of the Company. The
Company does not have any other subsidiaries. GSSWD does not have any
subsidiaries. Except for the equity ownership of the Company in Kerby, none of
the Company, Kerby, or GSSWD directly or indirectly owns any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, or other
business association or entity.
Section 2.02 GOVERNING DOCUMENTS. The articles of incorporation and the
bylaws of the Company and Kerby and the articles of organization and operating
agreement of GSSWD, true and correct copies of which have been furnished to
Purchaser, are in full force and effect and have not been modified, amended, or
rescinded. The Company, Kerby, and GSSWD are not in violation of their
respective articles of incorporation or organization or bylaws or operating
agreement.
Section 2.03 CAPITALIZATION OF THE COMPANY AND KERBY. The authorized
capital stock of the Company consists of 50,000 shares of common stock, par
value $1.00 per share. As of the date hereof, 1,000 shares of common stock of
the Company are issued and outstanding, all of which are validly issued, fully
paid, and nonassessable (and collectively constitute the Stock). The authorized
capital stock of Kerby consists of 10,000 shares of common stock, no par value.
As of the date hereof, 2,500 shares of common stock of Kerby are issued and
outstanding, all of which are validly issued, fully paid, and nonassessable and
are owned by the Company. There are no options, warrants, or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or Kerby or obligating the Company or
Kerby to issue or sell any shares of capital stock of, or other equity interests
in, the Company or Kerby. There are no obligations, contingent or otherwise, of
the Company or Kerby to repurchase, redeem, or otherwise acquire any shares of
their stock or to provide funds to or make any investment (in the form of a
loan, capital contribution, or otherwise) in any other person or entity.
Section 2.04 AUTHORITY RELATIVE TO THIS AGREEMENT. The Stock Sellers,
the Company, and GSSWD have full power and authority to execute and deliver this
Agreement and to perform their respective obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Stock Sellers, the Company, and GSSWD and their
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary action and no other proceedings on the part of the
Stock Sellers, the Company, Kerby, or GSSWD are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by the Stock Sellers, the Company,
and GSSWD and constitutes the legal, valid, and binding obligations of the Stock
Sellers, the Company, and GSSWD, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to or limiting creditors' rights or by legal
principles of general applicability governing availability of equitable
remedies.
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ACQUISITION AGREEMENT PAGE 4
<PAGE> 5
Section 2.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the Stock
Sellers, the Company, and GSSWD do not, and the performance of this Agreement by
the Stock Sellers, the Company, and GSSWD will not (i) conflict with or violate
the articles of incorporation, articles of organization, bylaws, operating
agreement, or other governing documents of the Company, Kerby, or GSSWD, (ii)
conflict with or violate any laws, statutes, rules, regulations, or
pronouncements of any court, tribunal, or governmental agency, whether federal,
state, or local, (collectively, "Laws") applicable to the Stock Sellers, the
Company, Kerby, or GSSWD or by which they or their respective assets are bound
or affected, or (iii) result in any material breach of or constitute a material
default (or an event that with notice or lapse of time or both would become a
material default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the assets of the Stock Sellers, the Company, Kerby, or
GSSWD pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise, or other instrument or obligation to which
the Stock Sellers, the Company, Kerby, or GSSWD is a party or by which any of
them or their respective assets are bound or affected.
(b) The execution and delivery of this Agreement by the Stock
Sellers, the Company, and GSSWD do not, and the performance of this Agreement by
the Stock Sellers, the Company, and GSSWD will not, require any consent,
approval, authorization, or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign.
Section 2.06 COMPLIANCE; PERMITS. The Company, Kerby, and GSSWD are not
in conflict with, or in default under or violation of, (i) any federal, state,
or local laws applicable to the Company, Kerby, or GSSWD or by which the
Company, Kerby, or GSSWD or any of the assets of the Company, Kerby, or GSSWD
are bound or affected or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company, Kerby, or GSSWD is a party or by which the Company or its
assets or Kerby or its assets or GSSWD or its assets are bound or affected. The
Company, Kerby, and GSSWD possess all permits, licenses, leases, agreements, and
authorizations of governmental authorities and any other applicable persons or
entities necessary to or for the operation of its assets, properties, and
business, all of which permits, licenses, leases, agreements, and authorizations
are in full force and effect.
Section 2.07 REPORTS AND FINANCIAL STATEMENTS OF THE COMPANY. The
combined balance sheet of the Company and GSSWD for the period ending as of
December 31, 1999 (the "Audited Balance Sheet") and the combined statement of
earnings, statement of changes in equity, and statement of changes in cash flows
of the Company and GSSWD for the period ending as of December 31, 1999, copies
of all of which are attached hereto as EXHIBIT D (collectively, the "Financial
Statements"), are true and complete in all material respects, fairly represent
the financial position and results of operations of the Company, Kerby, and
GSSWD as of and for the periods shown, and were prepared in accordance with
generally accepted accounting principles. None of the Financial Statements
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements therein not misleading.
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ACQUISITION AGREEMENT PAGE 5
<PAGE> 6
Except as and to the extent of (i) liabilities reflected or reserved
against in the Audited Balance Sheet and (ii) liabilities which have arisen
since the date of the Audited Balance Sheet in the ordinary course of business
and which have been fully disclosed to Purchaser in writing, the Company, Kerby,
and GSSWD do not have any liabilities or obligations (whether accrued, absolute
or contingent), and including without limitation, any liabilities resulting from
failure to comply with any laws or any federal, state, or local tax liabilities
due or to become due whether (a) incurred in respect of or measured by income
for any financial statement or balance sheet period, or (b) arising out of
transactions entered into, or any state of facts existing, prior or subsequent
thereto.
Section 2.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1999, except as shown on attached SCHEDULE 2.08 or as otherwise expressly
permitted by this Agreement, the Company, Kerby, and GSSWD have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, except as shown on SCHEDULE 2.08, there has not
been (a) any material adverse change in the financial condition, results of
operations, or business of the Company, Kerby, or GSSWD, (b) any material
damage, destruction, or loss (whether or not covered by insurance) with respect
to any assets of the Company, Kerby, or GSSWD, including, without limitation,
the GSSWD Tangible Assets, (c) any change by the Company, Kerby, or GSSWD in its
accounting methods, principles, or practices, (d) any entry by the Company,
Kerby, or GSSWD into any commitments or transactions material to the Company,
Kerby, or GSSWD, (e) any declaration, setting aside, or payment of any dividends
or distributions in respect of shares of the Stock or any redemption, purchase,
or other acquisition of any of the capital stock of the Company, Kerby, or
GSSWD, (f) any increase or decrease in or establishment or termination of any
bonus, insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards, or restricted stock
awards), stock purchase, or other employee benefit plan of the Company, Kerby,
or GSSWD or any other increase in the compensation payable or to become payable
to any officers or key employees of the Company, Kerby, or GSSWD (g) any
incurrence of any indebtedness or other obligations or liabilities by the
Company, Kerby, or GSSWD, (h) any proposed law or regulation or any actual event
or condition of any character that is known to the Seller or the Company or
Kerby or GSSWD that materially adversely affects the business or future
prospects of the Company, Kerby, or GSSWD, (h) any claim, litigation, event, or
condition of any character that materially adversely affects the business or
future prospects of the Company, Kerby, or GSSWD, (i) any issuance or purchase
of, or agreement to issue or purchase shares of the capital stock or other
securities of the Company, Kerby, or GSSWD, (j) any mortgage, pledge, lien, or
encumbrance made or agreed to be made on any of the assets or properties of the
Company, Kerby, or GSSWD, (k) any sale, transfer, other disposition of, or
agreement to sell, transfer, or dispose of the properties or assets, tangible or
intangible, of the Company, Kerby, or GSSWD, except as expressly permitted by
this Agreement and except in the ordinary course of business and then only for
full and fair value received, (l) any loans, advances, or agreements with
respect to any loans or advances, other than to customers in the ordinary course
of business and that have been properly reflected as "accounts receivable" on
the books of the Company, Kerby, and GSSWD; (m) any transaction outside the
ordinary course of business of the Company, Kerby, and GSSWD, (n) any capital
expenditure by the Company, Kerby, or GSSWD in excess of $10,000, or (o) any
agreement by the Stock Sellers, the Company, Kerby, or GSSWD to do any of the
items described in Subparagraphs (a) through (n) above.
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ACQUISITION AGREEMENT PAGE 6
<PAGE> 7
Section 2.09 ABSENCE OF LITIGATION. There are no claims, actions,
proceedings, or investigations pending or, to the knowledge of the Stock
Sellers, the Company or GSSWD, threatened against the Company, Kerby, or GSSWD
or any of the assets of the Company, Kerby, or GSSWD before any court,
arbitrator, or administrative, governmental, or regulatory authority or body,
domestic or foreign. As of the date hereof, none of the Company, Kerby, and
GSSWD nor their assets are subject to any order, writ, judgment, injunction,
decree, determination, or award.
Section 2.10 EMPLOYEE BENEFIT PLANS. Except as set forth on attached
SCHEDULE 2.10 (collectively, the "Plans"), the Company and Kerby do not have any
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended and the regulations thereunder), any
bonus, stock option, stock purchase, restricted stock, incentive, deferred
compensation, medical, accident, life insurance, disability income, retiree
medical or life insurance, supplemental retirement, severance, and other benefit
plans, programs, or arrangements, or any sick leave and vacation plans. The
Company and Kerby, as applicable, have operated the Plans in compliance with all
applicable federal, state, and local laws and regulations, has received no
notice of any claims or violations of any laws and regulations applicable to the
Plans, and, has no existing obligations or liabilities under the Plans which
have not been fully funded or reserved for on the Financial Statements. Any and
all such plans, programs, and arrangements previously adopted and subsequently
terminated by the Company or Kerby were duly and validly terminated in
accordance with all applicable laws and the Company and Kerby have no continuing
obligations or liabilities and has received no notice of any claims or
violations with respect to such former plans, programs, and arrangements.
Section 2.11 TITLE TO STOCK. The Stock Sellers own good and marketable
title to all of the Stock, free and clear of liens, claims, and encumbrances of
any kind or character.
Section 2.12 ASSETS OF THE COMPANY, KERBY, AND GSSWD.
(a) SCHEDULE 2.12(a) attached hereto contains a complete and
correct description of all real property which is, or as of the Closing will be,
owned by or leased to the Company, Kerby, or GSSWD or in which the Company,
Kerby, or GSSWD otherwise holds, or as of the Closing will hold, contractual
rights, together with all applicable real property leases and contracts. All
such leases and contracts are valid and in full force and effect and all rents,
royalties, and other sums payable by the Company, Kerby, or GSSWD thereunder
have been timely paid. There exists no default or event or circumstance which,
with notice or lapse of time or both, will constitute a default under any of
such lease agreements.
(b) SCHEDULE 2.12(b) attached hereto contains a complete and
accurate description of all vehicles, equipment, furniture, fixtures, and other
personal property of any kind or character, tangible or intangible, that is
owned by, in the possession of, or used by the Company, Kerby, and
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ACQUISITION AGREEMENT PAGE 7
<PAGE> 8
GSSWD (the "Subject Real Estate"). Except as shown on SCHEDULE 2.12(b), no
personal property owned or used by the Company, Kerby, or GSSWD in connection
with its business is held under any lease, security agreement, conditional sales
contract, or other title retention or financing agreement or is located any
place other than in the possession of the Company.
Section 2.13 TITLE TO AND CONDITION OF THE ASSETS OF THE COMPANY AND
KERBY. The Company and Kerby have, or will have at Closing, good and marketable
title to all of their assets and properties, real and personal, tangible and
intangible, that are material to the business and future prospects of the
Company and Kerby, free and clear of liens, claims, charges, and encumbrances of
any kind or nature, save and except (a) the liens and security interests shown
on attached SCHEDULE 2.13, (b) liens for real and personal property taxes that
are not yet due and payable and (c) possible minor matters that, in the
aggregate, are not substantial in amount and do not materially interfere with or
detract from the present or intended use of any of the assets and properties nor
materially impair the business operations of the Company and Kerby. The tangible
assets of the Company and Kerby are in good operating condition and repair,
normal wear and tear excepted.
Section 2.14 TITLE TO AND CONDITION OF THE DISPOSAL AND BRINE
FACILITIES. GSSWD has, or will have at Closing, good and marketable title to
100% of the operating rights in, and subject to any royalties payable under the
Disposal and Brine Agreements (hereinafter defined), 100% of the revenues
derived or derivable from the operation of, the Disposal and Brine Facilities,
free and clear of liens, claims, charges, and encumbrances of any kind or
character, except (a) liens for real and personal property taxes that are not
yet due and payable and (b) as may be expressly set forth on EXHIBIT A. The
Disposal and Brine Facilities are in good operating condition and repair, normal
wear and tear excepted.
Section 2.15 TAXES. The Company and Kerby are and at all times in the
past have been "C" corporations within the meaning of Section 1361 of the
Internal Revenue Code of 1986, as amended. The Company and Kerby presently
maintain and at all times in the past have maintained fiscal years ending as of
December 31 for federal income tax purposes. The Company and Kerby have filed
all state and federal Tax Returns (defined below) required to be filed by them,
and the Company and Kerby have paid and discharged all Taxes (as defined below)
shown due thereon and have paid all other Taxes as are due. The liability for
Taxes set forth in each such Tax Return does not materially understate the Taxes
required to be reflected on such Tax Return. For purposes of this Agreement,
"Tax" or "Taxes" means taxes of any kind, payable to any federal, state, local,
or foreign taxing authority, including (without limitation) (i) income,
franchise, profits, gross receipts, ad valorem, value added, sales, use,
service, real or personal property, payroll, withholding, employment, social
security, unemployment compensation, and production taxes, and (ii) interest,
penalties, and additions to tax imposed with respect thereto, whether disputed
or not; and "Tax Returns" means all returns, reports, declarations, claims for
refund, and information statements with respect to Taxes required to be filed
with the Internal Revenue Service or any other taxing authority, domestic or
foreign, through the time of Closing hereunder, including, without limitation,
consolidated, combined, and unitary tax returns and any schedule or amendment
thereto. The Company and Kerby have not (i) granted any waiver of any statute of
limitations with respect to, any
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ACQUISITION AGREEMENT PAGE 8
<PAGE> 9
Tax, or (ii) obtained an extension of time with respect to the filing of any Tax
Return other than Tax Returns that were duly filed within the applicable
extension period. No claim has been made by an authority in a jurisdiction where
the Company or Kerby does not file Tax Returns that the Company or Kerby may be
subject to taxation by that jurisdiction. There are no liens or security
interests on any of the assets of the Company or Kerby that arose in connection
with any failure (or alleged failure) to pay any Tax. The Company and Kerby have
disclosed on all federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Section 6662 of the Code. The Company and Kerby have withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor, or
other third-party. There is no dispute or claim concerning any liability for Tax
of the Company or Kerby (i) claimed or raised by any authority in writing or
(ii) as to which the Company or Kerby or any officers (and employees responsible
for Tax matters) of the Company or Kerby have knowledge.
Section 2.16 ENVIRONMENTAL MATTERS.
(a) The Company, Kerby, and GSSWD have conducted all operations
and activities in material compliance with all applicable Environmental Laws (as
defined below), and none of the assets of the Company, Kerby or GSSWD
(including, without limitation, the Disposal and Brine Facilities) is being or
has been operated in violation of any Environmental Laws.
(b) The Company, Kerby, and GSSWD possess all permits required
under Environmental Laws for the operation of their respective assets.
(c) The assets of the Company, Kerby, and GSSWD and the
operations conducted thereon or therewith, are not subject to any existing,
unfulfilled administrative or judicial order requiring remedial action under any
Environmental Law.
(d) Neither the Stock Sellers nor the Company, Kerby, or GSSWD
has received any notice of any investigation or inquiry regarding failure of the
assets of the Company, Kerby, or GSSWD, or the operations conducted thereon or
therewith, to comply with Environmental Laws.
As used in this Section 2.16, "Environmental Laws" shall mean the
federal Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendments and Reauthorization Act, as amended, Safe
Drinking Water Act, New Mexico Solid Waste Disposal Act, the Resource
Conservation and Recovery Act, as amended, the Hazardous and Solid Waste
Amendments Act, as amended, the Toxic Substances Control Act, as amended, the
Clean Water Act, as amended, and the Clean Air Act, as amended, and any other
applicable federal, state, or local environmental law and all rules, regulations
and administrative orders related thereto, as such laws, rules, regulations and
administrative orders exist as of the Closing Date.
Section 2.17 BROKERS. No broker, finder, or investment banker is
entitled to any brokerage, finder's, or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Seller or the Company, Kerby, or GSSWD.
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Section 2.18 CONTRACTS. Attached hereto as SCHEDULE 2.18 is a list of
all currently effective agreements respecting property, goods, and/or services
of or binding upon the Company, Kerby or their respective assets (the
"Contracts"). None of the Contracts has been modified, amended, supplemented or
altered except as specifically shown on attached SCHEDULE 2.18. The Company has
made copies of all of the Contracts (including all modifications, amendments,
and supplements thereto) available to Purchaser. All of the Contracts are in
full force and effect and the Company, and Kerby are not in default under any of
the Contracts.
Section 2.19 DISPOSAL AND BRINE AGREEMENTS. All leasehold and other
contractual rights owned or used by or binding upon GSSWD in connection with
operation of the Disposal and Brine Facilities (collectively, the "Disposal and
Brine Agreements") are described on attached EXHIBIT A. Except as shown on
EXHIBIT A, none of the Disposal and Brine Well Agreements has been modified,
amended, supplemented, or altered. All rentals, royalties, and other sums
payable under the Disposal and Brine Agreements have been timely and properly
made. The Disposal and Brine Agreements are in full force and effect and GSSWD
is not in default (and no circumstance or event has occurred which with notice
or the passage of time would constitute a default by GSSWD) under the Disposal
and Brine Agreements. GSSWD has obtained or will have obtained by Closing all
requisite consents of third parties to its conveyance of the Disposal and Brine
Facilities and the Disposal and Brine Agreements to Purchaser.
Section 2.20 NO UNION CONTRACTS. There is no collective bargaining or
other union agreement to or by which the Company or Kerby is a party or is
bound, nor is a collective-bargaining agreement currently being negotiated; and
all non-exempt employees have been paid in accordance with the Fair Labor
Standards Act of 1938 and the Portal-to-Portal Act of 1947. The Company and
Kerby are in compliance with all federal, state, or other applicable laws,
domestic or foreign, respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and has not and is not engaged in
any unfair labor practice. The Company and Kerby have not experienced any
material labor difficulty during the last three years.
Section 2.21 INSURANCE. SCHEDULE 2.21 attached hereto lists all
insurance policies (the "Insurance Policies") held by the Company, Kerby, and
GSSWD and all such listed policies are in the respective principal amounts set
forth therein. The Company, Kerby, and GSSWD maintain (a) insurance on all of
its business, operations, and assets of a type customarily insured, covering
property damage and loss of income by fire or other casualty and (b) insurance
protection against all liabilities, claims, and risks against which it is
customary to insure. All premiums due and payable under the Insurance Policies
have been paid. The Company, Kerby, and GSSWD are not, and but for a requirement
that notice be given or that a period of time elapse or both would not be, in
violation under any such Insurance Policies.
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ACQUISITION AGREEMENT PAGE 10
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Schedule 2.22 BANK ACCOUNTS. SCHEDULE 2.22 attached hereto contains a
true and correct list of the names and addresses of all banks, financial
institutions, and other depositories in which the Company, Kerby, or GSSWD has
an account, deposit, or safe deposit box and the names of all persons authorized
to draw on those accounts or deposits or who have access to them and the account
numbers of each account.
Schedule 2.23 OTHER LIABILITIES AND OBLIGATIONS. SCHEDULE 2.23 attached
hereto contains a true and correct list of all liabilities and obligations of
the Company, Kerby, and GSSWD not disclosed elsewhere in this Agreement of any
kind, character, and description, whether accrued, absolute, contingent, or
otherwise, and whether or not required to be disclosed or accrued in the
Financial Statements of the Company, Kerby, or GSSWD that exceed $5,000 to any
one creditor. In the case of liabilities that may not be fixed, an estimate of
the maximum amount that may be payable is also included.
Section 2.24 DISCLOSURE. No representations or warranties made by the
Stock Sellers, the Company, or GSSWD in this Agreement, and no statements of the
Stock Sellers or the Company, Kerby, or GSSWD contained in any document executed
or delivered by any of them to Purchaser pursuant hereto or in connection with
the transactions contemplated hereby, contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements herein
or therein not misleading.
Section 2.25 TRANSACTIONS WITH AFFILIATES. Except as shown on attached
SCHEDULE 2.25, the Company, Kerby, and GSSWD are not a parties to any
transaction, contract, or agreement with any (i) current or former officer or
director of the Company, Kerby, or GSSWD or (ii) any parent, spouse, child,
brother, sister or other family relation of any such officer or director, or
(iii) any corporation or partnership of which any such officer or director or
any such family relation is an officer, director, partner or greater than 10%
stockholder (based on percentage ownership of voting stock) or (iv) any
"affiliate", or "associate" of any such persons or entities (as such terms are
defined in the rules and regulations promulgated under the Securities Act of
1934, including, without limitation, any transaction involving a contract,
agreement, or other arrangement providing for the employment of, furnishing of
materials, products, or services by, rental of real or personal property from,
or otherwise requiring payments to, any such person or entity, except with
respect to services provided on reasonable terms which would not materially
alter the presentation of the Financial Statements, if such transactions had
been entered into with an unrelated third party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Stock Sellers and GSSWD
as of the date of this Agreement as follows:
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ACQUISITION AGREEMENT PAGE 11
<PAGE> 12
Section 3.01 ORGANIZATION AND QUALIFICATION. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware. Purchaser is duly qualified or licensed to do business and is in good
standing in each jurisdiction where the character of the assets owned or
operated by Purchaser or the nature of its activities makes such qualification
or licensing necessary.
Section 3.02 AUTHORITY RELATIVE TO THIS AGREEMENT. Purchaser has the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Purchaser
and the consummation by Purchaser of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Purchaser are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Purchaser and, assuming the due
authorization, execution and delivery by all other parties hereto, constitutes
the legal, valid and binding obligation of Purchaser, except as the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect relating to or limiting creditors, rights or by legal
principles of general applicability governing the availability of equitable
remedies.
Section 3.03 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Purchaser do
not, and the performance of this Agreement by Purchaser will not (i) conflict
with or violate the certificate of incorporation or bylaws of Purchaser, (ii) to
the knowledge of Purchaser, conflict with or violate any law applicable to
Purchaser or by which any of its assets are bound or affected or (iii) to the
knowledge of Purchaser, result in any breach or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the material assets of Purchaser pursuant to, any note, bond, mortgage,
indenture, or any material contract, agreement, lease, license, permit,
franchise, or other instrument or obligation to which Purchaser is a party or by
which Purchaser or any of its assets are bound or affected.
(b) To the knowledge of Purchaser, the execution and delivery of
this Agreement by Purchaser do not, and the performance of this Agreement by
Purchaser will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
domestic or foreign.
Section 3.04 BROKERS. No broker, finder, or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Purchaser.
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ACQUISITION AGREEMENT PAGE 12
<PAGE> 13
ARTICLE IV
CONDUCT OF BUSINESS OF THE COMPANY, KERBY, AND
GSSWD PENDING THE CLOSING DATE
Pending the Closing Date or earlier termination of this Agreement, and
except as otherwise specifically contemplated in this Agreement or the schedules
hereto or as may be consented to and approved in writing by Purchaser, the Stock
Sellers, the Company, and GSSWD covenant and agree as follows:
Section 4.01 ORDINARY COURSE OF BUSINESS. The Company, Kerby, and GSSWD
will carry on their business substantially in the same manner as heretofore
conducted, and will not engage in any transaction or activity, enter into any
agreement or make any commitment, except in the ordinary course of business.
Without limiting the generality of the foregoing, the Company, Kerby, and GSSWD
will:
(a) operate and maintain their assets diligently and in a good
and workmanlike manner and comply in all material respects with all applicable
laws and with the terms of any agreements binding upon those assets;
(b) maintain and keep in full force and effect all of the
Contracts and all of the Disposal and Brine Agreements and all permits, licenses
and similar rights and privileges of the Company, Kerby, and GSSWD and comply in
all material respects with all of their material obligations therein and
thereunder;
(c) maintain all of their tangible assets in at least as good a
condition as they were in at the date hereof, ordinary wear and tear excepted,
and remove no material items therefrom;
(d) maintain the Insurance Policies in full force and effect; and
(e) pay, perform, and discharge, on a basis consistent with prior
practices, all obligations of the Company, Kerby, and GSSWD under the Contracts,
the Disposal and Brine Agreements, and the notes, leases, and other instruments
evidencing the indebtedness or other liabilities of the Company, Kerby, and
GSSWD which are shown on the Audited Balance Sheet and/or on the schedules
attached to this Agreement in accordance with their respective terms (but
without right of prepayment);
Section 4.02 RESTRICTED ACTIONS. Without the prior written consent of
Purchaser, such consent not to be unreasonably withheld, the Company, Kerby, and
GSSWD will not (a) enter into any agreement or commitment, the result of which
would be to incur or expand the existing indebtedness or liabilities of the
Company, Kerby, or GSSWD; (b) incur any additional indebtedness other than trade
payables incurred in the ordinary course of business; (c) sell, transfer,
assign, convey or otherwise dispose of any of the assets of the Company, Kerby,
or GSSWD other than dispositions
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ACQUISITION AGREEMENT PAGE 13
<PAGE> 14
of (i) equipment or other personal property which is replaced with property and
equipment of comparable or better value and utility in the ordinary and routine
maintenance and operation of its business and (ii) personal property and
equipment no longer used or useful in the ordinary course of business; or (d)
create or permit the creation of any new lien, security interest, or other
encumbrances on any asset of the Company, Kerby, or GSSWD.
Section 4.03 AMENDMENTS TO GOVERNING DOCUMENTS. No change or amendment
shall be made in the articles of incorporation or bylaws of the Company, Kerby,
or GSSWD.
Section 4.04 ORGANIZATION. The Company, Kerby, and GSSWD will preserve
their respective existences and will keep their business organizations intact
and use their reasonable efforts to preserve their relationships with their
suppliers, customers, and others having business relations with the Company,
Kerby, and GSSWD.
Section 4.05 EMPLOYMENT AGREEMENTS. The Company, Kerby, and GSSWD will
not enter into any agreement relating to employment with any person.
Section 4.06 ISSUANCE OF SHARES; DIVIDENDS. The Company and Kerby will
not issue shares of capital stock, or grant any options, warrants or other
rights to purchase or acquire the capital stock of the Company or Kerby. The
Company and Kerby will neither declare nor pay or set aside for payment any
dividend or other distribution on their outstanding shares of capital stock, nor
redeem, purchase or otherwise acquire any of their capital stock.
Section 4.07 NO DEFAULT. The Company, Kerby, and GSSWD will not
knowingly take any action or knowingly take any action that causes a material
breach of any representation, warranty, covenant or agreement of the Stock
Sellers, the Company, or GSSWD under this Agreement.
Section 4.08 INVESTMENT. The Company and Kerby will not make any new
capital investment in, make any loan to, or acquire the securities or assets of
any other person or entity.
Section 4.09 USES OF CASH. Other than in the ordinary course of
business, the Company, Kerby, and GSSWD will not make any payments during the
period between the date hereof and the Closing Date except for the purpose of
paying Taxes, paying rentals or other sums owing by the Company, Kerby, or GSSWD
under the Contracts or the Disposal and Brine Agreements as and when due,
discharging rentals and trade payables incurred in the ordinary course of
business, and retiring or discharging presently existing indebtedness to
financial institutions or other third parties as and when due in accordance with
the terms of the notes or other instruments evidencing such indebtedness (but
without right of prepayment).
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ACQUISITION AGREEMENT PAGE 14
<PAGE> 15
ARTICLE V
OTHER AGREEMENTS OF THE PARTIES
Section 5.01 PURCHASER'S DUE DILIGENCE. Purchaser shall have until 6:00
p.m., CST, on March 24, 2000 (the "Inspection Period") to inspect, review, and
audit the assets of the Company, Kerby, and GSSWD and all books, records, data,
and other information of the Stock Sellers and the Company, Kerby, and GSSWD
relating to the business and financial affairs of the Company, Kerby, and GSSWD,
the title to and ownership of the assets of the Company, Kerby, and GSSWD, and
the conduct of the Businesses. Except as otherwise expressly provided in this
Agreement, all expenses incurred by the Purchaser relating to its inspections,
reviews, and audits shall be borne and paid exclusively by the Purchaser. The
Stock Sellers, the Company, and GSSWD shall cooperate with Purchaser in all
reasonable respects in facilitating such inspections, reviews, and audits.
Without limiting the foregoing, the Stock Sellers, the Company, and GSSWD agree
that, during the Inspection Period and thereafter until Closing, they will (a)
provide or cause to be provided to Purchaser and its counsel, accountants,
consultants, and other authorized representatives, during normal business hours
or otherwise, if necessary, full access to all of the assets, books, agreements,
commitments and records of the Company, Kerby, and GSSWD; and (b) furnish
Purchaser and its representatives with such data, records, and other information
concerning any of the operations and affairs of the Company, Kerby, and GSSWD as
Purchaser may reasonably request. If Purchaser shall determine as a result of
its inspections, reviews, and audits that the condition or value of or title to
the assets of the Company, Kerby, or GSSWD or the operations or results of the
Company, Kerby, or GSSWD are deficient in any material respect, or if Purchaser
is for any other reason, in Purchaser's sole and absolute discretion,
dissatisfied with the transaction contemplated by this Agreement, Purchaser may
elect to terminate this Agreement by giving written notice thereof to the Stock
Sellers prior to the end of the Inspection Period. If Purchaser does not
terminate this Agreement during the Inspection Period, Purchaser may thereafter
continue its reviews, inspections and audits pending Closing, but, except as
otherwise provided in this Agreement, without additional termination rights
after the Inspection Period.
The Stock Sellers and GSSWD further agree that, upon request by
Purchaser prior to or following Closing, the Stock Sellers and GSSWD will
execute and deliver to Purchaser or its accountants such audit response letters
and further confirmations as Purchaser or its accountants may reasonably require
for purposes of verification of the accuracy, validity, and completeness of the
Financial Statements, the Final Balance Sheet (hereinafter defined), and all
other financial and other information provided or made available by the Stock
Sellers, the Company, or GSSWD to Purchaser in connection with the transactions
contemplated by this Agreement.
Section 5.02 ENVIRONMENTAL REPORT. Within fifteen (15) days from the
date of this Agreement, the Stock Sellers, the Company, and GSSWD, at their sole
expense, shall furnish to Purchaser Phase I environmental studies and reports
covering all of the Subject Real Estate and prepared by an environmental
consulting firm or firms mutually acceptable to the Stock Sellers and Purchaser
(the "Environmental Reports"). If the Environmental Reports show any
environmental
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ACQUISITION AGREEMENT PAGE 15
<PAGE> 16
condition that is unacceptable to Purchaser, Purchaser shall, within ten (10)
days of its receipt of the Environmental Reports, notify the Stock Sellers of
such condition(s) and the reasons for Purchaser's objections thereto
("Purchaser's Environmental Objections"). Upon expiration of such ten-day
notification period, Purchaser shall be deemed to have accepted the form and
substance of the Environmental Reports, except, however, those matters to which
Purchaser has timely objected in accordance with the preceding sentence. The
Stock Sellers, the Company, and GSSWD shall have no obligation to bring any
action or proceeding or otherwise to incur any expense whatsoever to eliminate
or modify any of Purchaser's Environmental Objections. Within five days
following receipt of Purchaser's Environmental Objections, the Stock Sellers,
the Company, and GSSWD shall give notice to Purchaser of what actions, if any,
they propose to take in order to cure Purchaser's Environmental Objections. If
they are unable or unwilling to remedy Purchaser's Environmental Objections to
the reasonable satisfaction of Purchaser, Purchaser may terminate this Agreement
by notice in writing to the Stock Sellers by the earliest to occur of (i) the
Closing Date or (ii) five (5) business days following notice from the Stock
Sellers, the Company, and GSSWD that they are unable or unwilling to remedy
Purchaser's Environmental Objections, in which event, except as expressly
provided otherwise in this Agreement, none of the parties hereto shall have any
further rights or obligations under this Agreement. If this Agreement is
terminated for any reason, Purchaser agrees to immediately return the
Environmental Reports to the Company and to hold the contents thereof strictly
confidential. Likewise, pending and following Closing hereunder, the Stock
Sellers, the Company, and GSSWD shall hold the Environmental Reports strictly
confidential and shall not disclose the same or their contents to any third
party without the prior written consent of Purchaser.
Section 5.03 EXCLUSIVE DEALING. Unless and until this Agreement shall
have been terminated in accordance with the terms hereof, neither the Stock
Sellers nor the Company, Kerby, or GSSWD shall directly or indirectly, solicit,
initiate, or participate in negotiations with, or provide any information to,
any corporation, partnership, person or other entity or group (other than the
Purchaser or an affiliate or an associate of the Purchaser) concerning, or enter
into any agreement providing for any sale of the assets of the Company, Kerby,
or GSSWD, any sale of shares of capital stock or other equity in the Company,
Kerby, or GSSWD, or any similar transactions involving the Company, Kerby, or
GSSWD.
Section 5.04 CONSENTS, APPROVALS, AND FILINGS. The Stock Sellers, the
Company, Kerby, GSSWD, and Purchaser shall each use its reasonable efforts to
obtain at the earliest practicable date and, in any event, prior to the Closing
Date, all consents and approvals, including any third party consents, and to
make all filings required to be obtained or made under any federal, state, or
local laws or any agreement or other instrument (including, without limitation,
any consent or approval necessary to avoid the loss of any rights under any
agreement) prior to consummating the transactions contemplated hereby, whether
such consent, approval or filing is to be obtained from or made with private
parties or applicable governmental authorities.
Section 5.05 BROKERS AND FINDERS. Purchaser, on the one hand, and the
Stock Sellers, the Company, and GSSWD, on the other hand, shall indemnify each
other and hold each other harmless from any claim against the other for a
broker's or finder's fee, commission, or other like payment in
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ACQUISITION AGREEMENT PAGE 16
<PAGE> 17
connection with the transactions contemplated by this Agreement which arises
from or is based upon arrangements made by or through the indemnifying party.
Section 5.06 PUBLIC ANNOUNCEMENTS. Pending Closing, except as may be
required by applicable law, no party hereto shall issue any press release or
make any other public pronouncements concerning this Agreement or the
transactions contemplated hereby without the written consent and approval of all
other parties.
Section 5.07 RESIGNATION OF OFFICERS AND DIRECTORS. The Stock Sellers
and the Company will secure the resignation of each then-serving officer and
director of the Company and Kerby effective as of the Closing Date.
Section 5.08 NOTICE OF DEVELOPMENTS. Prior to the Closing, the Stock
Sellers, the Company, and GSSWD will give prompt notice to Purchaser of any
material event affecting the assets, liabilities, business, financial condition,
operations, results of operations, or future prospects of the Company, Kerby,
and/or GSSWD. No disclosure pursuant to this Section 5.08 shall, however, be
deemed to amend or supplement this Agreement or the schedules hereto or to
prevent or cure any misrepresentation, breach of warranty, or breach of covenant
under this Agreement.
Section 5.09 PRELIMINARY AND FINAL COMPUTATIONS OF NFA. As part of its
diligence processes in this transaction, Purchaser intends to have the books and
records of the Company, Kerby, and GSSWD audited by certified professional
accountants and to have audited financial statements prepared for the Company,
Kerby, and GSSWD on a consolidated basis in compliance with generally accepted
accounting principles ("GAAP"), all at the expense of Purchaser. The Stock
Sellers, the Company, GSSWD and Purchaser recognize that the financial data
necessary to permit computation of NFA at the Closing may not be complete or
final at such time. The parties accordingly shall estimate NFA at Closing and
shall then finalize their calculation of NFA on a post-Closing basis within
sixty (60) days following the Closing. At least three (3) business days prior to
the Closing, Purchaser shall deliver to the Stock Sellers and GSSWD a
preliminary settlement statement, reflecting its good faith estimate of NFA as
of the Closing Date based upon the best information then available to Purchaser.
At or prior to Closing, the Stock Sellers, GSSWD, and Purchaser shall attempt to
reconcile any differences they may have regarding the preliminary settlement
statement. If there are any items the parties are unable to reconcile prior to
Closing, Purchaser's position shall prevail to enable Closing to proceed, but
without prejudice to the right of any party to this Agreement to dispute any
item of the final settlement statement. Within forty-five (45) days after the
Closing Date, Purchaser shall deliver to the Stock Sellers and GSSWD an audited
balance sheet of the Company, Kerby, and GSSWD, on a consolidated basis, for the
period ended as of the Closing Date, prepared in accordance with GAAP, and a
proposed final settlement statement including Purchaser's final computation of
NFA. The Stock Sellers and GSSWD shall have ten (10) days from its receipt of
the such balance sheet and proposed settlement statement to notify Purchaser of
their objections, if any, to the information set forth therein, failing which
the Stock Sellers and GSSWD shall be deemed to have irrevocably accepted the
computations and substance of those documents for all purposes of this
Agreement. If the Stock Sellers and GSSWD
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ACQUISITION AGREEMENT PAGE 17
<PAGE> 18
timely and properly contest any items within such balance sheet or proposed
final settlement statement, the Stock Sellers, GSSWD, and Purchaser shall
promptly meet and utilize their best efforts to resolve their differences, it
being the intention of the parties to finalize all post-Closing adjustments
within sixty (60) days following the Closing Date. If the parties are unable to
reach final agreement on any such post-Closing matters, they shall resolve their
differences by means of the dispute resolution procedures set forth in Section
10.02 and final settlement between the parties shall be deferred pending
conclusion of such procedures. At the conclusion of the post-Closing accounting
contemplated by this Section 5.09, the Stock Sellers, GSSWD, or Purchaser, as
appropriate, shall immediately remit to the other, in immediately available
funds, the net sum determined owning by such party in the final settlement
statement, whether finalized by agreement of the parties or through dispute
resolution processes. As used in this Agreement, "Final Balance Sheet" and
"Final Settlement Statement" shall mean the final balance sheet and the final
settlement statement proposed by Purchaser, as the same may be modified either
by agreement of the parties or dispute resolution pursuant to the foregoing.
Section 5.10 ACCOUNTS RECEIVABLE. The Stock Sellers and GSSWD expressly
represent and warrant that all accounts receivable of the Company, Kerby, and
GSSWD reflected on the Final Balance Sheet as of the Closing Date are
collectible in the normal course of business within 150 days from the Closing
Date without resort to litigation or the retention of collection services.
Following Closing, the Company shall apply partial payments by customers to the
respective outstanding receivables of such customers in the order of their aging
(i.e. older accounts paid first). To the extent any such receivables remain
unpaid following such 150-day period, the Company, without limitation of its
other legal rights and remedies, may require the Stock Sellers and GSSWD to
immediately purchase the same from the Company at full face value and without
subsequent recourse of any kind upon the Company or Purchaser or may offset the
face amount of such unpaid receivables against its payment obligations under the
Note.
Section 5.11 TAXES AND TAX RETURNS. The Stock Sellers shall be
responsible for the timely preparation and filing (without extension, unless
otherwise agreed by Purchaser in writing) of all federal, state, and local Tax
Returns covering or for (or based upon income received or realized during) all
periods prior to and including the Closing Date, except that, if Closing occurs,
Purchaser shall be responsible for the timely preparation and filing of the
federal income tax returns of the Company for calendar year 2000 and ensuing
years. The Stock Sellers shall prepare all such Tax Returns for which the Stock
Sellers are responsible hereunder in accordance with applicable law and shall
submit such Tax Returns to the Company and Purchaser for their review and
concurrence at least ten (10) business days prior to filing. If, after the
Closing Date, any applicable taxing authority shall determine there to be a
deficiency in the amount of any federal, state, or local Tax paid or payable by
the Company or Kerby which is not reserved for or reflected on the Final Balance
Sheet and which relates to any period prior to the Closing Date, the Stock
Sellers shall be fully responsible for the payment of any such deficiency.
Following Closing, if any Tax Return covering a period of time prior to the
Closing Date shall be audited by an applicable taxing authority, the Company
shall promptly notify the Stock Sellers of such audit. The Stock Sellers and
Purchaser and the Company shall jointly and not severally conduct all
discussions and negotiations with applicable taxing
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ACQUISITION AGREEMENT PAGE 18
<PAGE> 19
authorities regarding each such audited Tax Return as it may relate to periods
prior to the Closing Date. The Company shall have exclusive authority to conduct
all discussions and negotiations with applicable taxing authorities regarding
Tax Returns relating to periods from and after the Closing Date and shall be
solely responsible for the payment of all Taxes attributable to such periods.
Section 5.12 INDEMNIFICATION.
(a) Indemnification by the Stock Sellers and GSSWD. The Stock
Sellers and GSSWD agree to indemnify and hold harmless Purchaser and the Company
and Kerby after the Closing Date against and in respect of any of the following
matters which may be asserted or established:
(i) All liabilities of the Company, Kerby, and GSSWD of
any nature, whether accrued, absolute, contingent, or otherwise, which
existed as of the Closing Date and are not provided for or reflected on
the Final Balance Sheet;
(ii) Any and all liabilities or obligations arising from
or attributable to the ownership or operation of the GSSWD Assets for
all periods prior to the Closing Date;
(iii) Any and all damages, losses, expenses, or
deficiencies resulting from any breach of the warranties,
representations and covenants of the Stock Sellers, the Company, and/or
GSSWD contained in this Agreement or in any schedule hereto; and
(iv) All demands, assessments, judgments, costs, and
expenses (including reasonable legal fees and other expenses of
litigation, both at the trial and appellate level) arising from or in
connection with any action, suit, proceeding, or claim incident to any
of the foregoing.
(b) Indemnification by Purchaser. Purchaser agrees to indemnify
and hold harmless the Stock Sellers after the Closing Date against or in respect
of any of the following matters:
(i) Any and all damages, losses, expenses, or
deficiencies resulting from any breach of the warranties,
representations and covenants of Purchaser contained in this Agreement
or in any schedule hereto; and
(ii) All demands, assessments, judgments, costs, and
expenses (including reasonable legal fees and other expenses of
litigation, both at the trial and appellate level) arising from or in
connection with any action, suit, proceeding, or claim incident to any
of the foregoing.
Section 5.13 RELEASE AND WAIVER BY THE STOCK SELLERS AND GSSWD. Any
provisions of this Agreement to the contrary notwithstanding, following Closing
hereunder, the Stock Sellers and
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ACQUISITION AGREEMENT Page 19
<PAGE> 20
GSSWD shall have no right of contribution, indemnity, reimbursement, or other
legal or equitable right of recourse upon the Company or Kerby based upon or
attributable to the breach or non- performance by the Stock Sellers, the
Company, or GSSWD of any of their representations, warranties, and covenants
under this Agreement, and the Stock Sellers and GSSWD, as of Closing hereunder,
expressly release and waive any and all such rights of contribution, indemnity,
reimbursement or other recourse upon or against the Company and Kerby. The Stock
Sellers and GSSWD shall be jointly and severally liable and responsible for all
representations, warranties, covenants and other obligations of the Stock
Sellers and/or GSSWD hereunder.
Section 5.14 RELEASE OF PERSONAL GUARANTIES. Upon Closing, Purchaser
shall cooperate fully with the Stock Sellers and shall utilize its best efforts
in attempting to obtain the prompt release by applicable third parties of the
personal guaranties by the Stock Sellers of indebtedness of the Company which
are shown on attached SCHEDULE 5.14.
Section 5.15 EMPLOYMENT MATTERS. To the extent Purchaser or the Company
shall elect to continue the employment of current employees of the Company
following Closing, each employee so retained by Purchaser or the Company
following Closing shall be eligible for participation in Purchaser's current
employee benefit programs with full credit for length of service prior to
Closing with the Company. The Stock Sellers and the Company acknowledge and
agree that the decision to hire any current employees of the Company is solely
in the discretion of Purchaser and that Purchaser has no obligation of any kind
to employ any of the existing employees of the Company following Closing.
Section 5.16 INVESTMENT REPRESENTATIONS BY THE STOCK SELLERS. Upon
Closing and in connection with any conversion of the unpaid balance of the Note
into common stock in Purchaser as more particularly provided in the Note, the
Stock Sellers expressly represent, warrant, acknowledge, and agree to and with
the Company that:
(a) any such stock so acquired by the Stock Sellers (the
"Stock") may not have been registered under the
Securities Act of 1933 or any other state securities
laws (collectively, the "Securities Acts") because
Purchaser may or will issue the Stock in reliance
upon this Section 5.15 and the exemptions from the
registration requirements of the Securities Acts
providing for issuance of securities not involving a
public offering;
(b) the Stock Sellers will acquire any Stock for the
Stock Sellers' own respective accounts, for
investment, and not with a view to the resale or
distribution thereof;
(c) the Stock Sellers will not transfer, sell or offer
for sale any portion of the Stock unless there is an
effective registration or other qualification
relating thereto under the Securities Act of 1933 and
under any applicable state securities laws or unless
the holder of the Stock delivers to Purchaser an
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ACQUISITION AGREEMENT PAGE 20
<PAGE> 21
opinion of counsel, satisfactory to Purchaser, that such
registration or other qualification under such Act and
applicable state securities laws is not required in
connection with such transfer, offer or sale;
(d) Purchaser is under no obligation to register the Stock or
to assist the Stock Sellers in complying with any exemption
from registration under the Acts if the Stock Sellers
should at a later date wish to dispose of the Stock;
(e) Prior to entering into this Agreement, the Stock Sellers
have made an investigation of Purchaser and its business
and has obtained or had made available to them all
information with respect thereto which the Stock Sellers
needed to make an informed decision to structure the
transactions contemplated hereby as provided in this
Agreement;
(f) The Stock Sellers possess adequate experience and
sophistication as investors for the evaluation of the
merits and risks of investment in the Stock; and
(g) Each of the Stock Sellers is an "accredited investor," as
defined in Regulation D as promulgated under the Securities
Act of 1933, as amended, (the "1933 Act").
ARTICLE VI
CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE
The obligation of Purchaser to close under this Agreement shall, unless
waived in writing by Purchaser, be subject to the satisfaction on or before the
Closing Date of each of the following conditions, and the Stock Sellers, the
Company, and GSSWD shall use their reasonable efforts to cause each such
condition to be so satisfied.
Section 6.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of the Stock Sellers, the Company, and GSSWD contained in this
Agreement shall be true and correct in all respects as of the date of this
Agreement and as of the Closing Date, as though such representations and
warranties were made at and as of such date, except for changes expressly
permitted or contemplated by this Agreement.
Section 6.02 PERFORMANCE. The Stock Sellers, the Company, and GSSWD
shall have performed and complied with all covenants, agreements, obligations
and conditions required by this Agreement to be performed or complied with by
them on or prior to the Closing Date.
Section 6.03 PROCUREMENT OF WRITTEN SURFACE USE AND DAMAGE AGREEMENT.
GSSWD shall have obtained a written surface use and damage agreement for the
lands upon which the salt
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ACQUISITION AGREEMENT Page 21
<PAGE> 22
water disposal well described on attached EXHIBIT A from all applicable surface
owners in form and substance satisfactory to Purchaser.
Section 6.04 CONSENTS. The consents, approvals, and filings described
in Section 5.04 shall have been obtained or made, as the case may be, without
the imposition of conditions or limitations having a material adverse effect.
Section 6.05 OPINION OF COUNSEL TO THE STOCK SELLERS, THE COMPANY, AND
GSSWD. The Stock Sellers, the Company, and GSSWD shall have delivered to
Purchaser the opinion of their legal counsel, Gary Don Reagan, in form and
substance reasonably acceptable to Purchaser and its counsel, and favorably
addressing the organization, qualification, good standing, and capitalization of
the Company, Kerby, and GSSWD, the due and proper authorization, execution, and
delivery and the enforceability of this Agreement and all instruments and
documents executed by the Stock Sellers, the Company and GSSWD in connection
herewith, and such other matters as Purchaser or its counsel may reasonably
require.
Section 6.06 NO INJUNCTION. There shall not be in effect any
preliminary or permanent injunction or temporary restraining order issued by any
state or federal court that prevents the consummation of the transactions
contemplated hereby.
Section 6.07 OTHER DOCUMENTS. All documents required to be delivered to
Purchaser by the Stock Sellers, the Company, or GSSWD on or prior to the Closing
Date shall have been so delivered.
Section 6.08 MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have been any material adverse change in, to, or affecting the
Company, Kerby, or GSSWD or their operations or assets.
Section 6.09 CERTIFICATES. The Stock Sellers, the Company, and GSSWD
shall have delivered to Purchaser certificates confirming the continuing
validity of their representations and warranties pursuant to Section 6.01 and
certifying their performance hereunder as contemplated by Section 6.02.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE STOCK SELLERS,
THE COMPANY, AND GSSWD TO CLOSE
The obligations of the Stock Sellers, the Company, and GSSWD to
consummate the transactions contemplated by this Agreement shall, unless waived
in writing by them, be subject to the satisfaction on or before the Closing Date
of each of the following conditions, and Purchaser shall use its reasonable
efforts to cause each such condition to be so satisfied:
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ACQUISITION AGREEMENT PAGE 22
<PAGE> 23
Section 7.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of Purchaser contained in this Agreement shall be true and
correct in all respects as of the date made and as of the Closing Date, as
though such representations and warranties were made at and as of such date,
except for changes permitted or contemplated by this Agreement.
Section 7.02 PERFORMANCE. Purchaser shall have performed and complied
in all material respects with all covenants, agreements, obligations, and
conditions required by this Agreement to be performed or complied with by
Purchaser on or prior to the Closing Date.
Section 7.03 CONSENTS AND APPROVALS. The consents, approvals, and
filings described in Section 5.04 shall have been obtained or made, as the case
may be, without the imposition of conditions or limitations having a material
adverse effect.
Section 7.04 NO INJUNCTION. There shall not be in effect any
preliminary or permanent injunction or temporary restraining order issued by any
state or federal court that prevents the consummation of the transactions
contemplated hereby.
Section 7.05 OTHER DOCUMENTS. All documents required to be delivered to
the Stock Sellers, the Company, or GSSWD by Purchaser on or prior to the Closing
Date shall have been so delivered.
Section 7.06 CERTIFICATES. Purchaser shall have delivered to the Stock
Sellers, the Company, and GSSWD certificates confirming the continuing validity
of its representations and warranties pursuant to Section 7.01 and certifying
its performance hereunder as contemplated by Section 7.02.
ARTICLE VIII
THE CLOSING
Section 8.01 CLOSING. The closing ("Closing") of the transaction
contemplated hereby shall take place at the offices of Purchaser at 406 N. Big
Spring, Midland, Texas, on a business date of Purchaser's unilateral selection
within thirty (30) days following any successful completion by Purchaser of an
initial public offering of common stock in the Company through a recognized
national stock exchange (the "Sierra IPO"), but in no event later than April 30,
2000, or at such other place and time as the parties hereto might hereafter
mutually agree in writing. Such date or any alternative date so selected by the
parties is referred to in this Agreement as the "Closing Date." Purchaser shall
afford the Stock Sellers, the Company, and GSSWD at least ten (10) days prior
written notice of its desired Closing Date pursuant to the foregoing.
Section 8.02 DELIVERIES. At the Closing, the following shall occur:
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ACQUISITION AGREEMENT Page 23
<PAGE> 24
(a) The Stock Sellers shall endorse and deliver the
certificate(s) evidencing the Stock to Purchaser, free and clear of liens,
claims, and encumbrances;
(b) GSSWD and Purchaser shall execute and deliver an
assignment and bill of sale that is substantially identical in form and
substance to that attached hereto as EXHIBIT E;
(c) The Stock Sellers, the Company, and GSSWD shall deliver to
Purchaser their closing certificates in compliance with the provisions of
Section 6.09;
(c) The Stock Sellers, the Company, and GSSWD shall deliver,
or cause to be delivered, to Purchaser the legal opinion of their counsel, as
specified in Section 6.05;
(d) Royce Crowell, Jr., Dean Crowell, and Bob Fisher and
Purchaser shall respectively execute and deliver employment agreements which are
substantially identical in form and substance to that attached hereto as EXHIBIT
F (in each case specifying a salary and a position mutually acceptable to the
applicable employee and Purchaser, but the failure to of those parties to agree
upon such matters shall only terminate and extinguish the obligation of
Purchaser to employee such prospective employee hereunder and shall not
otherwise affect the remaining obligations of Sierra and such party or any other
parties under this Agreement, including, but not limited to, the obligation of
the Stock Sellers and of GSSWD to sell the Stock and the GSSWD Assets,
respectively, at Closing);
(e) Royce Crowell (Sr.), Jo Crowell, Royce Crowell, Jr., Dean
Crowell, Pam Fisher, and Bob Fisher and Purchaser shall respectively execute and
deliver non-competition agreements which are substantially identical in form and
substance to that attached hereto as EXHIBIT G;
(f) The parties shall attempt to agree upon an estimate of NFA
and shall execute a preliminary closing statement as contemplated by Section
5.09;
(g) Purchaser shall pay to the Stock Sellers and GSSWD by wire
transfer their respective portions of the cash portion of the Purchase Price
payable at Closing pursuant to Section 1.03(1);
(h) Purchaser shall execute and deliver the Note to the
designee of the Stock Sellers;
(i) The Company and the Stock Sellers' designee shall execute
and deliver the Security Agreement;
(j) Purchaser shall deliver to the Stock Sellers its closing
certificate in compliance with the provisions of Section 7.06;
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ACQUISITION AGREEMENT PAGE 24
<PAGE> 25
(k) The Stock Sellers, the Company, and GSSWD shall execute
such notifications to depository institutions and such changes of authorized
signatories upon the accounts of the Company and GSSWD as Purchaser may
reasonably request; and
(l) At the option of Purchaser in each instance, the Stock
Sellers shall execute and deliver to Purchaser three-year leases covering the
Main Street and old Halliburton properties in Eunice, New Mexico, and the yard
in Hobbs, New Mexico, which are substantially identical in form and substance to
that attached hereto as EXHIBIT H (the "Yard Leases").
ARTICLE IX
TERMINATION AND ABANDONMENT
Section 9.01 Termination and Abandonment. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual agreement of all of the parties hereto;
(b) by Stock Sellers if Closing shall not have occurred on or
prior to April 30, 2000, other than due to breach or non-performance by Stock
Sellers hereunder;
(c) by Purchaser if it fails or is unable to conclude the
Sierra IPO on or before April 30, 2000;
(d) by Purchaser, if the conditions set forth in Article VI
shall not have been complied with and performed in any material respect and such
noncompliance or nonperformance shall not have been cured or eliminated (or by
its nature cannot be cured or eliminated) on or before the Closing Date;
(e) by Stock Sellers, the Company, and GSSWD if the conditions
set forth in Article VII have not been complied with and performed in any
material respect and such noncompliance or nonperformance shall not have been
cured or eliminated (or by its nature cannot be cured or eliminated) on or
before the Closing Date; or
(f) by either Purchaser or Stock Sellers, the Company, and
GSSWD by written notice to the other, if any action or proceeding shall have
been instituted before any court or other governmental body or, to the knowledge
of the party giving such notice, shall have been threatened formally in writing
by any public authority with requisite jurisdiction, to restrain or prohibit the
transactions contemplated by this Agreement or to subject one or more of the
parties or their directors or their officers to liability on the grounds that it
or they have breached any law or regulation or otherwise acted improperly in
connection with such transactions, and such action or
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ACQUISITION AGREEMENT PAGE 25
<PAGE> 26
proceeding shall not have been dismissed or such written threat shall not have
been withdrawn or rescinded on or before the Closing Date.
Section 9.02 REMEDIES, RIGHTS AND OBLIGATIONS ON TERMINATION. If this
Agreement is terminated and abandoned as provided in this Article IX:
(a) Redelivery. Each party will redeliver all documents, work
papers, and other materials of any other party relating to the transactions
contemplated by this Agreement, whether obtained before or after the execution
of this Agreement, to the party furnishing the same, and all information
received by any party to this Agreement with respect to the business of any
other party shall not at any time be used for the advantage of, or disclosed to
third parties by, such party to the detriment of the party furnishing such
information; provided, however, that this subsection (a) shall not apply to any
documents, work papers, material, or information which is a matter of public
knowledge or which has heretofore been or is hereafter published in any
publication for public distribution or filed as public information with any
governmental authority or is otherwise in the public domain.
(b)(1) Default by Purchaser. If Purchaser fails or refuses to
close in accordance with the terms of this Agreement and if Stock Sellers, the
Company, and GSSWD have timely satisfied all the conditions to Purchaser's
obligation to close hereunder and are not in default hereunder, then, and as the
exclusive remedy of Stock Sellers, the Company, and GSSWD for such breach, Stock
Sellers, the Company, and GSSWD shall have the right to declare this Agreement
terminated and to receive the total sum of $15,000.00 from Purchaser as
liquidated damages and not a penalty for the breach hereof by Purchaser (the
same as if Purchaser had deposited such sum with Stock Sellers, the Company, and
GSSWD as a down payment or earnest money hereunder). In this regard, the parties
acknowledge and agree that the damages occasioned to Stock Sellers, the Company,
and GSSWD by any such breach are difficult of ascertainment or calculation and
that the specified sum of liquidated damages represents a fair and reasonable
estimate of such damages.
(b)(2) Default by Stock Sellers, the Company and/or GSSWD. If
Stock Sellers, the Company, and/or GSSWD fails or refuses to close in accordance
with the terms of this Agreement and if Purchaser has timely satisfied all the
conditions to Purchaser's obligation to close hereunder and is not in default
hereunder, Purchaser shall have the right either (i) to declare this Agreement
canceled or (ii) to seek enforcement of this Agreement at law or in equity,
including, without limitation, an action for specific performance of the terms
of this Agreement by Stock Sellers, the Company, and GSSWD or for recovery of
the actual damages occasioned to Purchaser by such breach. The provisions of
Section 10.02 hereof shall have no application to any claim or action by
Purchaser under this Section 9.01(b)(2).
(c) Continuing Liability. The continuing liability of the
parties to this Agreement with respect to any breach of any representation,
warranty, covenant, or agreement contained therein shall not be affected by such
termination or abandonment, unless this Agreement is terminated or
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ACQUISITION AGREEMENT Page 26
<PAGE> 27
abandoned by agreement of the parties pursuant to Section 9.01 (a) or due to
failure to successfully conclude the Sierra IPO pursuant to Section 9.01(c).
ARTICLE X
POST CLOSING REMEDIES
Section 10.01 OFFSET/WAIVER. Subject to the provisions of Section
10.02, after the Closing, Purchaser, without limitation of its other rights and
remedies, shall have a right of offset against its obligations under the Note
for any breach of the representations, warranties, and covenants of Stock
Sellers, the Company, and/or GSSWD under this Agreement. In any proceedings by
the Purchaser to assert or prosecute any claims under, or to otherwise enforce,
this Agreement, Stock Sellers, the Company, and GSSWD agree that they will not
assert as a defense, or as a bar to recovery, and hereby waive any right to so
assert such defense or such bar to recovery, that (a) prior to the Closing, the
Company or Kerby shall have had knowledge of the circumstances giving rise to
the claim being pursued by Purchaser, or (b) prior to the Closing, the Company
or Kerby engaged in conduct or took action that caused or brought about the
circumstances giving rise to such claim, or otherwise contributed thereto.
Section 10.02 DISPUTE RESOLUTION.
(a) Unless expressly provided otherwise in this Agreement, any
and all claims, disputes, controversies, and other matters in question involving
the parties hereto and arising out of or relating to this Agreement and the
transactions contemplated hereby, any provision hereof, the alleged breach of
such provision, or in any way relating to the subject matter of this Agreement
(collectively, "Disputes"), whether such Disputes sound in contract, tort, or
otherwise, at law or in equity, under State or federal law, whether provided by
statute or common law, for damages or any other relief, shall be resolved in
accordance with this Section 10.02.
(b) The parties shall attempt in good faith to resolve any
Dispute promptly by negotiations between representatives who have authority to
settle the controversy. Any party may give the other party written notice of any
Dispute not resolved in the normal course of business, together with a request
that the parties meet and confer ("Notice of Dispute"). Within fifteen (15) days
after delivery of a Notice of Dispute, the parties or their representatives
shall meet at a mutually acceptable time and place, and thereafter as often as
they reasonably deem necessary, to exchange relevant information and to attempt
to resolve the Dispute. If the matter has not been resolved within thirty (30)
days after delivery of the Notice of Dispute, or if the parties fail to meet
within fifteen (15) days after delivery of the Notice of Dispute, either party
may initiate mediation of the claim or dispute as provided hereafter. If a party
or its representative intends to be accompanied at a meeting by an attorney, the
other parties shall be given advance notice of such intention and may also be
accompanied by an attorney. All negotiations pursuant to this clause are
confidential and shall be
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ACQUISITION AGREEMENT PAGE 27
<PAGE> 28
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Evidence and any state's rules of evidence.
(c) If a Dispute has not been resolved by negotiation as
provided in Section 10.02 (b), the parties shall endeavor to settle the claim or
dispute by mediation under the Center for Public Resources ("CPR") Model
Procedure for Mediation of Business Disputes. A neutral third party will be
selected from the CPR panel of neutrals. If the parties encounter difficulty in
agreeing on a neutral third party, they will seek the assistance of CPR in the
selection process. Mediation under this Section 10.02 (c) will commence within
sixty (60) days of the Notice of Dispute.
(d) If the Dispute has not been resolved by non-binding means
pursuant to Sections 10.02(b) or (c) within thirty (30) days of the initiation
of mediation, either party may submit such Dispute for resolution by binding
arbitration as follows:
(i) It is the intention of the parties that the
arbitration shall be conducted pursuant to
the Federal Arbitration Act (the "Act"), as
modified by this Agreement. The validity,
construction, and interpretation of this
Section 10.02 (d), and all procedural
aspects of the arbitration conducted
pursuant to this Section 10.02 (d),
including, but not limited to, the
determination of issues that are subject to
arbitration (i.e. arbitrability), the scope
of the arbitrable issues, allegations of
fraud in the inducement to enter into this
Agreement, or this arbitration provision,
allegations of waiver, laches, delay, or
other defenses to arbitrability, and the
rules governing the conduct of the
arbitration (including the time for filing
an answer, the time for filing
counterclaims, the times for amending
pleadings, the specificity of the pleadings,
the extent and scope of discovery, the
issuance of subpoenas, the times for
designation of experts, whether the
arbitration is to be stayed pending
resolution of related litigation involving
third parties not bound by this Agreement,
the receipt of evidence and the like), shall
be decided by the arbitrators. The
arbitration shall be administered by the
American Arbitration Association ("AAA"),
and shall be conducted pursuant to the
Commercial Arbitration Rules of the AAA, as
modified by this Agreement. Notwithstanding
any provision of this Agreement to the
contrary, the parties expressly agree that
the arbitrators shall have absolutely no
authority to award incidental, special,
treble, exemplary, or punitive damages of
any type under any circumstances regardless
of whether such damages may be available
under New Mexico law, the law of any other
state, or federal law, or under the Act, or
the Commercial Arbitration Rules of the AAA,
the parties hereby waiving their right, if
any, to recover incidental, special, treble,
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ACQUISITION AGREEMENT PAGE 28
<PAGE> 29
exemplary, or punitive damages in connection
with any such Disputes.
(ii) The arbitration proceeding shall be
conducted in Midland, Texas before a panel
of three (3) arbitrators appointed in
accordance with the Commercial Arbitration
Rules of the AAA. The arbitrators shall
conduct a hearing as soon as reasonably
practicable after appointment of the third
arbitrator, and a final decision completely
disposing of all Disputes that are the
subject of the arbitration proceedings shall
be rendered by the arbitrators as soon as
reasonably practicable after the hearing.
There shall be no transcript of the hearing
before the arbitrators. The arbitrators'
ultimate decision after final hearing shall
be in writing, but shall be as brief as
possible, and the arbitrators shall not
assign reasons for their ultimate decision.
(iii) The fees and expenses of the arbitrators
shall be borne equally by the parties, but
the decision of the arbitrators may include
such award of the arbitrators' fees and
expenses and of other costs and attorneys'
fees as the arbitrators determine
appropriate.
(iv) To the fullest extent permitted by law, the
arbitration proceeding and the arbitrators'
award shall be maintained in confidence by
the parties.
(v) The award of the arbitrators shall be
binding upon the parties and final and
nonappealable to the maximum extent
permitted by law, and judgment thereon may
be entered by a court of competent
jurisdiction and enforced by any party as a
final judgment of such court.
(e) All applicable statutes of limitation and defenses based
upon the passage of time shall be tolled while the procedures specified in
Sections 10.02(b) and (c) are pending. The parties will take such actions, if
any, as may be required to effectuate such tolling.
(f) Each party is required to continue to perform its
obligations under this Agreement pending final resolution of any Dispute covered
by this Article X.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01 AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified, or supplemented only by writing duly
executed by all of the parties hereto.
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ACQUISITION AGREEMENT PAGE 29
<PAGE> 30
Section 11.02 WAIVER OF COMPLIANCE. Any failure of the Stock Sellers,
the Company, or GSSWD, on the one hand, or Purchaser, on the other, to comply
with any obligation, covenant, agreement or condition contained herein may be
expressly waived in writing by Purchaser or Stock Sellers, the Company, and
GSSWD, respectively; provided, however, such waiver or failure to insist upon
strict compliance shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure.
Section 11.03 NOTICES. All notices, requests, demands, and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand (including, without
limitation, by overnight courier), transmitted by facsimile, or mailed,
certified or registered mail (return receipt requested) with postage prepaid:
(a) if to Stock Sellers or the Company (only until the
Closing Date) or GSSWD, to:
Mr. Royce Crowell (Sr.)
Gold Star Service Company, Inc.
Box 1480
Eunice, New Mexico 88231
Fax: (____) _____________
with a copy to:
Gary Don Reagan, P. A.
501 North Linam
Hobbs, New Mexico 88241
Fax: (505) 393-2252.
or to such other person or addresses as Stock Sellers or the Company shall
furnish Purchaser in writing in accordance with this Section 11.03; and
(b) if to Purchaser (or to the Company after Closing),
to:
Sierra Well Service, Inc.
406 N. Big Spring
Midland, Texas 79701
Telephone: (915) 570-0829
Fax: (915) 570-0598
Attention: Kenneth V. Huseman, President
with a copy to:
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ACQUISITION AGREEMENT PAGE 30
<PAGE> 31
Kerr & Ward, L. L. P.
500 W. Texas, Suite 1310
Midland, Texas 79701
Telephone: (915) 684-9990
Fax: (915) 684-9997
Attention: William M. Kerr, Jr.
or to such other persons or addresses as Purchaser shall furnish to Stock
Sellers and the Company in writing in accordance with this Section 11.03.
Delivery of notices shall be effective only upon actual receipt by the
intended recipient (or, in the case of facsimile transmission, the completion of
such transmission during the recipient's normal business hours).
Section 11.04 SURVIVAL. This Agreement is intended in part to evidence
the continuing rights and obligations of the parties following Closing, and,
except as may otherwise be expressly provided herein, all of the
representations, warranties, covenants, and obligations of the parties are
hereby expressly made to survive Closing.
Section 11.05 EXPENSES. Purchaser shall pay its own fees and expenses,
including, without limitation, professional fees and expenses, incurred in
connection with the negotiation, execution, and performance of this Agreement
and the transactions contemplated hereby. All fees and expenses of Stock Seller
and GSSWD and all fees and expenses of the Company for periods to and including
the Closing Date, including, without limitation, professional fees and expenses,
incurred in connection with the negotiation, execution, and performance of this
Agreement and the transactions contemplated hereby, shall be borne and paid
exclusively by Stock Sellers.
Section 11.06 BINDING NATURE; NO THIRD PARTY BENEFICIARIES. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained herein, express or implied, is intended to confer on
any person other than the parties hereto or their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
Section 11.07 GOVERNING LAW. This Agreement, and the legal relations
among the parties hereto arising from this Agreement, shall be governed by and
construed in accordance with the laws of the State of New Mexico, without regard
to its conflicts of laws rules.
Section 11.08 ENTIRE AGREEMENT. This Agreement (including the exhibits
and schedules hereto and the other instruments referred to herein) embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
warranties, covenants or undertakings, other than those expressly set forth or
referred to
- --------------------------------------------------------------------------------
ACQUISITION AGREEMENT PAGE 31
<PAGE> 32
herein. This Agreement supersedes all prior agreements and understandings among
the parties with respect to such subject matter.
Section 11.09 HEADINGS. The headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 11.10 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
Section 11.11 SEVERABILITY. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future law, such
provision shall be fully severable and this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part hereof, and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically, as part of this Agreement, a provision as similar in terms and
substance to such illegal, invalid, or unenforceable provision as may be
possible and legal, valid, and enforceable.
[THIS SPACE INTENTIONALLY LEFT BLANK]
- --------------------------------------------------------------------------------
ACQUISITION AGREEMENT PAGE 32
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and made and entered into as of the date first set forth above.
THE STOCK SELLERS:
/s/ ROYCE CROWELL SR.
------------------------------------
ROYCE CROWELL (SR.)
/s/ EMMA JO CROWELL
------------------------------------
EMMA JO CROWELL
/s/ DEAN CROWELL
------------------------------------
DEAN CROWELL
/s/ PAMELA FISHER
------------------------------------
PAMELA FISHER
/s/ ROYCE E. CROWELL, JR.
------------------------------------
ROYCE E. CROWELL, JR.
THE COMPANY:
GOLD STAR SERVICE COMPANY,
INC., a New Mexico corporation
By: /s/ ROYCE CROWELL SR.
----------------------------------
Printed Name: ROYCE CROWELL SR.
------------------------
Title: President
-------------------------------
GOLD STAR SWD, LTD. CO., a New
Mexico limited liability company
By: /s/ ROYCE CROWELL SR.
------------------------------------
Printed Name: ROYCE CROWELL SR.
--------------------------
Title: Manager
---------------------------------
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ACQUISITION AGREEMENT PAGE 33
<PAGE> 34
PURCHASER:
SIERRA WELL SERVICE, INC., a
Delaware corporation
By: /s/ CHARLES SWIFT
------------------------------------
Printed Name: Charles Swift
--------------------------
Title: Vice President
---------------------------------
LIST OF EXHIBITS AND SCHEDULES
- ------------------------------
EXHIBIT A THE DISPOSAL AND BRINE FACILITIES
EXHIBIT B THE NOTE
EXHIBIT C THE SECURITY AGREEMENT
EXHIBIT D THE FINANCIAL STATEMENTS
EXHIBIT E THE ASSIGNMENT AND BILL OF SALE
EXHIBIT F FORM EMPLOYMENT AGREEMENT
EXHIBIT G FORM NON-COMPETITION AGREEMENT
EXHIBIT H YARD LEASES
SCHEDULE 1.02 EXCLUDED ASSETS
SCHEDULE 2.08 EXTRAORDINARY TRANSACTIONS
SCHEDULE 2.10 EMPLOYEE BENEFIT PLANS
SCHEDULE 2.12(a) REAL PROPERTY
SCHEDULE 2.12(b) PERSONAL PROPERTY
SCHEDULE 2.13 EXISTING LIENS
SCHEDULE 2.18 CONTRACTS
SCHEDULE 2.21 INSURANCE POLICIES
SCHEDULE 2.22 BANK ACCOUNTS
SCHEDULE 2.23 OTHER LIABILITIES
SCHEDULE 2.25 TRANSACTIONS WITH AFFILIATES
SCHEDULE 5.14 PERSONAL GUARANTIES OF STOCK SELLERS
- --------------------------------------------------------------------------------
ACQUISITION AGREEMENT PAGE 34
<PAGE> 35
EXHIBIT B
SECURED PROMISSORY NOTE
$600,000.00 Eunice, New Mexico ____________, 2000
FOR VALUE RECEIVED, the undersigned, SIERRA WELL SERVICE, INC., a
Delaware corporation ("Maker"), promises to pay to the order of [TO BE
DESIGNATED BY STOCK SELLERS] ("Payee"), at Box 1480, Eunice, Lea County, New
Mexico 88231, the principal sum of SIX HUNDRED THOUSAND AND NO/100 DOLLARS
($600,000.00), together with interest on the unpaid principal balance from day
to day outstanding prior to default or maturity at a floating per annum rate
which shall from quarter to quarter be equal to the lesser of (i) the Prime Rate
(hereinafter defined) in effect hereunder (the "Established Rate") (calculated
on the basis of actual days elapsed in a year consisting of 365 or 366 days, as
appropriate) or (ii) the Maximum Rate (hereinafter defined) (calculated on the
basis of actual days elapsed in a year consisting of 365 or 366 days, as
appropriate). The interest rate on this Note shall initially be determined as of
the first Friday most immediately preceding the date of this Note that is a
business day (the "Initial Determination Date") and shall thereafter be
redetermined quarterly until maturity based upon the Prime Rate in effect as of
the first Friday most immediately preceding each ensuing calendar quarter from
the date hereof that is a business day (each such date being hereinafter
referred to as a "Redetermination Date"). Each change in the rate of interest
charged hereunder shall, subject to the terms hereof, become effective, without
notice to Maker, upon the applicable quarterly adjustment date (as opposed to
the Redetermination Date). If at any time and from time to time the Established
Rate exceeds the Maximum Rate, thereby causing the interest payable to be
limited to the Maximum Rate, then any subsequent reduction in the Established
Rate shall not reduce the rate of interest hereunder below the Maximum Rate
until the total amount of interest accrued hereon equals the amount of interest
that would have accrued if the Established Rate had at all times been in effect.
All past due principal of and accrued interest on this Note shall bear interest
at the Maximum Rate.
As used herein, "Prime Rate" shall mean the floating rate of interest
denominated and published as such by the Wall Street Journal on the Initial
Determination Date and thereafter on each applicable Redetermination Date.
As used herein, "Maximum Rate" shall mean the maximum non-usurious rate
of interest that at any time, or from time to time, may be contracted for,
taken, reserved, charged, or received under applicable law on the indebtedness
evidenced by this Note, after taking into account, to the extent required by
applicable law, any and all relevant payments, charges, or other amounts under
this Note and all instruments securing payment of this Note.
The principal of and accrued interest on this Note are due and payable
one year from the date hereof. This Note may be prepaid in whole or in part
without penalty. Partial prepayments shall be applied first to any accrued and
unpaid interest and the balance remaining, if any, to principal.
This Note is secured by that certain Security Agreement of even date
herewith, between Gold Star Service Company, Inc., as Grantor, and Payee, as
Secured Party, covering all of the collateral therein described.
It is understood and agreed that in the event of default in the payment
of this Note or any installment hereof, principal or interest, and if such
default shall continue unremedied for more than ten (10) days
- --------------------------------------------------------------------------------
ACQUISITION AGREEMENT PAGE 36
<PAGE> 36
following written notice thereof from Payee to Maker, or in the event of any
default (other than non-payment of this Note) in any instrument securing payment
of this Note and if such default shall continue unremedied for more than thirty
(30) days following written notice thereof from Payee to Maker, the entire
principal balance of and all accrued and unpaid interest on this Note shall at
once become due and payable without notice, at the option of Payee. Failure by
Payee to exercise this option on any one or more occasions shall not constitute
a waiver of the right to exercise such option in the event of subsequent
default.
Except as otherwise herein expressly provided, the makers, signers,
sureties, and endorsers of this Note jointly and severally waive demand,
presentment, notice of dishonor, notice of intent to demand or accelerate
payment hereof, diligence in collecting, grace, notice, and protest, and agree
to one or more extensions for any period or periods of time and partial
payments, before or after maturity, without prejudice to Payee; and if this Note
shall be collected by legal proceedings or through probate or bankruptcy court,
or shall be placed in the hands of an attorney for collection after default or
maturity, Maker agrees to pay all costs of collection, including reasonable
attorney's fees.
All agreements between Maker and Payee, whether now existing or
hereafter arising and whether written or oral, are hereby limited so that under
no contingency, whether by reason or demand for payment or acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged, or
received by Payee exceed the Maximum Rate. If, for any circumstance whatsoever,
interest would otherwise be payable to Payee in excess of the Maximum Rate, the
interest payable to Payee hereunder shall be reduced to the Maximum Rate; and if
for any circumstance Payee shall ever receive anything of value deemed interest
by applicable law in excess of the Maximum Rate, then an amount equal to any
such excess shall be applied to the reduction of the principal hereof and not
the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal hereof, such excess shall be refunded to Maker. All
interest paid or agreed to be paid to Payee shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full period until payment in full of the principal (including the period of any
renewal or extension hereof) so that the interest hereon for such full period
shall not exceed the Maximum Rate.
Any provisions of this Agreement to the contrary notwithstanding, if
Maker shall successfully conclude an initial public offering of common stock in
Maker through a nationally recognized stock exchange at any time prior to
maturity or payment in full of this Note, whether stated or by acceleration,
(the "Sierra IPO"), Maker and Payee agree to convert the unpaid balance of this
Note to unregistered common stock in Maker at a per share price equivalent to
the per share price at which Maker issued its common stock in the Sierra IPO
within forty-five (45) business days following successful conclusion of the
Sierra IPO. Maker and Payee shall effectuate such conversion of indebtedness for
stock through the delivery of this Note by Payee to Maker, marked "PAID," in
return for the delivery by Maker of the requisite number of shares of its
unregistered common stock to Payee.
This Note is in all respects subject to that certain Stock Purchase
Agreement dated as of March 14, 2000, between Payee, as Stock Sellers, Gold Star
Service Company, Inc., as the Company, Gold Star Swd Ltd. Co., and Maker, as
Purchaser.
This Note shall be governed by and construed in accordance with the
laws of the State of New Mexico.
SIERRA WELL SERVICE, INC.
By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------
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ACQUISITION AGREEMENT PAGE 37
<PAGE> 37
FIRST AMENDMENT TO ACQUISITION AGREEMENT
THIS FIRST AMENDMENT TO ACQUISITION AGREEMENT ("First Amendment") is
made and entered into as of the 20th day of March 2000, between ROYCE CROWELL
(SR.), EMMA JO CROWELL, DEAN CROWELL, PAMELA FISHER, and ROYCE E. CROWELL, JR.
(the "Stock Sellers"), GOLD STAR SERVICE COMPANY, INC., a New Mexico corporation
(the "Company"), GOLD STAR SWD, LTD. CO., a New Mexico limited liability company
("GSSWD"), and SIERRA WELL SERVICE, INC., a Delaware corporation ("Purchaser"),
with reference to the following:
RECITALS
A. The Stock Sellers, the Company, GSSWD, and Purchaser are parties to
that certain Acquisition Agreement (the "Agreement") dated as of March 14, 2000,
relating to, among other things, the sale and purchase of all of the issued and
outstanding capital stock of the Company and of certain related assets.
B. The Stock Sellers, the Company, GSSWD, and Purchaser wish to amend
the Agreement upon the terms which follow.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. EXTENSION OF CLOSING DATE. The Stock Sellers, the Company,
GSSWD, and Purchaser hereby modify and amend existing Section 8.01 of the
Agreement to read as follows:
Section 8.01 CLOSING. The closing ("Closing") of the
transaction contemplated hereby shall take place at the
offices of Purchaser at 406 N. Big Spring, Midland, Texas, on
a business date of Purchaser's unilateral selection within
thirty (30) days following any successful completion by
Purchaser of an initial public offering of common stock in the
Company through a recognized national stock exchange (the
"Sierra IPO"), but in no event later than June 30, 2000, or at
such other place and time as the parties hereto might
hereafter mutually agree in writing. Such date or any
alternative date so selected by the parties is referred to in
this Agreement as the "Closing Date." Purchaser shall afford
the Stock Sellers, the Company, and GSSWD at least ten (10)
days prior written notice of its desired Closing Date pursuant
to the foregoing.
2. DEFINITIONS. Except as expressly indicated otherwise herein,
capitalized terms in this First Amendment shall have the same meanings as are
ascribed to them in the Agreement.
<PAGE> 38
3. CONFIRMATION. The parties hereto hereby ratify, confirm, and
adopt the Agreement, as amended hereby. Except as modified hereby, the Agreement
remains in full force and effect.
4. FAX; COUNTERPARTS. This First Amendment may be executed by
fax and in multiple counterparts.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
First Amendment as of the day and year first above written.
THE STOCK SELLERS:
/s/ ROYCE CROWELL SR.
------------------------------------
ROYCE CROWELL (SR.)
/s/ EMMA JO CROWELL
------------------------------------
EMMA JO CROWELL
/s/ DEAN CROWELL
------------------------------------
DEAN CROWELL
/s/ PAMELA FISHER
------------------------------------
PAMELA FISHER
/s/ ROYCE E. CROWELL, JR.
------------------------------------
ROYCE E. CROWELL, JR.
THE COMPANY:
GOLD STAR SERVICE COMPANY,
INC., a New Mexico corporation
By: /s/ ROYCE CROWELL
--------------------------------
Printed Name: ROYCE CROWELL
-----------------------
Title: PRESIDENT
-----------------------------
GOLD STAR SWD, LTD. CO., a New
Mexico limited liability company
By: /s/ ROYCE CROWELL
--------------------------------
Printed Name: ROYCE CROWELL
-----------------------
Title: MANAGER
-----------------------------
PURCHASER:
SIERRA WELL SERVICE, INC., a
Delaware corporation
By: /s/ CHARLES SWIFT
--------------------------------
Printed Name: CHARLES SWIFT
-----------------------
Title: VICE PRESIDENT
-----------------------------
- --------------------------------------------------------------------------------
FIRST AMENDMENT TO ACQUISITION AGREEMENT PAGE 2
<PAGE> 1
EXHIBIT 10.20
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as
of the 29th day of February 2000, by and between REX BUSBY and MADIE WALKER
(collectively, Seller), EUNICE WELL SERVICING CO., INC., a New Mexico
corporation (the "Company"), and SIERRA WELL SERVICE, INC., a Delaware
corporation ("Purchaser").
RECITALS:
A. The Company is a New Mexico corporation based out of Eunice, New
Mexico, which is principally engaged in the well servicing business in the
Permian Basin of West Texas and Southeastern New Mexico (the "Business").
B. Seller owns all of the issued and outstanding capital stock of the
Company (the "Stock").
C. Seller desires to sell the Stock, and Purchaser desires to purchase
the same, upon and subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, and covenants which are hereinafter set forth, and
other good and valuable consideration, the legal sufficiency of which are hereby
acknowledged, the parties hereto have agreed and do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
Section 1.01 THE STOCK. Subject to all of the terms and conditions of
this Agreement, Seller hereby agrees to sell, transfer, and deliver, and
Purchaser hereby agrees to purchase, pay for, and accept, at the Closing
(hereinafter defined), all of the Stock.
Section 1.02 PRE-CLOSING DISTRIBUTION OF CERTAIN ASSETS. At or prior to
Closing, the Company shall distribute to Seller, without representation,
warranty, or recourse by or upon the Company, and without adverse tax effect
upon the Company, all of its right, title and interest in and to the assets
listed on attached SCHEDULE 1.02 (collectively, the "Excluded Assets"). In
connection with such distribution, upon Closing, Seller agrees to indemnify and
hold the Company and Purchaser harmless from and against any and all claims,
demands, causes of action, liabilities, losses, and/or expenses (including,
without limitation, reasonable attorneys' fees and other expenses of litigation)
arising from or in connection with the acquisition, ownership, operation, use,
or distribution of the Excluded Assets by the Company, specifically including,
without limitation, any adverse tax consequences occasioned to or suffered by
the Company or Purchaser as a consequence of the distribution of the Excluded
Assets to Seller pursuant to this Section 1.02.
<PAGE> 2
Section 1.03 PURCHASE PRICE. Subject to adjustment as hereinafter
provided in this Agreement, the total purchase price ("Purchase Price") for the
Stock is a sum equal to (A) $2,050,000.00 plus or minus (B) the "net financial
assets" (as defined below) of the Company as of the Closing Date ("NFA"),
payable by Purchaser to Seller as follows:
(1) Purchaser shall pay to Seller in immediately available
funds at the Closing a sum equal to (a) $1,650,000.00 plus
or minus (b) NFA, as preliminarily estimated and finally
adjusted pursuant to Section 5.08; and
(2) Purchaser shall execute and deliver to Seller at Closing
its promissory note (the "Note") in the original principal
amount of $400,000.00, bearing interest at a floating rate
equal to the prime rate of interest quoted in the Wall
Street Journal published on the Friday most immediately
preceding the applicable quarterly adjustment date, and
payable to the order of Seller on or before one year from
the date thereof, said Note to be substantially identical
in form and substance to that attached hereto as EXHIBIT
A, and, subject to any requisite consents of existing
lenders of the Company, to be secured by security
interests upon the tangible personal property of the
Company as of Closing that are junior in priority to any
liens and security interests upon such assets as of the
Closing Date, as created by a security agreement
substantially identical in form and substance to that
attached hereto as EXHIBIT B (collectively, the "Security
Agreement").
As used in this Agreement, "net financial assets" shall mean the
difference between (a) "Current Assets" and (b) "Total Liabilities" (including,
"Current Liabilities," "Long-Term Debt, less current maturities," and "Long-Term
Obligation under Capital Lease"), as those account groups or subgroups are shown
on the Preliminary Audited Balance Sheet (hereinafter defined), subject to
modification and adjustment in accordance with generally accepted accounting
principles pursuant to Section 5.08 to reflect changes between the date of the
Preliminary Audited Balance Sheet and the Closing Date.(i.e. CA - TL = net
financial assets). The calculation of NFA as of the Closing Date shall, in
particular, but without limitation, give effect to the distribution of the
Excluded Assets to Seller by the Company pursuant to Section 1.02 and any tax
liabilities occasioned to the Company from such distribution.
Notwithstanding the foregoing, as among Seller, the Purchase Price shall
be paid and payable to and among Seller, in accordance with their respective
interests in the Stock as shown on attached SCHEDULE 2.11, as Seller shall
jointly direct Purchaser in writing at Closing under this Agreement.
Section 1.04 BREAKUP FEE. Within three (3) business days following
execution and delivery of this Agreement by all parties, Purchaser shall deposit
with J. W. Neal, 419 W. Cain, Hobbs, New Mexico 88240, Telephone: (505)
397-3614; Fax: (505) 393-7405 (the "Escrow Agent"), the sum of TWENTY FIVE
THOUSAND AND NO/100 DOLLARS ($25,000.00) in immediately available funds (the
"Breakup Fee"). The Escrow Agent shall, promptly upon its receipt of the
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STOCK PURCHASE AGREEMENT Page 2
<PAGE> 3
Breakup Fee, place the same in an interest bearing account for demand deposits
that is approved by Seller and Purchaser. All interest so derived shall be added
to and become a part of the Breakup Fee. If the sale contemplated hereby is
closed pursuant to the terms of this Agreement, the Breakup Fee shall be applied
to a corresponding amount of the Purchase Price payable by Purchaser to Seller
at the Closing. If this Agreement is terminated by Purchaser in accordance any
right of termination afforded to Purchaser in this Agreement, the Breakup Fee
shall be returned to Purchaser. The Breakup Fee shall otherwise be applied,
remitted, or paid as elsewhere provided in this Agreement. The Escrow Agent
agrees promptly to deliver, or cause to be delivered, to Seller and Purchaser
written acknowledgments of its receipt of a fully signed copy of this Agreement
and the Breakup Fee as and when deposited with the Escrow Agent, together with
his confirmation that the Breakup Fee will be held by the Escrow Agent pursuant
to the terms of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
SELLER AND THE COMPANY
Seller and the Company hereby jointly and severally represent and
warrant to Purchaser as of the date of this Agreement as follows:
Section 2.01 ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation and has the requisite
power and authority to own, lease, and operate its assets and to carry on its
business as now being conducted. The Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorizations. The Company is duly qualified or licensed to do business and is
in good standing in each jurisdiction where the character of the assets owned,
leased, or operated by it or the nature of its activities makes such
qualification or licensing necessary. The Company does not have any
subsidiaries. The Company does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, or other business association or entity.
Section 2.02 GOVERNING DOCUMENTS. The articles of incorporation and the
bylaws of the Company, true and correct copies of which have been furnished to
Purchaser, are in full force and effect and have not been modified, amended, or
rescinded. The Company is not in violation of its articles of incorporation or
bylaws.
Section 2.03 CAPITALIZATION OF THE COMPANY. The authorized capital stock
of the Company consists of 10,000 shares of common stock, par value $27.00 per
share. As of the date hereof, 175 shares of common stock of the Company are
issued and outstanding, all of which are validly issued, fully paid, and
nonassessable (and collectively constitute the Stock). The Company has issued an
additional 8 shares of capital stock, all of which are held in treasury. None of
such
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STOCK PURCHASE AGREEMENT Page 3
<PAGE> 4
treasury shares has been canceled and returned to the status of authorized, but
unissued stock. There are no options, warrants, or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or obligating the Company to issue or sell any
shares of capital stock of, or other equity interests in, the Company. There are
no obligations, contingent or otherwise, of the Company to repurchase, redeem,
or otherwise acquire any shares of the Stock or to provide funds to or make any
investment (in the form of a loan, capital contribution, or otherwise) in any
other person or entity.
Section 2.04 AUTHORITY RELATIVE TO THIS AGREEMENT. Seller and the
Company have full power and authority to execute and deliver this Agreement and
to perform their obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Seller and
the Company and their consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary action and no other
proceedings on the part of Seller or the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Seller and the Company and
constitutes the legal, valid, and binding obligations of Seller and the Company,
except as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to or limiting
creditors' rights or by legal principles of general applicability governing
availability of equitable remedies.
Section 2.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Seller and
the Company do not, and the performance of this Agreement by Seller and the
Company will not (i) conflict with or violate the articles of incorporation,
bylaws, or other governing documents of the Company, (ii) conflict with or
violate any laws, statutes, rules, regulations, or pronouncements of any court,
tribunal, or governmental agency, whether federal, state, or local,
(collectively, "Laws") applicable to Seller or the Company, or by which they or
their respective assets are bound or affected, or (iii) result in any material
breach of or constitute a material default (or an event that with notice or
lapse of time or both would become a material default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any of the assets of Seller or the
Company pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise, or other instrument or obligation to which
Seller or the Company is a party or by which any of them or their respective
assets are bound or affected.
(b) The execution and delivery of this Agreement by Seller and
the Company do not, and the performance of this Agreement by Seller and the
Company will not, require any consent, approval, authorization, or permit of, or
filing with or notification to, any governmental or regulatory authority,
domestic or foreign.
Section 2.06 COMPLIANCE; PERMITS. The Company is not in conflict with,
or in default under or violation of, (i) any federal, state, or local laws
applicable to the Company or by which the Company or any of the assets of the
Company are bound or affected or (ii) any note, bond,
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STOCK PURCHASE AGREEMENT Page 4
<PAGE> 5
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company is a party or by which the
Company or its assets are bound or affected. The Company possesses all permits,
licenses, leases, agreements, and authorizations of governmental authorities and
any other applicable persons or entities necessary to or for the operation of
its assets, properties, and business, all of which permits, licenses, leases,
agreements, and authorizations are in full force and effect.
Section 2.07 REPORTS AND FINANCIAL STATEMENTS OF THE COMPANY. The
preliminary audited balance sheet of the Company for the period ending as of
December 31, 1999 (the "Preliminary Audited Balance Sheet") and the statements
of operations, changes in stockholders equity, and cash flows of the Company for
the period ending as of December 31, 1999, copies of all of which are attached
hereto as EXHIBIT C (collectively, the "Financial Statements"), are true and
complete in all material respects, fairly represent the financial position and
results of operations of the Company as of and for the periods shown, and were
prepared in accordance with generally accepted accounting principles. None of
the Financial Statements contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements therein
not misleading.
Except as and to the extent of (i) liabilities reflected or reserved
against in the Preliminary Audited Balance Sheet and (ii) liabilities which have
arisen since the date of the Preliminary Audited Balance Sheet in the ordinary
course of business and which have been fully disclosed to Purchaser in writing,
the Company does not have any liabilities or obligations (whether accrued,
absolute or contingent), and including without limitation, any liabilities
resulting from failure to comply with any laws or any federal, state, or local
tax liabilities due or to become due whether (a) incurred in respect of or
measured by income for any financial statement or balance sheet period, or (b)
arising out of transactions entered into, or any state of facts existing, prior
or subsequent thereto.
Section 2.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
Preliminary Audited Balance Sheet, except as shown on attached SCHEDULE 2.08,
the Company has conducted its businesses only in the ordinary course and in a
manner consistent with past practice and, since such date, except as shown on
SCHEDULE 2.08, there has not been (a) any material adverse change in the
financial condition, results of operations, or business of the Company, (b) any
material damage, destruction, or loss (whether or not covered by insurance) with
respect to any assets of the Company, (c) any change by the Company in its
accounting methods, principles, or practices, (d) any entry by the Company into
any commitments or transactions material to the Company, (e) any declaration,
setting aside, or payment of any dividends or distributions in respect of shares
of the Stock or any redemption, purchase, or other acquisition of any of the
capital stock of the Company, (f) any increase or decrease in or establishment
or termination of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase, or other
employee benefit plan of the Company, or any other increase in the compensation
payable or to become payable to any officers or key employees of the Company,
(g) any proposed law or regulation or any actual event or condition of any
character that is known to the
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<PAGE> 6
Seller or the Company that materially adversely affects the business or future
prospects of the Company, (h) any claim, litigation, event, or condition of any
character that materially adversely affects the business or future prospects of
the Company, (i) any issuance or purchase of, or agreement to issue or purchase
shares of the capital stock or other securities of the Company, (j) any
mortgage, pledge, lien, or encumbrance made or agreed to be made on any of the
Company's assets or properties, (k) any sale, transfer, other disposition of, or
agreement to sell, transfer, or dispose of the Company's properties or assets,
tangible or intangible, except as expressly permitted by this Agreement and
except in the ordinary course of business and then only for full and fair value
received, (l) any loans, advances, or agreements with respect to any loans or
advances, other than to customers in the ordinary course of business and that
have been properly reflected as "accounts receivable" on the Company's books;
(m) any transaction outside the ordinary course of business, (n) any capital
expenditure by the Company in excess of $20,000, or (o) any agreement by Seller
or the Company to do any of the items described in Subparagraphs (a) through (n)
above.
Section 2.09 ABSENCE OF LITIGATION. There are no claims, actions,
proceedings, or investigations pending or, to the knowledge of Seller or the
Company, threatened against the Company or any of the assets of the Company
before any court, arbitrator, or administrative, governmental, or regulatory
authority or body, domestic or foreign. As of the date hereof, neither the
Company nor its assets are subject to any order, writ, judgment, injunction,
decree, determination, or award.
Section 2.10 EMPLOYEE BENEFIT PLANS. Except as set forth on attached
SCHEDULE 2.10 (collectively, the "Plans"), the Company does not have any
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended and the regulations thereunder), any
bonus, stock option, stock purchase, restricted stock, incentive, deferred
compensation, medical, accident, life insurance, disability income, retiree
medical or life insurance, supplemental retirement, severance, and other benefit
plans, programs, or arrangements, or any sick leave and vacation plans. The
Company has operated the Plans in compliance with all applicable federal, state,
and local laws and regulations, has received no notice of any claims or
violations of any laws and regulations applicable to the Plans, and, has no
existing obligations or liabilities under the Plans which have not been fully
funded or reserved for on the Financial Statements. Any and all such plans,
programs, and arrangements previously adopted and subsequently terminated by the
Company were duly and validly terminated in accordance with all applicable laws
and the Company has no continuing obligations or liabilities and has received no
notice of any claims or violations with respect to such former plans, programs,
and arrangements.
Section 2.11 TITLE TO STOCK. Seller owns good and marketable title to
all of the Stock in the proportions among Seller set forth on attached SCHEDULE
2.11, free and clear of liens, claims, and encumbrances of any kind or
character.
Section 2.12 ASSETS OF THE COMPANY. SCHEDULE 2.12 attached hereto
contains a complete and accurate description of all vehicles, equipment,
furniture, fixtures, and other personal property of any kind or character,
tangible or intangible, that is owned by, in the possession of, or used by the
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<PAGE> 7
Company in connection with the Company's business. Except as shown on SCHEDULE
2.12, no personal property owned or used by the Company in connection with its
business is held under any lease, security agreement, conditional sales
contract, or other title retention or financing agreement or is located any
place other than in the possession of the Company.
Section 2.13 TITLE TO ASSETS. The Company has, or will have at Closing,
good and marketable title to all of its assets and properties, real and
personal, tangible and intangible, that are material to the Company's business
and future prospects, free and clear of liens, claims, charges, and encumbrances
of any kind or nature, save and except (a) the liens and security interests
shown on attached SCHEDULE 2.13, (b) liens for real and personal property taxes
that are not yet due and payable and (c) possible minor matters that, in the
aggregate, are not substantial in amount and do not materially interfere with or
detract from the present or intended use of any of the assets and properties nor
materially impair the business operations of the Company.
Section 2.14 TAXES. The Company is and at all times in the past has been
a "C" corporation within the meaning of Section 1361 of the Internal Revenue
Code of 1986, as amended. The Company presently maintains and at all times in
the past has maintained a fiscal year ending as of April 30 for federal income
tax purposes. The Company has filed all state and federal Tax Returns (defined
below) required to be filed by them, and the Company has paid and discharged all
Taxes (as defined below) shown due thereon and have paid all other Taxes as are
due. The liability for Taxes set forth in each such Tax Return does not
materially understate the Taxes required to be reflected on such Tax Return. For
purposes of this Agreement, "Tax" or "Taxes" means taxes of any kind, payable to
any federal, state, local, or foreign taxing authority, including (without
limitation) (i) income, franchise, profits, gross receipts, ad valorem, value
added, sales, use, service, real or personal property, payroll, withholding,
employment, social security, unemployment compensation, and production taxes,
and (ii) interest, penalties, and additions to tax imposed with respect thereto,
whether disputed or not; and "Tax Returns" means all returns, reports,
declarations, claims for refund, and information statements with respect to
Taxes required to be filed with the Internal Revenue Service or any other taxing
authority, domestic or foreign, through the time of Closing hereunder,
including, without limitation, consolidated, combined, and unitary tax returns
and any schedule or amendment thereto. The Company has not (i) granted any
waiver of any statute of limitations with respect to, any Tax, or (ii) obtained
an extension of time with respect to the filing of any Tax Return other than Tax
Returns that were duly filed within the applicable extension period. No claim
has been made by an authority in a jurisdiction where the Company does not file
Tax Returns that the Company may be subject to taxation by that jurisdiction.
There are no liens or security interests on any of the assets of the Company
that arose in connection with any failure (or alleged failure) to pay any Tax.
The Company has disclosed on all federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Section 6662 of the Code. The Company has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor, or
other third-party. There is no dispute or claim concerning any liability for Tax
of the Company (i) claimed or raised by any authority in writing or (ii) as to
which
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STOCK PURCHASE AGREEMENT Page 7
<PAGE> 8
the Company or any officers (and employees responsible for Tax matters) of
the Company have knowledge.
Section 2.15 ENVIRONMENTAL MATTERS. Except as disclosed by Seller or the
Company in writing to Purchaser or in the Environmental Report (hereinafter
defined):
(a) To the best knowledge of Seller and the Company, the Company
has conducted all operations and activities in material compliance with all
applicable Environmental Laws (as defined below), and none of the assets of the
Company is being or has been operated in violation of any Environmental Laws.
(b) To the best knowledge of Seller and the Company, the Company
possesses any permits required under Environmental Laws for the operation of its
assets.
(c) To the best knowledge of Seller and the Company, the assets
of the Company, and the operations conducted thereon or therewith, are not
subject to any existing, unfulfilled administrative or judicial order requiring
remedial action under any Environmental Law.
(d) To the best knowledge of Seller and the Company, neither
Seller nor the Company has received any notice of any investigation or inquiry
regarding failure of the assets of the Company, or the operations conducted
thereon or therewith, to comply with Environmental Laws.
As used in this Section 2.15, "Environmental Laws" shall mean the
federal Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendments and Reauthorization Act, as amended, Safe
Drinking Water Act, New Mexico Solid Waste Disposal Act, the Resource
Conservation and Recovery Act, as amended, the Hazardous and Solid Waste
Amendments Act, as amended, the Toxic Substances Control Act, as amended, the
Clean Water Act, as amended, and the Clean Air Act, as amended, and any other
applicable federal, state, or local environmental law and all rules, regulations
and administrative orders related thereto, as such laws, rules, regulations and
administrative orders exist as of the Closing Date.
Section 2.16 BROKERS. No broker, finder, or investment banker is
entitled to any brokerage, finder's, or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Seller or the Company.
Section 2.17 CONTRACTS. Attached hereto as SCHEDULE 2.17 is a list of
all currently effective agreements respecting property, goods, and/or services
of or binding upon the Company or its assets (the "Contracts"). None of the
Contracts has been modified, amended, supplemented or altered except as
specifically shown on attached SCHEDULE 2.17. The Company has made copies of all
of the Contracts (including all modifications, amendments, and supplements
thereto) available to Purchaser. To the best of Seller's knowledge, all of the
Contracts are in full force and effect and the Company is not in default under
any of the Contracts.
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STOCK PURCHASE AGREEMENT Page 8
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Section 2.18 NO UNION CONTRACTS. There is no collective bargaining or
other union agreement to or by which the Company is a party or is bound, nor is
a collective-bargaining agreement currently being negotiated; and all non-exempt
employees have been paid in accordance with the Fair Labor Standards Act of 1938
and the Portal-to-Portal Act of 1947. The Company is in compliance with all
federal, state, or other applicable laws, domestic or foreign, respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and has not and is not engaged in any unfair labor practice.
The Company has not experienced any material labor difficulty during the last
three years.
Section 2.19 INSURANCE. SCHEDULE 2.19 attached hereto lists all
insurance policies (the "Insurance Policies") held by the Company and all such
listed policies are in the respective principal amounts set forth therein. The
Company maintains (a) insurance on all of its business, operations, and assets
of a type customarily insured, covering property damage and loss of income by
fire or other casualty and (b) insurance protection against all liabilities,
claims, and risks against which it is customary to insure. All premiums due and
payable under the Insurance Policies have been paid. The Company is not, and but
for a requirement that notice be given or that a period of time elapse or both
would not be, in violation under any such Insurance Policies.
Schedule 2.20 BANK ACCOUNTS. SCHEDULE 2.20 attached hereto contains a
true and correct list of the names and addresses of all banks, financial
institutions, and other depositories in which the Company has an account,
deposit, or safe deposit box and the names of all persons authorized to draw on
those accounts or deposits or who have access to them and the account numbers of
each account.
Schedule 2.21 OTHER LIABILITIES AND OBLIGATIONS. SCHEDULE 2.21 attached
hereto contains a true and correct list of all liabilities and obligations of
the Company not disclosed elsewhere in this Agreement of any kind, character,
and description, whether accrued, absolute, contingent, or otherwise, and
whether or not required to be disclosed or accrued in the Financial Statements
of the Company that exceed $5,000 to any one creditor. In the case of
liabilities that may not be fixed, an estimate of the maximum amount that may be
payable is also included.
Section 2.22 DISCLOSURE. No representations or warranties made by Seller
or the Company in this Agreement, and no statements of Seller or the Company
contained in any document executed or delivered by any of them to Purchaser
pursuant hereto or in connection with the transactions contemplated hereby,
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements herein or therein not misleading.
Section 2.23 TRANSACTIONS WITH AFFILIATES. Except as shown on attached
SCHEDULE 2.23, the Company is not a party to any transaction, contract, or
agreement with any (i) current or former officer or director of the Company or
(ii) any parent, spouse, child, brother, sister or other family relation of any
such officer or director, or (iii) any corporation or partnership of which any
such officer or director or any such family relation is an officer, director,
partner or greater than 10% stockholder (based on percentage ownership of voting
stock) or (iv) any "affiliate", or "associate"
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STOCK PURCHASE AGREEMENT Page 9
<PAGE> 10
of any such persons or entities (as such terms are defined in the rules and
regulations promulgated under the Securities Act of 1934, including, without
limitation, any transaction involving a contract, agreement, or other
arrangement providing for the employment of, furnishing of materials, products,
or services by, rental of real or personal property from, or otherwise requiring
payments to, any such person or entity, except with respect to services provided
on reasonable terms which would not materially alter the presentation of the
Financial Statements, if such transactions had been entered into with an
unrelated third party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as of the date of
this Agreement as follows:
Section 3.01 ORGANIZATION AND QUALIFICATION. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware. Purchaser is duly qualified or licensed to do business and is in good
standing in each jurisdiction where the character of the assets owned or
operated by Purchaser or the nature of its activities makes such qualification
or licensing necessary.
Section 3.02 AUTHORITY RELATIVE TO THIS AGREEMENT. Purchaser has the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Purchaser
and the consummation by Purchaser of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Purchaser are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Purchaser and, assuming the due
authorization, execution and delivery by all other parties hereto, constitutes
the legal, valid and binding obligation of Purchaser, except as the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect relating to or limiting creditors, rights or by legal
principles of general applicability governing the availability of equitable
remedies.
Section 3.03 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Purchaser do
not, and the performance of this Agreement by Purchaser will not (i) conflict
with or violate the certificate of incorporation or bylaws of Purchaser, (ii) to
the knowledge of Purchaser, conflict with or violate any law applicable to
Purchaser or by which any of its assets are bound or affected or (iii) to the
knowledge of Purchaser, result in any breach or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination,
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STOCK PURCHASE AGREEMENT Page 10
<PAGE> 11
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the material assets of Purchaser pursuant to, any note,
bond, mortgage, indenture, or any material contract, agreement, lease, license,
permit, franchise, or other instrument or obligation to which Purchaser is a
party or by which Purchaser or any of its assets are bound or affected.
(b) To the knowledge of Purchaser, the execution and delivery of
this Agreement by Purchaser do not, and the performance of this Agreement by
Purchaser will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
domestic or foreign.
Section 3.04 BROKERS. No broker, finder, or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Purchaser.
ARTICLE IV
CONDUCT OF BUSINESS OF THE COMPANY
PENDING THE CLOSING DATE
Pending the Closing Date or earlier termination of this Agreement, and
except as otherwise specifically contemplated in this Agreement or the schedules
hereto or as may be consented to and approved in writing by Purchaser, the
Company covenants and agrees as follows:
Section 4.01 ORDINARY COURSE OF BUSINESS. The Company will carry on its
business substantially in the same manner as heretofore conducted, and will not
engage in any transaction or activity, enter into any agreement or make any
commitment, except in the ordinary course of business. Without limiting the
generality of the foregoing, the Company will:
(a) operate and maintain its assets diligently and in a good and
workmanlike manner and comply in all material respects with all applicable laws
and with the terms of any agreements binding upon those assets;
(b) maintain and keep in full force and effect all of the
Contracts and all permits, licenses and similar rights and privileges of the
Company and each subsidiary of the Company and comply in all material respects
with all of its material obligations therein and thereunder;
(c) maintain all of its tangible assets in at least as good a
condition as they were in at the date hereof, ordinary wear and tear excepted,
and remove no material items therefrom;
(d) maintain the Insurance Policies in full force and effect; and
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STOCK PURCHASE AGREEMENT Page 11
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(e) pay, perform, and discharge, on a basis consistent with the
Company's prior practices, all obligations of the Company under the notes,
leases, and other instruments evidencing the indebtedness or other liabilities
of the Company which are shown on the Preliminary Audited Balance Sheet and/or
on the schedules attached to this Agreement in accordance with their respective
terms (but without right of prepayment).
Section 4.02 RESTRICTED ACTIONS. Without the prior written consent of
Purchaser, such consent not to be unreasonably withheld, and except as otherwise
provided in this Agreement, the Company will not (a) enter into any agreement or
commitment, the result of which would be to incur or expand the existing
indebtedness or liabilities of the Company; (b) incur any additional
indebtedness other than trade payables incurred in the ordinary course of
business; (c) sell, transfer, assign, convey or otherwise dispose of any of the
assets of the Company other than dispositions of (i) equipment or other personal
property which is replaced with property and equipment of comparable or better
value and utility in the ordinary and routine maintenance and operation of its
business and (ii) personal property and equipment no longer used or useful in
the ordinary course of business; or (d) create or permit the creation of any new
lien, security interest, or other encumbrances on any asset of the Company.
Section 4.03 AMENDMENTS TO GOVERNING DOCUMENTS. No change or amendment
shall be made in the articles of incorporation or bylaws of the Company.
Section 4.04 ORGANIZATION. The Company will preserve its corporate
existence and will keep its business organization intact and use its reasonable
efforts to preserve its relationships with its suppliers, customers, and others
having business relations with the Company.
Section 4.05 EMPLOYMENT AGREEMENTS. The Company will not enter into any
agreement relating to employment with any person.
Section 4.06 ISSUANCE OF SHARES; DIVIDENDS. The Company will not issue
shares of capital stock, or grant any options, warrants or other rights to
purchase or acquire the capital stock of the Company. The Company will neither
declare nor pay or set aside for payment any dividend or other distribution on
its outstanding shares of capital stock, nor redeem, purchase or otherwise
acquire any of its capital stock.
Section 4.07 NO DEFAULT. The Company will not knowingly take any action
or knowingly take any action that causes a material breach of any
representation, warranty, covenant or agreement of the Company under this
Agreement.
Section 4.08 INVESTMENT. The Company will not make any new capital
investment in, make any loan to, or acquire the securities or assets of any
other person or entity.
Section 4.09 USES OF CASH. Other than in the ordinary course of
business, the Company will not make any payments during the period between the
date hereof and the Closing Date except
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STOCK PURCHASE AGREEMENT Page 12
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for the purpose of paying Taxes, paying rentals or other sums owing by the
Company under the Contracts as and when due, discharging rentals and trade
payables incurred in the ordinary course of business, and retiring or
discharging presently existing indebtedness to financial institutions or other
third parties as and when due in accordance with the terms of the notes or other
instruments evidencing such indebtedness (but without right of prepayment).
ARTICLE V
OTHER AGREEMENTS OF THE PARTIES
Section 5.01 PURCHASER'S INSPECTION RIGHTS. Pending Closing, Purchaser
shall have the right to inspect, review, and audit the assets of the Company and
all books, records, data, and other information of Seller and the Company
relating to the business and financial affairs of the Company, the title to and
ownership of the assets of the Company, and the conduct of the Business. All
expenses incurred by the Purchaser relating to its inspections, reviews, and
audits shall be borne and paid exclusively by the Purchaser. Seller and the
Company shall cooperate with Purchaser in all reasonable respects in
facilitating such inspections, reviews, and audits. Without limiting the
foregoing, Seller and the Company agree that, during the Inspection Period and
thereafter until Closing, they will (a) provide or cause to be provided to
Purchaser and its counsel, accountants, consultants, and other authorized
representatives, during normal business hours or otherwise, if necessary, full
access to all of their, assets, books, agreements, commitments and records; and
(b) furnish Purchaser and its representatives with such data, records, and other
information concerning any of their operations and affairs as Purchaser may
reasonably request.
Seller further agrees that, upon request by Purchaser following Closing,
he will execute and deliver to Purchaser or its accountants such audit response
letters and further confirmations as Purchaser or its accountants may reasonably
require for purposes of verification of the accuracy, validity, and completeness
of all financial and other information provided or made available by Seller and
the Company to Purchaser in connection with the transactions contemplated by
this Agreement.
Section 5.02 EXCLUSIVE DEALING. Unless and until this Agreement shall
have been terminated in accordance with the terms hereof, neither Seller nor the
Company shall directly or indirectly, solicit, initiate, or participate in
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than the Purchaser or an affiliate or an
associate of the Purchaser) concerning, or enter into any agreement providing
for any sale of the assets of the Company, any sale of shares of capital stock
in the Company, or any similar transactions involving the Company.
Section 5.03 CONSENTS, APPROVALS, AND FILINGS. Seller, the Company, and
Purchaser shall each use its reasonable efforts to obtain at the earliest
practicable date and, in any event, prior to the Closing Date, all consents and
approvals, including any third party consents, and to make all filings
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STOCK PURCHASE AGREEMENT Page 13
<PAGE> 14
required to be obtained or made under any federal, state, or local laws or any
agreement or other instrument (including, without limitation, any consent or
approval necessary to avoid the loss of any rights under any agreement) prior to
consummating the transactions contemplated hereby, whether such consent,
approval or filing is to be obtained from or made with private parties or
applicable governmental authorities.
Section 5.04 BROKERS AND FINDERS. Purchaser, on the one hand, and Seller
and the Company, on the other hand, shall indemnify each other and hold each
other harmless from any claim against the other for a broker's or finder's fee,
commission, or other like payment in connection with the transactions
contemplated by this Agreement which arises from or is based upon arrangements
made by or through the indemnifying party.
Section 5.05 PUBLIC ANNOUNCEMENTS. Pending Closing, except as may be
required by applicable law, no party hereto shall issue any press release or
make any other public pronouncements concerning this Agreement or the
transactions contemplated hereby without the written consent and approval of all
other parties.
Section 5.06 RESIGNATION OF OFFICERS AND DIRECTORS. Seller and the
Company will secure the resignation of each then-serving officer and director of
the Company effective as of the Closing Date.
Section 5.07 NOTICE OF DEVELOPMENTS. Prior to the Closing, Seller and
the Company will give prompt notice to Purchaser of any material event affecting
the assets, liabilities, business, financial condition, operations, results of
operations, or future prospects of the Company. No disclosure pursuant to this
Section 5.07 shall, however, be deemed to amend or supplement this Agreement or
the schedules hereto or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant under this Agreement.
Section 5.08 PRELIMINARY AND FINAL COMPUTATIONS OF NFA. As part of its
diligence processes in this transaction, Purchaser intends to have the books and
records of the Company audited by certified professional accountants and to have
audited financial statements prepared for the Company in compliance with
generally accepted accounting principles ("GAAP"). Prior to Closing, Seller and
Purchaser shall have their respective accounting groups perform audit work of
the Company, with each to bear its own accounting and other expenses incident
thereto. If there is a difference in the financial statements, the parties will
try to reconcile the differences prior to Closing, it being recognized that the
financial data necessary to permit a final computation of NFA may not be
available at such time. The parties accordingly agree to estimate NFA at Closing
utilizing the audit opinions of both accounting groups and to finalize their
calculation of NFA on a post-Closing basis within sixty (60) days following the
Closing. At least three (3) business days prior to the Closing, Purchaser shall
deliver to Seller, and Seller shall deliver to Purchaser, a preliminary
settlement statement, reflecting their good faith estimates of NFA as of the
Closing Date based upon the best information then available to them. Upon
receipt of these preliminary settlement statements, Seller and Purchaser shall
attempt to reconcile any differences they may have regarding
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STOCK PURCHASE AGREEMENT Page 14
<PAGE> 15
the same. If there are any items the parties are unable to reconcile prior to
Closing, Purchaser's position shall prevail to enable Closing to proceed, but
without prejudice to the right of either party to dispute any item of the final
settlement statement. Within forty-five (45) days after the Closing Date,
Purchaser shall deliver to Seller an audited balance sheet of the Company for
the period ended as of the Closing Date, prepared in accordance with GAAP, and a
proposed final settlement statement including Purchaser's final computation of
NFA. Seller shall have ten (10) days from its receipt of the such balance sheet
and proposed settlement statement to notify Purchaser of its objections, if any,
to the information set forth therein, including the opportunity of Seller to
have independent auditing or to employ the Company's auditors to prepare a final
computation of NFA on behalf of Seller. If Seller fails to timely notify
Purchaser of any such objections, Seller shall be deemed to have irrevocably
accepted the computations and substance of such balance sheet and proposed final
settlement statement for all purposes of this Agreement. If Seller timely and
properly contests any items within such balance sheet or proposed final
settlement statement, Seller and Purchaser shall promptly meet and utilize their
best efforts to resolve their differences, it being the intention of the parties
to finalize all post-Closing adjustments within sixty (60) days following the
Closing Date. If the parties are unable to reach final agreement on any such
post-Closing matters, they shall resolve their differences by means of the
dispute resolution procedures set forth in Section 10.02 and final settlement
between the parties shall be deferred pending conclusion of such procedures. At
the conclusion of the post-Closing accounting contemplated by this Section 5.08,
Seller or Purchaser, as appropriate, shall immediately remit to the other, in
immediately available funds, the net sum determined owning by such party in the
final settlement statement, whether finalized by agreement of the parties or
through dispute resolution processes. As used in this Agreement, "Final Balance
Sheet" and "Final Settlement Statement" shall mean the final balance sheet and
the final settlement statement proposed by Purchaser, as the same may be
modified either by agreement of the parties or dispute resolution pursuant to
the foregoing.
Section 5.09 ACCOUNTS RECEIVABLE. Seller expressly represents and
warrants that all accounts receivable of the Company reflected on the Final
Balance Sheet as of the Closing Date are collectible in the normal course of
business within 150 days from the Closing Date without resort to litigation or
the retention of collection services. Following Closing, the Company shall apply
partial payments by customers to the respective outstanding receivables of such
customers in the order of their aging (i.e. older accounts paid first). To the
extent any such receivables remain unpaid following such 150-day period,
Purchaser and the Company shall first offset the face amount of such unpaid
receivables against the unpaid principal balance of the Note, if any, and, to
the extent of any deficiency, may then require Seller to immediately purchase
the remaining unpaid receivables from the Company at full face value and without
subsequent recourse of any kind upon the Company or Purchaser.
Section 5.10 TAXES AND TAX RETURNS. Seller shall be responsible for the
timely preparation and filing (without extension, unless otherwise agreed by
Purchaser in writing) of all federal, state, and local Tax Returns covering or
for (or based upon income received or realized during) all periods prior to the
end of the April 30, 2000 fiscal year of the Company. Purchaser shall be
responsible for the timely preparation and filing (without extension, unless
otherwise agreed by
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STOCK PURCHASE AGREEMENT Page 15
<PAGE> 16
Purchaser in writing) of all federal, state, and local Tax Returns covering or
for (or based upon income received or realized during) all periods following the
end of the April 30, 2000 fiscal year of the Company. Seller shall prepare all
such Tax Returns for which Seller is responsible in accordance with applicable
law and shall submit such Tax Returns to the Company and Purchaser for their
review and concurrence at least ten (10) business days prior to filing. If,
after the Closing Date, any applicable taxing authority shall determine there to
be a deficiency in the amount of any federal, state, or local Tax paid or
payable by the Company which is not reserved for or reflected on the Final
Balance Sheet and which relates to any period prior to the Closing Date, Seller
shall be fully responsible for the payment of any such deficiency. Following
Closing, if any Tax Return covering a period of time prior to the Closing Date
shall be audited by an applicable taxing authority, the Company shall promptly
notify Seller of such audit. Seller and Purchaser and the Company shall jointly
conduct all discussions and negotiations with applicable taxing authorities
regarding each such audited Tax Return as it may relate to periods prior to the
Closing Date and any decision to compromise, settle, or pay a disputed matter
under any such audited Tax Return shall require joint approval of Seller and
Purchaser and the Company, which rights of negotiation and approval shall in all
events between the parties be exercised in good faith. The Company shall have
exclusive authority to conduct all discussions and negotiations with applicable
taxing authorities regarding Tax Returns relating to periods from and after the
Closing Date and shall be solely responsible for the payment of all Taxes
attributable to such periods.
Section 5.11 EMPLOYMENT MATTERS. To the extent Purchaser or the Company
shall elect to continue the employment of current employees of the Company
following Closing, each employee so retained by Purchaser or the Company
following Closing shall be eligible for participation in Purchaser's current
employee benefit programs with full credit for length of service prior to
Closing with the Company. Seller and the Company acknowledge and agree that the
decision to hire any current employees of the Company is solely in the
discretion of Purchaser and that Purchaser has no obligation of any kind to
employ any of the existing employees of the Company following Closing.
Section 5.12 INDEMNIFICATION.
(a) Indemnification by Seller. Seller agrees to indemnify and
hold harmless Purchaser and the Company after the Closing Date against and in
respect of any of the following matters which may be asserted or established:
(i) All liabilities of the Company of any nature, whether
accrued, absolute, contingent, or otherwise, which existed as of the
Closing Date and are not provided for or reflected in the Final Balance
Sheet;
(ii) Any and all damages, losses, expenses, or
deficiencies resulting from any breach of the warranties,
representations and covenants of Seller and the Company contained herein
or in any schedule hereto; and
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STOCK PURCHASE AGREEMENT Page 16
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(iii) All demands, assessments, judgments, costs, and
expenses (including reasonable legal fees and other expenses of
litigation, both at the trial and appellate level) arising from or in
connection with any action, suit, proceeding, or claim incident to any
of the foregoing.
(b) Indemnification by Purchaser. Purchaser agrees to indemnify
and hold harmless Seller after the Closing Date against or in respect of any of
the following matters:
(i) Any and all damages, losses, expenses, or deficiencies
resulting from any breach of the warranties, representations and
covenants of Purchaser contained herein or in any schedule hereto; and
(ii) All demands, assessments, judgments, costs, and
expenses (including reasonable legal fees and other expenses of
litigation, both at the trial and appellate level) arising from or in
connection with any action, suit, proceeding, or claim incident to any
of the foregoing.
Section 5.13 RELEASE AND WAIVER BY SELLER. Any provisions of this
Agreement to the contrary notwithstanding, following Closing hereunder, Seller
shall have no right of contribution, indemnity, reimbursement, or other legal or
equitable right of recourse upon the Company based upon or attributable to the
breach or non-performance by Seller or the Company of any of their jointly made
representations, warranties, and covenants under this Agreement, and Seller, as
of Closing hereunder, expressly releases and waives any and all such rights of
contribution, indemnity, reimbursement or other recourse upon or against the
Company.
Section 5.14 INVESTMENT REPRESENTATIONS BY SELLERS. Upon Closing and in
connection with any conversion of the unpaid balance of the Note into common
stock of Purchaser as more particularly provided in the Note, Seller expressly
represents, warrants, acknowledges, and agrees to and with Purchaser and the
Company that:
(a) any such stock so acquired by Seller (the "Stock") may not
have been registered under the Securities Act of 1933 or
any other state securities laws (collectively, the
"Securities Acts") because Purchaser may or will issue the
Stock in reliance upon this Section 5.16 and the
exemptions from the registration requirements of the
Securities Acts providing for issuance of securities not
involving a public offering;
(b) Seller will acquire any Stock for Seller's own account,
for investment, and not with a view to the resale or
distribution thereof;
(c) Seller will not transfer, sell or offer for sale any
portion of the Stock unless there is an effective
registration or other qualification relating thereto under
the Securities Act of 1933 and under any applicable state
securities laws or
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STOCK PURCHASE AGREEMENT Page 17
<PAGE> 18
unless the holder of the Stock delivers to Purchaser an
opinion of counsel, satisfactory to Purchaser, that such
registration or other qualification under such Act and
applicable state securities laws is not required in
connection with such transfer, offer or sale;
(d) Purchaser is under no obligation to register the Stock or
to assist Seller in complying with any exemption from
registration under the Acts if Seller should at a later
date wish to dispose of the Stock;
(e) Prior to entering into this Agreement, Seller has made an
investigation of Purchaser and its business and has
obtained or had made available to Seller all information
with respect thereto which Seller needed to make an
informed decision to structure the transactions
contemplated hereby as provided in this Agreement;
(f) Seller possesses adequate experience and sophistication as
investors for the evaluation of the merits and risks of
investment in the Stock; and
(g) Seller is an "accredited investor," as defined in
Regulation D as promulgated under the Securities Act of
1933, as amended, (the "1933 Act").
Section 5.15 DISCLAIMER BY PURCHASERS. PURCHASER ACKNOWLEDGES THAT PRIOR
TO CLOSING HEREUNDER PURCHASER WILL HAVE CONDUCTED SUCH EXAMINATIONS AND
INSPECTIONS OF THE TANGIBLE ASSETS OF THE COMPANY AS PURCHASER DEEMS NECESSARY
TO SATISFY ITSELF REGARDING THE CONDITION THEREOF AND THAT, BY CLOSING
HEREUNDER, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, PURCHASER
ACCEPTS ALL OF THE TANGIBLE ASSETS OF THE COMPANY ON AN "AS IS, WHERE IS" BASIS,
AND WITHOUT REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED OR STATUTORY, AS TO
CONDITION, MERCHANTABILITY, HABITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
Section 5.16 RELEASE OF PERSONAL GUARANTIES. Within sixty (60) days
following Closing, Purchaser and the Company shall cause Seller to be released
from the personal guaranties which are shown on attached SCHEDULE 5.16 or shall
cause the indebtedness which is the subject of any such unreleased guaranties to
be fully paid.
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STOCK PURCHASE AGREEMENT Page 18
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ARTICLE VI
CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE
The obligation of Purchaser to close under this Agreement shall, unless
waived in writing by Purchaser, be subject to the satisfaction on or before the
Closing Date of each of the following conditions, and Seller and the Company
shall use their reasonable efforts to cause each such condition to be so
satisfied.
Section 6.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of Seller and the Company contained in this Agreement shall be
true and correct in all respects as of the date of this Agreement and as of the
Closing Date, as though such representations and warranties were made at and as
of such date, except for changes expressly permitted or contemplated by this
Agreement.
Section 6.02 PERFORMANCE. Seller and the Company shall have performed
and complied with all covenants, agreements, obligations and conditions required
by this Agreement to be performed or complied with by them on or prior to the
Closing Date.
Section 6.03 CONSENTS. The consents, approvals, and filings described in
Section 5.04 shall have been obtained or made, as the case may be, without the
imposition of conditions or limitations having a material adverse effect.
Section 6.04 OPINION OF COUNSEL TO SELLER AND THE COMPANY. Seller and
the Company shall have delivered to Purchaser the opinion of their legal
counsel, J. W. Neal, in form and substance reasonably acceptable to Purchaser
and its counsel, and favorably addressing the organization, qualification, good
standing, and capitalization of the Company, the due and proper authorization,
execution, and delivery and the enforceability of this Agreement and all
instruments and documents executed by Seller and the Company in connection
herewith, and such other matters as Purchaser or its counsel may reasonably
require.
Section 6.05 NO INJUNCTION. There shall not be in effect any preliminary
or permanent injunction or temporary restraining order issued by any state or
federal court that prevents the consummation of the transactions contemplated
hereby.
Section 6.06 OTHER DOCUMENTS. All documents required to be delivered to
Purchaser by Seller and the Company on or prior to the Closing Date shall have
been so delivered.
Section 6.07 MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have been any material adverse change in, to, or affecting the
Company, its operations, or its assets.
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STOCK PURCHASE AGREEMENT Page 19
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Section 6.08 CERTIFICATES. Seller and the Company shall have delivered
to Purchaser certificates confirming the continuing validity of their
representations and warranties pursuant to Section 6.01 and certifying their
performance hereunder as contemplated by Section 6.02.
Section 6.09 PHASE I ENVIRONMENTAL REPORT. Seller shall have delivered
to Purchaser, at Seller's expense, a Phase I environmental report covering the
premises to be leased under the Yard Lease (hereinafter defined) prepared by an
environmental consulting firm and in form and substance reasonably acceptable to
Purchaser.
Section 6.10 ACTIONS OF CUSTODIAN. First Financial Trust Company, in its
capacity as Custodian of the Rex Busby IRA Account and the Madie Walker IRA
Account, shall have taken all actions necessary to transfer title to that
portion of the Stock within such accounts to Purchaser.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF SELLER
AND THE COMPANY TO CLOSE
The obligations of Seller and the Company to consummate the transactions
contemplated by this Agreement shall, unless waived in writing by them, be
subject to the satisfaction on or before the Closing Date of each of the
following conditions, and Purchaser shall use its reasonable efforts to cause
each such condition to be so satisfied:
Section 7.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of Purchaser contained in this Agreement shall be true and
correct in all respects as of the date made and as of the Closing Date, as
though such representations and warranties were made at and as of such date,
except for changes permitted or contemplated by this Agreement.
Section 7.02 PERFORMANCE. Purchaser shall have performed and complied in
all material respects with all covenants, agreements, obligations, and
conditions required by this Agreement to be performed or complied with by
Purchaser on or prior to the Closing Date.
Section 7.03 CONSENTS AND APPROVALS. The consents, approvals, and
filings described in Section 5.04 shall have been obtained or made, as the case
may be, without the imposition of conditions or limitations having a material
adverse effect.
Section 7.04 NO INJUNCTION. There shall not be in effect any preliminary
or permanent injunction or temporary restraining order issued by any state or
federal court that prevents the consummation of the transactions contemplated
hereby.
Section 7.05 OTHER DOCUMENTS. All documents required to be delivered to
Seller or the Company by Purchaser on or prior to the Closing Date shall have
been so delivered.
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STOCK PURCHASE AGREEMENT Page 20
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Section 7.06 CERTIFICATES. Purchaser shall have delivered to Seller and
the Company certificates confirming the continuing validity of its
representations and warranties pursuant to Section 7.01and certifying its
performance hereunder as contemplated by Section 7.02.
ARTICLE VIII
THE CLOSING
Section 8.01 CLOSING. The closing ("Closing") of the transaction
contemplated hereby shall take place at the offices of Purchaser at 406 N. Big
Spring, Midland, Texas, on a business date of Purchaser's unilateral selection
within thirty (30) days following any successful completion by Purchaser of an
initial public offering of common stock in the Company through a recognized
national stock exchange (the "Sierra IPO"), but in no event later than April 30,
2000, or at such other place and time as the parties hereto might hereafter
mutually agree in writing. Such date or any alternative date so selected by the
parties is referred to in this Agreement as the "Closing Date." Purchaser shall
afford Seller and the Company at least ten (10) days prior written notice of its
desired Closing Date pursuant to the foregoing.
Section 8.02 DELIVERIES. At the Closing, the following shall occur:
(a) Seller shall endorse and deliver the certificate(s)
evidencing the Stock to Purchaser, free and clear of liens, claims, and
encumbrances;
(b) Seller and the Company shall deliver to Purchaser their
closing certificates in compliance with the provisions of Section 6.08;
(c) Seller and the Company shall deliver, or cause to be
delivered, to Purchaser the legal opinion of their counsel, as specified in
Section 6.04;
(d) Seller and Purchaser shall execute and deliver an employment
agreement which is substantially identical in form and substance to that
attached hereto as EXHIBIT D;
(e) Seller, the Company and Purchaser shall execute and deliver a
non-competition agreement which is substantially identical in form and substance
to that attached hereto as EXHIBIT E;
(f) Seller and Purchaser shall execute and deliver a lease
agreement covering the office, shop, and yard currently utilized by the Company,
said lease to be substantially identical in form and substance to that attached
hereto as EXHIBIT F (the "Yard Lease");
(g) The parties shall attempt to agree upon an estimate of NFA
and shall execute a preliminary closing statement as contemplated by Section
5.08;
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STOCK PURCHASE AGREEMENT Page 21
<PAGE> 22
(h) Purchaser shall pay to Seller by wire transfer the cash
portion of the Purchase Price payable at Closing pursuant to Section 1.03(1);
(i) Purchaser shall execute and deliver the Note to Seller;
(j) The Company and Seller shall execute and deliver the Security
Documents; (k) Purchaser shall deliver to Seller its closing certificate in
compliance with the provisions of Section 7.06; and
(k) Purchaser shall deliver to Seller its closing certificate in
compliance with the provisions of Section 7.06; and
(l) Seller and the Company shall execute such notifications to
depository institutions and such changes of authorized signatories upon the
accounts of the Company as Purchaser may reasonably request.
ARTICLE IX
TERMINATION AND ABANDONMENT
Section 9.01 Termination and Abandonment. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual agreement of all of the parties hereto;
(b) by Seller if Closing shall not have occurred on or prior to
April 30, 2000, other than due to breach or non-performance by Seller hereunder;
(c) by Purchaser, if the conditions set forth in Article VI shall
not have been complied with and performed in any material respect and such
noncompliance or nonperformance shall not have been cured or eliminated (or by
its nature cannot be cured or eliminated) on or before the Closing Date;
(d) by Seller and the Company if the conditions set forth in
Article VII have not been complied with and performed in any material respect
and such noncompliance or nonperformance shall not have been cured or eliminated
(or by its nature cannot be cured or eliminated) on or before the Closing Date;
or
(e) by either Purchaser or Seller and the Company, by written
notice to the other, if any action or proceeding shall have been instituted
before any court or other governmental body or, to the knowledge of the party
giving such notice, shall have been threatened formally in writing by any public
authority with requisite jurisdiction, to restrain or prohibit the transactions
contemplated by this Agreement or to subject one or more of the parties or their
directors or their officers to liability on the grounds that it or they have
breached any law or regulation or otherwise
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STOCK PURCHASE AGREEMENT Page 22
<PAGE> 23
acted improperly in connection with such transactions, and such action or
proceeding shall not have been dismissed or such written threat shall not have
been withdrawn or rescinded on or before the Closing Date.
Section 9.02 REMEDIES, RIGHTS AND OBLIGATIONS ON TERMINATION. If this
Agreement is terminated and abandoned as provided in this Article IX:
(a) Redelivery. Each party will redeliver all documents, work
papers, and other materials of any other party relating to the transactions
contemplated by this Agreement, whether obtained before or after the execution
of this Agreement, to the party furnishing the same, and all information
received by any party to this Agreement with respect to the business of any
other party shall not at any time be used for the advantage of, or disclosed to
third parties by, such party to the detriment of the party furnishing such
information; provided, however, that this subsection (a) shall not apply to any
documents, work papers, material, or information which is a matter of public
knowledge or which has heretofore been or is hereafter published in any
publication for public distribution or filed as public information with any
governmental authority or is otherwise in the public domain.
(b)(1) Default by Purchaser. If Purchaser fails or refuses to
close in accordance with the terms of this Agreement and if Seller and the
Company have timely satisfied all the conditions to Purchaser's obligation to
close hereunder and are not in default hereunder, then, and as the exclusive
remedy of Seller and the Company for such breach, Seller and the Company shall
have the right to declare this Agreement terminated and to receive the Breakup
Fee as liquidated damages and not a penalty for the breach hereof by Purchaser
(the same as if Purchaser had deposited such sum with Seller as a down payment
or earnest money hereunder). In this regard, the parties acknowledge and agree
that the damages occasioned to Seller and the Company by any such breach are
difficult of ascertainment or calculation and that the specified sum of
liquidated damages represents a fair and reasonable estimate of such damages.
(b)(2) Default by Seller and/or the Company. If Seller and/or the
Company fails or refuses to close in accordance with the terms of this Agreement
and if Purchaser has timely satisfied all the conditions to Purchaser's
obligation to close hereunder and is not in default hereunder, Purchaser shall
be entitled to an immediate refund of the Breakup Fee and, in addition, shall
have the right either (i) to declare this Agreement canceled or (ii) to seek
enforcement of this Agreement at law or in equity, including, without
limitation, an action for specific performance of the terms of this Agreement by
Seller and the Company or for recovery of the actual damages occasioned to
Purchaser by such breach.
(c) Continuing Liability. The continuing liability of the parties
to this Agreement with respect to any breach of any representation, warranty,
covenant, or agreement contained therein shall not be affected by such
termination or abandonment, unless this Agreement is terminated or abandoned by
agreement of the parties pursuant to Section 9.01 (a) or (e).
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STOCK PURCHASE AGREEMENT Page 23
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ARTICLE X
POST CLOSING REMEDIES
Section 10.01 OFFSET/WAIVER. Subject to the provisions of Section 10.02,
after the Closing, Purchaser, without limitation of its other rights and
remedies, shall have a right of offset against its obligations under the Note
for any breach of the representations, warranties, and covenants of Seller and
the Company under this Agreement. In any proceedings by the Purchaser to assert
or prosecute any claims under, or to otherwise enforce, this Agreement, Seller
agrees that he will not assert as a defense, or as a bar to recovery, and hereby
waives any right to so assert such defense or such bar to recovery, that (a)
prior to the Closing, the Company shall have had knowledge of the circumstances
giving rise to the claim being pursued by Purchaser, or (b) prior to the
Closing, the Company engaged in conduct or took action that caused or brought
about the circumstances giving rise to such claim, or otherwise contributed
thereto.
Section 10.02 DISPUTE RESOLUTION.
(a) Unless expressly provided otherwise in this Agreement, any
and all claims, disputes, controversies, and other matters in question involving
the parties hereto and arising out of or relating to this Agreement and the
transactions contemplated hereby, any provision hereof, the alleged breach of
such provision, or in any way relating to the subject matter of this Agreement
(collectively, "Disputes"), whether such Disputes sound in contract, tort, or
otherwise, at law or in equity, under State or federal law, whether provided by
statute or common law, for damages or any other relief, shall be resolved in
accordance with this Section 10.02.
(b) The parties shall attempt in good faith to resolve any
Dispute promptly by negotiations between representatives who have authority to
settle the controversy. Any party may give the other party written notice of any
Dispute not resolved in the normal course of business, together with a request
that the parties meet and confer ("Notice of Dispute"). Within fifteen (15) days
after delivery of a Notice of Dispute, the parties or their representatives
shall meet at a mutually acceptable time and place, and thereafter as often as
they reasonably deem necessary, to exchange relevant information and to attempt
to resolve the Dispute. If the matter has not been resolved within thirty (30)
days after delivery of the Notice of Dispute, or if the parties fail to meet
within fifteen (15) days after delivery of the Notice of Dispute, either party
may initiate arbitration of the claim or dispute as provided hereafter. If a
party or its representative intends to be accompanied at a meeting by an
attorney, the other parties shall be given advance notice of such intention and
may also be accompanied by an attorney. All negotiations pursuant to this clause
are confidential and shall be treated as compromise and settlement negotiations
for purposes of the Federal Rules of Evidence and any state's rules of evidence.
(c) If the Dispute is not resolved by negotiation pursuant to
Section 10.02(b), either party may submit such Dispute for resolution by binding
arbitration as follows:
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STOCK PURCHASE AGREEMENT Page 24
<PAGE> 25
(i) It is the intention of the parties that the
arbitration shall be conducted pursuant to the New
Mexico Arbitration Act (the "Act"), as modified by
this Agreement. The validity, construction, and
interpretation of this Section 10.02(c), and all
procedural aspects of the arbitration conducted
pursuant to this Section 10.02(c), including, but
not limited to, the determination of issues that
are subject to arbitration (i.e. arbitrability),
the scope of the arbitrable issues, allegations of
fraud in the inducement to enter into this
Agreement, or this arbitration provision,
allegations of waiver, laches, delay, or other
defenses to arbitrability, and the rules governing
the conduct of the arbitration (including the time
for filing an answer, the time for filing
counterclaims, the times for amending pleadings,
the specificity of the pleadings, the extent and
scope of discovery, the issuance of subpoenas, the
times for designation of experts, whether the
arbitration is to be stayed pending resolution of
related litigation involving third parties not
bound by this Agreement, the receipt of evidence
and the like), shall be decided by the arbitrators.
The arbitration shall be administered by the
American Arbitration Association ("AAA"), and shall
be conducted pursuant to the Commercial Arbitration
Rules of the AAA, as modified by this Agreement.
Notwithstanding any provision of this Agreement to
the contrary, the parties expressly agree that the
arbitrators shall have absolutely no authority to
award incidental, special, treble, exemplary, or
punitive damages of any type under any
circumstances regardless of whether such damages
may be available under New Mexico law, the law of
any other state, or federal law, or under the Act,
or the Commercial Arbitration Rules of the AAA, the
parties hereby waiving their right, if any, to
recover incidental, special, treble, exemplary, or
punitive damages in connection with any such
Disputes.
(ii) The arbitration proceeding shall be conducted in
Hobbs, New Mexico before a panel of three (3)
arbitrators appointed in accordance with the
Commercial Arbitration Rules of the AAA. The
arbitrators shall conduct a hearing as soon as
reasonably practicable after appointment of the
third arbitrator, and a final decision completely
disposing of all Disputes that are the subject of
the arbitration proceedings shall be rendered by
the arbitrators as soon as reasonably practicable
after the hearing. There shall be no transcript of
the hearing before the arbitrators. The
arbitrators' ultimate decision after final hearing
shall be in writing, but shall be as brief as
possible, and the arbitrators shall not assign
reasons for their ultimate decision.
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STOCK PURCHASE AGREEMENT Page 25
<PAGE> 26
(iii) The fees and expenses of the arbitrators shall be
borne equally by the parties, but the decision of
the arbitrators may include such award of the
arbitrators' fees and expenses and of other costs
and attorneys' fees as the arbitrators determine
appropriate.
(iv) To the fullest extent permitted by law, the
arbitration proceeding and the arbitrators' award
shall be maintained in confidence by the parties.
(v) The award of the arbitrators shall be binding upon
the parties and final and nonappealable to the
maximum extent permitted by law, and judgment
thereon may be entered by a court of competent
jurisdiction and enforced by any party as a final
judgment of such court.
(d) All applicable statutes of limitation and defenses based upon
the passage of time shall be tolled while the procedures specified in Sections
10.02(b) are pending. The parties will take such actions, if any, as may be
required to effectuate such tolling.
(e) Each party is required to continue to perform its obligations
under this Agreement pending final resolution of any Dispute covered by this
Article X.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01 AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified, or supplemented only by writing duly
executed by all of the parties hereto.
Section 11.02 WAIVER OF COMPLIANCE. Any failure of the Seller or the
Company, on the one hand, or Purchaser, on the other, to comply with any
obligation, covenant, agreement or condition contained herein may be expressly
waived in writing by Purchaser or Seller and the Companies, respectively;
provided, however, such waiver or failure to insist upon strict compliance shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
Section 11.03 NOTICES. All notices, requests, demands, and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand (including, without
limitation, by overnight courier), transmitted by facsimile, or mailed,
certified or registered mail (return receipt requested) with postage prepaid:
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STOCK PURCHASE AGREEMENT Page 26
<PAGE> 27
(a) if to Seller or the Company (only until the Closing Date),
to:
Mr. Rex Busby
Eunice Well Servicing Co., Inc.
P. O. Box 880
Eunice, New Mexico 88231
Telephone: (____) _______
Fax: (____) _____________
with a copy to:
Mr. J. W. Neal
419 W. Cain
Hobbs, New Mexico 88240
Telephone: (505) ________________
Fax: (505) 393-7405
or to such other person or addresses as Seller or the Company shall furnish
Purchaser in writing in accordance with this Section 11.03; and
(b) if to Purchaser (or to the Company after Closing), to:
Sierra Well Service, Inc.
406 N. Big Spring
Midland, Texas 79701
Telephone: (915) 570-0829
Fax: (915) 570-0598
Attention: Kenneth V. Huseman, President
with a copy to:
Kerr & Ward, L. L. P.
500 W. Texas, Suite 1310
Midland, Texas 79701
Telephone: (915) 684-9990
Fax: (915) 684-9997
Attention: William M. Kerr, Jr.
or to such other persons or addresses as Purchaser shall furnish to Seller and
the Company in writing in accordance with this Section 11.03.
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STOCK PURCHASE AGREEMENT Page 27
<PAGE> 28
Delivery of notices shall be effective only upon actual receipt by the
intended recipient (or, in the case of facsimile transmission, the completion of
such transmission during the recipient's normal business hours).
Section 11.04 SURVIVAL. This Agreement is intended in part to evidence
the continuing rights and obligations of the parties following Closing, and all
of the representations, warranties, covenants, and obligations of the parties
are hereby expressly made to survive Closing.
Section 11.05 EXPENSES. Purchaser shall pay its own fees and expenses,
including, without limitation, professional fees and expenses, incurred in
connection with the negotiation, execution, and performance of this Agreement
and the transactions contemplated hereby. All fees and expenses of Seller and
all fees and expenses of the Company for periods to and including the Closing
Date, including, without limitation, professional fees and expenses, incurred in
connection with the negotiation, execution, and performance of this Agreement
and the transactions contemplated hereby, shall be borne and paid exclusively by
Seller.
Section 11.06 BINDING NATURE; No Third Party Beneficiaries. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained herein, express or implied, is intended to confer on
any person other than the parties hereto or their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
Section 11.07 GOVERNING LAW. This Agreement, and the legal relations
among the parties hereto arising from this Agreement, shall be governed by and
construed in accordance with the laws of the State of New Mexico, without regard
to its conflicts of laws rules.
Section 11.08 ENTIRE AGREEMENT. This Agreement (including the exhibits
and schedules hereto and the other instruments referred to herein) embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties with respect to such subject matter.
Section 11.09 HEADINGS. The headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 11.10 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
Section 11.11 SEVERABILITY. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future law, such
provision shall be fully severable and this
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STOCK PURCHASE AGREEMENT Page 28
<PAGE> 29
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision, there shall be added automatically, as part of this Agreement, a
provision as similar in terms and substance to such illegal, invalid, or
unenforceable provision as may be possible and legal, valid, and enforceable.
Section 11.12 DIRECTIVE TO CUSTODIAN/LIMITATION ON CUSTODIAL LIABILITY.
By their execution hereof, Rex Busby and Madie Walker hereby (i) authorize and
direct First Financial Trust Company in its capacities as Custodian of the Rex
Busby IRA Account and as Custodian of the Madie Walker IRA Account to take such
actions upon Closing as are necessary to transfer any portion of the Stock held
by it in such capacities to Purchaser; and (ii) acknowledge and agree that this
Agreement shall be fully binding upon and applicable to any beneficial or other
interest they may own in such IRA accounts.
Section 11.13 JOINT AND SEVERAL LIABILITY OF SELLER. The parties
comprising Seller are and shall be jointly and severally liable for any breach
of the representations, warranties, and covenants of Seller under this Agreement
and any instruments and documents executed by Seller in connection herewith.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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STOCK PURCHASE AGREEMENT Page 29
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and made and entered into as of the date first set forth above.
SELLER:
/s/ REX BUSBY
------------------------------------
REX BUSBY
/s/ MADIE WALKER
------------------------------------
MADIE WALKER
THE COMPANY:
EUNICE WELL SERVICING CO., INC., a New
Mexico corporation
By: /s/ REX BUSBY
---------------------------------
Printed Name: Rex Busby
-----------------------
Title: President
------------------------------
PURCHASER:
SIERRA WELL SERVICE, INC., a Delaware
corporation
By: /s/ CHARLES SWIFT
---------------------------------
Printed Name: Charles Swift
-----------------------
Title: Vice President
------------------------------
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STOCK PURCHASE AGREEMENT Page 30
<PAGE> 31
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A THE NOTE
EXHIBIT B THE SECURITY AGREEMENT
EXHIBIT C THE FINANCIAL STATEMENTS
EXHIBIT D THE EMPLOYMENT AGREEMENT
EXHIBIT E NON-COMPETITION AGREEMENT
EXHIBIT F YARD LEASE
SCHEDULE 1.02 EXCLUDED ASSETS
SCHEDULE 2.08 EXTRAORDINARY TRANSACTIONS
SCHEDULE 2.10 EMPLOYEE BENEFIT PLANS
SCHEDULE 2.11 OWNERSHIP OF THE STOCK
SCHEDULE 2.12 PERSONAL PROPERTY
SCHEDULE 2.13 EXISTING LIENS
SCHEDULE 2.17 CONTRACTS
SCHEDULE 2.19 INSURANCE POLICIES
SCHEDULE 2.20 BANK ACCOUNTS
SCHEDULE 2.21 OTHER LIABILITIES
SCHEDULE 5.17 PERSONAL GUARANTIES OF SELLER
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT Page 31
<PAGE> 32
EXHIBIT A
SECURED PROMISSORY NOTE
$400,000.00 Hobbs, New Mexico ____________, 2000
FOR VALUE RECEIVED, the undersigned, SIERRA WELL SERVICE, INC., a
Delaware corporation ("Maker"), promises to pay to the order of [PARTIES SELLER
TO BE DESIGNATED BY SELLER PURSUANT TO SECTION 1.03 OF THE AGREEMENT] ("Payee"),
at P. O. Box 880, Eunice, New Mexico 88231, the principal sum of FOUR HUNDRED
THOUSAND AND NO/100 DOLLARS ($400,000.00), together with interest on the unpaid
principal balance from day to day outstanding prior to default or maturity at
per annum rate equal to the lesser of (i) the Prime Rate (hereinafter defined)
in effect hereunder (the "Established Rate") (calculated on the basis of actual
days elapsed in a year consisting of 365 or 366 days, as appropriate) or (ii)
the Maximum Rate (hereinafter defined) (calculated on the basis of actual days
elapsed in a year consisting of 365 or 366 days, as appropriate). If at any time
and from time to time the Established Rate exceeds the Maximum Rate, thereby
causing the interest payable to be limited to the Maximum Rate, then any
subsequent reduction in the Established Rate shall not reduce the rate of
interest hereunder below the Maximum Rate until the total amount of interest
accrued hereon equals the amount of interest that would have accrued if the
Established Rate had at all times been in effect. All past due principal of and
accrued interest on this Note shall bear interest at the Maximum Rate.
As used herein, "Prime Rate" shall mean the rate of interest denominated
and published as such by the Wall Street Journal on the first Friday most
immediately preceding the date of this Note that is a business day.
As used herein, "Maximum Rate" shall mean the maximum non-usurious rate
of interest that at any time, or from time to time, may be contracted for,
taken, reserved, charged, or received under applicable law on the indebtedness
evidenced by this Note, after taking into account, to the extent required by
applicable law, any and all relevant payments, charges, or other amounts under
this Note and all instruments securing payment of this Note.
The principal of and accrued interest on this Note are due and payable
one year from the date hereof. This Note may be prepaid in whole or in part
without penalty. Partial prepayments shall be applied first to any accrued and
unpaid interest and the balance remaining, if any, to principal.
This Note is secured by that certain Security Agreement of even date
herewith, between Eunice Well Servicing, Inc., as Grantor, and Payee, as Secured
Party, covering all of the equipment and other tangible personal property
therein described.
It is understood and agreed that in the event of default in the payment
of this Note or any installment hereof, principal or interest, and if such
default shall continue unremedied for more than ten (10) days following written
notice thereof from Payee to Maker, or in the event of any default (other than
non-payment of this Note) in any instrument securing payment of this Note and if
such default shall continue unremedied for more than thirty (30) days following
written notice thereof from Payee to Maker, the entire principal balance of and
all accrued and unpaid interest on this Note shall at once become due and
payable without notice, at the option of Payee. Failure by Payee to exercise
this option on any one or more occasions shall not constitute a waiver of the
right to exercise such option in the event of subsequent default.
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STOCK PURCHASE AGREEMENT Page 33
<PAGE> 33
Except as otherwise herein expressly provided, the makers, signers,
sureties, and endorsers of this Note jointly and severally waive demand,
presentment, notice of dishonor, notice of intent to demand or accelerate
payment hereof, diligence in collecting, grace, notice, and protest, and agree
to one or more extensions for any period or periods of time and partial
payments, before or after maturity, without prejudice to Payee; and if this Note
shall be collected by legal proceedings or through probate or bankruptcy court,
or shall be placed in the hands of an attorney for collection after default or
maturity, Maker agrees to pay all costs of collection, including reasonable
attorney's fees.
All agreements between Maker and Payee, whether now existing or
hereafter arising and whether written or oral, are hereby limited so that under
no contingency, whether by reason or demand for payment or acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged, or
received by Payee exceed the Maximum Rate. If, for any circumstance whatsoever,
interest would otherwise be payable to Payee in excess of the Maximum Rate, the
interest payable to Payee hereunder shall be reduced to the Maximum Rate; and if
for any circumstance Payee shall ever receive anything of value deemed interest
by applicable law in excess of the Maximum Rate, then an amount equal to any
such excess shall be applied to the reduction of the principal hereof and not
the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal hereof, such excess shall be refunded to Maker. All
interest paid or agreed to be paid to Payee shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full period until payment in full of the principal (including the period of any
renewal or extension hereof) so that the interest hereon for such full period
shall not exceed the Maximum Rate.
Any provisions of this Agreement to the contrary notwithstanding, if
Maker shall successfully conclude an initial public offering of common stock in
Maker through a nationally recognized stock exchange at any time prior to
maturity of this Note, whether stated or by acceleration, (the "Sierra IPO")
Maker shall confer written notice thereof upon Payee and Payee shall thereupon
have the right, exercisable at any time prior to maturity hereof as hereinafter
provided, at its sole option, to convert the unpaid balance of this note to
common stock in Maker at a per share price equivalent to the per share price at
which Sierra issued its common stock in the Sierra IPO. Payee shall exercise
such optional right by conferring written notice of exercise upon Maker prior to
maturity hereof, whether stated or by acceleration, accompanied by the original
of this note, marked "PAID," in return for which Maker shall issue the requisite
number of shares of its common stock to Payee. The failure by Payee to exercise
optional right in the time and manner specified shall cause such right to
terminate automatically and without necessity of further action by Payee.
This Note is in all respects subject to that certain Stock Purchase
Agreement dated as of February 29, 2000, between Rex Busby and Madie Walker, as
Seller, Eunice Well Servicing, Inc., as the Company, and Maker, as Purchaser.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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STOCK PURCHASE AGREEMENT Page 34
<PAGE> 34
This Note shall be governed by and construed in accordance with the laws
of the State of New Mexico.
SIERRA WELL SERVICE, INC.
By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------
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STOCK PURCHASE AGREEMENT Page 35
<PAGE> 35
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT ("First Amendment") is
made and entered into as of the 20th day of March 2000, between REX BUSBY and
MADIE WALKER (collectively, Seller), EUNICE WELL SERVICING CO., INC., a New
Mexico corporation (the "Company"), and SIERRA WELL SERVICE, INC., a Delaware
corporation ("Purchaser"), with reference to the following:
RECITALS
A. Seller, the Company, and Purchaser are parties to that certain Stock
Purchase Agreement (the "Agreement") dated as of February 29, 2000, relating to
the sale and purchase of all of the issued and outstanding capital stock of the
Company.
B. Seller and Purchaser wish to amend the Agreement upon the terms
which follow.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. EXTENSION OF CLOSING DATE. Seller, the Company, and Purchaser hereby
modify and amend existing Section 8.01 of the Agreement to read as follows:
Section 8.01 CLOSING. The closing ("Closing") of the
transaction contemplated hereby shall take place at the
offices of Purchaser at 406 N. Big Spring, Midland, Texas, on
a business date of Purchaser's unilateral selection within
thirty (30) days following any successful completion by
Purchaser of an initial public offering of common stock in the
Company through a recognized national stock exchange (the
"Sierra IPO"), but in no event later than June 30, 2000, or at
such other place and time as the parties hereto might
hereafter mutually agree in writing. Such date or any
alternative date so selected by the parties is referred to in
this Agreement as the "Closing Date." Purchaser shall afford
Seller and the Company at least ten (10) days prior written
notice of its desired Closing Date pursuant to the foregoing.
2. DEFINITIONS. Except as expressly indicated otherwise herein,
capitalized terms in this First Amendment shall have the same meanings as are
ascribed to them in the Agreement.
3. CONFIRMATION. The parties hereto hereby ratify, confirm, and adopt
the Agreement, as amended hereby. Except as modified hereby, the Agreement
remains in full force and effect.
<PAGE> 36
4. FAX; COUNTERPARTS. This First Amendment may be executed by fax and
in multiple counterparts.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
First Amendment as of the day and year first above written.
SELLER:
/s/ REX BUSBY
-------------------------------------
REX BUSBY
/s/ MADIE WALKER
-------------------------------------
MADIE WALKER
THE COMPANY:
EUNICE WELL SERVICING CO., INC.,
a New Mexico corporation
By: /s/ REX BUSBY
---------------------------------
Printed Name: REX BUSBY
------------------------
Title: President
------------------------------
PURCHASER:
SIERRA WELL SERVICE, INC., a Delaware
corporation
By: /s/ CHARLES SWIFT
---------------------------------
Printed Name: CHARLES SWIFT
------------------------
Title: Vice President
------------------------------
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FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT PAGE 2
<PAGE> 1
EXHIBIT 10.21
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as
of the 29th day of December 1999, by and between DENNIS G. HARRISON, SUE ANN
HARRISON, and WILLIE EDWARDS (collectively, "Sellers"), HARRISON WELL SERVICE,
INC., a Texas corporation (the "Company"), and SIERRA WELL SERVICE, INC., a
Delaware corporation ("Purchaser").
RECITALS:
A. The Company is based out of Denver City, Texas and is principally
engaged in the well servicing business in the Permian Basin of West Texas (the
"Business").
B. Sellers own all of the issued and outstanding capital stock of
the Company (the "Stock").
C. Sellers desire to sell the Stock, and Purchaser desires to
purchase the same, upon and subject to the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, and covenants which are hereinafter set forth, and
other good and valuable consideration, the legal sufficiency of which are hereby
acknowledged, the parties hereto have agreed and do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
Section 1.01 THE STOCK. Subject to all of the terms and conditions of
this Agreement, Sellers hereby agree to sell, transfer, and deliver, and
Purchaser hereby agrees to purchase, pay for, and accept, at the Closing
(hereinafter defined), all of the Stock.
Section 1.02 PRE-CLOSING DISTRIBUTION OF CERTAIN ASSETS. At or prior to
Closing, the Company shall distribute to Sellers, without representation,
warranty, or recourse by or upon the Company, and without adverse tax effect
upon the Company, all of its right, title and interest in and to the assets
listed on attached SCHEDULE 1.02 (collectively, the "Excluded Assets"). In
connection with such distribution, upon Closing, Sellers jointly and severally
agree to indemnify and hold the Company and Purchaser harmless from and against
any and all claims, demands, causes of action, liabilities, losses, and/or
expenses (including, without limitation, reasonable attorneys' fees and other
expenses of litigation) arising from or in connection with the acquisition,
ownership, operation, use, or distribution of the Excluded Assets by the
Company, specifically including, without limitation, any adverse tax
consequences occasioned to or suffered by the Company or Purchaser as a
consequence of the distribution of the Excluded Assets to Sellers pursuant to
this Section 1.02.
<PAGE> 2
Section 1.03 PURCHASE PRICE. Subject to adjustment as hereinafter
provided in this Agreement, the total purchase price ("Purchase Price") for the
Stock is a sum equal to (A) $1,225,000.00 plus or minus (B) the "net financial
assets" (as defined below) of the Company as of the Closing Date ("NFA"),
payable by Purchaser to Sellers, in proportion to their ownership of the Stock,
as follows:
(1) Purchaser shall pay to Sellers in immediately available funds
at the Closing a sum equal to (a) $600,000.00 plus or minus
(b) NFA, as preliminarily estimated and finally adjusted
pursuant to Section 5.08; and
(2) Purchaser shall execute and deliver to Dennis G. Harrison,
Trustee, for the benefit of Sellers, at Closing its promissory
note (the "Note") in the original principal amount of
$625,000.00, bearing interest at a floating rate equal to the
prime rate of interest quoted in the Wall Street Journal
published on the Friday most immediately preceding the
applicable quarterly adjustment date, and payable to the order
of Sellers on or before one year from date, said Note to be
substantially identical in form and substance to that attached
hereto as EXHIBIT A, to be convertible into equity of
Purchaser under certain circumstances as therein provided, and
to be secured by a security interest upon the tangible assets
of the Company as of Closing that is junior in priority to any
liens upon such assets as of the Closing Date, as created by a
properly completed Form UCC-1 executed by the Company, as
Grantor, and by security agreement substantially identical in
form and substance to that attached hereto as EXHIBIT B
(collectively, the "Security Agreement").
As used in this Agreement, "net financial assets" means the difference
between (a) "Total Current Assets" and (b) "Total Liabilities," as such account
groups are shown on the Balance Sheet (hereinafter defined) and then adjusted or
converted as of the Closing Date pursuant to Section 5.08.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
SELLERS AND THE COMPANY
Sellers and the Company hereby jointly and severally represent and
warrant to Purchaser as of the date of this Agreement as follows:
Section 2.01 ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation and has the requisite
power and authority to own, lease, and operate its assets and to carry on its
business as now being conducted. The Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorizations. The Company is duly qualified or licensed to do business and is
in good standing in each jurisdiction where the
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STOCK PURCHASE AGREEMENT Page 2
<PAGE> 3
character of the assets owned, leased, or operated by it or the nature of its
activities makes such qualification or licensing necessary. The Company does not
have any subsidiaries. The Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, or other business association or entity.
Section 2.02 GOVERNING DOCUMENTS. The articles of incorporation and the
bylaws of the Company, true and correct copies of which have been furnished to
Purchaser, are in full force and effect and have not been modified, amended, or
rescinded. The Company is not in violation of its articles of incorporation or
bylaws.
Section 2.03 CAPITALIZATION OF THE COMPANY. The authorized capital
stock of the Company consists of 720 shares of common stock, par value $100 per
share. As of the date hereof, 360 shares of common stock of the Company are
issued and outstanding, all of which are validly issued, fully paid, and
nonassessable (and collectively constitute the Stock). There are no options,
warrants, or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company or
obligating the Company to issue or sell any shares of capital stock of, or other
equity interests in, the Company. There are no obligations, contingent or
otherwise, of the Company to repurchase, redeem, or otherwise acquire any shares
of the Stock or to provide funds to or make any investment (in the form of a
loan, capital contribution, or otherwise) in any other person or entity.
Section 2.04 AUTHORITY RELATIVE TO THIS AGREEMENT. Sellers and the
Company have full power and authority to execute and deliver this Agreement and
to perform their obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Sellers and
the Company and their consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary action and no other
proceedings on the part of Sellers or the Company are necessary to authorize
this Agreement or to consummate the transactions so contemplated. This Agreement
has been duly and validly executed and delivered by Sellers and the Company and
constitutes the legal, valid, and binding obligations of Sellers and the
Company, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to or limiting creditors' rights or by legal principles of general applicability
governing availability of equitable remedies.
Section 2.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Sellers and the
Company do not, and the performance of this Agreement by Sellers and the Company
will not (i) conflict with or violate the articles of incorporation, bylaws, or
other governing documents of the Company, (ii) conflict with or violate any
laws, statutes, rules, regulations, or pronouncements of any court, tribunal, or
governmental agency, whether federal, state, or local, (collectively, "Laws")
applicable to Sellers or the Company, or by which they or their respective
assets are bound or affected, or (iii) result in any material breach of or
constitute a material default (or an event that with notice or lapse
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STOCK PURCHASE AGREEMENT Page 3
<PAGE> 4
of time or both would become a material default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the assets of Sellers or the
Company pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise, or other instrument or obligation to which
Sellers or the Company is a party or by which any of them or their respective
assets are bound or affected.
(b) The execution and delivery of this Agreement by Sellers and the
Company do not, and the performance of this Agreement by Sellers and the Company
will not, require any consent, approval, authorization, or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic or
foreign.
Section 2.06 COMPLIANCE; PERMITS. The Company is not in conflict with,
or in default under or violation of, (i) any federal, state, or local laws
applicable to the Company or by which the Company or any of the assets of the
Company are bound or affected or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or its assets
are bound or affected. The Company possesses all permits, licenses, leases,
agreements, and authorizations of governmental authorities and any other
applicable persons or entities necessary to or for the operation of its assets,
properties, and business, all of which permits, licenses, leases, agreements,
and authorizations are in full force and effect.
Section 2.07 REPORTS AND FINANCIAL STATEMENTS OF THE COMPANY. The
balance sheet of the Company for the period ending as of November 30, 1999, a
copy of which is attached hereto as EXHIBIT C ( the "Balance Sheet"), is true
and complete in all material respects, fairly represents the financial position
of the Company as of the period shown, and was prepared in accordance with
reasonable and acceptable accounting principles and practices, consistently
applied. The Balance Sheet does not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading.
Except as and to the extent of (i) liabilities reflected or reserved
against in the Balance Sheet and (ii) liabilities which have arisen since
November 30, 1999 in the ordinary course of business and which have been fully
disclosed to Purchaser in writing, the Company does not have any liabilities or
obligations (whether accrued, absolute or contingent), and including without
limitation, any liabilities resulting from failure to comply with any laws or
any federal, state, or local tax liabilities due or to become due whether (a)
incurred in respect of or measured by income for any financial statement or
balance sheet period, or (b) arising out of transactions entered into, or any
state of facts existing, prior or subsequent thereto.
Section 2.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since November 30,
1999, except as shown on attached SCHEDULE 2.08, the Company has conducted its
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, except as shown on SCHEDULE 2.08, there has not
been (a) any material adverse change in the financial condition, results of
operations, or business of the Company, (b) any material damage, destruction, or
loss (whether
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT Page 4
<PAGE> 5
or not covered by insurance) with respect to any assets of the Company, (c) any
change by the Company in its accounting methods, principles, or practices, (d)
any entry by the Company into any commitments or transactions material to the
Company, (e) any declaration, setting aside, or payment of any dividends or
distributions in respect of shares of the Stock or any redemption, purchase, or
other acquisition of any of the capital stock of the Company, (f) any increase
or decrease in or establishment or termination of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase, or other employee benefit plan of the Company, or any other increase
in the compensation payable or to become payable to any officers or key
employees of the Company, (g) any incurrence of any indebtedness or other
obligations or liabilities by the Company, (h) any proposed law or regulation or
any actual event or condition of any character that is known to the Sellers or
the Company that materially adversely affects the business or future prospects
of the Company, (h) any claim, litigation, event, or condition of any character
that materially adversely affects the business or future prospects of the
Company, (i) any issuance or purchase of, or agreement to issue or purchase
shares of the capital stock or other securities of the Company, (j) any
mortgage, pledge, lien, or encumbrance made or agreed to be made on any of the
Company's assets or properties, (k) any sale, transfer, other disposition of, or
agreement to sell, transfer, or dispose of the Company's properties or assets,
tangible or intangible, except as expressly permitted by this Agreement and
except in the ordinary course of business and then only for full and fair value
received, (l) any loans, advances, or agreements with respect to any loans or
advances, other than to customers in the ordinary course of business and that
have been properly reflected as "accounts receivable" on the Company's books;
(m) any transaction outside the ordinary course of business, (n) any capital
expenditure by the Company in excess of $10,000, or (o) any agreement by Sellers
or the Company to do any of the items described in Subparagraphs (a) through (n)
above.
Section 2.09 ABSENCE OF LITIGATION. There are no claims, actions,
proceedings, or investigations pending or, to the knowledge of Sellers or the
Company, threatened against the Company or any of the assets of the Company
before any court, arbitrator, or administrative, governmental, or regulatory
authority or body, domestic or foreign. As of the date hereof, neither the
Company nor its assets are subject to any order, writ, judgment, injunction,
decree, determination, or award.
Section 2.10 EMPLOYEE BENEFIT PLANS. Except as set forth on attached
SCHEDULE 2.10 (collectively, the "Plans"), the Company does not have any
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended and the regulations thereunder), any
bonus, stock option, stock purchase, restricted stock, incentive, deferred
compensation, medical, accident, life insurance, disability income, retiree
medical or life insurance, supplemental retirement, severance, and other benefit
plans, programs, or arrangements, or any sick leave and vacation plans. The
Company has operated the Plans in compliance with all applicable federal, state,
and local laws and regulations, has received no notice of any claims or
violations of any laws and regulations applicable to the Plans, and, has no
existing obligations or liabilities under the Plans which have not been fully
funded or reserved for on the Balance Sheet. Any and all such
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STOCK PURCHASE AGREEMENT Page 5
<PAGE> 6
plans, programs, and arrangements previously adopted and subsequently terminated
by the Company were duly and validly terminated in accordance with all
applicable laws and the Company has no continuing obligations or liabilities and
has received no notice of any claims or violations with respect to such former
plans, programs, and arrangements.
Section 2.11 TITLE TO STOCK. Sellers own good and marketable title to
all of the Stock, in the proportions among them as set forth on attached
SCHEDULE 2.11, free and clear of liens, claims, and encumbrances of any kind or
character.
Section 2.12 ASSETS OF THE COMPANY.
(a) SCHEDULE 2.12(a) attached hereto contains a complete and
correct description of all real property owned by or leased to the Company or in
which the Company otherwise holds contractual rights, together with all
applicable real property leases and contracts. All such leases and contracts are
valid and in full force and effect and all rents, royalties, and other sums
payable by the Company thereunder have been timely paid. There exists no default
or event or circumstance which, with notice or lapse of time or both, will
constitute a default under any of such lease agreements.
(b) SCHEDULE 2.12(b) attached hereto contains a complete and
accurate description of all vehicles, equipment, furniture, fixtures, and other
personal property of any kind or character, tangible or intangible, that is
owned by, in the possession of, or used by the Company in connection with the
Company's business. Except as shown on SCHEDULE 2.12(B), no personal property
owned or used by the Company in connection with its business is held under any
lease, security agreement, conditional sales contract, or other title retention
or financing agreement or is located any place other than in the possession of
the Company.
Section 2.13 TITLE TO AND CONDITION OF ASSETS. The Company has, or will
have at Closing, good and marketable title to all of its assets and properties,
real and personal, tangible and intangible, that are material to the Company's
business and future prospects, free and clear of liens, claims, charges, and
encumbrances of any kind or nature, save and except (a) the liens and security
interests shown on attached SCHEDULE 2.13, (b) liens for real and personal
property taxes that are not yet due and payable and (c) possible minor matters
that, in the aggregate, are not substantial in amount and do not materially
interfere with or detract from the present or intended use of any of the assets
and properties nor materially impair the business operations of the Company. The
tangible assets of the Company are in good operating condition and repair,
normal wear and tear excepted.
Section 2.14 TAXES. The Company is and at all times in the past has
been a "C" corporation within the meaning of Section 1361 of the Internal
Revenue Code of 1986, as amended. The Company presently maintains and at all
times in the past has maintained a fiscal year ending as of December 31 for
federal income tax purposes. The Company has filed all state and federal Tax
Returns (defined below) required to be filed by the Company, and the Company has
paid and
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STOCK PURCHASE AGREEMENT Page 6
<PAGE> 7
discharged all Taxes (as defined below) shown due thereon and has paid all other
Taxes as are due. The liability for Taxes set forth in each such Tax Return does
not materially understate the Taxes required to be reflected on such Tax Return.
For purposes of this Agreement, "Tax" or "Taxes" means taxes of any kind,
payable to any federal, state, local, or foreign taxing authority, including
(without limitation) (i) income, franchise, profits, gross receipts, ad valorem,
value added, sales, use, service, real or personal property, payroll,
withholding, employment, social security, unemployment compensation, and
production taxes, and (ii) interest, penalties, and additions to tax imposed
with respect thereto, whether disputed or not; and "Tax Returns" means all
returns, reports, declarations, claims for refund, and information statements
with respect to Taxes required to be filed with the Internal Revenue Service or
any other taxing authority, domestic or foreign, through the time of Closing
hereunder, including, without limitation, consolidated, combined, and unitary
tax returns and any schedule or amendment thereto. The Company has not (i)
granted any waiver of any statute of limitations with respect to, any Tax, or
(ii) obtained an extension of time with respect to the filing of any Tax Return
other than Tax Returns that were duly filed within the applicable extension
period. No claim has been made by an authority in a jurisdiction where the
Company does not file Tax Returns that the Company may be subject to taxation by
that jurisdiction. There are no liens or security interests on any of the assets
of the Company that arose in connection with any failure (or alleged failure) to
pay any Tax. The Company has disclosed on all federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Section 6662 of the Code. The Company
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor, independent
contractor, or other third-party. There is no dispute or claim concerning any
liability for Tax of the Company (i) claimed or raised by any authority in
writing or (ii) as to which the Company or any officers (and employees
responsible for Tax matters) of the Company have knowledge.
Section 2.15 ENVIRONMENTAL MATTERS.
(a) The Company has conducted all operations and activities in
material compliance with all applicable Environmental Laws (as defined below),
and none of the assets of the Company is being or has been operated in violation
of any Environmental Laws.
(b) The Company possesses all permits required under
Environmental Laws for the operation of its assets.
(c) The assets of the Company, and the operations conducted
thereon or therewith, are not subject to any existing, unfulfilled
administrative or judicial order requiring remedial action under any
Environmental Law.
(d) Neither Sellers nor the Company has received any notice of
any investigation or inquiry regarding failure of the assets of the Company, or
the operations conducted thereon or therewith, to comply with Environmental
Laws.
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STOCK PURCHASE AGREEMENT Page 7
<PAGE> 8
As used in this Section 2.15, "Environmental Laws" shall mean the
federal Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendments and Reauthorization Act, as amended, Safe
Drinking Water Act, Texas Solid Waste Disposal Act, the Resource Conservation
and Recovery Act, as amended, the Hazardous and Solid Waste Amendments Act, as
amended, the Toxic Substances Control Act, as amended, the Clean Water Act, as
amended, and the Clean Air Act, as amended, and any other applicable federal,
state, or local environmental law and all rules, regulations and administrative
orders related thereto, as such laws, rules, regulations and administrative
orders exist as of the Closing Date.
Section 2.16 BROKERS. No broker, finder, or investment banker is
entitled to any brokerage, finder's, or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Sellers or the Company.
Section 2.17 CONTRACTS. Attached hereto as SCHEDULE 2.17 is a list of
all currently effective agreements respecting property, goods, and/or services
of or binding upon the Company or its assets (the "Contracts"). None of the
Contracts has been modified, amended, supplemented or altered except as
specifically shown on attached SCHEDULE 2.17. The Company has made copies of all
of the Contracts (including all modifications, amendments, and supplements
thereto) available to Purchaser. All of the Contracts are in full force and
effect and the Company is not in default under any of the Contracts.
Section 2.18 NO UNION CONTRACTS. There is no collective bargaining or
other union agreement to or by which the Company is a party or is bound, nor is
a collective-bargaining agreement currently being negotiated; and all non-exempt
employees have been paid in accordance with the Fair Labor Standards Act of 1938
and the Portal-to-Portal Act of 1947. The Company is in compliance with all
federal, state, or other applicable laws, domestic or foreign, respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and has not and is not engaged in any unfair labor practice.
The Company has not experienced any material labor difficulty during the last
three years.
Section 2.19 INSURANCE. SCHEDULE 2.19 attached hereto lists all
insurance policies (the "Insurance Policies") held by the Company and all such
listed policies are in the respective principal amounts set forth therein. The
Company maintains (a) insurance on all of its business, operations, and assets
of a type customarily insured, covering property damage and loss of income by
fire or other casualty and (b) insurance protection against all liabilities,
claims, and risks against which it is customary to insure. All premiums due and
payable under the Insurance Policies have been paid. The Company is not, and but
for a requirement that notice be given or that a period of time elapse or both
would not be, in violation under any such Insurance Policies.
Schedule 2.20 BANK ACCOUNTS. SCHEDULE 2.20 attached hereto contains a
true and correct list of the names and addresses of all banks, financial
institutions, and other depositories in which the Company has an account,
deposit, or safe deposit box and the names of all persons authorized
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STOCK PURCHASE AGREEMENT Page 8
<PAGE> 9
to draw on those accounts or deposits or who have access to them and the account
numbers of each account.
Schedule 2.21 OTHER LIABILITIES AND OBLIGATIONS. SCHEDULE 2.21 attached
hereto contains a true and correct list of all liabilities and obligations of
the Company not disclosed elsewhere in this Agreement of any kind, character,
and description, whether accrued, absolute, contingent, or otherwise, and
whether or not required to be disclosed or accrued in the financial statements
of the Company that exceed $5,000 to any one creditor. In the case of
liabilities that may not be fixed, an estimate of the maximum amount that may be
payable is also included.
Section 2.22 DISCLOSURE. No representations or warranties made by
Sellers or the Company in this Agreement, and no statements of Sellers or the
Company contained in any document executed or delivered by any of them to
Purchaser pursuant hereto or in connection with the transactions contemplated
hereby, contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements herein or therein not misleading.
Section 2.23 TRANSACTIONS WITH AFFILIATES. Except as shown on attached
SCHEDULE 2.23, the Company is not a party to any transaction, contract, or
agreement with any (i) current or former officer or director of the Company or
(ii) any parent, spouse, child, brother, sister or other family relation of any
such officer or director, or (iii) any corporation or partnership of which any
such officer or director or any such family relation is an officer, director,
partner or greater than 10% stockholder (based on percentage ownership of voting
stock) or (iv) any "affiliate", or "associate" of any such persons or entities
(as such terms are defined in the rules and regulations promulgated under the
Securities Act of 1934, including, without limitation, any transaction involving
a contract, agreement, or other arrangement providing for the employment of,
furnishing of materials, products, or services by, rental of real or personal
property from, or otherwise requiring payments to, any such person or entity,
except with respect to services provided on reasonable terms which would not
materially alter the presentation of the Balance Sheet, if such transactions had
been entered into with an unrelated third party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers as of the date of
this Agreement as follows:
Section 3.01 ORGANIZATION AND QUALIFICATION. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware. Purchaser is duly qualified or licensed to do business and is in good
standing in each jurisdiction where the character of the assets owned or
operated by Purchaser or the nature of its activities makes such qualification
or licensing necessary.
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STOCK PURCHASE AGREEMENT Page 9
<PAGE> 10
Section 3.02 AUTHORITY RELATIVE TO THIS AGREEMENT. Purchaser has the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Purchaser
and the consummation by Purchaser of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Purchaser are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Purchaser and, assuming the due
authorization, execution and delivery by all other parties hereto, constitutes
the legal, valid and binding obligation of Purchaser, except as the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect relating to or limiting creditors, rights or by legal
principles of general applicability governing the availability of equitable
remedies.
Section 3.03 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by
Purchaser do not, and the performance of this Agreement by Purchaser will not
(i) conflict with or violate the certificate of incorporation or bylaws of
Purchaser, (ii) to the knowledge of Purchaser, conflict with or violate any law
applicable to Purchaser or by which any of its assets are bound or affected or
(iii) to the knowledge of Purchaser, result in any breach or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the material assets of Purchaser pursuant to, any note,
bond, mortgage, indenture, or any material contract, agreement, lease, license,
permit, franchise, or other instrument or obligation to which Purchaser is a
party or by which Purchaser or any of its assets are bound or affected.
(b) To the knowledge of Purchaser, the execution and delivery of
this Agreement by Purchaser do not, and the performance of this Agreement by
Purchaser will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
domestic or foreign.
Section 3.04 BROKERS. No broker, finder, or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Purchaser.
ARTICLE IV
CONDUCT OF BUSINESS OF THE COMPANY
PENDING THE CLOSING DATE
Pending the Closing Date or earlier termination of this Agreement, and
except as otherwise specifically contemplated in this Agreement or the schedules
hereto or as may be consented to and approved in writing by Purchaser, the
Company covenants and agrees as follows:
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STOCK PURCHASE AGREEMENT Page 10
<PAGE> 11
Section 4.01 ORDINARY COURSE OF BUSINESS. The Company will carry on its
business substantially in the same manner as heretofore conducted, and will not
engage in any transaction or activity, enter into any agreement or make any
commitment, except in the ordinary course of business. Without limiting the
generality of the foregoing, the Company will:
(a) operate and maintain its assets diligently and in a
good and workmanlike manner and comply in all material respects with all
applicable laws and with the terms of any agreements binding upon those assets;
(b) maintain and keep in full force and effect all of the
Contracts and all permits, licenses and similar rights and privileges of the
Company and each subsidiary of the Company and comply in all material respects
with all of its material obligations therein and thereunder;
(c) maintain all of its tangible assets in at least as
good a condition as they were in at the date hereof, ordinary wear and tear
excepted, and remove no material items therefrom;
(d) maintain the Insurance Policies in full force and effect;
and
(e) pay, perform, and discharge, on a basis consistent with
the Company's prior practices, all obligations of the Company under the notes,
leases, and other instruments evidencing the indebtedness or other liabilities
of the Company which are shown on the Balance Sheet and/or on the schedules
attached to this Agreement in accordance with their respective terms (but
without right of prepayment);
Section 4.02 RESTRICTED ACTIONS. Without the prior written consent of
Purchaser, such consent not to be unreasonably withheld, the Company will not
(a) enter into any agreement or commitment, the result of which would be to
incur or expand the existing indebtedness or liabilities of the Company; (b)
incur any additional indebtedness other than trade payables incurred in the
ordinary course of business; (c) sell, transfer, assign, convey or otherwise
dispose of any of the assets of the Company other than dispositions of (i)
equipment or other personal property which is replaced with property and
equipment of comparable or better value and utility in the ordinary and routine
maintenance and operation of its business and (ii) personal property and
equipment no longer used or useful in the ordinary course of business; or (d)
create or permit the creation of any new lien, security interest, or other
encumbrances on any asset of the Company.
Section 4.03 AMENDMENTS TO GOVERNING DOCUMENTS. No change or amendment
shall be made in the articles of incorporation or bylaws of the Company.
Section 4.04 ORGANIZATION. The Company will preserve its corporate
existence and will keep its business organization intact and use its reasonable
efforts to preserve its relationships with its suppliers, customers, and others
having business relations with the Company.
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STOCK PURCHASE AGREEMENT Page 11
<PAGE> 12
Section 4.05 EMPLOYMENT AGREEMENTS. The Company will not enter into any
agreement relating to employment with any person.
Section 4.06 ISSUANCE OF SHARES; DIVIDENDS. The Company will not issue
shares of capital stock, or grant any options, warrants or other rights to
purchase or acquire the capital stock of the Company. The Company will neither
declare nor pay or set aside for payment any dividend or other distribution on
its outstanding shares of capital stock, nor redeem, purchase or otherwise
acquire any of its capital stock.
Section 4.07 NO DEFAULT. The Company will not knowingly take any action
or knowingly take any action that causes a material breach of any
representation, warranty, covenant or agreement of the Company under this
Agreement.
Section 4.08 INVESTMENT. The Company will not make any new capital
investment in, make any loan to, or acquire the securities or assets of any
other person or entity.
Section 4.09 USES OF CASH. Other than in the ordinary course of
business, the Company will not make any payments during the period between the
date hereof and the Closing Date except for the purpose of paying Taxes, paying
rentals or other sums owing by the Company under the Contracts as and when due,
discharging rentals and trade payables incurred in the ordinary course of
business, and retiring or discharging presently existing indebtedness to
financial institutions or other third parties as and when due in accordance with
the terms of the notes or other instruments evidencing such indebtedness (but
without right of prepayment).
ARTICLE V
OTHER AGREEMENTS OF THE PARTIES
Section 5.01 PURCHASER'S DUE DILIGENCE. Prior to entering into this
Agreement, Purchaser has been afforded the opportunity to conduct such
inspections, reviews, and audits of the assets of the Company and of its books
and records as Purchaser, in its discretion deemed appropriate. Pending Closing,
Purchaser may conduct such further inspections, reviews, and audits as Purchaser
may reasonably require. All expenses incurred by the Purchaser relating to its
inspections, reviews, and audits shall be borne and paid exclusively by the
Purchaser. Sellers and the Company shall cooperate with Purchaser in all
reasonable respects in facilitating such inspections, reviews, and audits.
Without limiting the foregoing, Sellers and the Company agree that, until
Closing, they will (a) provide or cause to be provided to Purchaser and its
counsel, accountants, consultants, and other authorized representatives, during
normal business hours or otherwise, if necessary, full access to all of their,
assets, books, agreements, commitments and records; and (b) furnish Purchaser
and its representatives with such data, records, and other information
concerning any of their operations and affairs as Purchaser may reasonably
request.
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STOCK PURCHASE AGREEMENT Page 12
<PAGE> 13
Sellers further agree that, upon request by Purchaser following
Closing, they will execute and deliver to Purchaser or its accountants such
audit response letters and further confirmations as Purchaser or its accountants
may reasonably require for purposes of verification of the accuracy, validity,
and completeness of all financial and other information provided or made
available by Sellers and the Company to Purchaser in connection with the
transactions contemplated by this Agreement.
Section 5.02 EXCLUSIVE DEALING. Unless and until this Agreement shall
have been terminated in accordance with the terms hereof, neither Sellers nor
the Company shall directly or indirectly, solicit, initiate, or participate in
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than the Purchaser or an affiliate or an
associate of the Purchaser) concerning, or enter into any agreement providing
for any sale of the assets of the Company, any sale of shares of capital stock
in the Company, or any similar transactions involving the Company.
Section 5.03 CONSENTS, APPROVALS, AND FILINGS. Sellers, the Company,
and Purchaser shall each use reasonable efforts to obtain at the earliest
practicable date and, in any event, prior to the Closing Date, all consents and
approvals, including any third party consents, and to make all filings required
to be obtained or made under any federal, state, or local laws or any agreement
or other instrument (including, without limitation, any consent or approval
necessary to avoid the loss of any rights under any agreement) prior to
consummating the transactions contemplated hereby, whether such consent,
approval or filing is to be obtained from or made with private parties or
applicable governmental authorities.
Section 5.04 BROKERS AND FINDERS. Purchaser, on the one hand, and
Sellers and the Company, on the other hand, shall indemnify each other and hold
each other harmless from any claim against the other for a broker's or finder's
fee, commission, or other like payment in connection with the transactions
contemplated by this Agreement which arises from or is based upon arrangements
made by or through the indemnifying party.
Section 5.05 PUBLIC ANNOUNCEMENTS. Pending Closing, except as may be
required by applicable law, no party hereto shall issue any press release or
make any other public pronouncements concerning this Agreement or the
transactions contemplated hereby without the written consent and approval of all
other parties.
Section 5.06 RESIGNATION OF OFFICERS AND DIRECTORS. Sellers and the
Company will secure the resignation of each then-serving officer and director of
the Company effective as of the Closing Date.
Section 5.07 NOTICE OF DEVELOPMENTS. Prior to the Closing, Sellers and
the Company will give prompt notice to Purchaser of any material event affecting
the assets, liabilities, business, financial condition, operations, results of
operations, or future prospects of the Company. No disclosure pursuant to this
Section 5.07 shall, however, be deemed to amend or supplement this
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STOCK PURCHASE AGREEMENT Page 13
<PAGE> 14
Agreement or the schedules hereto or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant under this Agreement.
Section 5.08 PRELIMINARY AND FINAL COMPUTATIONS OF NFA. As part of its
diligence processes in this transaction, Purchaser intends to have the books and
records of the Company audited by certified professional accountants and to have
audited financial statements prepared for the Company in compliance with
generally accepted accounting principles ("GAAP"), all at the expense of
Purchaser. Sellers, the Company, and Purchaser recognize that the financial data
necessary to permit computation of NFA at the Closing may not be complete or
final at such time. The parties accordingly shall estimate NFA at Closing and
shall then finalize their calculation of NFA on a post-Closing basis within
sixty (60) days following the Closing. At least three (3) business days prior to
the Closing, Purchaser shall deliver to Sellers a preliminary settlement
statement, reflecting its good faith estimate of NFA as of the Closing Date
based upon the best information then available to Purchaser. At or prior to
Closing, Sellers and Purchaser shall attempt to reconcile any differences they
may have regarding the preliminary settlement statement. If there are any items
the parties are unable to reconcile prior to Closing, Purchaser's position shall
prevail to enable Closing to proceed, but without prejudice to the right of
either party to dispute any item of the final settlement statement. Within
forty-five (45) days after the Closing Date, Purchaser shall deliver to Sellers
an audited balance sheet of the Company for the period ended as of the Closing
Date, prepared in accordance with GAAP, and a proposed final settlement
statement including Purchaser's final computation of NFA. Sellers shall have ten
(10) days from its receipt of the such balance sheet and proposed settlement
statement to notify Purchaser of their objections, if any, to the information
set forth therein, failing which Sellers shall be deemed to have irrevocably
accepted the computations and substance of those documents for all purposes of
this Agreement. If Sellers timely and properly contest any items within such
balance sheet or proposed final settlement statement, Sellers and Purchaser
shall promptly meet and utilize their best efforts to resolve their differences,
it being the intention of the parties to finalize all post-Closing adjustments
within sixty (60) days following the Closing Date. If the parties are unable to
reach final agreement on any such post-Closing matters, they shall resolve their
differences by means of the dispute resolution procedures set forth in Section
10.02 and final settlement between the parties shall be deferred pending
conclusion of such procedures. At the conclusion of the post-Closing accounting
contemplated by this Section 5.08, Sellers or Purchaser, as appropriate, shall
immediately remit to the other, in immediately available funds, the net sum
determined owning by such party in the final settlement statement, whether
finalized by agreement of the parties or through dispute resolution processes.
As used in this Agreement, "Final Balance Sheet" and "Final Settlement
Statement" shall mean the final balance sheet and the final settlement statement
proposed by Purchaser, as the same may be modified either by agreement of the
parties or dispute resolution pursuant to the foregoing.
Section 5.09 ACCOUNTS RECEIVABLE. Upon Closing, Sellers expressly
represent and warrant that any accounts receivable of the Company reflected on
the Final Balance Sheet as of the Closing Date will be collectible in the normal
course of business within 150 days from the Closing Date without resort to
litigation or the retention of collection services. Following Closing, the
Company shall apply partial payments by customers to the respective outstanding
receivables of such
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STOCK PURCHASE AGREEMENT Page 14
<PAGE> 15
customers in the order of their aging (i.e. older accounts paid first). To the
extent any such receivables remain unpaid following such 150-day period, the
Company, without limitation of its other legal rights and remedies, may require
Sellers to immediately purchase the same from the Company at full face value and
without subsequent recourse of any kind upon the Company or Purchaser or may
offset the face amount of such unpaid receivables against its payment
obligations under the Note.
Section 5.10 TAX RETURNS. Sellers shall be responsible for the
timely preparation and filing (without extension, unless otherwise agreed by
Purchaser in writing) of all federal, state, and local Tax Returns covering or
for (or based upon income received or realized during) all periods prior to and
including the Closing Date, except that, if Closing occurs, Purchaser shall be
responsible for the timely preparation and filing of the federal income tax
returns of the Company for calendar year 2000 and ensuing years and the Texas
state franchise tax returns of the Company due on or before May 15 of 2001 and
ensuing years. Sellers shall prepare all such Tax Returns for which it is
responsible in accordance with applicable law and shall submit such Tax Returns
to the Company and Purchaser for their review and concurrence at least ten (10)
business days prior to filing. If, after the Closing Date, any applicable taxing
authority shall determine there to be a deficiency in the amount of any federal,
state, or local Tax paid or payable by the Company which is not reserved for or
reflected on the Final Balance Sheet and which relates to any period prior to
the Closing Date, Sellers shall be fully responsible for the payment of any such
deficiency. Following Closing, if any Tax Return covering a period of time prior
to the Closing Date shall be audited by an applicable taxing authority, the
Company shall promptly notify Sellers of such audit. Purchaser and the Company
shall have primary authority to conduct all discussions and negotiations with
applicable taxing authorities regarding each such audited Tax Return as it may
relate to periods prior to the Closing Date, but Sellers shall have the right to
participate in all such discussions and negotiations. The Company shall have
exclusive authority to conduct all discussions and negotiations with applicable
taxing authorities regarding Tax Returns relating to periods from and after the
Closing Date and shall be solely responsible for the payment of all Taxes
attributable to such periods.
Section 5.11 INDEMNIFICATION.
(a) Indemnification by Sellers. Sellers jointly and severally
agree to indemnify and hold harmless Purchaser and the Company after the Closing
Date against and in respect of any of the following matters which may be
asserted or established:
(i) All liabilities of the Company of any nature,
whether accrued, absolute, contingent, or otherwise, which existed as
of the Closing Date and are not provided for or reflected on the Final
Balance Sheet;
(ii) Any and all damages, losses, expenses, or
deficiencies resulting from any breach of the warranties,
representations and covenants of Sellers and the Company contained
herein or in any schedule hereto; and
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STOCK PURCHASE AGREEMENT Page 15
<PAGE> 16
(iii) All demands, assessments, judgments, costs, and
expenses (including reasonable legal fees and other expenses of
litigation, both at the trial and appellate level) arising from or in
connection with any action, suit, proceeding, or claim incident to any
of the foregoing.
(b) Indemnification by Purchaser. Purchaser agrees to
indemnify and hold harmless Sellers after the Closing Date against or in respect
of any of the following matters:
(i) Any and all damages, losses, expenses, or
deficiencies resulting from any breach of the warranties,
representations and covenants of Purchaser contained herein or in any
schedule hereto; and
(ii) All demands, assessments, judgments, costs, and
expenses (including reasonable legal fees and other expenses of
litigation, both at the trial and appellate level) arising from or in
connection with any action, suit, proceeding, or claim incident to any
of the foregoing.
Section 5.12 RELEASE AND WAIVER BY SELLERS. Any provisions of this
Agreement to the contrary notwithstanding, following Closing hereunder, Sellers
shall have no right of contribution, indemnity, reimbursement, or other legal or
equitable right of recourse upon the Company based upon or attributable to the
breach or non-performance by Sellers or the Company of any of their jointly made
representations, warranties, and covenants under this Agreement, and Sellers, as
of Closing hereunder, expressly release and waive any and all such rights of
contribution, indemnity, reimbursement or other recourse upon or against the
Company.
Section 5.13 ACCEPTANCE OF TANGIBLE ASSETS BY PURCHASER AT CLOSING.
Upon and by Closing under this Agreement, Purchaser shall accept, and shall be
deemed to have accepted, all tangible personalty of the Company, including,
without limitation, the items of tangible personalty shown on attached SCHEDULE
2.12(B), on an "as is, where is" basis, with all faults, whether latent or
patent, and without surviving representation or warranty, express or implied, as
to matters of condition, merchantability, or fitness for a particular purpose.
Section 5.14 INVESTMENT REPRESENTATIONS BY SELLERS. Upon Closing and in
connection with any conversion of the unpaid balance of the Note into common
stock in Purchaser as more particularly provided in the Note, Sellers expressly
represent, warrant, acknowledge, and agree to and with the Company that:
(a) any such stock so acquired by Sellers (the "Stock")
may not have been registered under the Securities Act
of 1933 or any other state securities laws
(collectively, the "Securities Acts") because
Purchaser may or will issue the Stock in reliance
upon this Section 5.14 and the exemptions from the
registration requirements of the Securities Acts
providing for issuance of securities not involving a
public offering;
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STOCK PURCHASE AGREEMENT Page 16
<PAGE> 17
(b) Sellers will acquire any Stock for Sellers' own
account, for investment, and not with a view to the
resale or distribution thereof;
(c) Sellers will not transfer, sell or offer for sale any
portion of the Stock unless there is an effective
registration or other qualification relating thereto
under the Securities Act of 1933 and under any
applicable state securities laws or unless the holder
of the Stock delivers to Purchaser an opinion of
counsel, satisfactory to Purchaser, that such
registration or other qualification under such Act
and applicable state securities laws is not required
in connection with such transfer, offer or sale;
(d) Purchaser is under no obligation to register the
Stock or to assist Sellers in complying with any
exemption from registration under the Acts if Sellers
should at a later date wish to dispose of the Stock;
(e) Prior to entering into this Agreement, Sellers have
made an investigation of Purchaser and its business
and have obtained or had made available to Sellers
all information with respect thereto which Sellers
needed to make an informed decision to structure the
transactions contemplated hereby as provided in this
Agreement;
(f) Sellers possess adequate experience and
sophistication as investors for the evaluation of the
merits and risks of investment in the Stock; and
(g) Sellers are "accredited investors," as defined in
Regulation D as promulgated under the Securities Act
of 1933, as amended, (the "1933 Act").
ARTICLE VI
CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE
The obligation of Purchaser to close under this Agreement shall, unless
waived in writing by Purchaser, be subject to the satisfaction on or before the
Closing Date of each of the following conditions, and Sellers and the Company
shall use their reasonable efforts to cause each such condition to be so
satisfied.
Section 6.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of Sellers and the Company contained in this Agreement shall be
true and correct in all respects as of the date of this Agreement and as of the
Closing Date, as though such representations and warranties were made at and as
of such date, except for changes expressly permitted or contemplated by this
Agreement.
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STOCK PURCHASE AGREEMENT Page 17
<PAGE> 18
Section 6.02 PERFORMANCE. Sellers and the Company shall have performed
and complied with all covenants, agreements, obligations and conditions required
by this Agreement to be performed or complied with by them on or prior to the
Closing Date.
Section 6.03 CONSENTS. The consents, approvals, and filings described
in Section 5.04 shall have been obtained or made, as the case may be, without
the imposition of conditions or limitations having a material adverse effect.
Section 6.04 OPINION OF COUNSEL TO SELLERS AND THE COMPANY. Sellers and
the Company shall have delivered to Purchaser the opinion of their legal
counsel, Crenshaw, Dupree & Milam, L.L.P., in form and substance reasonably
acceptable to Purchaser and its counsel, and favorably addressing the
organization, qualification, good standing, and capitalization of the Company,
the due and proper authorization, execution, and delivery and the enforceability
of this Agreement and all instruments and documents executed by Sellers and the
Company in connection herewith, and such other matters as Purchaser or its
counsel may reasonably require.
Section 6.05 NO INJUNCTION. There shall not be in effect any
preliminary or permanent injunction or temporary restraining order issued by any
state or federal court that prevents the consummation of the transactions
contemplated hereby.
Section 6.06 OTHER DOCUMENTS. All documents required to be delivered to
Purchaser by Sellers and the Company on or prior to the Closing Date shall have
been so delivered.
Section 6.07 MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have been any material adverse change in, to, or affecting the
Company, its operations, or its assets.
Section 6.08 CERTIFICATES. Sellers and the Company shall have delivered
to Purchaser certificates confirming the continuing validity of their
representations and warranties pursuant to Section 6.01 and certifying their
performance hereunder as contemplated by Section 6.02.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF SELLERS
AND THE COMPANY TO CLOSE
The obligations of Sellers and the Company to consummate the
transactions contemplated by this Agreement shall, unless waived in writing by
them, be subject to the satisfaction on or before the Closing Date of each of
the following conditions, and Purchaser shall use its reasonable efforts to
cause each such condition to be so satisfied:
Section 7.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties of Purchaser contained in this Agreement shall be true and
correct in all respects as of the date made
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STOCK PURCHASE AGREEMENT Page 18
<PAGE> 19
and as of the Closing Date, as though such representations and warranties were
made at and as of such date, except for changes permitted or contemplated by
this Agreement.
Section 7.02 PERFORMANCE. Purchaser shall have performed and complied
in all material respects with all covenants, agreements, obligations, and
conditions required by this Agreement to be performed or complied with by
Purchaser on or prior to the Closing Date.
Section 7.03 CONSENTS AND APPROVALS. The consents, approvals, and
filings described in Section 5.04 shall have been obtained or made, as the case
may be, without the imposition of conditions or limitations having a material
adverse effect.
Section 7.04 NO INJUNCTION. There shall not be in effect any
preliminary or permanent injunction or temporary restraining order issued by any
state or federal court that prevents the consummation of the transactions
contemplated hereby.
Section 7.05 OTHER DOCUMENTS. All documents required to be delivered to
Sellers or the Company by Purchaser on or prior to the Closing Date shall have
been so delivered.
Section 7.06 CERTIFICATES. Purchaser shall have delivered to Sellers
and the Company certificates confirming the continuing validity of its
representations and warranties pursuant to Section 7.01 and certifying its
performance hereunder as contemplated by Section 7.02.
ARTICLE VIII
THE CLOSING
Section 8.01 CLOSING. The closing ("Closing") of the transaction
contemplated hereby shall take place at the offices of Purchaser at 406 N. Big
Spring, Midland, Texas, on a business date of Purchaser's unilateral selection
within thirty (30) days following any successful completion by Purchaser of an
initial public offering of common stock in the Company through a recognized
national stock exchange (the "Sierra IPO"), but in no event later than March 31,
2000, or at such other place and time as the parties hereto might hereafter
mutually agree in writing. Such date or any alternative date so selected by the
parties is referred to in this Agreement as the "Closing Date." Purchaser shall
afford Sellers and the Company at least ten (10) days prior written notice of
its desired Closing Date pursuant to the foregoing.
Section 8.02 DELIVERIES. At the Closing, the following shall occur:
(a) Sellers shall endorse and deliver the certificate(s)
evidencing the Stock to Purchaser, free and clear of liens, claims, and
encumbrances;
(b) Sellers and the Company shall deliver to Purchaser
their closing certificates in compliance with the provisions of Section 6.08;
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STOCK PURCHASE AGREEMENT Page 19
<PAGE> 20
(c) Sellers and the Company shall deliver, or cause to be
delivered, to Purchaser the legal opinion of their counsel, as specified in
Section 6.04;
(d) Sellers and Purchaser shall execute and deliver a
non-competition agreement which is substantially identical in form and substance
to that attached hereto as EXHIBIT D;
(e) The parties shall attempt to agree upon an estimate
of NFA and shall execute a preliminary closing statement as contemplated by
Section 5.08;
(f) Purchaser shall pay to Sellers in immediately
available funds their respective parts of the cash portion of the Purchase Price
payable at Closing pursuant to Section 1.03(1);
(g) Purchaser shall execute and deliver the Note to
Dennis G. Harrison, Trustee (for the benefit of Sellers);
(i) The Company and Dennis G. Harrison, Trustee, shall
execute and deliver the Security Agreement and appropriate financing statements;
(j) Purchaser shall deliver to Sellers its closing
certificate in compliance with the provisions of Section 7.06; and
(k) Sellers and the Company shall execute such
notifications to depository institutions and such changes of authorized
signatories upon the accounts of the Company as Purchaser may reasonably
request.
ARTICLE IX
TERMINATION AND ABANDONMENT
Section 9.01 Termination and Abandonment. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual agreement of all of the parties hereto;
(b) by Sellers if Closing shall not have occurred on or
prior to March 31, 2000, other than due to breach or non-performance by Sellers
or the Company hereunder;
(c) by Purchaser, if the conditions set forth in Article
VI shall not have been complied with and performed in any material respect and
such noncompliance or nonperformance shall not have been cured or eliminated (or
by its nature cannot be cured or eliminated) on or before the Closing Date;
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STOCK PURCHASE AGREEMENT Page 20
<PAGE> 21
(d) by Sellers and the Company if the conditions set forth in
Article VII have not been complied with and performed in any material respect
and such noncompliance or nonperformance shall not have been cured or eliminated
(or by its nature cannot be cured or eliminated) on or before the Closing Date;
or
(e) by either Purchaser or Sellers and the Company, by written
notice to the other, if any action or proceeding shall have been instituted
before any court or other governmental body or, to the knowledge of the party
giving such notice, shall have been threatened formally in writing by any public
authority with requisite jurisdiction, to restrain or prohibit the transactions
contemplated by this Agreement or to subject one or more of the parties or their
directors or their officers to liability on the grounds that it or they have
breached any law or regulation or otherwise acted improperly in connection with
such transactions, and such action or proceeding shall not have been dismissed
or such written threat shall not have been withdrawn or rescinded on or before
the Closing Date.
Section 9.02 REMEDIES, RIGHTS AND OBLIGATIONS ON TERMINATION. If this
Agreement is terminated and abandoned as provided in this Article IX:
(a) Redelivery. Each party will redeliver all documents, work papers,
and other materials of any other party relating to the transactions contemplated
by this Agreement, whether obtained before or after the execution of this
Agreement, to the party furnishing the same, and all information received by any
party to this Agreement with respect to the business of any other party shall
not at any time be used for the advantage of, or disclosed to third parties by,
such party to the detriment of the party furnishing such information; provided,
however, that this subsection (a) shall not apply to any documents, work papers,
material, or information which is a matter of public knowledge or which has
heretofore been or is hereafter published in any publication for public
distribution or filed as public information with any governmental authority or
is otherwise in the public domain.
(b)(1) Default by Purchaser. If Purchaser fails or refuses to close in
accordance with the terms of this Agreement and if Sellers and the Company have
timely satisfied all the conditions to Purchaser's obligation to close hereunder
and are not in default hereunder, then, and as the exclusive remedy of Sellers
and the Company for such breach, Sellers and the Company shall have the right to
declare this Agreement terminated and to receive the total sum of $25,000 from
Purchaser as liquidated damages and not a penalty for the breach hereof by
Purchaser (the same as if Purchaser had deposited such sum with Sellers and the
Company as a down payment or earnest money hereunder). In this regard, the
parties acknowledge and agree that the damages occasioned to Sellers and the
Company by any such breach are difficult of ascertainment or calculation and
that the specified sum of liquidated damages represents a fair and reasonable
estimate of such damages.
(b)(2) Default by Sellers and/or the Company. If Sellers and/or the
Company fails or refuses to close in accordance with the terms of this Agreement
and if Purchaser has timely satisfied all the conditions to Purchaser's
obligation to close hereunder and is not in default
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STOCK PURCHASE AGREEMENT Page 21
<PAGE> 22
hereunder, Purchaser shall have the right either (i) to declare this Agreement
canceled or (ii) to seek enforcement of this Agreement at law or in equity,
including, without limitation, an action for specific performance of the terms
of this Agreement by Sellers and the Company or for recovery of the actual
damages occasioned to Purchaser by such breach. The provisions of Section 10.02
of this Agreement shall be inapplicable to any action instituted by Purchaser
pursuant to Section 9.02(b)(2)(ii).
(c) Continuing Liability. The continuing liability of the
parties to this Agreement with respect to any breach of any representation,
warranty, covenant, or agreement contained therein shall not be affected by such
termination or abandonment, unless this Agreement is terminated or abandoned by
agreement of the parties pursuant to Section 9.01 (a) or (d).
ARTICLE X
POST CLOSING REMEDIES
Section 10.01 OFFSET/WAIVER. After the Closing, Purchaser, without
limitation of its other rights and remedies, shall have a right of offset
against its obligations under the Note for any breach of the representations,
warranties, and covenants of Sellers and the Company under this Agreement.
In any proceedings by the Purchaser or the Company to assert or prosecute any
claims under, or to otherwise enforce, this Agreement, Sellers agree that they
will not assert as a defense, or as a bar to recovery, and hereby waive any
right to so assert such defense or such bar to recovery, that (a) prior to the
Closing, the Company shall have had knowledge of the circumstances giving rise
to the claim being pursued by Purchaser, or (b) prior to the Closing, the
Company engaged in conduct or took action that caused or brought about the
circumstances giving rise to such claim, or otherwise contributed thereto.
Section 10.02 DISPUTE RESOLUTION.
(a) Unless expressly provided otherwise in this Agreement, any
and all claims, disputes, controversies, and other matters in question involving
the parties hereto and arising out of or relating to this Agreement and the
transactions contemplated hereby, any provision hereof, the alleged breach of
such provision, or in any way relating to the subject matter of this Agreement
(collectively, "Disputes"), whether such Disputes sound in contract, tort, or
otherwise, at law or in equity, under State or federal law, whether provided by
statute or common law, for damages or any other relief, shall be resolved in
accordance with this Section 10.02.
(b) The parties shall attempt in good faith to resolve any
Dispute promptly by negotiations between representatives who have authority to
settle the controversy. Any party may give the other party written notice of any
Dispute not resolved in the normal course of business, together with a request
that the parties meet and confer ("Notice of Dispute"). Within fifteen (15) days
after delivery of a Notice of Dispute, the parties or their representatives
shall meet at a mutually acceptable time and place, and thereafter as often as
they reasonably deem necessary, to exchange
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STOCK PURCHASE AGREEMENT Page 22
<PAGE> 23
relevant information and to attempt to resolve the Dispute. If the matter has
not been resolved within thirty (30) days after delivery of the Notice of
Dispute, or if the parties fail to meet within fifteen (15) days after delivery
of the Notice of Dispute, either party may initiate mediation of the claim or
dispute as provided hereafter. If a party or its representative intends to be
accompanied at a meeting by an attorney, the other parties shall be given
advance notice of such intention and may also be accompanied by an attorney. All
negotiations pursuant to this clause are confidential and shall be treated as
compromise and settlement negotiations for purposes of the Federal Rules of
Evidence and any state's rules of evidence.
(c) If a Dispute has not been resolved by negotiation as
provided in Section 10.02 (b), the parties shall endeavor to settle the claim or
dispute by mediation under the Center for Public Resources ("CPR") Model
Procedure for Mediation of Business Disputes. A neutral third party will be
selected from the CPR panel of neutrals. If the parties encounter difficulty in
agreeing on a neutral third party, they will seek the assistance of CPR in the
selection process. Mediation under this Section 10.02 (b) will commence within
sixty (60) days of the Notice of Dispute.
(d) If the Dispute has not been resolved by non-binding means
pursuant to Sections 10.02(b) or (c) within thirty (30) days of the initiation
of mediation, either party may submit such Dispute for resolution by binding
arbitration as follows:
(i) It is the intention of the parties that the arbitration
shall be conducted pursuant to the Texas Arbitration Act,
Tex. Civ. Prac. & Rem. Code Ann., Sections 171.001 et seq.
(Vernon 1997 & Supp. 1999) (the "Act"), as modified by this
Agreement. The validity, construction, and interpretation of
this Section 10.02 (d), and all procedural aspects of the
arbitration conducted pursuant to this Section 10.02 (d),
including, but not limited to, the determination of issues
that are subject to arbitration (i.e. arbitrability), the
scope of the arbitrable issues, allegations of fraud in the
inducement to enter into this Agreement, or this arbitration
provision, allegations of waiver, laches, delay, or other
defenses to arbitrability, and the rules governing the
conduct of the arbitration (including the time for filing an
answer, the time for filing counterclaims, the times for
amending pleadings, the specificity of the pleadings, the
extent and scope of discovery, the issuance of subpoenas,
the times for designation of experts, whether the
arbitration is to be stayed pending resolution of related
litigation involving third parties not bound by this
Agreement, the receipt of evidence and the like), shall be
decided by the arbitrators. The arbitration shall be
administered by the American Arbitration Association
("AAA"), and shall be conducted pursuant to the Commercial
Arbitration Rules of the AAA, as modified by this Agreement.
Notwithstanding any provision of this Agreement to the
contrary, the parties expressly agree that the arbitrators
shall have
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STOCK PURCHASE AGREEMENT Page 23
<PAGE> 24
absolutely no authority to award incidental, special,
treble, exemplary, or punitive damages of any type under any
circumstances regardless of whether such damages may be
available under Texas law, the law of any other state, or
federal law, or under the Act, or the Commercial Arbitration
Rules of the AAA, the parties hereby waiving their right, if
any, to recover incidental, special, treble, exemplary, or
punitive damages in connection with any such Disputes.
(ii) The arbitration proceeding shall be conducted in Midland,
Texas before a panel of three (3) arbitrators appointed in
accordance with the Commercial Arbitration Rules of the AAA.
The arbitrators shall conduct a hearing as soon as
reasonably practicable after appointment of the third
arbitrator, and a final decision completely disposing of all
Disputes that are the subject of the arbitration proceedings
shall be rendered by the arbitrators as soon as reasonably
practicable after the hearing. There shall be no transcript
of the hearing before the arbitrators. The arbitrators'
ultimate decision after final hearing shall be in writing,
but shall be as brief as possible, and the arbitrators shall
not assign reasons for their ultimate decision.
(iii) The fees and expenses of the arbitrators shall be borne
equally by the parties, but the decision of the arbitrators
may include such award of the arbitrators' fees and expenses
and of other costs and attorneys' fees as the arbitrators
determine appropriate.
(iv) To the fullest extent permitted by law, the arbitration
proceeding and the arbitrators' award shall be maintained in
confidence by the parties.
(v) The award of the arbitrators shall be binding upon the
parties and final and nonappealable to the maximum extent
permitted by law, and judgment thereon may be entered by a
court of competent jurisdiction and enforced by any party as
a final judgment of such court.
(e) All applicable statutes of limitation and defenses based upon the
passage of time shall be tolled while the procedures specified in Sections
10.02(b) and (c) are pending. The parties will take such actions, if any, as may
be required to effectuate such tolling.
(f) Each party is required to continue to perform its obligations
under this Agreement pending final resolution of any Dispute covered by this
Article X.
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STOCK PURCHASE AGREEMENT Page 24
<PAGE> 25
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01 AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified, or supplemented only by writing duly
executed by all of the parties hereto.
Section 11.02 WAIVER OF COMPLIANCE. Any failure of the Sellers or the
Company, on the one hand, or Purchaser, on the other, to comply with any
obligation, covenant, agreement or condition contained herein may be expressly
waived in writing by Purchaser or Sellers and the Companies, respectively;
provided, however, such waiver or failure to insist upon strict compliance shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
Section 11.03 NOTICES. All notices, requests, demands, and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand (including, without
limitation, by overnight courier), transmitted by facsimile, or mailed,
certified or registered mail (return receipt requested) with postage prepaid:
(a) if to Sellers or the Company (only until the Closing
Date with respect to the Company), to:
Mr. Dennis G. Harrison
Harrison Well Service, Inc.
P.O. Box 1548
Denver City, Texas 79323
Telephone: (806) 592-2433
with a copy to:
Crenshaw, Dupree & Milam, L. L. P.
1500 Broadway St.
Lubbock, Texas 79408
Telephone: (806) 762-5281
Fax: (806) 762-3510
Attention: John Crews
or to such other person or addresses as Sellers or the Company shall furnish
Purchaser in writing in accordance with this Section 11.03; and
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STOCK PURCHASE AGREEMENT Page 25
<PAGE> 26
(b) if to Purchaser (or to the Company after Closing), to:
Sierra Well Service, Inc.
406 N. Big Spring
Midland, Texas 79701
Telephone: (915) 570-0829
Fax: (915) 570-0598
Attention: Kenneth V. Huseman, President
with a copy to:
Kerr & Ward, L. L. P.
500 W. Texas, Suite 1310
Midland, Texas 79701
Telephone: (915) 684-9990
Fax: (915) 684-9997
Attention: William M. Kerr, Jr.
or to such other persons or addresses as Purchaser shall furnish to Sellers and
the Company in writing in accordance with this Section 11.03.
Delivery of notices shall be effective only upon actual receipt by the
intended recipient (or, in the case of facsimile transmission, the completion of
such transmission during the recipient's normal business hours).
Section 11.04 SURVIVAL. This Agreement is intended in part to evidence
the continuing rights and obligations of the parties following Closing, and all
of the representations, warranties, covenants, and obligations of the parties
are hereby expressly made to survive Closing.
Section 11.05 EXPENSES. Purchaser shall pay its own fees and expenses,
including, without limitation, professional fees and expenses, incurred in
connection with the negotiation, execution, and performance of this Agreement
and the transactions contemplated hereby. All fees and expenses of Seller and
all fees and expenses of the Company for periods to and including the Closing
Date, including, without limitation, professional fees and expenses, incurred in
connection with the negotiation, execution, and performance of this Agreement
and the transactions contemplated hereby, shall be borne and paid exclusively by
Sellers.
Section 11.06 BINDING NATURE; NO THIRD PARTY BENEFICIARIES. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained herein, express or implied, is intended to confer on
any person other than the parties hereto or their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
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STOCK PURCHASE AGREEMENT Page 26
<PAGE> 27
Section 11.07 GOVERNING LAW. This Agreement, and the legal relations
among the parties hereto arising from this Agreement, shall be governed by and
construed in accordance with the laws of the State of Texas, without regard to
its conflicts of laws rules.
Section 11.08 ENTIRE AGREEMENT. This Agreement (including the exhibits
and schedules hereto and the other instruments referred to herein) embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties with respect to such subject matter.
Section 11.09 HEADINGS. The headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 11.10 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
Section 11.11 SEVERABILITY. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future law, such
provision shall be fully severable and this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part hereof, and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically, as part of this Agreement, a provision as similar in terms and
substance to such illegal, invalid, or unenforceable provision as may be
possible and legal, valid, and enforceable.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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STOCK PURCHASE AGREEMENT Page 27
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and made and entered into as of the date first set forth above.
SELLERS:
/s/ DENNIS G. HARRISON
------------------------------------
DENNIS G. HARRISON
/s/ SUE ANN HARRISON
------------------------------------
SUE ANN HARRISON
/s/ WILLIE EDWARDS
------------------------------------
WILLIE EDWARDS
THE COMPANY:
HARRISON WELL SERVICE, INC., a
Texas corporation
By: /s/ DENNIS G. HARRISON
----------------------------------
Dennis G. Harrison, President
PURCHASER:
SIERRA WELL SERVICE, INC., a
Delaware corporation
By: /s/ KENNETH V. HUSEMAN
----------------------------------
Printed Name: KENNETH V. HUSEMAN
------------------------
Title: President
------------------------------
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STOCK PURCHASE AGREEMENT Page 28
<PAGE> 29
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A THE NOTE
EXHIBIT B THE SECURITY AGREEMENT
EXHIBIT C THE BALANCE SHEET
EXHIBIT D THE NON-COMPETITION AGREEMENT
SCHEDULE 1.02 EXCLUDED ASSETS
SCHEDULE 2.08 EXTRAORDINARY TRANSACTIONS
SCHEDULE 2.10 EMPLOYEE BENEFIT PLANS
SCHEDULE 2.11 OWNERSHIP OF THE STOCK
SCHEDULE 2.12(a) REAL PROPERTY
SCHEDULE 2.12(b) PERSONAL PROPERTY
SCHEDULE 2.13 EXISTING LIENS
SCHEDULE 2.17 CONTRACTS
SCHEDULE 2.19 INSURANCE POLICIES
SCHEDULE 2.20 BANK ACCOUNTS
SCHEDULE 2.21 OTHER LIABILITIES
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STOCK PURCHASE AGREEMENT Page 29
<PAGE> 30
EXHIBIT A
SECURED PROMISSORY NOTE
$625,000.00 Denver City, Texas ____________, 2000
FOR VALUE RECEIVED, the undersigned, SIERRA WELL SERVICE, INC., a
Delaware corporation ("Maker"), promises to pay to the order of DENNIS G.
HARRISON, TRUSTEE ("Payee"), at P. O. Box 1548, Denver City, Yoakum County,
Texas 79316, the principal sum of SIX HUNDRED TWENTY-FIVE THOUSAND AND NO/100
DOLLARS ($625,000.00), together with interest on the unpaid principal balance
from day to day outstanding prior to default or maturity at a floating per annum
rate which shall from quarter to quarter be equal to the lesser of (i) the Prime
Rate (hereinafter defined) in effect hereunder (the "Established Rate")
(calculated on the basis of actual days elapsed in a year consisting of 365 or
366 days, as appropriate) or (ii) the Maximum Rate (hereinafter defined)
(calculated on the basis of actual days elapsed in a year consisting of 365 or
366 days, as appropriate). The interest rate on this Note shall initially be
determined as of the first Friday most immediately preceeding the date of this
Note that is a business day (the "Initial Determination Date") and shall
thereafter be redetermined quarterly until maturity based upon the Prime Rate in
effect as of the first Friday most immediately preceding each ensuing calendar
quarter from the date hereof that is a business day (each such date being
hereinafter referred to as a "Redetermination Date"). Each change in the rate of
interest charged hereunder shall, subject to the terms hereof, become effective,
without notice to Maker, upon the applicable quarterly adjustment date (as
opposed to the Redetermination Date). If at any time and from time to time the
Established Rate exceeds the Maximum Rate, thereby causing the interest payable
to be limited to the Maximum Rate, then any subsequent reduction in the
Established Rate shall not reduce the rate of interest hereunder below the
Maximum Rate until the total amount of interest accrued hereon equals the amount
of interest that would have accrued if the Established Rate had at all times
been in effect. All past due principal of and accrued interest on this Note
shall bear interest at the Maximum Rate.
As used herein, "Prime Rate" shall mean the floating rate of interest
denominated and published as such by the Wall Street Journal on the Initial
Determination Date and thereafter on each applicable Redetermination Date.
As used herein, "Maximum Rate" shall mean the maximum non-usurious rate
of interest that at any time, or from time to time, may be contracted for,
taken, reserved, charged, or received under applicable law on the indebtedness
evidenced by this Note, after taking into account, to the extent required by
applicable law, any and all relevant payments, charges, or other amounts under
this Note and all instruments securing payment of this Note. To the extent that
Article 5069-1.04, Texas Revised Civil Statutes Annotated, as amended, is
relevant for purposes of determining the Maximum Rate, Payee hereby notifies
Maker that the applicable rate ceiling shall be the "indicated rate ceiling"
from time to time in effect, as limited by Article 5069-1.04(b); provided,
however, that to the extent permitted by applicable law, Payee reserves the
right to change the applicable rate ceiling from time to time by further notice
to Maker; and, provided further, that the Maximum Rate shall not be limited to
the applicable rate ceiling under Article 5069-1.04 if federal laws or other
state laws now or hereafter in effect and applicable to this Note (and the
interest contracted for, charged and collected hereunder) shall permit a higher
rate of interest.
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STOCK PURCHASE AGREEMENT Page 30
<PAGE> 31
The principal of and accrued interest on this Note are due and payable
one year from the date hereof. This Note may be prepaid in whole or in part
without penalty. Partial prepayments shall be applied first to any accrued and
unpaid interest and the balance remaining, if any, to principal.
This Note is secured by that certain Security Agreement of even date
herewith, between Harrison Well Service, Inc., as Grantor, and Payee, as Secured
Party, covering all of the well servicing units, vehicles, equipment, and other
tangible personal property therein described.
It is understood and agreed that in the event of default in the payment
of this Note or any installment hereof, principal or interest, and if such
default shall continue unremedied for more than ten (10) days following written
notice thereof from Payee to Maker, or in the event of any default (other than
non-payment of this Note) in any instrument securing payment of this Note and if
such default shall continue unremedied for more than thirty (30) days following
written notice thereof from Payee to Maker, the entire principal balance of and
all accrued and unpaid interest on this Note shall at once become due and
payable without notice, at the option of Payee. Failure by Payee to exercise
this option on any one or more occasions shall not constitute a waiver of the
right to exercise such option in the event of subsequent default.
Except as otherwise herein expressly provided, the makers, signers,
sureties, and endorsers of this Note jointly and severally waive demand,
presentment, notice of dishonor, notice of intent to demand or accelerate
payment hereof, diligence in collecting, grace, notice, and protest, and agree
to one or more extensions for any period or periods of time and partial
payments, before or after maturity, without prejudice to Payee; and if this Note
shall be collected by legal proceedings or through probate or bankruptcy court,
or shall be placed in the hands of an attorney for collection after default or
maturity, Maker agrees to pay all costs of collection, including reasonable
attorney's fees.
All agreements between Maker and Payee, whether now existing or
hereafter arising and whether written or oral, are hereby limited so that under
no contingency, whether by reason or demand for payment or acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged, or
received by Payee exceed the Maximum Rate. If, for any circumstance whatsoever,
interest would otherwise be payable to Payee in excess of the Maximum Rate, the
interest payable to Payee hereunder shall be reduced to the Maximum Rate; and if
for any circumstance Payee shall ever receive anything of value deemed interest
by applicable law in excess of the Maximum Rate, then an amount equal to any
such excess shall be applied to the reduction of the principal hereof and not
the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal hereof, such excess shall be refunded to Maker. All
interest paid or agreed to be paid to Payee shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full period until payment in full of the principal (including the period of any
renewal or extension hereof) so that the interest hereon for such full period
shall not exceed the Maximum Rate.
Any provisions of this Agreement to the contrary notwithstanding, if
Maker shall successfully conclude an initial public offering of common stock in
Maker through a nationally recognized stock exchange at any time prior to
maturity or payment in full of this Note, whether stated or by acceleration,
(the "Sierra IPO"), Maker and Payee agree to immediately convert the unpaid
balance of this Note to common stock in Maker at a per share price equivalent to
the per share price at which Maker issued its common stock in the IPO. Maker and
Payee shall effectuate such conversion of indebtedness for stock through the
delivery of this Note by Payee to Maker, marked "PAID," in return for the
delivery by Maker of the requisite number of shares of its common stock to
Payee.
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STOCK PURCHASE AGREEMENT Page 31
<PAGE> 32
This Note is in all respects subject to that certain Stock Purchase
Agreement dated as of December __, 1999, between Payee, as Seller, Harrison Well
Service, Inc., as the Company, and Maker, as Purchaser.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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STOCK PURCHASE AGREEMENT Page 32
<PAGE> 33
This Note shall be governed by and construed in accordance with the
laws of the State of Texas.
SIERRA WELL SERVICE, INC.
By:
----------------------------------
Printed Name:
------------------------
Title:
------------------------------
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STOCK PURCHASE AGREEMENT Page 33
<PAGE> 34
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT ("First Amendment") is
made and entered into as of the 20th day of March 2000, between DENNIS G.
HARRISON, SUE ANN HARRISON, and WILLIE EDWARDS (collectively, "Sellers"),
HARRISON WELL SERVICE, INC., a Texas corporation (the "Company"), and SIERRA
WELL SERVICE, INC., a Delaware corporation ("Purchaser"), with reference to the
following:
RECITALS
A. Sellers, the Company, and Purchaser are parties to that certain
Stock Purchase Agreement (the "Agreement") dated as of December 29, 1999,
relating to the sale and purchase of all of the issued and outstanding capital
stock of the Company.
B. Seller and Purchaser wish to amend the Agreement upon the terms
which follow.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. EXTENSION OF CLOSING DATE. Sellers, the Company, and Purchaser
hereby modify and amend existing Section 8.01 of the Agreement to read as
follows:
Section 8.01 CLOSING. The closing ("Closing") of the
transaction contemplated hereby shall take place at the
offices of Purchaser at 406 N. Big Spring, Midland, Texas, on
a business date of Purchaser's unilateral selection within
thirty (30) days following any successful completion by
Purchaser of an initial public offering of common stock in the
Company through a recognized national stock exchange (the
"Sierra IPO"), but in no event later than June 30, 2000, or at
such other place and time as the parties hereto might
hereafter mutually agree in writing. Such date or any
alternative date so selected by the parties is referred to in
this Agreement as the "Closing Date." Purchaser shall afford
Sellers and the Company at least ten (10) days prior written
notice of its desired Closing Date pursuant to the foregoing.
2. DEFINITIONS. Except as expressly indicated otherwise herein,
capitalized terms in this First Amendment shall have the same meanings as are
ascribed to them in the Agreement.
3. CONFIRMATION. The parties hereto hereby ratify, confirm, and adopt
the Agreement, as amended hereby. Except as modified hereby, the Agreement
remains in full force and effect.
<PAGE> 35
4. FAX; COUNTERPARTS. This First Amendment may be executed by fax and
in multiple counterparts.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
First Amendment as of the day and year first above written.
SELLERS:
/s/ DENNIS G. HARRISON
------------------------------------
DENNIS G. HARRISON
/s/ SUE ANN HARRISON
------------------------------------
SUE ANN HARRISON
/s/ WILLIE EDWARDS
------------------------------------
WILLIE EDWARDS
THE COMPANY:
HARRISON WELL SERVICE, INC.,
a Texas corporation
By: /s/ DENNIS G. HARRISON
---------------------------------
Dennis G. Harrison, President
PURCHASER:
SIERRA WELL SERVICE, INC., a Delaware
corporation
By: /s/ CHARLES SWIFT
---------------------------------
Printed Name: CHARLES SWIFT
------------------------
Title: Vice President
------------------------------
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT PAGE 2
<PAGE> 1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as of
the 8th day of January 2000, by and between CLYDE R. WILSON ("Seller"), SUNDOWN
OPERATING, INC. D/B/A SUNDOWN WELL SERVICE, a Texas corporation (the "Company"),
and SIERRA WELL SERVICE, INC., a Delaware corporation ("Purchaser").
RECITALS:
A. The Company is a Texas corporation based out of Sundown, Texas, which is
principally engaged in the well servicing business in the Permian Basin of West
Texas and Southeastern New Mexico (the "Business").
B. Seller owns all of the issued and outstanding capital stock of the
Company (the "Stock").
C. Seller desires to sell the Stock, and Purchaser desires to purchase the
same, upon and subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, and covenants which are hereinafter set forth, and
other good and valuable consideration, the legal sufficiency of which are hereby
acknowledged, the parties hereto have agreed and do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
Section 1.01 THE STOCK. Subject to all of the terms and conditions of this
Agreement, Seller hereby agrees to sell, transfer, and deliver, and Purchaser
hereby agrees to purchase, pay for, and accept, at the Closing (hereinafter
defined), all of the Stock.
Section 1.02 PRE-CLOSING PURCHASE OF CERTAIN ASSETS. At or prior to
Closing, the Seller shall purchase for cash from the Company, without
representation, warranty, or recourse by or upon the Company, all of the
Company's right, title and interest in and to the assets listed on attached
SCHEDULE 1.02 (collectively, the "Excluded Assets") for the estimated total sum
of $2,824,196.99, with each individual asset having the purchase price allocated
thereto on SCHEDULE 1.02 (subject to adjustment at or prior to Closing as the
parties may mutually agree in writing). In connection with such purchase, upon
Closing, Seller agrees to indemnify and hold the Company and Purchaser harmless
from and against any and all claims, demands, causes of action, liabilities,
losses, and/or expenses (including, without limitation, reasonable attorneys'
fees and other expenses of litigation)
<PAGE> 2
arising from or in connection with the ownership, operation, and use of the
Excluded Assets for all periods from and after the date of the sale thereof by
the Company to Seller.
Section 1.03 PURCHASE PRICE. Subject to adjustment as hereinafter provided
in this Agreement, the total purchase price ("Purchase Price") for the Stock is
a sum equal to (A) $5,150,000.00 plus or minus (B) the "net financial assets"
(as defined below) of the Company as of the Closing Date ("NFA"), payable by
Purchaser to Seller as follows:
(1) Purchaser shall pay to Seller in immediately available funds at
the Closing a sum equal to (a) $4,150,000.00 plus or minus (b) an
amount equal to eighty percent (80%) of the NFA, as preliminarily
estimated at Closing pursuant to Section 5.09;
(2) Purchaser shall execute and deliver to Seller at Closing its
promissory note (the "Note") in the original principal amount of
$1,000,000.00, bearing interest at a floating rate equal to the
prime rate of interest quoted in the Wall Street Journal
published on the Friday most immediately preceding the Closing
Date and on the Friday most immediately preceding each ensuing
quarterly adjustment date, and payable to the order of Seller on
or before one year from date, said Note to be substantially
identical in form and substance to that attached hereto as
EXHIBIT A, to have certain optional equity conversion rights as
therein specified, and to be secured by liens and security
interests upon the tangible assets of the Company as of Closing
that are junior in priority to any existing liens or security
interests upon such assets as of the Closing, such liens and
security interests to be created by security documents
substantially identical in form and substance to those attached
hereto as EXHIBIT B (collectively, the "Security Documents"); and
(3) Purchaser shall pay the balance, if any, of the Purchase Price to
Seller in immediately available funds pursuant to and at the
conclusion of the post-Closing accounting procedures set forth in
Section 5.09 below.
As used in this Agreement, "net financial assets" shall mean the difference
between (a) "Current Assets" and (b) "Total Liabilities" less any "Deferred
Income Taxes," as those account groups or subgroups are shown on the Preliminary
Audited Balance Sheet (hereinafter defined), subject to modification and
adjustment in accordance with generally accepted accounting principles pursuant
to Section 5.09 to reflect changes between the date of the Preliminary Audited
Balance Sheet and the Closing Date.(i.e. TCA - (TL - DIT) = net financial
assets). The calculation of NFA as of the Closing Date shall, in particular, but
without limitation, give effect to the purchase of the Excluded Assets by Seller
from the Company and any tax liabilities occasioned to the Company from such
purchase.
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STOCK PURCHASE AGREEMENT PAGE 2
<PAGE> 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
SELLER AND THE COMPANY
Seller and the Company hereby jointly and severally represent and warrant to
Purchaser as of the date of this Agreement as follows:
Section 2.01 ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation and has the requisite power
and authority to own, lease, and operate its assets and to carry on its business
as now being conducted. The Company has not received any notice of proceedings
relating to the revocation or modification of any such authorizations. The
Company is duly qualified or licensed to do business and is in good standing in
each jurisdiction where the character of the assets owned, leased, or operated
by it or the nature of its activities makes such qualification or licensing
necessary. The Company does not have any subsidiaries. The Company does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, or other business association or
entity.
Section 2.02 GOVERNING DOCUMENTS. The articles of incorporation and the
bylaws of the Company, true and correct copies of which have been furnished to
Purchaser, are in full force and effect and have not been modified, amended, or
rescinded. The Company is not in violation of its articles of incorporation or
bylaws.
Section 2.03 CAPITALIZATION OF THE COMPANY. The authorized capital stock of
the Company consists of 1,000,000 shares of common stock, no par value. As of
the date hereof, 2,086 shares of common stock of the Company are issued and
outstanding, all of which are validly issued, fully paid, and nonassessable (and
collectively constitute the Stock). The Company has issued an additional 500
shares of capital stock, all of which are held in treasury. None of such
treasury shares has been canceled and returned to the status of authorized, but
unissued stock. There are no options, warrants, or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or obligating the Company to issue or sell any
shares of capital stock of, or other equity interests in, the Company. There are
no obligations, contingent or otherwise, of the Company to repurchase, redeem,
or otherwise acquire any shares of the Stock or to provide funds to or make any
investment (in the form of a loan, capital contribution, or otherwise) in any
other person or entity.
Section 2.04 AUTHORITY RELATIVE TO THIS AGREEMENT. Seller and the Company
have full power and authority to execute and deliver this Agreement and to
perform their obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Seller and
the Company and their consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary action and no other
proceedings on
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STOCK PURCHASE AGREEMENT PAGE 3
<PAGE> 4
the part of Seller or the Company are necessary to authorize this Agreement or
to consummate the transactions so contemplated, except for necessary board
action to conclude the sale of the Excluded Assets pursuant to Section 1.02.
This Agreement has been duly and validly executed and delivered by Seller and
the Company and constitutes the legal, valid, and binding obligations of Seller
and the Company, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to or limiting creditors' rights or by legal principles of general applicability
governing availability of equitable remedies.
Section 2.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Seller and the
Company do not, and the performance of this Agreement by Seller and the Company
will not (i) conflict with or violate the articles of incorporation, bylaws, or
other governing documents of the Company, (ii) to the knowledge of Seller,
conflict with or violate any laws, statutes, rules, regulations, or
pronouncements of any court, tribunal, or governmental agency, whether federal,
state, or local, (collectively, "Laws") applicable to Seller or the Company, or
by which they or their respective assets are bound or affected, or (iii) result
in any material breach of or constitute a material default (or an event that
with notice or lapse of time or both would become a material default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the assets of Seller or the Company pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise, or other
instrument or obligation to which Seller or the Company is a party or by which
any of them or their respective assets are bound or affected.
(b) The execution and delivery of this Agreement by Seller and the
Company do not, and the performance of this Agreement by Seller and the Company
will not, require any consent, approval, authorization, or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic or
foreign.
Section 2.06 COMPLIANCE; PERMITS. The Company is not in conflict with, or
in default under or violation of, (i) any federal, state, or local laws
applicable to the Company or by which the Company or any of the assets of the
Company are bound or affected or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or its assets
are bound or affected. The Company possesses all permits, licenses, leases,
agreements, and authorizations of governmental authorities and any other
applicable persons or entities necessary to or for the operation of its assets,
properties, and business, all of which permits, licenses, leases, agreements,
and authorizations are in full force and effect.
Section 2.07 REPORTS AND FINANCIAL STATEMENTS OF THE COMPANY. The balance
sheet and statement of income for calendar year 1998, the preliminary audited
balance sheet for the period ending as of September 30, 1999 (the "Preliminary
Audited Balance Sheet"), and the preliminary audited income statement for the
period ending as of September 30, 1999, copies of all of which are
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STOCK PURCHASE AGREEMENT PAGE 4
<PAGE> 5
attached hereto as EXHIBIT C (collectively, the "Financial Statements"), are
true and complete in all material respects, fairly represent the financial
position and results of operations of the Company as of and for the periods
shown, and, in the instance of the 1998 financial statements were prepared in
accordance with reasonable accounting principles and practices, consistently
applied, and, in the instance of the September 30, 1999 financial statements
were prepared in accordance with generally accepted accounting principles. None
of the Financial Statements contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements therein
not misleading.
Except as and to the extent of (i) liabilities reflected or reserved
against in the Preliminary Audited Balance Sheet and (ii) liabilities which have
arisen since the date of the Preliminary Audited Balance Sheet in the ordinary
course of business and which have been fully disclosed to Purchaser in writing,
the Company does not have any liabilities or obligations (whether accrued,
absolute or contingent), and including without limitation, any liabilities
resulting from failure to comply with any laws or any federal, state, or local
tax liabilities due or to become due whether (a) incurred in respect of or
measured by income for any financial statement or balance sheet period, or (b)
arising out of transactions entered into, or any state of facts existing, prior
or subsequent thereto.
Section 2.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30,
1999, except as shown on attached SCHEDULE 2.08 or as expressly permitted or
authorized by this Agreement, the Company has conducted its businesses only in
the ordinary course and in a manner consistent with past practice and, since
such date, except as shown on SCHEDULE 2.08, there has not been (a) any material
adverse change in the financial condition, results of operations, or business of
the Company, (b) any material damage, destruction, or loss (whether or not
covered by insurance) with respect to any assets of the Company, (c) any change
by the Company in its accounting methods, principles, or practices, (d) any
entry by the Company into any commitments or transactions material to the
Company, (e) any declaration, setting aside, or payment of any dividends or
distributions in respect of shares of the Stock or any redemption, purchase, or
other acquisition of any of the capital stock of the Company, (f) any increase
or decrease in or establishment or termination of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase, or other employee benefit plan of the Company, or any other increase
in the compensation payable or to become payable to any officers or key
employees of the Company, (g) any proposed law or regulation or any actual event
or condition of any character that is known to the Seller or the Company that
materially adversely affects the business or future prospects of the Company,
(h) any claim, litigation, event, or condition of any character that materially
adversely affects the business or future prospects of the Company, (i) any
issuance or purchase of, or agreement to issue or purchase shares of the capital
stock or other securities of the Company, (j) any mortgage, pledge, lien, or
encumbrance made or agreed to be made on any of the Company's assets or
properties, (k) any sale, transfer, other disposition of, or agreement to sell,
transfer, or dispose of the Company's properties or assets, tangible or
intangible, except as expressly permitted by this Agreement and except in the
ordinary course of business and then only for full and fair value received, (l)
any loans, advances, or agreements with respect to any
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STOCK PURCHASE AGREEMENT PAGE 5
<PAGE> 6
loans or advances, other than to customers in the ordinary course of business
and that have been properly reflected as "accounts receivable" on the Company's
books; (m) any transaction outside the ordinary course of business, (n) any
capital expenditure by the Company in excess of $15,000, or (o) any agreement by
Seller or the Company to do any of the items described in Subparagraphs (a)
through (n) above.
For purposes of this Agreement, the terms "material" and "materiality" are
defined to consist and include only of those items or events which either
individually have a value in excess of $15,000 or collectively have a value in
excess of $50,000.
As used in this Agreement, the term "material adverse change" means any
change, event, circumstance, or condition (collectively, a "Change") which
negatively impacts the ownership, operation, or value of the Company and which,
when taken separately or considered with all other Changes, would exceed the
above specified thresholds for materiality.
Section 2.09 ABSENCE OF LITIGATION. Except as disclosed on SCHEDULE 2.21,
there are no claims, actions, proceedings, or investigations pending or, to the
knowledge of Seller or the Company, threatened against the Company or any of the
assets of the Company before any court, arbitrator, or administrative,
governmental, or regulatory authority or body, domestic or foreign. As of the
date hereof, neither the Company nor its assets are subject to any order, writ,
judgment, injunction, decree, determination, or award.
Section 2.10 EMPLOYEE BENEFIT PLANS. Except as set forth on attached
SCHEDULE 2.10 (collectively, the "Plans"), the Company does not have any
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended and the regulations thereunder), any
bonus, stock option, stock purchase, restricted stock, incentive, deferred
compensation, medical, accident, life insurance, disability income, retiree
medical or life insurance, supplemental retirement, severance, and other benefit
plans, programs, or arrangements, or any sick leave and vacation plans. The
Company has operated the Plans in compliance with all applicable federal, state,
and local laws and regulations, has received no notice of any claims or
violations of any laws and regulations applicable to the Plans, and, has no
existing obligations or liabilities under the Plans which have not been fully
funded or reserved for on the Financial Statements. Any and all such plans,
programs, and arrangements previously adopted and subsequently terminated by the
Company were duly and validly terminated in accordance with all applicable laws
and the Company has no continuing obligations or liabilities and has received no
notice of any claims or violations with respect to such former plans, programs,
and arrangements.
Section 2.11 TITLE TO STOCK. Seller owns good and marketable title to all
of the Stock, free and clear of liens, claims, and encumbrances of any kind or
character.
Section 2.12 ASSETS OF THE COMPANY.
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STOCK PURCHASE AGREEMENT PAGE 6
<PAGE> 7
(a) SCHEDULE 2.12(a) attached hereto contains a complete and correct
description of all real property owned by or leased to the Company or in which
the Company otherwise holds contractual rights (collectively, the "Company Real
Estate"), together with all applicable real property leases and contracts. All
such leases and contracts are valid and in full force and effect and all rents,
royalties, and other sums payable by the Company thereunder have been timely
paid. There exists no default or event or circumstance which, with notice or
lapse of time or both, will constitute a default under any of such lease
agreements.
(b) SCHEDULE 2.12(b) attached hereto contains a complete and accurate
description of all vehicles, equipment, furniture, fixtures, and other personal
property of any kind or character, tangible or intangible, that is owned by, in
the possession of, or used by the Company in connection with the Company's
business. Except as shown on SCHEDULE 2.12(b), no personal property owned or
used by the Company in connection with its business is held under any lease,
security agreement, conditional sales contract, or other title retention or
financing agreement or is located any place other than in the possession of the
Company.
Section 2.13 TITLE TO ASSETS. The Company has, or will have at Closing,
good and marketable title to all of its assets and properties, real and
personal, tangible and intangible, that are material to the Company's business
and future prospects, free and clear of liens, claims, charges, and encumbrances
of any kind or nature, save and except (a) the liens and security interests
shown on attached SCHEDULE 2.13, (b) liens for real and personal property taxes
that are not yet due and payable and (c) possible minor matters that, in the
aggregate, are not substantial in amount and do not materially interfere with or
detract from the present or intended use of any of the assets and properties nor
materially impair the business operations of the Company.
Section 2.14 TAXES. The Company is and at all times in the past has been a
"C" corporation within the meaning of Section 1362 of the Internal Revenue Code
of 1986, as amended. The Company presently maintains and at all times in the
past has maintained a fiscal year ending as of December 31 for federal income
tax purposes. The Company has filed all state and federal Tax Returns (defined
below) required to be filed by them, and the Company has paid and discharged all
Taxes (as defined below) shown due thereon and have paid all other Taxes as are
due. The liability for Taxes set forth in each such Tax Return does not
materially understate the Taxes required to be reflected on such Tax Return. For
purposes of this Agreement, "Tax" or "Taxes" means taxes of any kind, payable to
any federal, state, local, or foreign taxing authority, including (without
limitation) (i) income, franchise, profits, gross receipts, ad valorem, value
added, sales, use, service, real or personal property, payroll, withholding,
employment, social security, unemployment compensation, and production taxes,
and (ii) interest, penalties, and additions to tax imposed with respect thereto,
whether disputed or not; and "Tax Returns" means all returns, reports,
declarations, claims for refund, and information statements with respect to
Taxes required to be filed with the Internal Revenue Service or any other taxing
authority, domestic or foreign, through the time of Closing hereunder,
including, without limitation, consolidated, combined, and unitary tax returns
and any schedule or amendment thereto. The Company has not (i) granted any
waiver of any statute of limitations with respect to, any Tax, or (ii) obtained
an extension of time with respect to the filing
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STOCK PURCHASE AGREEMENT PAGE 7
<PAGE> 8
of any Tax Return other than Tax Returns that were duly filed within the
applicable extension period. No claim has been made by an authority in a
jurisdiction where the Company does not file Tax Returns that the Company may be
subject to taxation by that jurisdiction. There are no liens or security
interests on any of the assets of the Company that arose in connection with any
failure (or alleged failure) to pay any Tax. The Company has disclosed on all
federal income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Section
6662 of the Code. The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third-party. There is no dispute or
claim concerning any liability for Tax of the Company (i) claimed or raised by
any authority in writing or (ii) as to which the Company or any officers (and
employees responsible for Tax matters) of the Company have knowledge.
Section 2.15 ENVIRONMENTAL MATTERS.
(a) The Company has conducted all operations and activities in
material compliance with all applicable Environmental Laws (as defined below),
and none of the assets of the Company is being or has been operated in violation
of any Environmental Laws.
(b) The Company possesses all permits required under Environmental
Laws for the operation of its assets.
(c) The assets of the Company, and the operations conducted thereon or
therewith, are not subject to any existing, unfulfilled administrative or
judicial order requiring remedial action under any Environmental Law.
(d) Neither Seller nor the Company has received any notice of any
investigation or inquiry regarding failure of the assets of the Company, or the
operations conducted thereon or therewith, to comply with Environmental Laws.
As used in this Section 2.15, "Environmental Laws" shall mean the federal
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendments and Reauthorization Act, as amended, Safe
Drinking Water Act, Texas Solid Waste Disposal Act, the Resource Conservation
and Recovery Act, as amended, the Hazardous and Solid Waste Amendments Act, as
amended, the Toxic Substances Control Act, as amended, the Clean Water Act, as
amended, and the Clean Air Act, as amended, and any other applicable federal,
state, or local environmental law and all rules, regulations and administrative
orders related thereto, as such laws, rules, regulations and administrative
orders exist as of the Closing Date.
Section 2.16 BROKERS. No broker, finder, or investment banker is entitled
to any brokerage, finder's, or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Seller or the Company.
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STOCK PURCHASE AGREEMENT PAGE 8
<PAGE> 9
Section 2.17 CONTRACTS. Attached hereto as SCHEDULE 2.17 is a list of all
currently effective agreements respecting property, goods, and/or services of or
binding upon the Company or its assets (the "Contracts"). None of the Contracts
has been modified, amended, supplemented or altered except as specifically shown
on attached SCHEDULE 2.17. The Company has made copies of all of the Contracts
(including all modifications, amendments, and supplements thereto) available to
Purchaser. All of the Contracts are in full force and effect and the Company is
not in default under any of the Contracts.
Section 2.18 NO UNION CONTRACTS. There is no collective bargaining or other
union agreement to or by which the Company is a party or is bound, nor is a
collective-bargaining agreement currently being negotiated; and all non-exempt
employees have been paid in accordance with the Fair Labor Standards Act of 1938
and the Portal-to-Portal Act of 1947. The Company is in compliance with all
federal, state, or other applicable laws, domestic or foreign, respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and has not and is not engaged in any unfair labor practice.
The Company has not experienced any material labor difficulty during the last
three years.
Section 2.19 INSURANCE. SCHEDULE 2.19 attached hereto lists all insurance
policies (the "Insurance Policies") held by the Company and all such listed
policies are in the respective principal amounts set forth therein. The Company
maintains (a) insurance on all of its business, operations, and assets of a type
customarily insured, covering property damage and loss of income by fire or
other casualty and (b) insurance protection against all liabilities, claims, and
risks against which it is customary to insure. All premiums due and payable
under the Insurance Policies have been paid. The Company is not, and but for a
requirement that notice be given or that a period of time elapse or both would
not be, in violation under any such Insurance Policies.
Schedule 2.20 BANK ACCOUNTS. SCHEDULE 2.20 attached hereto contains a true
and correct list of the names and addresses of all banks, financial
institutions, and other depositories in which the Company has an account,
deposit, or safe deposit box and the names of all persons authorized to draw on
those accounts or deposits or who have access to them and the account numbers of
each account.
Schedule 2.21 OTHER LIABILITIES AND OBLIGATIONS. SCHEDULE 2.21 attached
hereto contains a true and correct list of all liabilities and obligations of
the Company not disclosed elsewhere in this Agreement of any kind, character,
and description, whether accrued, absolute, contingent, or otherwise, and
whether or not required to be disclosed or accrued in the financial statements
of the Company, that exceed $5,000 to any one creditor. In the case of
liabilities that may not be fixed, an estimate of the maximum amount that may be
payable is also included.
Section 2.22 DISCLOSURE. No representations or warranties made by Seller or
the Company in this Agreement, and no statements of Seller or the Company
contained in any document executed or delivered by any of them to Purchaser
pursuant hereto or in connection with the
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STOCK PURCHASE AGREEMENT PAGE 9
<PAGE> 10
transactions contemplated hereby, contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements herein
or therein not misleading.
Section 2.23 TRANSACTIONS WITH AFFILIATES. Except as shown on attached
SCHEDULE 2.23, the Company is not a party to any transaction, contract, or
agreement with any (i) current or former officer or director of the Company or
(ii) any parent, spouse, child, brother, sister or other family relation of any
such officer or director, or (iii) any corporation or partnership of which any
such officer or director or any such family relation is an officer, director,
partner or greater than 10% stockholder (based on percentage ownership of voting
stock) or (iv) any "affiliate", or "associate" of any such persons or entities
(as such terms are defined in the rules and regulations promulgated under the
Securities Act of 1934), including, without limitation, any transaction
involving a contract, agreement, or other arrangement providing for the
employment of, furnishing of materials, products, or services by, rental of real
or personal property from, or otherwise requiring payments to, any such person
or entity, except with respect to services provided on reasonable terms which
would not materially alter the presentation of the Financial Statements, if such
transactions had been entered into with an unrelated third party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as of the date of this
Agreement as follows:
Section 3.01 ORGANIZATION AND QUALIFICATION. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware. Purchaser is duly qualified or licensed to do business and is in good
standing in each jurisdiction where the character of the assets owned or
operated by Purchaser or the nature of its activities makes such qualification
or licensing necessary.
Section 3.02 AUTHORITY RELATIVE TO THIS AGREEMENT. Purchaser has the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Purchaser
and the consummation by Purchaser of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Purchaser are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Purchaser and, assuming the due
authorization, execution and delivery by all other parties hereto, constitutes
the legal, valid and binding obligation of Purchaser, except as the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect relating to or limiting creditors, rights or by legal
principles of general applicability governing the availability of equitable
remedies.
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STOCK PURCHASE AGREEMENT PAGE 10
<PAGE> 11
Section 3.03 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Purchaser do not,
and the performance of this Agreement by Purchaser will not (i) conflict with or
violate the certificate of incorporation or bylaws of Purchaser, (ii) conflict
with or violate any law applicable to Purchaser or by which any of its assets
are bound or affected or (iii) result in any breach or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the material assets of Purchaser pursuant to, any note, bond, mortgage,
indenture, or any material contract, agreement, lease, license, permit,
franchise, or other instrument or obligation to which Purchaser is a party or by
which Purchaser or any of its assets are bound or affected.
(b) The execution and delivery of this Agreement by Purchaser do not,
and the performance of this Agreement by Purchaser will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign.
Section 3.04 BROKERS. No broker, finder, or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Purchaser.
ARTICLE IV
CONDUCT OF BUSINESS OF THE COMPANY
PENDING THE CLOSING DATE
Pending the Closing Date or earlier termination of this Agreement, and
except as otherwise specifically contemplated in this Agreement or the schedules
hereto or as may be consented to and approved in writing by Purchaser, the
Company covenants and agrees as follows:
Section 4.01 ORDINARY COURSE OF BUSINESS. The Company will carry on its
business substantially in the same manner as heretofore conducted, and will not
engage in any transaction or activity, enter into any agreement or make any
commitment, except in the ordinary course of business. Without limiting the
generality of the foregoing, the Company will:
(a) operate and maintain its assets diligently and in a good and
workmanlike manner and comply in all material respects with all applicable laws
and with the terms of any agreements binding upon those assets;
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STOCK PURCHASE AGREEMENT PAGE 11
<PAGE> 12
(b) maintain and keep in full force and effect all of the Contracts
and all permits, licenses and similar rights and privileges of the Company and
each subsidiary of the Company and comply in all material respects with all of
its material obligations therein and thereunder;
(c) maintain all of its tangible assets in at least as good a
condition as they were in at the date hereof, ordinary wear and tear excepted,
and remove no material items therefrom;
(d) maintain the Insurance Policies in full force and effect; and
(e) pay, perform, and discharge, on a basis consistent with the
Company's prior practices, all obligations of the Company under the notes,
leases, and other instruments evidencing the indebtedness or other liabilities
of the Company which are shown on the Preliminary Audited Balance Sheet and/or
on the schedules attached to this Agreement in accordance with their respective
terms (but without right of prepayment);
Section 4.02 RESTRICTED ACTIONS. Except as otherwise expressly provided in
this Agreement, the Company will not, without the prior written consent of
Purchaser, which consent shall not be unreasonably withheld, (a) enter into any
agreement or commitment, the result of which would be to incur or expand the
existing indebtedness or liabilities of the Company; (b) incur any additional
indebtedness other than trade payables incurred in the ordinary course of
business; (c) sell, transfer, assign, convey or otherwise dispose of any of the
assets of the Company other than dispositions of (i) equipment or other personal
property which is replaced with property and equipment of comparable or better
value and utility in the ordinary and routine maintenance and operation of its
business and (ii) personal property and equipment no longer used or useful in
the ordinary course of business; or (d) create or permit the creation of any new
lien, security interest, or other encumbrances on any asset of the Company.
Section 4.03 AMENDMENTS TO GOVERNING DOCUMENTS. No change or amendment
shall be made in the articles of incorporation or bylaws of the Company.
Section 4.04 ORGANIZATION. The Company will preserve its corporate
existence and will keep its business organization intact and use its reasonable
efforts to preserve its relationships with its suppliers, customers, and others
having business relations with the Company.
Section 4.05 EMPLOYMENT AGREEMENTS. The Company will not enter into any
agreement relating to employment with any person.
Section 4.06 ISSUANCE OF SHARES; DIVIDENDS. The Company will not issue
shares of capital stock, or grant any options, warrants or other rights to
purchase or acquire the capital stock of the Company. The Company will neither
declare nor pay or set aside for payment any dividend or other distribution on
its outstanding shares of capital stock, nor redeem, purchase or otherwise
acquire any of its capital stock.
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STOCK PURCHASE AGREEMENT PAGE 12
<PAGE> 13
Section 4.07 NO DEFAULT. The Company will not knowingly take any action or
knowingly take any action that causes a material breach of any representation,
warranty, covenant or agreement of the Company under this Agreement.
Section 4.08 INVESTMENT. The Company will not make any new capital
investment in, make any loan to, or acquire the securities or assets of any
other person or entity.
Section 4.09 USES OF CASH. Other than in the ordinary course of business,
the Company will not make any payments during the period between the date hereof
and the Closing Date except for the purpose of paying Taxes, paying rentals or
other sums owing by the Company under the Contracts as and when due, discharging
rentals and trade payables incurred in the ordinary course of business, and
retiring or discharging presently existing indebtedness to financial
institutions or other third parties as and when due in accordance with the terms
of the notes or other instruments evidencing such indebtedness (but without
right of prepayment).
ARTICLE V
OTHER AGREEMENTS OF THE PARTIES
Section 5.01 ENVIRONMENTAL REPORT. Within fifteen (15) days from the date
of this Agreement, Seller and the Company, at the Company's expense, shall
furnish to Purchaser a Phase I environmental study and report covering all of
the Company Real Estate and prepared by an environmental consulting firm
mutually acceptable to Seller and Purchaser (the "Environmental Report"). If the
Environmental Report shows any environmental condition that is unacceptable to
Purchaser, Purchaser shall, within ten (10) days of its receipt of the
Environmental Report, notify Seller of such condition(s) and the reasons for
Purchaser's objections thereto ("Purchaser's Environmental Objections"). Upon
expiration of such ten-day notification period, Purchaser shall be deemed to
have accepted the form and substance of the Environmental Report, except,
however, those matters to which Purchaser has timely objected in accordance with
the preceding sentence. Seller shall have no obligation to bring any action or
proceeding or otherwise to incur any expense whatsoever to eliminate or modify
any of Purchaser's Environmental Objections. Within five days following receipt
of Purchaser's Environmental Objections, Seller shall give notice to Purchaser
of what actions, if any, that Seller proposes to take in order to cure
Purchaser's Environmental Objections. If Seller is unable or unwilling to remedy
Purchaser's Environmental Objections to the reasonable satisfaction of
Purchaser, Purchaser may terminate this Agreement by notice in writing to Seller
by the earliest to occur of (i) the Closing Date or (ii) five (5) business days
following notice from Seller that it is unable or unwilling to remedy
Purchaser's Environmental Objections, in which event, except as expressly
provided otherwise in this Agreement, none of the parties hereto shall have any
further rights or obligations under this Agreement. If this Agreement is
terminated for any reason, Purchaser agrees to immediately return the Current
Environmental Report to the Company and to hold the contents thereof strictly
confidential. Likewise, pending and following Closing
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STOCK PURCHASE AGREEMENT PAGE 13
<PAGE> 14
hereunder, Seller, shall hold the Current Environmental Report strictly
confidential and shall not disclose the same or its contents to any third party
without the prior written consent of Purchaser.
Section 5.02 PURCHASER'S RIGHTS OF INSPECTION. Pending Closing hereunder,
Purchaser shall have the right to inspect, review, and audit the assets of the
Company and all books, records, data, and other information of Seller and the
Company relating to the business and financial affairs of the Company, the title
to and ownership of the assets of the Company, and the conduct of the Business.
Except as otherwise expressly provided in this Agreement, all expenses incurred
by the Purchaser relating to its inspections, reviews, and audits shall be borne
and paid exclusively by the Purchaser. Seller and the Company shall cooperate
with Purchaser in all reasonable respects in facilitating such inspections,
reviews, and audits. Without limiting the foregoing, Seller and the Company
agree that, pending Closing, they will (a) provide or cause to be provided to
Purchaser and its counsel, accountants, consultants, and other authorized
representatives, during normal business hours or otherwise, if necessary, full
access to all of their, assets, books, agreements, commitments and records; and
(b) furnish Purchaser and its representatives with such data, records, and other
information concerning any of their operations and affairs as Purchaser may
reasonably request.
Seller further agrees that, upon request by Purchaser following Closing, he
will execute and deliver to Purchaser or its accountants such audit response
letters and further confirmations as Purchaser or its accountants may reasonably
require for purposes of verification of the accuracy, validity, and completeness
of all financial and other information provided or made available by Seller and
the Company to Purchaser in connection with the transactions contemplated by
this Agreement.
Section 5.03 EXCLUSIVE DEALING. Unless and until this Agreement shall have
been terminated in accordance with the terms hereof, neither Seller nor the
Company shall directly or indirectly, solicit, initiate, or participate in
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than the Purchaser or an affiliate or an
associate of the Purchaser) concerning, or enter into any agreement providing
for any sale of the assets of the Company, any sale of shares of capital stock
in the Company, or any similar transactions involving the Company.
Section 5.04 CONSENTS, APPROVALS, AND FILINGS. Seller, the Company, and
Purchaser shall each use its reasonable efforts to obtain at the earliest
practicable date and, in any event, prior to the Closing Date, all consents and
approvals, including any third party consents, and to make all filings required
to be obtained or made under any federal, state, or local laws or any agreement
or other instrument (including, without limitation, any consent or approval
necessary to avoid the loss of any rights under any agreement) prior to
consummating the transactions contemplated hereby, whether such consent,
approval or filing is to be obtained from or made with private parties or
applicable governmental authorities.
Section 5.05 BROKERS AND FINDERS. Purchaser, on the one hand, and Seller
and the Company, on the other hand, shall indemnify each other and hold each
other harmless from any
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STOCK PURCHASE AGREEMENT PAGE 14
<PAGE> 15
claim against the other for a broker's or finder's fee, commission, or other
like payment in connection with the transactions contemplated by this Agreement
which arises from or is based upon arrangements made by or through the
indemnifying party.
Section 5.06 PUBLIC ANNOUNCEMENTS. Pending Closing, except as may be
required by applicable law, no party hereto shall issue any press release or
make any other public pronouncements concerning this Agreement or the
transactions contemplated hereby without the written consent and approval of all
other parties.
Section 5.07 RESIGNATION OF OFFICERS AND DIRECTORS. Seller and the Company
will secure the resignation of each then-serving officer and director of the
Company effective as of the Closing Date.
Section 5.08 NOTICE OF DEVELOPMENTS. Prior to the Closing, Seller and the
Company will give prompt notice to Purchaser of any material event affecting the
assets, liabilities, business, financial condition, operations, results of
operations, or future prospects of the Company. No disclosure pursuant to this
Section 5.08 shall, however, be deemed to amend or supplement this Agreement or
the schedules hereto or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant under this Agreement.
Section 5.09 PRELIMINARY AND FINAL COMPUTATIONS OF NFA. As part of its
diligence processes in this transaction, Sierra intends to have the books and
records of the Company audited by certified professional accountants and to have
audited financial statements prepared for the Company in compliance with
generally accepted accounting principles ("GAAP"). Prior to Closing, Seller and
Purchaser shall have their respective accounting groups perform audit work of
the Company, with each to bear its own accounting and other expenses incident
thereto. If there is a difference in the financial statements, the parties will
try to reconcile the differences prior to Closing, it being recognized that the
financial data necessary to permit a final computation of NFA may not be
available at such time. The parties accordingly agree to estimate NFA at Closing
utilizing the audit opinions of both accounting groups and to finalize their
calculation of NFA on a post-Closing basis within sixty (60) days following the
Closing. At least three (3) business days prior to the Closing, Purchaser shall
deliver to Seller, and Seller shall deliver to Purchaser, a preliminary
settlement statement, reflecting their good faith estimates of NFA as of the
Closing Date based upon the best information then available to them. Upon
receipt of these preliminary settlement statements, Seller and Purchaser shall
attempt to reconcile any differences they may have regarding the same. If there
are any items the parties are unable to reconcile prior to Closing, Purchaser's
position shall prevail to enable Closing to proceed, but without prejudice to
the right of either party to dispute any item of the final settlement statement.
Within forty-five (45) days after the Closing Date, Purchaser shall deliver to
Seller an audited balance sheet of the Company for the period ended as of the
Closing Date, prepared in accordance with GAAP, and a proposed final settlement
statement including Purchaser's final computation of NFA. Seller shall have ten
(10) days from its receipt of the such balance sheet and proposed settlement
statement to notify Purchaser of its objections, if any, to the information set
forth therein, including the opportunity of Seller to have independent auditing
or to
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STOCK PURCHASE AGREEMENT PAGE 15
<PAGE> 16
employ the Company's auditors to prepare a final computation of NFA on behalf of
Seller. If Seller fails to timely notify Purchaser of any such objections,
Seller shall be deemed to have irrevocably accepted the computations and
substance of such balance sheet and proposed final settlement statement for all
purposes of this Agreement. If Seller timely and properly contests any items
within such balance sheet or proposed final settlement statement, Seller and
Purchaser shall promptly meet and utilize their best efforts to resolve their
differences, it being the intention of the parties to finalize all post-Closing
adjustments within sixty (60) days following the Closing Date. If the parties
are unable to reach final agreement on any such post-Closing matters, they shall
resolve their differences by means of the dispute resolution procedures set
forth in Section 10.03 and final settlement between the parties shall be
deferred pending conclusion of such procedures. At the conclusion of the
post-Closing accounting contemplated by this Section 5.09, Seller or Purchaser,
as appropriate, shall immediately remit to the other, in immediately available
funds, the net sum determined owning by such party in the final settlement
statement, whether finalized by agreement of the parties or through dispute
resolution processes. As used in this Agreement, "Final Balance Sheet" and
"Final Settlement Statement" shall mean the final balance sheet and the final
settlement statement proposed by Purchaser, as the same may be modified either
by agreement of the parties or dispute resolution pursuant to the foregoing.
Section 5.10 RECEIVABLES. Seller expressly represents and warrants that all
notes receivable and accounts receivable of the Company reflected on the Final
Balance Sheet as of the Closing Date are collectible in the normal course of
business within 150 days from the Closing Date without resort to litigation or
the retention of collection services. Following Closing, the Company shall apply
partial payments by customers to the respective outstanding receivables of such
customers in the order of their aging (i.e. older accounts paid first). To the
extent any such receivables remain unpaid following such 150-day period, the
Company, as its exclusive remedies therefor, may require Seller to immediately
purchase the same from the Company at full face value and without subsequent
recourse of any kind upon the Company or Purchaser or may offset the face amount
of such unpaid receivables against its payment obligations under the Note (in
return for assignment of such receivables to Seller without recourse upon
Purchaser).
Section 5.11 TAXES AND TAX RETURNS. Seller shall be responsible for the
timely preparation and filing (without extension, unless otherwise agreed by
Purchaser in writing) of all federal, state, and local Tax Returns covering or
for (or based upon income received or realized during) all periods prior to and
including the Closing Date, except that, if Closing occurs, Purchaser shall be
responsible for the timely preparation and filing of the federal income tax
returns of the Company for calendar year 2000 and ensuing years and the Texas
state franchise tax returns of the Company due on or before May 15, 2001 and
ensuing years. Seller shall prepare all such Tax Returns for which Seller is
responsible in accordance with applicable law and shall submit such Tax Returns
to the Company and Purchaser for their review and concurrence at least ten (10)
business days prior to filing. If, after the Closing Date, any applicable taxing
authority shall determine there to be a deficiency in the amount of any federal,
state, or local Tax paid or payable by the Company which is not reserved for or
reflected on the Final Balance Sheet and which relates to any period prior to
the Closing Date, Seller shall be fully responsible for the payment of any such
deficiency.
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STOCK PURCHASE AGREEMENT PAGE 16
<PAGE> 17
Following Closing, if any Tax Return covering a period of time prior to the
Closing Date shall be audited by an applicable taxing authority, the Company
shall promptly notify Seller of such audit. Seller and Purchaser and the Company
shall jointly conduct all discussions and negotiations with applicable taxing
authorities regarding each such audited Tax Return as it may relate to periods
prior to the Closing Date and any decision to compromise, settle, or pay a
disputed matter under any such audited Tax Return shall require joint approval
of Seller and Purchaser and the Company, which rights of negotiation and
approval shall in all events between the parties be exercised in good faith. The
Company shall have exclusive authority to conduct all discussions and
negotiations with applicable taxing authorities regarding Tax Returns relating
to periods from and after the Closing Date and shall be solely responsible for
the payment of all Taxes attributable to such periods.
Section 5.12 REIMBURSEMENT FOR CERTAIN VEHICLE PURCHASES. If this
transaction closes, Purchaser agrees to pay to Seller at Closing an amount equal
to the purchase price of the vehicles described on attached SCHEDULE 5.12, as
purchased by the Company during the pendency of negotiations on this
transaction, together with the purchase price of any other vehicles or other
capital goods or items acquired by the Company pending Closing and for which
Purchaser may agree in advance to reimburse Seller in writing at the Closing.
Section 5.13 EMPLOYMENT MATTERS. To the extent Purchaser or the Company
shall elect to continue the employment of current employees of the Company
following Closing, each employee so retained by Purchaser or the Company
following Closing shall be eligible for participation in Purchaser's current
employee benefit programs with full credit for length of service prior to
Closing with the Company. Seller and the Company acknowledge and agree that the
decision to hire any current employees of the Company is solely in the
discretion of Purchaser and that Purchaser has no obligation of any kind to
employ any of the existing employees of the Company following Closing.
Section 5.14 INDEMNIFICATION.
(a) Indemnification by Seller. Seller agrees to indemnify and hold
harmless Purchaser and the Company after the Closing Date against and in respect
of any of the following matters which may be asserted or established:
(i) All liabilities of the Company of any nature, whether
accrued, absolute, contingent, or otherwise, which existed as of the
Closing Date and are not provided for or reflected in the Final Balance
Sheet;
(ii) Any and all damages, losses, expenses, or deficiencies
resulting from any breach of the warranties, representations and covenants
of Seller and the Company contained herein or in any schedule hereto; and
(iii) All demands, assessments, judgments, costs, and expenses
(including reasonable legal fees and other expenses of litigation, both at
the trial and appellate level)
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STOCK PURCHASE AGREEMENT PAGE 17
<PAGE> 18
arising from or in connection with any action, suit, proceeding, or claim
incident to any of the foregoing.
(b) Indemnification by Purchaser. Purchaser agrees to indemnify and
hold harmless Seller after the Closing Date against or in respect of any of the
following matters:
(i) Any and all damages, losses, expenses, or deficiencies
resulting from any breach of the warranties, representations and covenants
of Purchaser contained herein or in any schedule hereto; and
(ii) All demands, assessments, judgments, costs, and expenses
(including reasonable legal fees and other expenses of litigation, both at
the trial and appellate level) arising from or in connection with any
action, suit, proceeding, or claim incident to any of the foregoing.
Section 5.15 RELEASE AND WAIVER BY SELLER. Any provisions of this Agreement
to the contrary notwithstanding, following Closing hereunder, Seller shall have
no right of contribution, indemnity, reimbursement, or other legal or equitable
right of recourse upon the Company based upon or attributable to the breach or
non-performance by Seller or the Company of any of their jointly made
representations, warranties, and covenants under this Agreement, and Seller, as
of Closing hereunder, expressly releases and waives any and all such rights of
contribution, indemnity, reimbursement or other recourse upon or against the
Company.
Section 5.16 INVESTMENT REPRESENTATIONS BY SELLERS. Upon Closing and in
connection with any conversion of the unpaid balance of the Note into common
stock in Purchaser as more particularly provided in the Note, Seller expressly
represents, warrants, acknowledges, and agrees to and with the Company that:
(a) any such stock so acquired by Seller (the "Stock") may not have
been registered under the Securities Act of 1933 or any other
state securities laws (collectively, the "Securities Acts")
because Purchaser may or will issue the Stock in reliance upon
this Section 5.16 and the exemptions from the registration
requirements of the Securities Acts providing for issuance of
securities not involving a public offering;
(b) Seller will acquire any Stock for Seller's own account, for
investment, and not with a view to the resale or distribution
thereof;
(c) Seller will not transfer, sell or offer for sale any portion of
the Stock unless there is an effective registration or other
qualification relating thereto under the Securities Act of 1933
and under any applicable state securities laws or unless the
holder of the Stock delivers to Purchaser an opinion of counsel,
satisfactory to Purchaser, that such registration or other
qualification under
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STOCK PURCHASE AGREEMENT PAGE 18
<PAGE> 19
such Act and applicable state securities laws is not required in
connection with such transfer, offer or sale;
(d) Purchaser is under no obligation to register the Stock or to
assist Seller in complying with any exemption from registration
under the Acts if Seller should at a later date wish to dispose
of the Stock;
(e) Prior to entering into this Agreement, Seller has made an
investigation of Purchaser and its business and has obtained or
had made available to Seller all information with respect thereto
which Seller needed to make an informed decision to structure the
transactions contemplated hereby as provided in this Agreement;
(f) Seller possesses adequate experience and sophistication as
investors for the evaluation of the merits and risks of
investment in the Stock; and
(g) Seller is an "accredited investor," as defined in Regulation D as
promulgated under the Securities Act of 1933, as amended, (the
"1933 Act").
Section 5.17 INVESTMENT REPRESENTATIONS BY PURCHASER. Purchaser
acknowledges that the Company is a privately owned corporation, that the Stock
has not been registered under the Securities Acts, and that the Stock cannot,
therefore, be offered for sale, sold, transferred, pledged, or otherwise
hypothecated except in accordance with the registration requirements of the
Securities Acts (or any applicable exemptions from such requirements). Purchaser
further acknowledges that Seller and the Company have made available to it such
information and documents as Purchaser has deemed necessary to enter into this
Agreement, that Purchaser understands the risks associated with ownership of the
Stock, and that Purchaser is capable of bearing the financial risks associated
therewith.
Section 5.18 DISCLAIMER BY PURCHASERS. PURCHASER ACKNOWLEDGES THAT PRIOR TO
CLOSING HEREUNDER PURCHASER WILL HAVE CONDUCTED SUCH EXAMINATIONS AND
INSPECTIONS OF THE TANGIBLE ASSETS OF THE COMPANY AS PURCHASER DEEMS NECESSARY
TO SATISFY ITSELF REGARDING THE CONDITION THEREOF AND THAT, BY CLOSING
HEREUNDER, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, PURCHASER
ACCEPTS ALL OF THE TANGIBLE ASSETS OF THE COMPANY ON AN "AS IS, WHERE IS" BASIS,
AND WITHOUT REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED OR STATUTORY, AS TO
CONDITION, MERCHANTABILITY, HABITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
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STOCK PURCHASE AGREEMENT PAGE 19
<PAGE> 20
ARTICLE VI
CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE
The obligation of Purchaser to close under this Agreement shall, unless
waived in writing by Purchaser, be subject to the satisfaction on or before the
Closing Date of each of the following conditions, and Seller and the Company
shall use their reasonable efforts to cause each such condition to be so
satisfied.
Section 6.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Seller and the Company contained in this Agreement shall be true
and correct in all respects as of the date of this Agreement and as of the
Closing Date, as though such representations and warranties were made at and as
of such date, except for changes expressly permitted or contemplated by this
Agreement.
Section 6.02 PERFORMANCE. Seller and the Company shall have performed and
complied with all covenants, agreements, obligations and conditions required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date.
Section 6.03 CONSENTS. The consents, approvals, and filings described in
Section 5.03 shall have been obtained or made, as the case may be, without the
imposition of conditions or limitations having a material adverse effect.
Section 6.04 OPINION OF COUNSEL TO SELLER AND THE COMPANY. Seller and the
Company shall have delivered to Purchaser the opinion of their legal counsel,
Bradford L. Moore, in form and substance reasonably acceptable to Purchaser and
its counsel, to the effect that (i) the Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
State of Texas; (ii) all outstanding shares of the Company have been validly
issued and are fully paid and non-assessable; and (iii) this Agreement has been
duly executed and validly delivered by, and is the legal, valid, and binding
obligation of Seller and the Company, and is enforceable against the Seller and
the Company in accordance with its terms, except as such enforceability may be
limited by (a) equitable principles of general applicability and (b) bankruptcy,
insolvency, reorganization, fraudulent conveyance, or similar laws affecting the
rights of creditors generally. In rendering this legal opinion, such counsel may
rely upon the certificates of public officials, of officers of the Company, or
the shareholders of the Company as to matters of fact.
Section 6.05 NO INJUNCTION. There shall not be in effect any preliminary or
permanent injunction or temporary restraining order issued by any state or
federal court that prevents the consummation of the transactions contemplated
hereby.
Section 6.06 OTHER DOCUMENTS. All documents required to be delivered to
Purchaser by Seller and the Company on or prior to the Closing Date shall have
been so delivered.
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STOCK PURCHASE AGREEMENT PAGE 20
<PAGE> 21
Section 6.07 MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have been any material adverse change in, to, or affecting the
Company, its operations, or its assets.
Section 6.08 CERTIFICATES. Seller and the Company shall have delivered to
Purchaser certificates confirming the continuing validity of their
representations and warranties pursuant to Section 6.01 and certifying their
performance hereunder as contemplated by Section 6.02.
Section 6.09 TITLE POLICY. Seller and the Company shall have delivered to
Purchaser, at their expense, an owner's policy or policies of title insurance
issued by a national title insurer insuring the title of the Company to the
Company Real Estate in respective amounts not less than the current ad valorem
tax valuations of each parcel comprising the same, free and clear of liens,
claims, and encumbrances other than liens for ad valorem taxes not yet due,
standard printed form exceptions, and any existing mineral reservations,
easements, and restrictions which are not such as to materially interfere with
or materially impair the current use, operation, or value of the Company Real
Estate.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF SELLER
AND THE COMPANY TO CLOSE
The obligations of Seller and the Company to consummate the transactions
contemplated by this Agreement shall, unless waived in writing by them, be
subject to the satisfaction on or before the Closing Date of each of the
following conditions, and Purchaser shall use its reasonable efforts to cause
each such condition to be so satisfied:
Section 7.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Purchaser contained in this Agreement shall be true and correct in
all respects as of the date made and as of the Closing Date, as though such
representations and warranties were made at and as of such date, except for
changes permitted or contemplated by this Agreement.
Section 7.02 PERFORMANCE. Purchaser shall have performed and complied in
all material respects with all covenants, agreements, obligations, and
conditions required by this Agreement to be performed or complied with by
Purchaser on or prior to the Closing Date.
Section 7.03 CONSENTS AND APPROVALS. The consents, approvals, and filings
described in Section 5.03 shall have been obtained or made, as the case may be,
without the imposition of conditions or limitations having a material adverse
effect.
Section 7.04 NO INJUNCTION. There shall not be in effect any preliminary or
permanent injunction or temporary restraining order issued by any state or
federal court that prevents the consummation of the transactions contemplated
hereby.
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STOCK PURCHASE AGREEMENT PAGE 21
<PAGE> 22
Section 7.05 OTHER DOCUMENTS. All documents required to be delivered to
Seller or the Company by Purchaser on or prior to the Closing Date shall have
been so delivered.
Section 7.06 CERTIFICATES. Purchaser shall have delivered to Seller and the
Company certificates confirming the continuing validity of its representations
and warranties pursuant to Section 7.01 and certifying its performance hereunder
as contemplated by Section 7.02.
Section 7.07 OPINION OF COUNSEL TO PURCHASER. Purchaser shall have
delivered to Seller and the Company the opinion of its legal counsel, Kerr &
Ward, L.L.P., in form and substance reasonably acceptable to Seller, the
Company, and their counsel, to the effect that (i) Purchaser has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Delaware; and (ii) this Agreement has been duly executed
and validly delivered by, and is the legal, valid, and binding obligation of
Purchaser, and is enforceable against Purchaser in accordance with its terms,
except as such enforceability may be limited by (a) equitable principles of
general applicability and (b) bankruptcy, insolvency, reorganization, fraudulent
conveyance, or similar laws affecting the rights of creditors generally. In
rendering this legal opinion, such counsel may rely upon the certificates of
public officials or of officers of Purchaser as to matters of fact.
ARTICLE VIII
THE CLOSING
Section 8.01 CLOSING. The closing ("Closing") of the transaction
contemplated hereby shall take place at the offices of Purchaser at 406 N. Big
Spring, Midland, Texas, on a business date of Purchaser's unilateral selection
within thirty (30) days following any successful completion by Purchaser of an
initial public offering of common stock in the Company through a recognized
national stock exchange (the "Sierra IPO"), but in no event later than April 28,
2000, or at such other place and time as the parties hereto might hereafter
mutually agree in writing. Such date or any alternative date so selected by the
parties is referred to in this Agreement as the "Closing Date." Purchaser shall
afford Seller and the Company at least ten (10) days prior written notice of its
desired Closing Date pursuant to the foregoing.
Section 8.02 DELIVERIES. At the Closing, the following shall occur:
(a) Seller shall endorse and deliver the certificate(s) evidencing the
Stock to Purchaser, free and clear of liens, claims, and encumbrances;
(b) Seller and the Company shall deliver to Purchaser their closing
certificates in compliance with the provisions of Section 6.08;
(c) Seller and the Company shall deliver, or cause to be delivered, to
Purchaser the legal opinion of their counsel, as specified in Section 6.04;
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STOCK PURCHASE AGREEMENT PAGE 22
<PAGE> 23
(d) Seller and the Company shall deliver, or cause to be delivered, to
Purchaser the title policy or policies specified in Section 6.09 (or a
commitment acceptable to Purchaser for the title insurer to do so);
(e) Seller and Purchaser shall execute and deliver a non-competition
agreement which is substantially identical in form and substance to that
attached hereto as EXHIBIT D;
(f) The parties shall attempt to agree upon an estimate of NFA and
shall execute a preliminary closing statement as contemplated by Section 5.09;
(g) Purchaser shall deliver, or cause to be delivered, to Seller the
legal opinion of its counsel, as specified in Section 7.07;
(h) Purchaser shall pay to Seller by wire transfer the cash portion of
the Purchase Price payable at Closing pursuant to Section 1.03(1);
(i) Purchaser shall execute and deliver the Note to Seller;
(j) The Company and Seller shall execute and deliver the Security
Documents;
(k) Purchaser shall deliver to Seller its closing certificate in
compliance with the provisions of Section 7.06; and
(l) Seller and the Company shall execute such notifications to
depository institutions and such changes of authorized signatories upon the
accounts of the Company as Purchaser may reasonably request.
ARTICLE IX
TERMINATION AND ABANDONMENT
Section 9.01 Termination and Abandonment. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual agreement of all of the parties hereto;
(b) by Seller if Closing shall not have occurred on or prior to April
28, 2000, other than due to breach or non-performance by Seller hereunder;
(c) by Purchaser, if the conditions set forth in Article VI shall not
have been complied with and performed in any material respect and such
noncompliance or nonperformance
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STOCK PURCHASE AGREEMENT PAGE 23
<PAGE> 24
shall not have been cured or eliminated (or by its nature cannot be cured or
eliminated) on or before the Closing Date;
(d) by Seller and the Company if the conditions set forth in Article
VII have not been complied with and performed in any material respect and such
noncompliance or nonperformance shall not have been cured or eliminated (or by
its nature cannot be cured or eliminated) on or before the Closing Date; or
(e) by either Purchaser or Seller and the Company, by written notice
to the other, if any action or proceeding shall have been instituted before any
court or other governmental body or, to the knowledge of the party giving such
notice, shall have been threatened formally in writing by any public authority
with requisite jurisdiction, to restrain or prohibit the transactions
contemplated by this Agreement or to subject one or more of the parties or their
directors or their officers to liability on the grounds that it or they have
breached any law or regulation or otherwise acted improperly in connection with
such transactions, and such action or proceeding shall not have been dismissed
or such written threat shall not have been withdrawn or rescinded on or before
the Closing Date.
Section 9.02 REMEDIES, RIGHTS AND OBLIGATIONS ON TERMINATION. If this
Agreement is terminated and abandoned as provided in this Article IX:
(a) Redelivery. Each party will redeliver all documents, work papers,
and other materials of any other party relating to the transactions contemplated
by this Agreement, whether obtained before or after the execution of this
Agreement, to the party furnishing the same, and all information received by any
party to this Agreement with respect to the business of any other party shall
not at any time be used for the advantage of, or disclosed to third parties by,
such party to the detriment of the party furnishing such information; provided,
however, that this subsection (a) shall not apply to any documents, work papers,
material, or information which is a matter of public knowledge or which has
heretofore been or is hereafter published in any publication for public
distribution or filed as public information with any governmental authority or
is otherwise in the public domain.
(b)(1) Default by Purchaser. If Purchaser fails or refuses to close in
accordance with the terms of this Agreement and if Seller and the Company have
timely satisfied all the conditions to Purchaser's obligation to close hereunder
and are not in default hereunder, then, and as the exclusive remedy of Seller
and the Company for such breach, Seller and the Company shall receive the sum of
$100,000 from Purchaser as liquidated damages and not a penalty for the breach
hereof by Purchaser (the same as if Purchaser had deposited such sum with Seller
as a down payment or earnest money hereunder). In this regard, the parties
acknowledge and agree that the damages occasioned to Seller and the Company by
any such breach are difficult of ascertainment or calculation and that the
specified sum of liquidated damages represents a fair and reasonable estimate of
such damages.
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STOCK PURCHASE AGREEMENT PAGE 24
<PAGE> 25
(b)(2) Default by Seller and/or the Company. If Seller and/or the
Company fails or refuses to close in accordance with the terms of this Agreement
and if Purchaser has timely satisfied all the conditions to Purchaser's
obligation to close hereunder and is not in default hereunder, Purchaser shall
have the right either (i) to declare this Agreement canceled or (ii) to seek
enforcement of this Agreement at law or in equity, including, without
limitation, an action for specific performance of the terms of this Agreement by
Seller and the Company or for recovery of the actual damages occasioned to
Purchaser by such breach. The provisions of this Section 9.02(b)(2) shall not be
subject to Section 10.03 of this Agreement.
(c) Continuing Liability. The continuing liability of the parties to
this Agreement with respect to any breach of any representation, warranty,
covenant, or agreement contained therein shall not be affected by such
termination or abandonment, unless this Agreement is terminated or abandoned by
agreement of the parties pursuant to Section 9.01 (a) or (d).
ARTICLE X
POST CLOSING REMEDIES
SECTION 10.01 SURVIVAL. The parties agree that all of the representations,
warranties and covenants contained in this Agreement or in any document,
certificate, instrument, schedule or exhibit delivered pursuant to this
Agreement shall survive the Closing only for a period of one (1) year from and
after the Closing Date unless the party claiming a breach shall assert the same
by written notice to the other party within such one-year period; provided,
however, that the representations and warranties of Seller under Sections
2.01-2.04, 2.11, and 2.14, the representations and warranties of Purchaser in
Sections 3.01 and 3.02, the covenants of the parties in Section 5.11, the
provisions of this Article X and of Article XI, and the covenants of
indemnification for any breach of the foregoing under Section 5.14 shall survive
Closing without time limitation.
Section 10.02 OFFSET/WAIVER. Subject to the provisions of Sections 10.01
and 10.03, after the Closing, Purchaser, without limitation of its other rights
and remedies, shall have a right of offset against its obligations under the
Note for any breach of the representations, warranties, and covenants of Seller
and the Company under this Agreement. In any proceedings by the Purchaser to
assert or prosecute any claims under, or to otherwise enforce, this Agreement,
Seller agrees that he will not assert as a defense, or as a bar to recovery, and
hereby waives any right to so assert such defense or such bar to recovery, that
(a) prior to the Closing, the Company shall have had knowledge of the
circumstances giving rise to the claim being pursued by Purchaser, or (b) prior
to the Closing, the Company engaged in conduct or took action that caused or
brought about the circumstances giving rise to such claim, or otherwise
contributed thereto.
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STOCK PURCHASE AGREEMENT PAGE 25
<PAGE> 26
Section 10.03 DISPUTE RESOLUTION.
(a) Unless expressly provided otherwise in this Agreement, any and all
claims, disputes, controversies, and other matters in question involving the
parties hereto and arising out of or relating to this Agreement and the
transactions contemplated hereby, any provision hereof, the alleged breach of
such provision, or in any way relating to the subject matter of this Agreement
(collectively, "Disputes"), whether such Disputes sound in contract, tort, or
otherwise, at law or in equity, under State or federal law, whether provided by
statute or common law, for damages or any other relief, shall be resolved in
accordance with this Section 10.03.
(b) The parties shall attempt in good faith to resolve any Dispute
promptly by negotiations between representatives who have authority to settle
the controversy. Any party may give the other party written notice of any
Dispute not resolved in the normal course of business, together with a request
that the parties meet and confer ("Notice of Dispute"). Within fifteen (15) days
after delivery of a Notice of Dispute, the parties or their representatives
shall meet at a mutually acceptable time and place, and thereafter as often as
they reasonably deem necessary, to exchange relevant information and to attempt
to resolve the Dispute. If the matter has not been resolved within thirty (30)
days after delivery of the Notice of Dispute, or if the parties fail to meet
within fifteen (15) days after delivery of the Notice of Dispute, either party
may initiate mediation of the claim or dispute as provided hereafter. If a party
or its representative intends to be accompanied at a meeting by an attorney, the
other parties shall be given advance notice of such intention and may also be
accompanied by an attorney. All negotiations pursuant to this clause are
confidential and shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and any state's rules of evidence.
(c) If a Dispute has not been resolved by negotiation as provided in
Section 10.03(b), the parties shall endeavor to settle the claim or dispute by
mediation under the Center for Public Resources ("CPR") Model Procedure for
Mediation of Business Disputes. A neutral third party will be selected from the
CPR panel of neutrals. If the parties encounter difficulty in agreeing on a
neutral third party, they will seek the assistance of CPR in the selection
process. Mediation under this Section 10.03(c) will commence within sixty (60)
days of the Notice of Dispute.
(d) If the Dispute has not been resolved by non-binding means pursuant
to Sections 10.03(b) or (c) within thirty (30) days of the initiation of
mediation, either party may submit such Dispute for resolution by binding
arbitration as follows:
(i) It is the intention of the parties that the arbitration
shall be conducted pursuant to the Texas Arbitration Act,
Tex. Civ. Prac. & Rem. Code Ann., Sections 171.001 et seq.
(Vernon 1997 & Supp. 1999) (the "Act"), as modified by this
Agreement. The validity, construction, and interpretation of
this Section 10.03(d), and all procedural aspects of the
arbitration conducted pursuant to this Section 10.03(d),
including, but not limited to, the determination of issues
that are
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STOCK PURCHASE AGREEMENT PAGE 26
<PAGE> 27
subject to arbitration (i.e. arbitrability), the scope of
the arbitrable issues, allegations of fraud in the
inducement to enter into this Agreement, or this arbitration
provision, allegations of waiver, laches, delay, or other
defenses to arbitrability, and the rules governing the
conduct of the arbitration (including the time for filing an
answer, the time for filing counterclaims, the times for
amending pleadings, the specificity of the pleadings, the
extent and scope of discovery, the issuance of subpoenas,
the times for designation of experts, whether the
arbitration is to be stayed pending resolution of related
litigation involving third parties not bound by this
Agreement, the receipt of evidence and the like), shall be
decided by the arbitrators. The arbitration shall be
administered by the American Arbitration Association
("AAA"), and shall be conducted pursuant to the Commercial
Arbitration Rules of the AAA, as modified by this Agreement.
Notwithstanding any provision of this Agreement to the
contrary, the parties expressly agree that the arbitrators
shall have absolutely no authority to award incidental,
special, treble, exemplary, or punitive damages of any type
under any circumstances regardless of whether such damages
may be available under Texas law, the law of any other
state, or federal law, or under the Act, or the Commercial
Arbitration Rules of the AAA, the parties hereby waiving
their right, if any, to recover incidental, special, treble,
exemplary, or punitive damages in connection with any such
Disputes.
(ii) The arbitration proceeding shall be conducted in Midland,
Texas before a panel of three (3) arbitrators appointed in
accordance with the Commercial Arbitration Rules of the AAA.
The arbitrators shall conduct a hearing as soon as
reasonably practicable after appointment of the third
arbitrator, and a final decision completely disposing of all
Disputes that are the subject of the arbitration proceedings
shall be rendered by the arbitrators as soon as reasonably
practicable after the hearing. There shall be no transcript
of the hearing before the arbitrators. The arbitrators'
ultimate decision after final hearing shall be in writing,
but shall be as brief as possible, and the arbitrators shall
not assign reasons for their ultimate decision.
(iii) The fees and expenses of the arbitrators shall be borne
equally by the parties, but the decision of the arbitrators
may include such award of the arbitrators' fees and expenses
and of other costs and attorneys' fees as the arbitrators
determine appropriate.
(iv) To the fullest extent permitted by law, the arbitration
proceeding and the arbitrators' award shall be maintained in
confidence by the parties.
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STOCK PURCHASE AGREEMENT PAGE 27
<PAGE> 28
(v) The award of the arbitrators shall be binding upon the
parties and final and nonappealable to the maximum extent
permitted by law, and judgment thereon may be entered by a
court of competent jurisdiction and enforced by any party as
a final judgment of such court.
(e) All applicable statutes of limitation and defenses based upon the
passage of time shall be tolled while the procedures specified in Sections
10.03(b) and (c) are pending. The parties will take such actions, if any, as may
be required to effectuate such tolling.
(f) Each party is required to continue to perform its obligations
under this Agreement pending final resolution of any Dispute covered by this
Article X.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified, or supplemented only by writing duly
executed by all of the parties hereto.
Section 11.02 WAIVER OF COMPLIANCE. Any failure of the Seller or the
Company, on the one hand, or Purchaser, on the other, to comply with any
obligation, covenant, agreement or condition contained herein may be expressly
waived in writing by Purchaser or Seller and the Companies, respectively;
provided, however, such waiver or failure to insist upon strict compliance shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
Section 11.03 NOTICES. All notices, requests, demands, and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand (including, without
limitation, by overnight courier), transmitted by facsimile, or mailed,
certified or registered mail (return receipt requested) with postage prepaid:
(a) if to Seller or the Company, to:
Mr. Clyde R. Wilson
Box 984
Brownfield, Texas 79316
Telephone: (806) 637-4350
Sundown Operating Company, Inc.
P.O. Box 938
Sundown, Texas 79372
Telephone: (806) 229-6191
Fax: (806) 229-2003
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STOCK PURCHASE AGREEMENT PAGE 28
<PAGE> 29
with a copy to:
Bradford L. Moore
P.O. Box 352
Brownfield, Texas 79316
Telephone: (806) 637-6466
Fax: (806) 637-3877
or to such other person or addresses as Seller or the Company shall furnish
Purchaser in writing in accordance with this Section 11.03; and
(b) if to Purchaser, to:
Sierra Well Service, Inc.
406 N. Big Spring
Midland, Texas 79701
Telephone: (915) 570-0829
Fax: (915) 570-0598
Attention: Kenneth V. Huseman, President
with a copy to:
Kerr & Ward, L.L.P.
500 W. Texas, Suite 1310
Midland, Texas 79701
Telephone: (915) 684-9990
Fax: (915) 684-9997
Attention: William M. Kerr, Jr.
or to such other persons or addresses as Purchaser shall furnish to Seller and
the Company in writing in accordance with this Section 11.03.
Delivery of notices shall be effective only upon actual receipt by the
intended recipient (or, in the case of facsimile transmission, the completion of
such transmission during the recipient's normal business hours).
Section 11.04 EXPENSES. Purchaser shall pay its own fees and expenses,
including, without limitation, professional fees and expenses, incurred in
connection with the negotiation, execution, and performance of this Agreement
and the transactions contemplated hereby. All fees and expenses of Seller and
all fees and expenses of the Company for periods to and including the Closing
Date,
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STOCK PURCHASE AGREEMENT PAGE 29
<PAGE> 30
including, without limitation, professional fees and expenses, incurred in
connection with the negotiation, execution, and performance of this Agreement
and the transactions contemplated hereby, shall be borne and paid either by the
Company prior to Closing or by Seller.
Section 11.05 BINDING NATURE; NO THIRD PARTY BENEFICIARIES. This Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
Nothing contained herein, express or implied, is intended to confer on any
person other than the parties hereto or their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
Section 11.06 GOVERNING LAW. This Agreement, and the legal relations among
the parties hereto arising from this Agreement, shall be governed by and
construed in accordance with the Laws of the State of Texas, without regard to
its conflicts of laws rules.
Section 11.07 ENTIRE AGREEMENT. This Agreement (including the exhibits and
schedules hereto and the other instruments referred to herein) embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties with respect to such subject matter.
Section 11.08 HEADINGS. The headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 11.09 COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
Section 11.10 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under present or future law, such
provision shall be fully severable and this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part hereof, and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically, as part of this Agreement, a provision as similar in terms and
substance to such illegal, invalid, or unenforceable provision as may be
possible and legal, valid, and enforceable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and made and entered into as of the date first set forth above.
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STOCK PURCHASE AGREEMENT PAGE 30
<PAGE> 31
SELLER:
/s/ CLYDE R. WILSON
-----------------------------------
CLYDE R. WILSON
THE COMPANY:
SUNDOWN OPERATING, INC. d/b/a
SUNDOWN WELL SERVICE
By: /s/ CLYDE R. WILSON
--------------------------------
Printed Name: CLYDE WILSON
----------------------
Title: President
-----------------------------
PURCHASER:
SIERRA WELL SERVICE, INC., a
Delaware corporation
By: /s/ KENNETH V. HUSEMAN
--------------------------------
Printed Name: KENNETH V. HUSEMAN
----------------------
Title: President
-----------------------------
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STOCK PURCHASE AGREEMENT PAGE 31
<PAGE> 32
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A THE NOTE
EXHIBIT B THE SECURITY DOCUMENTS
EXHIBIT C THE FINANCIAL STATEMENTS
EXHIBIT D NON-COMPETITION AGREEMENT
SCHEDULE 1.02 EXCLUDED ASSETS
SCHEDULE 2.08 EXTRAORDINARY TRANSACTIONS
SCHEDULE 2.10 EMPLOYEE BENEFIT PLANS
SCHEDULE 2.12(a) REAL PROPERTY
SCHEDULE 2.12(b) PERSONAL PROPERTY
SCHEDULE 2.13 EXISTING LIENS
SCHEDULE 2.17 CONTRACTS
SCHEDULE 2.19 INSURANCE POLICIES
SCHEDULE 2.20 BANK ACCOUNTS
SCHEDULE 2.21 OTHER LIABILITIES
SCHEDULE 2.23 AFFILIATE TRANSACTIONS
SCHEDULE 5.12 REIMBURSABLE VEHICLE ACQUISITION COSTS
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STOCK PURCHASE AGREEMENT PAGE 32
<PAGE> 33
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT ("First Amendment") is
made and entered into as of the 20th day of March 2000, between CLYDE R. WILSON
("Seller"), SUNDOWN OPERATING, INC. d/b/a SUNDOWN WELL SERVICE, a Texas
corporation (the "Company"), and SIERRA WELL SERVICE, INC., a Delaware
corporation ("Purchaser"), with reference to the following:
RECITALS
A. Seller, the Company, and Purchaser are parties to that certain Stock
Purchase Agreement (the "Agreement") dated as of February 8, 2000, relating to
the sale and purchase of all of the issued and outstanding capital stock of the
Company.
B. Seller and Purchaser wish to amend the Agreement upon the terms
which follow.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Except as expressly indicated otherwise herein,
capitalized terms in this First Amendment shall have the same meanings as are
ascribed to them in the Agreement.
2. EXTENSION OF CLOSING DATE. Seller, the Company, and Purchaser
hereby modify and amend existing Section 8.01 of the Agreement to read as
follows:
Section 8.01 CLOSING. The closing ("Closing") of the
transaction contemplated hereby shall take place at the
offices of Purchaser at 406 N. Big Spring, Midland, Texas, on
a business date of Purchaser's unilateral selection within
thirty (30) days following any successful completion by
Purchaser of an initial public offering of common stock in the
Company through a recognized national stock exchange (the
"Sierra IPO"), but in no event later than June 30, 2000, or at
such other place and time as the parties hereto might
hereafter mutually agree in writing. Such date or any
alternative date so selected by the parties is referred to in
this Agreement as the "Closing Date." Purchaser shall afford
Seller and the Company at least ten (10) days prior written
notice of its desired Closing Date pursuant to the foregoing.
3. EARNEST MONEY DEPOSIT. If Closing shall not have occurred by
April 28, 2000, then on or before that date, Purchaser shall deposit the sum of
One Hundred Thousand and No/100 Dollars ($100,000.00) ("Earnest Money") with
Seller in immediately available funds. Seller shall hold the Earnest Money in a
segregated, interest bearing account for demand deposits. All interest
<PAGE> 34
thus derived shall become part of the Earnest Money and shall be paid to the
party entitled to the Earnest Money in accordance with the terms hereof. The
Earnest Money shall be applied to a corresponding amount of the Purchase Price
at Closing. If Closing fails to occur due to circumstances entitling Seller and
the Company to receive the $100,000.00 stipulated amount of liquidated damages
under Section 9.02(b)(1) of the Agreement, Seller shall be entitled to keep the
Earnest Money in full satisfaction of all claims of Seller and the Company for
Purchaser's failure to close, including, without limitation, its obligation to
pay liquidated damages under Section 9.02(b)(1). If Closing fails to occur for
any other reason, Seller shall immediately refund the Earnest Money to Purchaser
and Purchaser shall be entitled to keep the same without limiting or affecting
Purchaser's remedies under Section 9.02(b)(2) of the Agreement (to the extent
applicable).
4. CONFIRMATION. The parties hereto hereby ratify, confirm, and
adopt the Agreement, as amended hereby. Except as modified hereby, the Agreement
remains in full force and effect.
5. FAX; COUNTERPARTS. This First Amendment may be executed by fax
and in multiple counterparts.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
First Amendment as of the day and year first above written.
SELLER:
/s/ CLYDE R. WILSON
------------------------------------
CLYDE R. WILSON
THE COMPANY:
SUNDOWN OPERATING, INC. d/b/a
SUNDOWN WELL SERVICE
By: /s/ RUSTY WILSON
---------------------------------
Printed Name: RUSTY WILSON
-----------------------
Title: President
------------------------------
PURCHASER:
SIERRA WELL SERVICE, INC., a
Delaware corporation
By: /s/ CHARLES SWIFT
---------------------------------
Printed Name: CHARLES SWIFT
-----------------------
Title: Vice President
------------------------------
- --------------------------------------------------------------------------------
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT PAGE 2
<PAGE> 1
EXHIBIT 10.23
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement dated effective as of March 21,
2000 ("Amendment") is by Joint Energy Development Investments II Limited
Partnership, a Delaware limited partnership ("JEDI-II"), as agent for the Senior
Lenders (as defined below) (in such capacity, the "Senior Agent") and JEDI-II as
agent for the Subordinated Lenders (as defined below) (in such capacity, the
"Subordinated Agent") and ENRON NORTH AMERICA CORP., a Delaware corporation
("Servicer"), in favor of SIERRA WELL SERVICE, INC., a Delaware corporation
("Borrower").
INTRODUCTION
A. The Borrower, the Senior Lenders named therein and Senior Agent
entered into the Senior Loan Agreement dated as of March 31, 1999 (the "Senior
Loan Agreement").
B. The Borrower, the Subordinated Lenders named therein and Subordinated
Agent entered into the Subordinated Loan Agreement dated as of March 31, 1999
(the "Subordinated Loan Agreement" together with the Senior Loan Agreement
collectively referred to herein as the Loan Agreements).
C. Pursuant to certain transactions, JEDI-II has transferred to ENA CLO
I Holding Company I, L.P., a Delaware limited partnership ("Holding Company"),
both the $24,408,000 Senior Secured Loan issued pursuant to the Senior Loan
Agreement and the $25,000,000 Subordinated Secured Loan issued pursuant to the
Subordinated Loan Agreement. Holding Company and Servicer have entered into that
certain Asset Management and Servicing Agreement dated as of December 22, 1999
("Asset Management Agreement"), pursuant to which Holding Company has appointed
Servicer to manage and service, among other assets, the duties, the
responsibilities and covenants required under the Loan Agreements.
D. The Borrower has advised Servicer that the Borrower is not in
compliance with certain covenants of the Loan Agreements and has requested that
Servicer waive the Events of Default occurring as a result thereof.
E. The Borrower is pursuing an initial public offering of the Borrower's
common stock (the "IPO").
F. The Borrower has entered into definitive agreements to acquire
certain assets from William Durham ("Durham") and the stock of TAT (Turnaround
Trucking, Inc.), a Texas corporation, Sundown Operating, Inc., a Texas
corporation, Harrison Well Service, Inc., a Texas corporation, Eunice Well
Servicing Co., a New Mexico corporation and Gold Star Service Company, Inc., a
New Mexico corporation. The foregoing acquisitions are collectively referred to
herein as the "Acquisitions." The stockholders of such companies for which
Borrower is acquiring the stock are referred to herein as the "Sellers." The IPO
and the Acquisitions are collectively referred to as the "Transaction."
<PAGE> 2
G. The Transaction would violate several covenants of the Loan
Agreements, and the Borrower has requested that Servicer and JEDI-II consent to
the Transaction.
H. Servicer is willing to waive such Events of Default and consent to
the Transaction on the terms set forth herein.
THEREFORE, Senior Agent, Subordinated Agent and Servicer, on behalf of
Holding Company, and the Borrower hereby agree as follows:
Section 1. Definitions; References. Unless otherwise defined in this
Amendment, each term used in this Amendment which is defined in the Senior Loan
Agreement has the meaning assigned to such term in the Senior Loan Agreement. As
used in this First Amendment, the following term has the following meanings:
1.1 "Excess Cash" shall mean cash held by the Borrower or
any Subsidiary in excess of $1,500,000.
1.2 "Successful Completion of the IPO" shall mean an IPO
with proceeds sufficient to (i) payoff all Indebtedness,
including accrued but unpaid interest, under the Subordinated
Loan Agreement and (ii) redemption of Borrower's Series A
Preferred Shares, as defined in the Securities Purchase Agreement
between the Borrower and JEDI-II dated as of March 31, 1999, and
all accrued but unpaid dividends.
Section 2. Amendment of Senior Loan Agreement.
2.1. Section 2.2(a)(i) of the Senior Loan Agreement is
amended by replacing the first sentence of Section 2.2(a)(i) with the following:
"The outstanding principal balance of the Senior Loan shall be
due and payable to the Senior Agent for the ratable benefit of
the Senior Lenders beginning with payments of at least
$435,857.15 on each of September 30, 2000 and December 31, 2000.
In the event that Borrower has Excess Cash on either of such
dates, such Excess Cash shall be paid to the Senior Agent for the
ratable benefit of the Senior Lenders up to the amount of
$871,714.29 for each such date. On March 31, 2001, Borrower shall
make a payment of $1,743,428.58 less the amount of any Excess
Cash paid on either September 30, 2000 or December 31, 2000.
Thereafter, on each Payment Date until the Final Maturity Date,
the amount due and payable shall be $871,714.29."
2.2 Section 2.4(a) of the Senior Loan Agreement is amended
by replacing the second sentence thereof with the following:
"The Borrower shall pay to the Senior Agent for the ratable
benefit of the Senior Lenders all accrued but unpaid interest on
the Senior Loan on each Payment Date and on the Final Maturity
Date with the exception of interest payable on March
-2-
<PAGE> 3
31, 2000 which shall be due and payable with interest at the
LIBOR rate plus 2.5% on the earlier of the date of the IPO or
June 30, 2000."
2.3 Section 6.4 shall be amended by adding a new sentence
at the end of such section which reads as follows:
"Borrower shall not permit its general and administrative
expenses, as such expenses are commonly presented in the
Borrower's financial statements, excluding the costs associated
with the Acquisitions to exceed $7,000,000 for the calendar year
2000."
Section 3. Waiver.
3.1. Senior Loan Agreement. Without waiving any other
provision or requirement under the Senior Loan Agreement or the right of
Servicer to require compliance with all provisions of the Senior Loan Agreement
in the future, and without waiving any other Event of Default, present or
future, if any exist or arise, Senior Agent and Servicer hereby waive the Events
of Default occurring as the result of the Borrower's failure to comply with the
provisions of (i) Section 6.5(a)(ii) of the Senior Loan Agreement for the year
ending December 31, 1999, (ii) Section 6.10 as it relates to the lease agreement
between Borrower and Permian Basin Acquisition Group as currently in effect and
(iii) Section 6.3(f), but only until the earlier of (a) one month after the
Successful Completion of the IPO or (b) January 1, 2001.
3.2. Subordinated Loan Agreement. Without waiving any
other provision or requirement under the Subordinated Loan Agreement or the
right of Servicer to require compliance with all provisions of the Subordinated
Loan Agreement in the future, and without waiving any other Event of Default,
present or future, if any exist or arise, Subordinated Agent and Servicer hereby
waive the Events of Default occurring as the result of the Borrower's failure to
comply with the provisions of (i) Section 6.5(a)(ii) of the Subordinated Loan
Agreement for the year ending December 31, 1999, (ii) Section 6.10 as it relates
to the lease agreement between Borrower and Permian Basin Acquisition Group as
currently in effect and (iii) Section 6.3(f), but only until the earlier of (a)
one month after the Successful Completion of the IPO or (b) January 1, 2001.
Section 4. Consent.
4.1 (A) Senior Loan Agreement. Servicer and Senior Agent
hereby (a) consent to the Liens granted by Borrower in favor of the Sellers and
Durham on the property acquired in the Acquisitions which would cause a breach
under Sections 2.2(c) and 6.1, but only to the extent such Liens secure the
indebtedness described in the registration statement relating to the IPO, (b)
consent to the Acquisitions to the extent the Acquisitions would cause a breach
under Section 6.3, provided that additional Indebtedness is incurred solely to
finance the Acquisitions, (c) consent to the Acquisitions to the extent the
Acquisitions would cause a breach under Sections 6.5(a) of the Senior Loan
Agreement, (d) consent to the payment of $1000 in connection with the redemption
and cancellation of the Series C Preferred Share to the extent such redemption
and cancellation would cause a breach under Section 6.4 of the Senior Loan
-3-
<PAGE> 4
Agreement, and (e) consent to the issuance of Common Stock of the Borrower in
the IPO to the extent such issuance would cause a breach under Section 6.13 of
the Senior Loan Agreement, provided there is a Successful Completion of the IPO.
Servicer and Senior Agent hereby waive the Defaults, which would have arisen if
not for the foregoing consents. The foregoing consents and waivers are limited
to the extent described herein and shall not be construed to be a consent to or
a waiver of any other actions prohibited by the Senior Loan Agreement. Servicer
and the Senior Agent reserve the right to exercise any rights and remedies
available to them in connection with any future defaults with respect to
Sections 2.2, 6.1, 6.3, 6.4, 6.5, or 6.13 of the Senior Loan Agreement or any
other provision of any Senior Loan Document.
(B) Subordinated Loan Agreement. Servicer and
Subordinated Agent hereby (a) consent to the Liens granted by Borrower in favor
of the Sellers and Durham on the property acquired in the Acquisitions which
would cause a breach under Sections 2.2(c) and 6.1, but only to the extent such
Liens secure the indebtedness described in the registration statement relating
to the IPO, (b) consent to the Acquisitions to the extent the Acquisitions would
cause a breach under Section 6.3, provided that additional Indebtedness is
incurred solely to finance the Acquisitions, (c) consent to the Acquisitions to
the extent the Acquisitions would cause a breach under Sections 6.5(a) of the
Subordinated Loan Agreement, (d) consent to the payment of $1000 in connection
with the redemption and cancellation of the Series C Preferred Share to the
extent such redemption and cancellation would cause a breach under Section 6.4
of the Subordinated Loan Agreement, and (e) consent to the issuance of Common
Stock of the Borrower in the IPO to the extent such issuance would cause a
breach under Section 6.13 of the Subordinated Loan Agreement, provided there is
a Successful Completion of the IPO. Servicer and Subordinated Agent hereby waive
the Defaults, which would have arisen if not for the foregoing consents. The
foregoing consents and waivers are limited to the extent described herein and
shall not be construed to be a consent to or a waiver of any other actions
prohibited by the Subordinated Loan Agreement. Servicer and the Subordinated
Agent reserve the right to exercise any rights and remedies available to them in
connection with any future defaults with respect to Sections 2.2, 6.1, 6.3, 6.4,
6.5, or 6.13 of the Subordinated Loan Agreement or any other provision of any
Subordinated Loan Document.
4.2 Notwithstanding anything to the contrary contained
herein, each of the consents contained in Section 4.1 of this Waiver shall
expire and no longer be effective as of the earlier of (i) the termination of
the IPO; (ii) the occurrence of the IPO that is not a Successful Completion of
the IPO; or (iii) June 30, 2000 and a Successful Completion of the IPO has not
occurred.
Section 5. Covenant. Borrower covenants and agrees that Borrower will
use a portion of the proceeds from the IPO to retire the Subordinated Secured
Loan including all accrued but unpaid interest and to redeem the Series A
Preferred Shares including all accrued but unpaid dividends.
Section 6. Representations and Warranties of the Borrower. The Borrower
represents and warrants that after giving effect to this Amendment, (i) all of
the representations and warranties contained in the Loan Agreements are true and
correct in all material respects and (ii) no Default or Event of Default shall
be continuing under either of the Loan Agreements.
-4-
<PAGE> 5
Section 7. Effectiveness. This Amendment shall become effective upon the
Borrower, JEDI-II and the Servicer duly and validly executing originals of this
Amendment. This Amendment may be executed in multiple counterparts, each of
which shall be deemed an original and all of which shall constitute one
instrument.
Section 8. Counterparts. This Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts, and all such
counterparts taken together shall be deemed to constitute one and the same
instrument.
Section 9. Choice of Law. This Amendment shall be governed by and
construed and enforced in accordance with the laws of the State of Texas.
THIS WRITTEN AGREEMENT AND THE SENIOR LOAN DOCUMENTS AND SUBORDINATED
LOAN DOCUMENTS, AS DEFINED IN THE LOAN AGREEMENTS, REPRESENT THE FINAL AGREEMENT
AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
-5-
<PAGE> 6
[SIGNATURE PAGE - FIRST AMENDMENT TO LOAN AGREEMENT]
EXECUTED as of the date first set forth above.
SERVICER:
ENRON NORTH AMERICA CORP.
By: /s/ RICHARD B. BUY
--------------------------------------
Name: Richard B. Buy
------------------------------------
Title: Executive Vice President
-----------------------------------
SENIOR AGENT AND
SUBORDINATED AGENT:
JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP
By: Enron Capital Management II Limited
Partnership, its General Partner
By: Enron Capital II Corp., its
General Partner
By: /s/ RICHARD B. BUY
----------------------------
Name: Richard B. Buy
--------------------------
Title: Executive Vice President
-------------------------
Acknowledged and agreed to be effective
as of March 21, 2000, by:
SIERRA WELL SERVICE, INC.
By: /s/ KENNETH V. HUSEMAN
---------------------------------
Name: Kenneth V. Huseman
-------------------------------
Title: President & CEO
------------------------------
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries of Sierra Well Service, Inc.
None.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sierra Well Service, Inc.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
-----------------------------
KPMG LLP
Midland, Texas
March 23, 2000
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<NAME> SIERRA WELL SERVICE INC.
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,062
<SECURITIES> 0
<RECEIVABLES> 7,821
<ALLOWANCES> (271)
<INVENTORY> 144
<CURRENT-ASSETS> 8,971
<PP&E> 53,708
<DEPRECIATION> (22,522)
<TOTAL-ASSETS> 46,861
<CURRENT-LIABILITIES> 7,296
<BONDS> 0
0
5,307
<COMMON> 20
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 46,861
<SALES> 0
<TOTAL-REVENUES> 37,331
<CGS> 0
<TOTAL-COSTS> 29,777
<OTHER-EXPENSES> 11,695
<LOSS-PROVISION> 125
<INTEREST-EXPENSE> 6,065
<INCOME-PRETAX> (10,643)
<INCOME-TAX> 2,328
<INCOME-CONTINUING> (12,971)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,971)
<EPS-BASIC> (6.78)
<EPS-DILUTED> 0.00
</TABLE>
