UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one) FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended February 28, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-15784
DSI INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3273041
(State of Incorporation) (IRS Employer
Identification No.)
5211 Brownfield Highway
Suite 230 79407
Lubbock, Texas (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (806) 785-8400
Former name, former address and former fiscal year, if changed since last
report: No Change
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 4, 1997
Common stock, par value $.01 per share 22,810,269 shares
<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
Page No.
PART I - Financial Information:
Item 1. Financial Statements:
Unaudited Consolidated Balance Sheets................................3
Unaudited Consolidated Statements of Operations......................4
Unaudited Consolidated Statements of Stockholders' Equity............5
Unaudited Consolidated Statements of Cash Flows......................6
Notes to Consolidated Financial Statements...........................8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................11
Part II - Other Information ............................................13
Signatures .............................................................14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements include all adjustments which
in managements' opinion are necessary in order to make the financial
statements not misleading.
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
February 28, November 30,
1997 1996
Current assets:
Cash and cash equivalents $ 245,285 $ 774,226
Accounts receivable, trade, less allowance
for doubtful accounts of $278,053 4,156,319 4,571,323
Costs and estimated earnings in excess of
billings on uncompleted contracts 722,142 711,355
Insurance proceeds recoverable 107,259 153,586
Prepaid expenses and other current assets 135,565 212,625
----------- ----------
Total current assets 5,366,570 6,423,115
Property and equipment, at cost, net of
accumulated depreciation 9,284,538 8,508,540
Goodwill, net of accumulated amortization 1,388,512 1,412,327
Security deposits 128,991 128,991
----------- -----------
Total assets $16,168,611 $16,472,973
=========== ===========
Current liabilities:
Current maturities of notes payable $ 1,605,621 $ 1,520,964
Accounts payable 4,638,870 4,986,701
Billings is excess of costs of uncompleted
contracts - - 15,293
Accrued expenses and other current liabilities 1,210,991 1,391,915
Net liabilities of discontinued operations 502,918 538,357
----------- -----------
Total current liabilities 7,958,400 8,453,230
----------- -----------
Notes payable, less current maturities 3,598,389 3,362,755
----------- -----------
Total long-term liabilities 3,598,389 3,362,755
----------- -----------
Commitments and contingencies - - - -
Stockholders' equity:
Common stock-par value $.01;
authorized-100,000,000 shares;
issued-23,893,365 shares;
outstanding-22,810,269 shares 238,934 238,934
Additional paid-in capital 9,716,928 9,716,928
Accumulated deficit (5,257,392) (5,212,226)
---------- ----------
4,698,470 4,743,636
Less treasury stock, at cost ( 86,648) ( 86,648)
---------- ----------
Total stockholders' equity 4,611,822 4,656,988
---------- ----------
Total liabilities and stockholders' equity $16,168,611 $16,472,973
=========== ===========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
February 28, February 29,
1997 1996
Operating revenues:
Contract drilling revenues $ 6,958,785 $ 4,865,939
Other 1,346 23,879
----------- -----------
Total operating revenues 6,960,131 4,889,818
----------- -----------
Operating costs and expenses:
Direct drilling costs 6,327,599 4,220,749
General and administrative 316,310 278,669
Depreciation, depletion and amortization 377,874 320,750
Other 1,419 2,139
----------- ----------
Total operating costs and expenses 7,023,202 4,822,307
----------- ----------
Operating income (loss) ( 63,071) 67,511
----------- ----------
Other income (expense):
Net gain on sale of assets 134,830 11,224
Interest expense ( 116,925) ( 99,104)
----------- ----------
Total other income (expense), net 17,905 ( 87,880)
----------- ----------
Loss before provision for income taxes ( 45,166) ( 20,369)
Income tax provision - - - -
----------- ----------
Net loss $( 45,166)$( 20,369)
=========== ==========
Per share data:
Primary
Net loss $(0.00) $(0.00)
Assuming full dilution
Net loss $(0.00) $(0.00)
Weighted average number of common shares outstanding
Primary 22,810,269 23,893,365
Assuming full dilution 22,810,269 23,893,365
The accompanying notes are an integral part of these unaudited
consolidated financial statements.<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Treasury Stock
Shares Par Value Shares Par Value
Balance, November 30, 1995 23,893,365 $ 238,934 - - $ - -
Loss for the three months
ended February 29, 1996 - - - - - - - -
---------- --------- --------- ---------
Balance, February 29, 1996 23,893,365 $ 238,934 - - $ - -
========== ========= ========= =========
Balance, November 30, 1996 23,893,365 238,934 1,083,096 ( 86,648)
Loss for the three months
ended February 28, 1997 - - - - - - - -
---------- --------- --------- --------
Balance, February 28, 1997 23,893,365 $ 238,934 1,083,096 $(86,648)
========== ========= ========= ========
Retained
Additional Earnings/ Total
Paid in Accumulated Stockholders'
Capital (Deficit) Equity
Balance, November 30, 1995 $9,716,928 $(8,643,168) $ 1,312,694
Loss for the three months
ended February 29, 1996 - - ( 20,369) ( 20,369)
---------- ----------- -----------
Balance, February 29, 1996 $9,716,928 $(8,663,537) $ 1,292,325
========== =========== ===========
Balance, November 30, 1996 9,716,928 (5,212,226) 4,656,988
Loss for the three months
ended February 28, 1997 - - ( 45,166) ( 45,166)
---------- ---------- ----------
Balance, February 28, 1997 $9,716,928 $(5,257,392) $ 4,611,822
========== =========== ==========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended
February 28, February 29,
1997 1996
Cash flows from operating activities:
Net loss $( 45,166) $( 20,369)
Adjustments to reconcile loss to net cash
provided by operating activities:
Depreciation, depletion and amortization 377,874 320,750
Gain on sale of assets ( 134,830) ( 11,224)
Increase (decrease) in cash flows as a result
of changes in operating asset and liability
account balances:
Decrease in accounts receivable-trade 415,004 219,656
Decrease in insurance proceeds recoverable 46,327 661,184
(Increase) Decrease in net costs and estimated
earnings in excess of billings on uncompleted
contracts ( 26,080) 205,884
Decrease in prepaid expenses and other current
assets 77,060 58,133
Decrease in accounts payable ( 347,831) ( 780,757)
Decrease in accrued expenses and other current
liabilities ( 180,924) ( 32,359)
---------- ----------
Net cash provided by continuing operations 181,434 620,898
Net cash used in discontinued operations ( 35,439) - -
---------- ----------
Net cash provided by operating activities 145,995 620,898
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property and equipment 134,830 11,224
Acquisition of property and equipment (1,103,325) ( 281,074)
---------- ----------
Net cash used in investing activities ( 968,495) ( 269,850)
---------- ----------
Cash flows from financing activities:
Proceeds from notes payable 500,000 - -
Proceeds from (repayments of) revolving
line of credit, net 165,000 ( 300,000)
Repayments of notes payable ( 371,441) ( 168,048)
---------- ----------
Net cash provided by (used in) financing
activities 293,559 ( 468,048)
---------- ----------
Net decrease in cash and cash equivalents ( 528,941) ( 117,000)
Cash and cash equivalents at beginning of period 774,226 283,055
---------- ----------
Cash and cash equivalents at end of period $ 245,285 $ 166,055
========== ===========
Supplemental disclosures of cash flows information:
Cash paid during the period:
Interest $ 106,754 $ 77,706
========== ===========
Income taxes $ - - $ - -
========== ===========
(Continued)
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Supplemental Schedule of Non-cash Investing
and Financing Activities:
During the periods ending February 28, 1997 and February 29, 1996, the Company
acquired property and equipment in connection with borrowings in the amounts of
$26,732 and $47,852, respectively.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
1. PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying consolidated balance
sheet as of February 28, 1997 and the condensed consolidated statements of
operations, stockholders' equity, and cash flows for the three months ended
February 28, 1997 and February 29, 1996 include all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
financial position as of February 29, 1996, the results of operations and
cash flows for the three months ended February 28, 1997 and February 29,
1996. The accompanying consolidated balance sheet as of November 30, 1996
is presented herein as unaudited, inasmuch as such balance sheet was
prepared from the balance sheet set forth in the audited consolidated
financial statements and does not reflect all disclosures and footnotes
contained in those audited consolidated financial statements.
The results of operations for the three months ended February 28, 1997
are not necessarily indicative of the results of operations for the entire
year.
2. LOSS PER COMMON SHARE
Loss per common share of stock has been computed using the weighted
average number of common shares outstanding during the three month period
ending February 28, 1997 and February 29, 1996.
Primary and fully diluted loss per common and common equivalent share
have been computed based on the weighted average number of common shares
outstanding during the three month period ending February 28, 1997 and
February 29, 1996 and on the net additional number of shares which would be
issuable upon the exercise of warrants and stock options, assuming that the
Company used the proceeds received to purchase additional shares at market
value. Common stock equivalents are not included in the outstanding shares
computation as they were anti-dilutive.
3. DISCONTINUED OPERATIONS
On August 18, 1994, DSI discontinued the MRI Segment due to recurring
losses experienced by the segment. The remaining net liabilities of the
segment relate to claims filed by the segment's former landlord for past due
rent. Management is currently of the opinion that if negotiations with
the former landlord are not successful in settling their obligations, DSI
may cause the segment to seek protection from the landlord under bankruptcy
proceedings. It is possible that final settlement will result in the payment
of significantly less than amounts currently recorded as liabilities which
could result in a gain realized in the reversal of such recorded
liabilities. Management's estimate of the potential gain is between
approximately $50,000 and $65,000.
Effective November 30, 1994, DSI discontinued the Nursery Segment due
to significant operating losses incurred by that segment beginning in 1994.
In August, 1995 the Nursery Segment and DSI entered into agreements with
two of its secured creditors, both of whom are banks, and an unrelated third
party (purchaser) in which the purchaser acquired the collateralized debt
of one bank and immediately foreclosed on the debt. The segment surrendered
to the purchaser all of the assets collateralizing this
3. DISCONTINUED OPERATIONS (Continued)
indebtedness on September 6, 1995. The purchaser took title to the assets
in exchange for extinguishment of $1,293,000 in collateralized debt plus
assumption by the purchaser of a $330,000 note payable and the purchaser's
guarantee to indemnify the segment and DSI for its liabilities to certain
other creditors in an amount not to exceed $404,000. DSI has received a
release from its guarantee of the obligation to the bank as well as its
obligation for the $330,000 note payable.
The agreement with the other secured bank required the purchaser to
repay the outstanding balance of a mortgage note which was collateralized
by the segment's real property. DSI will remain liable as guarantor for this
indebtedness until the purchaser has fully satisfied this obligation.
On July 22, 1996, DSI effected the closing of a stock purchase agreement
("Purchase Agreement") dated as of July 19, 1996, by and between a third
party purchaser ("Buyer") and DSI. Pursuant to or in accordance with the
Agreement, effective upon the closing the Buyer purchased all the
outstanding shares of common stock of Sunny's Plants, Inc., the sole
stockholder of all the capital stock of Sunshine Botanicals, Inc., Interior
Plant Supply, Inc., and Sunny's Trucking, Inc. from DSI, in consideration
of certain releases and the payment by DSI to the Buyer of $10,000.
Furthermore, certain Directors and Officers of DSI resigned from their
respective positions as Directors and Officers of Sunny's and it's
subsidiaries and DSI received certain releases
The net liabilities of the discontinued operations are as follows:
February 28, November 30,
1997 1996
Notes payable and capital lease obligations $ 365,074 $ 395,074
Accounts payable and other liabilities 50,000 50,000
Estimated loss on disposal of segments 87,844 93,283
---------- ----------
Net liabilities of discontinued segments $ 502,918 $ 538,357
========== ==========
4. RELATED PARTY TRANSACTIONS
During May, 1993 a former officer of the Drilling Segment (Norton), and
an officer/director of DSI, advanced $500,000 ($90,000 and $410,000,
respectively) to Norton in the form of unsecured demand notes, bearing
interest equal to the entity's primary lending institution's prime rate.
Interest charged to operations on the notes payable was approximately
$10,000 and $11,000 for the three months ending February 28, 1997 and
February 29, 1996, respectively. The notes are convertible into DSI's common
stock at $0.44 per share for an aggregate 1,136,364 shares of DSI's common
stock.
In the year ended November 30, 1995, two officers/directors of DSI, a
corporation owned by an officer/director of DSI, and one former officer of
Norton, along with the Drilling Segment, participated in a joint venture in
three wells. The joint venture contracted with Norton to drill, equip, and
operate the three wells and incurred costs totaling $25,460 and $7,004 for
the three months ending February 28, 1997 and February 29, 1996,
respectively.
4. RELATED PARTY TRANSACTIONS (Continued)
In April, 1996, Norton sold substantially all of its interest in the
joint venture to a corporation in which the two directors of DSI, the
corporation owned by a director of DSI and the former officer of Norton, are
stockholders. The sales price of the interest sold was $200,000 and Norton
realized a gain on the sale of the interest of approximately $117,000. The
corporation's pro rata share of the costs for the three month period ending
February 28, 1997 were approximately $8,000 of which approximately $7,000
was outstanding at February 28, 1997.
Each joint venture participant was liable for their pro rata share of
the costs incurred. Norton's share was $509 and $2,831 for the three months
ending February 28,1997 and February 29,1996, respectively. The aggregate
costs to be borne by the five related parties mentioned above was $10,693
and $700 for the three months ending February 28, 1997 and February 29,
1996, respectively. The amounts due from related parties at February 28,
1996 and February 29, 1997 were approximately $10,000 and $1,000,
respectively.
5. OPTIONS AND WARRANTS
On February 23, 1997 the Board of Directors issued 130,000 options to
four directors of the Company in accordance with the Company's 1989 Stock
Option Plan at an exercise price of $0.56 per share.
The Board also issued two warrants to an officer/director of DSI as
compensation for the individual personally guaranteeing certain obligations
of Norton. The first warrant was issued for guarantees related to
obligations entered into in August 1996 and allows the officer/director to
purchase 640,000 shares of common stock at the exercise price of $0.50 per
share. The second warrant was issued for guarantees related to obligations
entered into in January 1997 and allows the officer/director to purchase
17,024 shares of common stock at $0.78 per share.
6. COMMITMENTS AND CONTINGENCIES
On March 1, 1997, DSI, through its subsidiary Norton Drilling Company,
entered into a five-year employment contract with Sherman H. Norton, Jr.
which effectively replaced a previous employment contract the Company had
with Mr. Norton. The new contract provides for an annual salary of $153,500.
The provisions of the new contract are the same as the prior contract except
for the amount of annual salary.
7. SUBSEQUENT EVENTS
On April 1, 1997, Norton renewed it's line of credit with The Plains
National Bank of West Texas. The line of credit which had an original
borrowing facility of $750,000 and a maturity date of April 1, 1997 was
renewed at the maturity date at which time the borrowing facility was
increased to $1,000,000. The new line of credit has a maturity date of April
1, 1998.
<PAGE>
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
As of February 28, 1997, DSI had a working capital deficiency of
approximately $2,592,000 and cash and cash equivalents of approximately
$245,000 as compared to a working capital deficiency of approximately
$2,030,000 and cash and cash equivalents of approximately $774,000 at
November 30, 1996. For the three months ended February 28, 1997, operations
provided approximately $146,000 in cash flows and DSI's financing activities
provided approximately $294,000. For the three months ending February 29,
1996, operations provided approximately $621,000 in cash flows and DSI's
financing activities used approximately $468,000. The use of funds in the
three month period ending February 28, 1997 was mainly attributable to the
acquisition of property and equipment. The use of funds in the three month
period ending February 29, 1996 was mainly attributable to the repayment of
notes payable and the revolving line of credit.
Significant expenditures of DSI primarily consist of the Drilling
Segment's continual acquisition of replacement drilling equipment, such as
drill collars, drill pipe, engines and transportation equipment to
adequately maintain the operating status of the drilling fleet. Such
expenditures for the three months ending February 28, 1997 and February 29,
1996, approximate $1,103,000 and $281,000, respectively. Capital
expenditures increased in the current three month period as compared to the
three month period in the prior year due to an increase in the purchase of
drill pipe and general upgrading of two rigs. The Drilling Segment
anticipates capital expenditures of approximately $2,000,000 for fiscal 1997
to be funded from existing bank credit lines and cash flows from operations.
Due to numerous uncertainties regarding the availability, price and delivery
of certain drilling equipment, the Registrant's anticipated level of capital
expenditures may fluctuate commensurate with the volatility of the industry.
Management believes that cash flows from operations and borrowings
should be sufficient to fund operations and adequately service the
Registrant's debt for the next twelve months. However, the ability of the
Registrant to perform under the existing terms of its debt agreements and
adequately extinguish certain other liabilities associated with its
discontinued segments is contingent upon the Registrant's ability to
successfully negotiate with its creditors (primarily creditors of the MRI
and Nursery Segments). Furthermore, the inherent macroeconomic risks
associated with the oil and gas industry, such as the volatility of oil and
gas prices, could adversely affect the Registrant's operations.
Comparison of the three months ended February 28, 1997 and February 29,
1996
For the three months ended February 28, 1997 contract drilling revenues
were approximately $6,959,000 as compared to $4,866,000 for the three months
ended February 29, 1996, an increase of $2,093,000 or 43.0%. Average rig
utilization was 80.4% in the three months ended February 28, 1997 compared
to 62.3% in the three months ended February 29, 1996. The increase in
drilling revenues was due to an increase in drilling rig utilization and an
increase in rig rates.
Direct drilling costs for the three months ended February 28, 1997 were
approximately $6,328,000 or 90.9% of contract drilling revenues as compared
to $4,221,000 or 86.7% of contract drilling revenues for the three months
ended February 29, 1996. The increase in direct drilling costs as a percent
of revenues was due to inefficiencies experienced by having a less than
adequately trained workforce in place to operate the increased number of
drilling rigs that were working. The Company expects that the workforce has
now acquired the experience necessary to begin operating more efficiently
and will be able to generate profits in the upcoming periods.
General and administrative expenses were approximately $316,000 for the
three months ended February 28, 1997 as compared to approximately $279,000
for the three months ended February 29, 1996. The increase in general and
administrative expenses was due to having two more office personnel working
in the current period than in the same period last year and an increase in
consulting fees relative to litigation defense.
Interest expense was approximately $117,000 and $99,000 in the three
months ended February 28, 1997 and February 29, 1996, respectively. The
increase in interest expense was due to an increase in borrowings over the
past year.
In the three months ended February 28, 1997, net loss was approximately
$45,000 as compared to a net loss of approximately $20,000 in the three
months ended February 29, 1996. The increase in loss was due mainly to the
increase in direct drilling costs as a percentage of drilling revenues.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
Amoco Production Company commenced a legal action against Norton in
connection with services rendered in 1993 and 1994. The action was brought
in District Court in Hockley County, Texas on April 6, 1995 and sought
damages in the amount of $284,000. Norton filed a countersuit. Amoco and
Norton agreed to a mutual dismissal of their respective actions on February
19, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Name Page
10.37 Form of Employment Agreement entered into
As of March 1, 1997 between Norton Drilling
Company and Sherman H. Norton, Jr. 15
10.38 Form of Warrant from DSI Industries, Inc.
to Sherman H. Norton, Jr. dated as of
February 24, 1997 21
10.39 Commercial Security Agreement dated as
of April 1, 1997, by and between The Plains
National Bank of West Texas and DSI
Industries, Inc. 31
10.40 Commercial Continuing Guaranty, dated as
of April 1, 1997, by and betweent the Plains
National Bank of West Texas and DSI
Industries, Inc. 40
27. Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DSI INDUSTRIES, INC.
Dated: April 14, 1997 By:/S/ Sherman H. Norton, Jr.
Sherman H. Norton, Jr.
Chairman, Chief Executive Officer and President
Dated: April 14, 1997 By:/s/ David W. Ridley
David Ridley, Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT 10.37
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated as of March 1, 1997, between
Norton Drilling Company, a Delaware corporation (the "Company") and Sherman
H. Norton, Jr., an individual residing at 4618 9th, Lubbock, Texas
("Employee").
WHEREAS, DSI Industries, Inc. ("DSI") owns all the issued and outstanding
capital stock of the Company; and
WHEREAS, the Company owns and operates an on-shore, contract oil and gas
drilling business; and
WHEREAS, the Employee desires to continue to make the benefits of his
experience, business relationships and contacts and expertise available to
the Company and the Company desires to employ Employee on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged and confirmed, the parties
hereto agree as follows:
1.Employment. The Company hereby agrees to employ the Employee for the Term
(as defined in Section 2 hereof) to render services to the Company on the
terms and conditions hereinafter set forth, and the Employee hereby accepts
such employment. The Employee's principle place of employment shall be at
the Company's offices in Lubbock, Texas or such other location as the
Employee shall expressly consent to in writing, subject to such reasonable
travel as the rendering of the services hereunder may require.
2.Term. The term of the Employee's employment hereunder shall commence on
the date hereof and expire on February 28, 2002, subject to earlier
termination thereof pursuant to the provisions of Section 10(a) hereof (the
employee's employment term as so subject to early termination is herein
referred to as the "Term").
3.Offices and Duties. The Employee agrees to hold such offices and to
perform such duties as may be from time to time determined by the Board of
Directors of the Company (the "Board of Directors"), provided that such
duties shall be commensurate with the office held by the Employee.
4.Extent of Services. The Employee agrees that he shall faithfully,
diligently and conscientiously devote his energies, skills and experience
to the discharge of his duties and responsibilities hereunder. To this
end, the Employee agrees that during the Term he shall devote substantially
all his business time and attention to the business and affairs of the
Company.
5.Compensation.
(A) Salary. As compensation for services to be rendered pursuant to
this Agreement, the Company shall pay the Employee a salary at the rate of
$153,500 (the "Annual Salary") per annum during the Term hereof, payable in
accordance with the eh payroll policies of the Company as from time to time
id effect. It is agreed that the amount of the Annual Salary may be
increased from time to time by the Board of Directors.
(B) Expenses. Subject to such policies as may from time to time be
established by the Board of Directors, The Company shall pay or reimburse
the Employee for all reasonable expenses actually incurred or paid by the
Employee during the Term in the performance of the Employee's services
hereunder.
(C) Withholding. In making all payments pursuant to this Section 5, the
Company may withhold such taxes and other charges as may be required to be
withheld by applicable law or regulation.
6.Benefits. The Employee shall be entitled to and shall receive benefits
under any health, accident or disability insurance programs and other
employee benefit plans, including profit sharing plans, which the Company
may from time to time during the Term maintain for the benefit of its
executive employees and in particular shall be entitled to receive the
benefits listed on Schedule 6 hereto.
7.Vacations. The Employee shall be entitled to vacations (taken
consecutively or in segments) during the Term, aggregating four (4) weeks
in any calendar year of the Term, during which time all compensation
hereunder shall be paid in full.
8.Insurance. The Employee agrees to cooperate and do whatever is reasonably
necessary or appropriate to enable the Company, if the Company in its sole
discretion so desires, to obtain key person insurance with respect to the
Employee.
9.Negative Covenants.
(a)Covenants Against Competition. Except as set forth on Schedule 9(a)
hereto, from the date hereof through November 30,2000 (the "Restricted
Period"), the Employee shall not, directly or indirectly (i ) engage in
any business that competes with the business of the Company; (ii) render
any services to any person or entity for use in competing with the business
of the Company; (iii) own any interest in any entity engaged in any
business that competes with the business of the Company; and./or (iv)
interfere with business relationships (whether formed heretofore or
hereafter) between the Company and customers or suppliers of the Company.
(b)Confidentiality. The Employee acknowledges that the Company's trade
secrets and proprietary information and processes, as they may exist from
time OT tome, are valuable, special and unique assets of the Company's
business, access to and knowledge of which are essential to the performance
of the Employee's duties hereunder. The Employee will not during the
Restricted Period disclose, in whole or in part, such secrets, information
or processes to any person, firm, corporation, association or other entity;
provided, that after the Tern, the restrictions contained in this Section
9 (b) shall not apply to such secrets, information or processes which are
then in the public domain (so long as the Employee was not responsible,
directly or indirectly, for such secrets, information or processes entering
the public domain). The Employee agrees to hold as confidential all
memoranda, books, papers, letters, formulas and other data, and all copies
thereof and therefrom, in any way relating to the Company's business or
affairs and at the end of the Term, or on demand at any time of the Company,
to deliver same to the Company.
(c)No Solicitation. The Employee agrees that during the Restricted
Period, he shall not, directly or indirectly, employ, solicit for employment
or otherwise affiliate with, or advise or recommend to any other person or
entity that such person or entity employ, solicit for employment or
otherwise affiliate with, any officer or director of the Company or any
affiliate or the Company or any employee of the Company or any such
affiliate, including, but not limited to, all employees involved n the
maintenance, repair or operation of the Company's drilling rigs.
(d)Specific Performance. If the Employee breaches or threatens to
commit a breach of any of the provisions of this Section 9, the Company
shall have the right and remedy to have the covenants contained in this
Section 9 specifically enforce by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not
provide adequate remedy to the Company.
10.Termination.
(a)By the Company. The Company may terminate the Employee's employment
pursuant to this Agreement prior to the expiration of the Term only upon the
occurrence of one or more of the following events:
(i) the Disability (hereinafter defined) of the Employee;
(ii)the conviction of the Employee of any felony involving dishonest
conduct or moral turpitude;
(iii)the willful or wanton misconduct of the Employee in connection with
the performance of his duties hereunder which conduct has an adverse
affect on the business and affairs of the Company; or
(iv)the Employee's breach of any material provision of this Agreement.
Notwithstanding anything contained herein, the Company may terminate
this agreement pursuant to Section 10(a) (iii) or 10 (a) (iv) above unless
the Company shall have provided Employee with written notice of the alleged
misconduct or breach, and such misconduct or breach shall not have been
cured, or, if not curable, shall be continuing and shall not have ceased,
within ten days of the Employee's receipt of such notice.
As used in this Section 10 (a), the term "Disability" shall mean, with
respect OT the Employee, that due to physical or mental infirmity, whether
total or partial, the Employee is unable to substantially perform his duties
hereunder for a period of 180 consecutive days.
(b) Employee's Death. This Agreement, including all the Employee's
unaccrued entitlements to compensation hereunder, shall automatically
terminate upon the death of the Employee.
(c) Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 10 (a), this Agreement shall be null and void
and have no further force or effect except that Sections 9, 11, 13, 14 and
15 shall survive any such termination and any accrued obligations shall be
paid by the Company.
11.Governing Law. This Agreement shall be governed by the laws of the State
of Texas, without giving effect to the principles of conflict of law.
12.Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
13.Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such a manner to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or any other provisions of this Agreement. In
particular, the parties hereto acknowledge and agree that the covenants
contained herein are reasonable in all respects and if any court determines
that nay of the covenants contained herein, or any part thereof, is invalid
or unenforceable, the remainder of this Agreement shall not thereby be
affected and shall be given full effect, without regard to the invalid
portions.
14.Waiver and Amendments. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms and conditions
hereof may be waived, only by a written instrument signed by the parties
hereto. No delay on the part of any party in exercising any right, power
or privilege hereunder, preclude any other further exercise thereof or the
exercise of any other right, power or privilege hereunder. The rights and
remedies herein provided are cumulative and are not exclusive of any rights
or remedies which any party may otherwise have at law or in equity.
15.Notices, etc. Any notice, request, instruction or other document to
be given hereunder by any party to the other shall be in writing and
delivered personally or sent by registered or certified mail, postage
prepaid, return receipt requested, or by a reputable overnight courier, if
to Company, addressed to Company at 5211 Brownfield Hwy., Suite 230,
Lubbock, Texas 79407, Attention: Mr Sherman H. Norton, Jr. with a copy to
Michael B. Solovay, Esq., Solovay, Marshall & Edlin, P.C., 845 Third Avenue,
New York, New York 10022; and if to Employee, addressee to Employee at 5211
Brownfield highway, Suite 230, Lubbock, Texas 19497, with a copy to
, or to such other persons or addresses as may
be designated in writing by the party to receive such notice. Notices
shall be deemed given when received.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date and year first above written.
NORTON DRILLING COMPANY
(a Delaware corporation)
By:
Name:
Title:
(Employee)<PAGE>
EMPLOYMENT AGREEMENT
SCHEDULE 6
1.Medical insurance including payment of dependent coverage and any and
all benefits thereunder.
2.Use of company vehicles.
3.The Company's Injury and Disease Plan.
4.One paid physical each year of the Term.
5.Lubbock Club membership.
6.Spouse's expenses on business trips.
7.Season ticket to football and basketball games.
8.Preparation of tax returns for personal and business purposes and
related bookkeeping.
<PAGE>
EMPLOYMENT AGREEMENT
Schedule 9 (a)
1.Ownership of stock in Rose Equipment Company.
2.Investments in wells in which the Employee possesses an interest.
3.In addition to any other items listed in this Schedule 9 (a), the
ownership of securities of any entity engaged in any business otherwise
prohibited under Section 9 (a) (iii) shall be permitted if such
securities constitute less that 3% of the outstanding capital stock
thereof.
EXHIBIT 10.38
EXHIBIT A
THE WARRANT REPRESENTED HEREBY AND THE STOCK OR OTHER SECURITIES ISSUABLE UPON
THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH WARRANT
NOR THE STOCK OR OTHER SECURITIES ISSUABLE UPON THE EXERCISE HEREOF NOR ANY
INTEREST THEREIN MAY BE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SUCH ACT AND SUCH LAWS AND THE RULES AND REGULATIONS
THEREUNDER.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF DSI INDUSTRIES, INC.
This certifies that Sherman H. Norton, Jr. ("Holder"), for value
received, is entitled to purchase from DSI Industries, Inc., a Delaware
corporation (the "Company"), six hundred forty thousand (640,000) fully paid
and nonassessable shares of (Common Stock, par value $0.01 per share of the
Company (the "Common Stock"), at a price of $0.50 per share, as adjusted
pursuant to Section 3 below (the "Stock Purchase Price"), at any time or from
time to time on or after the Commencement Date (as defined below) but not later
than 5:00 p.m. (Lubbock, Texas time) on the Expiration Date (as defined below),
upon surrender to the Company at its principal office at 5211 Brownfield
Highway, Suite 230, Lubbock, Texas 79407 (or at such other location as the
Company may advise Holder in writing) of this Warrant with the Form of Stock
Subscription attached hereto as Exhibit A duly filled in and signed and upon
payment of the aggregate Stock Purchase Price for the number of shares for
which this Warrant is being exercised determined in accordance with the
provisions hereof (the "Aggregate Stock Purchase Price"), in cash, by certified
or official bank check, by wire transfer, or by any combination of the
foregoing, as Holder may elect, in its sole discretion. In leiu of paying the
Aggregate Stock Purchase Price upon exercise of this Warrant, for so long as
the Common Stock is publicly traded, Holder may elect a "cashless exercise" in
which event Holder will receive upon exercise of this Warrant a reduced number
of shares of Common Stock equal to (i) the number of Shares of Common Stock
that would be issuable pursuant to this warrant upon payment of the Aggregate
Stock Purchase Price minus (ii) the number of shares of Common Stock that have
an aggregate fair market value equal to the Aggregate Stock Purchase Price. For
purposes of the preceding sentence, the fair market value of a share of Common
Stock shall mean the last reported sale price of the Common Stock on the last
business day preceding the date of exercise. The Stock Purchase Price and the
number of shares purchasable hereunder are subject to adjustment as provided
in Section 3 of this Warrant. "Commencement Date" means February 23, 1997.
"Expiration Date" means February 24, 2004.
This Warrant is subject to the following terms and conditions;
1. Exercise; Issuance of Certificates; Payment for Shares. This
Warrant is exercisable at the option of Holder at any time or from time to time
on or after the Commencement Date but not later than the Expiration Date for
all or a portion of the shares of Common Stock which may be purchased
hereunder. Upon exercise of this Warrant, the Company shall issue and deliver
to Holder shares of Common Stock. The Company agrees that the shares of Common
Stock to be purchased under this Warrant shall be and are deemed to be issued
to Holder as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for
such shares. Subject to the provisions of Section 2, certificates for the
shares of Common Stock so purchased, together with any other securities or
property to which Holder is entitled upon such exercise, shall be delivered to
Holder by the Company or the Company's transfer agent at the Company's expense
within a reasonable time (but in no event more than ten days) after the rights
represented by this warrant have been exercised. Each stock certificate so
delivered shall be in such denominations and classes of Common Stock as may be
requested by Holder and shall be registered in the name of Holder or such other
name as shall be designated by Holder, subject to the limitations contained in
this Section 1, Section 2 and Section 6. If, upon exercise of this Warrant,
fewer than all of the shares of Common Stock evidenced by this Warrant are
purchased prior to the Expiration Date, one or more new warrants substantially
in the form of, and on the terms in, this Warrant will be issued for the
remaining number of shares of Common Stock not purchased upon exercise of this
Warrant.
2. Shares to be Fully Paid: Reservation of Shares The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant (the "Warrant Shares")
will be, upon payment of the Stock Purchase Price therefor and issuance
thereof, duly authorized, validly issued, fully paid and nonassessable and free
from all preemptive rights of any stockholder and free of all taxes, liens and
charges with respect to the issue thereof. The Company further covenants and
agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares
of authorized but unissued Common Stock for such exercise. The Company will
take all such action as may be necessary to assure that such shares of Common
Stock may be issued as provided herein without violation of any applicable law
or regulation, or of any requirement of any securities exchange or automated
quotation system upon which the Common Stock may be listed.
3. Adjustment of Stock Purchase Price and Number of Shares. The
Stock Purchase Price and the number of shares purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 3. Upon each adjustment
of the Stock Purchase Price, the holder of this Warrant shall thereafter be
entitled to purchase, at the Stock Purchase Price resulting from such
adjustment, the number of shares obtained by multiplying the Stock Purchase
Price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Stock Purchase Price resulting from such
adjustments.
3.1 Subdivision or Combination of Common Stock. In case the
Company shall at any time subdivide its outstanding shares of Common Stock into
a greater number of shares, the Stock Purchase Price in effect immediately
prior to such subdivision shall be proportionately reduced, and the number of
shares issuable upon exercise of this Warrant shall be proportionately
increased. Conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the Stock Purchase
Price in effect immediately prior to such combination shall be proportionately
increased and the number of shares issuable upon exercise of this Warrant shall
be proportionately reduced.
3.2 Certain Dividends and Distributions. In case the Company
shall at any time declare or pay a dividend upon its Common Stock payable in
shares of Common Stock, the Stock Purchase Price in effect immediately prior
to such dividend shall be proportionately reduced and the number of shares
issuable upon exercise of this Warrant shall be proportionately increased. In
case the Company shall at any time declare or pay a dividend or other
distribution on its Common Stock payable in cash or in evidences of
indebtedness, shares of stock or other securities or property (other than in
Common Stock or "Convertible Securities," as defined in Section 3.3.1(a)) or
in rights, warrants or options to subscribe for or purchase evidences of
indebtedness, shares of stock or other securities or property (other than
"Options," as defined in Section 3.3.1(b)), the Stock Purchase Price in effect
immediately prior to such dividend or other distribution shall be reduced by
the fair market value of such dividend or other distribution applicable to one
share of Common Stock.
3.3 Dilutive Issuances. If the Company shall sell or issue
(or shall be deemed pursuant to Section 3.3.2.3 to sell or issue) at any time
after the date of this Warrant and prior to the termination or expiration of
this Warrant, shares of Common Stock without consideration or for consideration
per share less than the Stock Purchase Price in effect on the date of and
immediately prior to such sale or issuance, then, upon such sale or issuance
(or deemed sale or issuance), such Stock Purchase Price shall be reduced
concurrently with such sale or issuance to a Stock Purchase Price (calculated
to the nearest cent) determined by dividing
(a) an amount equal to (i) the total number of shares of
Stock Outstanding (as defined by law) immediately prior to such sale or
issuance multiplied by the Stock Purchase Price, plus (ii) the aggregate of the
amount of all consideration, if any, received or deemed received pursuant to
subsection 3.3.2.3 by the Company for such sale or issuance, by
(b) the total number of shares of Stock Outstanding immediately after
such sale or issuance.
No adjustment in the Stock Purchase Price shall be made in respect of the sale
or issuance (or deemed sale or issuance) of additional Stock unless the
consideration per share for such additional Stock sold or issued (or deemed to
be sold or issued) by the Company is less than the Stock Purchase Price in
effect on the date of, and immediately prior to, such sale or issuance. No
adjustment in the Stock Purchase Price shall be made which would increase the
Stock Purchase Price in effect immediately prior to such adjustment, except as
provided in Section 3.3.3 and 3.3.4.
3.3.1 Definitions. For purposes of this Section 3.3,
the following definitions shall apply:
(a) "Convertible Securities" shall mean any
indebtedness, shares of stock or other securities convertible into or
exchangeable for Common Stock.
(b) "Options"" shall mean any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.
(c) "Stock Outstanding" shall mean the aggregate of all
Common Stock outstanding and all Common Stock previously deemed issued pursuant
to Section 3.3.2.3 at a price which was less than the Stock Purchase Price in
effect on the date of and immediately prior to such issuance, and as a result
of which the Stock Purchase Price was reduced.
3.3 2 Other Rules. For the purposes of this Section
3.3, the following provisions also shall be applicable:
3.3.2.1 Cash Consideration. In case of the issuance or
sale of additional Common Stock for cash, the consideration received by the
Company therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if such shares are offered by the Company for
subscription, the subscription price, or, if such shares are sold to
underwriters or dealers for public offering without a subscription offering,
the public offering price), without deducting therefrom any compensation or
discount paid or allowed to underwriters or dealers or others performing
similar services or for any expenses incurred in connection therewith, but
excluding amounts paid or payable by the Company for interest or dividends
accrued at the time of such issuance or sale. In the case of the issuance or
sale for cash of units consisting of shares of Common Stock and warrants, the
portion of the consideration received by the Company for the unit allocated to
the warrant shall equal the value of the warrant ascribed thereto pursuant to
the Black Scholes method of valuation and the balance of the consideration
shall be allocated to the Common Stock.
3.3.2.2 Non-Cash Consideration. In case of the issuance
(otherwise than upon conversion or exchange of Convertible Securities) or sale
of additional Common Stock Options or Convertible Securities for a
consideration other than cash or a consideration a part of which shall be other
than cash, the fair market value of such consideration as determined by the
Board of Directors of the Company in the good faith exercise of its reasonable
business judgment, irrespective of the accounting treatment thereof, shall be
deemed to be the value, for purposes of this Section 3, of the consideration
other than cash received by the Company for such securities.
3.3.2.3 Options and Convertible Securities. In case the
Company shall, at any time after the date of this Warrant, in any manner issue
or grant any Options or any Convertible Securities or shall fix a record date
for the determination of holders of any class of securities entitled to receive
any such Options or Convertible Securities, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities at the exercise such Convertible Securities first become convertible
or exchangeable shall (as of the date of issue or grant of such Options or, in
the case of the issue or sale of Convertible Securities, as of the date of such
issue or sale or, in the case such a record date shall have been fixed, as of
the close of business on such record date) be deemed to be issued and to be
outstanding for the purpose of this Section 3.3 (except that shares of Common
Stock shall not be deemed to have been issued and to be outstanding unless the
consideration per share (determined pursuant to this Section 3.3) of such
shares of Common Stock would be less than the Stock Purchase Price in effect
on the date of and immediately prior to such issuance, or such record date, as
the case may be), and to have been issued for the sum of the amount (if any)
paid for such Options or Convertible Securities and the minimum additional
amount (if any) payable upon the exercise of such Options or upon conversion
or exchange of such Convertible Securities at the time such Convertible
Securities first become convertible or exchangeable; provided that, subject to
the provisions of Section 3.3.3, no further adjustment of the Stock Purchase
Price shall be made upon the actual issuance of any such Common Stock or upon
the exercise of any such Option or upon the conversion or exchange of any such
Convertible Securities.
3.3.3 Change in Option Price or Conversion Rate. If the
purchase price provided for in any Option referred to in subsection 3.3.2.3,
or the additional consideration (if any) payable upon the conversion or
exchange of any Convertible Securities referred to in subsection 3.3.2.3, or
the rate at which any Convertible Securities referred to in subsection 3.3.2.3
are convertible into or exchangeable for shares of Common Stock, shall change
at any time (including changes under or by reason of provisions designed to
protect against dilution), then the Stock Purchase Price in effect at the time
of such event shall forthwith be readjusted to the Stock Purchase Price that
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold; provided that if such readjustment is an
increase in the Stock Purchase Price, such readjustment shall not exceed the
amount (as adjusted by Sections 3.1, 3.2 and 3.3) by which the Stock Purchase
Price was decreased pursuant to Section 3.3 upon the issuance of the Option or
Convertible Security.
3.3.4 Termination of Option or Conversion Rights. In
the event of the termination or expiration of any right to purchase Common
Stock under any Option granted after the date of this Warrant or of any right
to convert or exchange Convertible Securities issued after the date of this
Warrant, the Stock Purchase Price shall, upon such termination, be readjusted
to the Stock Purchase Price that would have been in effect at the time of such
expiration or termination had such Option or Convertible Security, to the
extent outstanding immediately prior to such expiration or termination, never
been issued, and the shares of Common Stock issuable thereunder shall no longer
be deemed to be Stock Outstanding; provided, that if such readjustment is an
increase in the Stock Purchase Price, such readjustment shall not exceed the
amount (as adjusted by Sections 3.1, 3.2 and 3.3) by which the Stock Purchase
Price was decreased pursuant to Section 3.3 upon the issuance of the Option or
Convertible Security.
3.3.5 No Impairment. The Company will not by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
assets, merger, dissolution, issue or sale of securities or any other action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Section 3.3 by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 3.3 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of this Warrant
against impairment. If any event shall occur as to which the provisions of this
Section 3 shall not be strictly applicable, but with respect to which the
failure to make any adjustment to the Stock Purchase Price and the number of
shares purchasable upon exercise of this Warrant would not fairly protect the
purchase rights represented by the Warrant in accordance with the intent and
principles of this Section 3, upon request of the Holder and at the expense of
the Company, the Company shall appoint a firm of independent public accountants
reasonably acceptable to the Holder which shall give its opinion upon the
adjustments, if any, consistent with the intent and principles established in
this Section 3 necessary to preserve without dilution the purchase rights
represented by this Warrant; provided, however, if such accountants shall agree
that the adjustments initially proposed by the Company were correct, then such
Holder shall pay the reasonable fees and expenses of such accountants. Upon
receipt of such opinion, the Company will promptly mail a copy thereof to the
Holder and shall make the adjustments (if any) deserved therein.
3.4 Excluded Events. Notwithstanding anything in this Section
3 to the contrary, the Stock Purchase Price shall not be adjusted by reason of
shares of Common Stock issued or issuable:
(A) to officers, directors or employees of, or consultants
to, the Company pursuant to stock options outstanding on the date hereof or
stock options granted after the date hereof on terms approved by the Board of
Directors of the Company; and
(B) upon the exercise of any warrants issued to the Holder.
3.5 Notice of Adjustment. Upon any adjustment of the Stock
Purchase Price or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Company. The notice shall be signed by the Company's chief financial
officer and shall state the effective date of the adjustment and the Stock
Purchase Price resulting from such adjustment and the increase or decrease if
any, in the number of shares purchasable at such price upon the exercise of
this Warrant, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
3.6 Other Notices. If at any time;
(a) the Company shall propose to declare any cash dividend
upon its Common Stock;
(b) the Company shall propose to declare or make any dividend
or other distribution to the holders of its Common Stock, whether in cash,
property or other securities;
(c) the Company shall propose to effect any reorganization
or reclassification of the capital stock of the Company or any consolidation
or merger of the Company with or into another corporation or any sale, lease
or conveyance of all or substantially all of the assets of the Company; or
(d) the Compamy shall propose to effect a voluntary or
involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall
give, by certified or registered mail, postage prepaid, addressed to the holder
of this Warrant at the address of such holder as shown on the books of the
Company, (i) at least 30 days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend
or distribution or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, lease,
conveyance, dissolution, liquidation or winding-up, and (ii) in the case of any
such reorganization, reclassification, consolidation, merger, sale, lease,
conveyance, dissolution, liquidation or winding-up, at least 30 days' written
notice of the date when the same shall take place. Upon the occurrence of an
event described in clause (c), the holder of this Warrant shall be entitled
thereafter to receive upon exercise of this Warrant the kind and amount of
shares of stock or other securities or assets, which the holder would have been
entitled to receive after the occurrence of such event had this Warrant been
exercised immediately prior to such event; and in any such case, appropriate
provision shall be made with respect to the rights and interests of the holder
to the end that the provisions of this Warrant (including, without limitation,
provisions with respect to changes in and adjustments of the Stock Purchase
Price and the number of shares purchasable upon the exercise of this Warrant,
and provisions relating to the receipt by the holder of nonvoting stock
convertible into voting stock) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, or other securities or assets,
thereafter deliverable upon the exercise of this Warrant. The Company will not
effect any of the transactions described in clause (c) above unless, prior to
the consummation thereof, each person (other than the Company) that may be
required to deliver any cash, stock, securities or other assets upon the
exercise of this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the holder of this Warrant, (x)
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of any such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant) and (y) the obligation to deliver to such
holder such cash, stock, securities or other assets as such holder may be
entitled to receive in accordance with the provisions of this Section 3. The
provisions of this Section 3.6 shall similarly apply to successive
transactions.
4. Issue Tax The issuance of certificates for shares of Common
Stock upon the exercise of this Warrant shall be made without charge to the
holder for any issue tax in respect thereon provided, however, that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the then holder of the Warrant being exercised.
5. No Voting Rights Limitation of Liability. Nothing contained in
this Warrant shall be construed as conferring upon Holder the right to vote or
to consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company. No provisions hereof,
in the absence of affirmative action by Holder to purchase shares of Common
Stock, and no mere enumeration herein of the rights or privileges of Holder,
shall give rise to any liability of Holder for the Stock Purchase Price or as
a stockholder of the Company whether such liability is asserted by the Company
or by its creditors.
6. Restrictions on Transferability of Securities: Compliance
With Securities Act.
6.1 Restrictions on Transferability. This Warrant and the
Warrant Shares (collectively, the "Securities"), shall not be transferable in
the absence of registration under the Act or an exemption therefrom under such
Act.
6.2 Restrictive Legend. Each certificate representing the
Securities or any other securities issued in respect of the Securities upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of the Shareholders
Agreement) be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required under applicable state
securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND SUCH LAWS AND THE
RULES AND REGULATIONS THEREUNDER.
6.3 Effect of Transfer. Subject to the provisions of Section
6.1 hereof, Holder may transfer all or any portion of this Warrant by
surrendering this Warrant to the Company together with a completed assignment
in the form attached hereto as Exhibit B. Upon such surrender, the Company
shall deliver a new Warrant or Warrants to the person or persons entitled
thereto and, if applicable, shall deliver to Holder a new Warrant evidencing
the right of Holder to purchase the balance of the Warrant Shares subject to
purchase hereunder. The term "Holder" as used herein shall include any
transferee to whom this Warrant has been transferred in accordance with this
Section 6.3.
6.4 Registration. The Company will use its reasonable best
efforts, upon the written request of the Holder, to register, as promptly as
practicable, the shares of Common Stock received by the Holder upon exercise
of this Warrant.
7. Modification and Waiver. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
8. Notices. Any notice, request or other document required or
permitted to be given or delivered to Holder or the Company shall be personally
delivered, sent by telecopier (receipt confirmed), sent by recognized overnight
delivery service or sent by certified or registered mail, postage prepaid, to
Holder at its address as shown on the books of the Company or to the Company
at the address indicated therefor in the first paragraph of this Warrant. Any
notice given by personal delivery or by telecopier shall be deemed given on the
date of delivery, any notice sent by recognized overnight courier service shall
be deemed delivered on the second following business day, and any notice given
by certified or registered mail shall be deemed given five days after
registration or certification thereof, as the case may be.
9. Descriptive Headings. Governing Law and Jurisdiction. The
descriptive headings of the several sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant.
This Warrant shall be construed and enforced in accordance with, and the rights
of the parties shall be governed by, the laws of the State of Delaware, without
giving effect to rules governing conflicts of law. Any judicial proceeding
involving any dispute, controversy or claim arising out of or relating to this
Warrant may be brought in a court located in the Lubbock, Texas, and each of
the Company and Holder (i) unconditionally accepts the non-exclusive
jurisdiction of such courts and any related appellate court and irrevocably
agrees to be bound by any judgment rendered thereby, (ii) irrevocably waives
any objection it may now or hereafter have as to the venue of any such
proceeding brought in such a court or that such a court is an inconvenient
forum and (iii) waives personal service of any and all process upon it, and
consents that all such service of process be made by registered or certified
mail, return receipt requested, directed to it at its address set forth in the
Purchase Agreement. Each of the Company and Holder hereby waives trial by jury
in any judicial proceeding to which it is a party.
10. Lost Warrants or Stock Certificates. The Company represents and varrants
to, and agrees with, Holder that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity, or in the case of any such
mutilation, upon surrender and cancellation of such Warrant or stock
certificate, the Company at its expense will make and deliver a new Warrant or
stock certficate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
11. Fractional Shares. No fractional shares shall be issued upon exercise of
this Warrant. The Company shall, in lieu of issuing any fractional share, pay
Holder a sum in cash equal to such fraction multiplied by the fair market value
of the Common Stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by a duly authorized officer this 24th day of February, 1997.
DSI INDUSTRIES, INC.
By: _______________________________
<PAGE>
EXHIBIT A
FORM OF STOCK SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: ___________________________
The undersigned, the holder of the accompanying Warrant, hereby irrevocably
elects, to exercise the purchase right represented by such Warrant for [,
and to purchase thereunder,] ___________________ (__________) shares of
Common Stock (the "Common Stock"), of DSI Industries, Inc. (the "Company")
[and herewith makes payment of _________________________Dollars($__________)
therefor [by certified check or official bank check or wire transfer]] [and
hereby elects a cashless exercise as provided in the Warrant] and requests
that certificates for [__________________( ) shares of Common
Stock be issued in the name of, and delivered to,
___________________________________________________,whose address is
_____________________________________
_________________.
The undersigned represents, unless the sale of the Common Stock has
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), that the undersigned is acquiring such Common Stock for its own account
for investment and not with a view to or for sale in connection with any
distribution thereof (except for any resale pursuant to a Registration
Statement under the Securities Act).
DATED: ____________________
_________________________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant)
_________________________________________
_________________________________________
(Address)
EXHIBIT B
FORM OF ASSIGNMENT
(To be executed by the registered Holder if such Holder desires to transfer the
attached Warrant,)
FOR VALUE RECEIVED, _____________________________hereby sells,
assigns, and transfers unto ________________________________ a Warrant to
purchase__________shares of Common Stock of DSI Industries, Inc. (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint____________________attorney to
transfer such Warrant on the books of the Company, with full power of
substitution.
The undersigned represents, unless the sale of this Warrant has
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), that the undersigned is acquiring such Warrant for its own account for
investment and not with a view to or for sale in connection with any
distribution thereof (except for any resale pursuant to a Registration
Statement under the Securities Act).
Dated: _____________________
Signature: __________________________
Exhibit 10.39
OWNER OF COLLATERAL
DSI INDUSTRIES, INC.
THE PLAINS NATIONAL BANK PNB
5010 University COMMERCIAL
Lubbock, Texas 79413 SECURITY
(806) 795-7131 "LENDER" AGREEMENT
Lubbock County
ADDRESS
5211 BROWNFIELD HWY, SUITE 230
LUBBOCK, TX 79407
Telephone Identification No.
785-8400
BORROWER LOCATION OF
COLLATERAL
NORTON DRILLING COMPANY
ADDRESS
5211 BROWNFIELD HWY, SUITE 230
LUBBOCK, TX 79407
Telephone Identification No.
785-8400
1. SECURITY INTEREST. Owner of Collateral ("Owner") grants to Lender
identified above a continuing security interest in the Collateral described
below to secure the obligations described in this Agreement.
2. OBLIGATIONS. The Collateral shall secure the payment and performance of
all of Borrower's and Owner's present and future, joint and/or several,
direct and indirect, absolute and contingent, express and implied,
indebtedness, (including costs of collection, legal expenses and attorneys'
fees, incurred by Lender upon the occurrence of a default under this
Agreement, in collecting or enforcing payment of such indebtedness or
preserving, protecting or realizing on the Collateral), liabilities,
obligations and covenants (cumulatively "Obligations") to Lender; pursuant
to:
a. this Agreement and the following promissory notes and agreements:
INTEREST PRINCIPAL AMOUNT/ FUNDING/ MATURITY CUSTOMER LOAN
RATE CREDIT LIMIT AGREEMENT DATE NUMBER NUMBER
VARIABLE $1,000,000.00 04/01/97 04/01/98 1051465
VARIABLE $2,714,280.00 08/01/96 07/01/03 1015908
VARIABLE $ 665,000.00 01/23/97 09/01/97 1040971
b. all other present or future, written or oral, agreements between
Borrower or Owner to Lender (whether executed for the same or
different purposes than the preceding documents)
c. all amendments, modifications, replacements or substitutions to any of
the foregoing; and
d. applicable law.
3. COLLATERAL. The Collateral shall consist of all of the following
described property and Owner's rights, title and interest in such property
whether now owned or hereafter acquired by Owner and wheresoever located:
All accounts and contract rights including, but not limited to, the
accounts and contract rights described on Schedule A attached hereto
and incorporated herein by this reference;
All chattel paper including, but not limited to, the chattel paper
described on Schedule A attached hereto and incorporated herein by this
reference;
All documents including, but not limited to, the documents described on
Schedule A attached hereto and incorporated herein by this reference;
All equipment, including, but not limited to, the equipment described
on Schedule A attached hereto and incorporated herein by this reference;
All fixtures, including, but not limited to, the fixtures located or to
be located on the real property described on Schedule B attached hereto
and incorporated herein by this reference;
All general intangibles including, but not limited to, the general
intangibles described on Schedule A attached hereto and incorporated
herein by this reference;
x All instruments including, but not limited to, the instruments
described on Schedule A attached hereto and incorporated herein by this
reference;
All inventory including, but not limited to, the inventory described on
Schedule A attached hereto and incorporated herein by this reference;
All minerals or the like located on or related to the real property
described on Schedule B attached hereto and incorporated herein by this
reference;
All standing timber located on the real property described on Schedule
B attached hereto and incorporated herein by this reference;
The property described in Schedule A;
All monies, instruments, and savings, checking or other deposit accounts
within Lender's custody or control (excluding IRA, Keogh, trust accounts,
and deposits subject to tax penalties if so assigned)
All accessions, accessories, additions, amendments, attachments,
modifications, replacements and substitutions to any of the above;
All proceeds and products of any of the above
All policies of insurance pertaining to any of the above as well as any
proceeds and unearned premiums pertaining to such policies; and
All books and records pertaining to any of the above.
4. OWNER'S TAXPAYER IDENTIFICATION. Owner's social security number or
federal taxpayer identification number is: 75-2394846
5. RESIDENCY/LEGAL STATUS. Owner is a resident of the state of: n/a
Owner is a: Corporation; Partnership; Non-Profit Association;
Limited Liability Company; duly organized, validly existing and in good
standing under the laws of the state of: Delaware
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS. Owner represents, warrants
and covenants to Lender that:
(a) Owner is and shall remain the sole owner of the Collateral;
(b)
(c) Owner's chief executive office, chief place of business, office where
its business records are located, or residence is the address
identified above. Owner's other executive offices, places of business,
locations of its business records, or domiciles are described
on Schedule C attached hereto and incorporated herein by this
reference. Owner shall immediately advise Lender in writing of any
change in or addition to the foregoing addresses;
(d)Owner shall not become a party to any restructuring of its form of
business or participate in any consolidation, merger, liquidation or
dissolution without providing Lender with thirty (30) or more days'
prior written notice of such change
(e) Owner shall notify Lender of the nature of any intended change of
Owner's name, or the use of any trade name, and the effective
date of such change
(f) The Collateral is and shall at all times remain free of all tax and
other liens, security interests, encumbrances and claims of any kind
except for those belonging to Lender and those described on Schedule D
attached hereto and incorporated herein by this reference. Without
waiving the event of default as a result thereof, Owner shall take any
action and execute any document needed to discharge the foregoing liens,
security interests, encumbrances and claims;
(g) Owner shall defend the Collateral against all claims and demands of all
persons at any time claiming any interest therein;
(h) All of the goods, fixtures, minerals or the like, and standing timber
constituting the Collateral is and shall be located at Owner's
executive offices, places of business, residence and domiciles
specifically described in this Agreement.
(i) Owner shall provide Lender with possession of all chattel paper and
instruments constituting the Collateral
(j) All of Owners accounts or contract rights; chattel paper; documents;
general intangibles; instruments; and federal, state, county,
and municipal government and other permits and licenses; trusts, liens,
contracts, leases, and agreements constituting the Collateral are and
shall be valid, genuine and legally enforceable obligations and rights
belonging to Owner against one or more third parties and not subject to
any claim, defense, set-off or counterclaim of any kind
(k) Owner shall not amend, modify, replace, or substitute any account or
contract right; chattel paper; document, general intangible; or
instrument constituting the Collateral without the prior written
consent of Lender;
(l) Owner has the right and is duly authorized to enter into and perform
its obligations under this Agreement. Owner's execution and
performance of these obligations do not and shall not conflict with the
provisions of any statute, regulation, ordinance, rule of law
contract or other agreement which may now or hereafter be binding on
Owner;
(m) No action or proceeding is pending against Owner which might result in
any material or adverse change in its business operations or
financial condition or materially affect the Collateral; other than
what has previously been disclosed.
(n)Owner has not violated and shall not violate any applicable federal,
state, county or municipal statute, regulation or ordinance
(including, but not limited to, those governing Hazardous Materials)
which may materially and adversely affect its business
operations or financial condition or the Collateral; and
(o)This Agreement and the obligations described in this Agreement are
executed and incurred for business and not consumer
purposes .
7. SALE OF COLLATERAL. Owner shall not assign, convey, lease, sell or
transfer any of the Collateral to any third party without the prior written
consent of Lender except for sales of inventory to buyers in the ordinary
course of business.
8. FINANCING STATEMENTS AND OTHER DOCUMENTS. Owner shall take all actions
and execute all documents required by Lender to attach, perfect and maintain
its security interest in the Collateral and establish and maintain its right
to receive the payment of the proceeds of the Collateral including but not
limited to, executing any financing statements, fixture filings,
continuation statements, notices of security interest and other documents
required by the Uniform Commercial Code and other applicable law. Owner
shall pay the costs of filing such documents in all offices wherever filing
or recording is deemed by Lender to be necessary or desirable. In lieu of
filing security agreements financing statements, and effective financing
statements, Lender shall be entitled to perfect its security interest in the
Collateral by filing carbon, photographic or other reproductions of the
aforementioned documents with any authority required by the Uniform
Commercial Code or other applicable law.
9. INQUIRIES AND NOTIFICATION TO THIRD PARTIES. Owner hereby authorizes
Lender to contact any third party and make any inquiry pertaining to Owner's
financial condition or the Collateral. In addition, Lender is authorized to
provide oral or written notice of its security interest in the Collateral to
any third party.
10. COLLECTION OF INDEBTEDNESS FROM THIRD PARTIES. Lender shall be
entitled to notify, and upon the request of Lender, Owner shall notify any
account debtor or other third party (including, but not limited to,
insurance companies) to pay any indebtedness or obligation owing to Owner
and constituting the Collateral (cumulatively "Indebtedness") to Lender
whether or not a default exists under this Agreement. Owner shall diligently
collect the Indebtedness owing to Owner from its account debtors and other
third parties until the giving of such notification. In the event that Owner
possesses or receives possession of any instruments or other remittances
with respect to the Indebtedness following the giving of such notification
or if the instruments or other remittances constitute the prepayment of any
Indebtedness or the payment of any insurance proceeds, Owner shall hold such
instruments and other remittances in trust for Lender apart from its other
property, endorse the instruments and other remittances to Lender, and
immediately provide Lender with possession of the instruments and other
remittances. Lender shall be entitled, but not required, to collect (by
legal proceedings or otherwise), extend the time for payment, compromise
exchange or release any obligor or collateral upon, or otherwise settle any
of the Indebtedness whether or not an event of default exists under this
Agreement. Lender shall not be liable to Owner for any action, error,
mistake, omission or delay pertaining to the actions described in this
paragraph or any damages resulting therefrom.
11. POWER OF ATTORNEY. Owner hereby appoints Lender as its
attorney-in-fact to endorse Owner's name on all instruments and other
remittances payable to Owner with respect to the Indebtedness or other
documents pertaining to Lender's actions in connection with the
Indebtedness. In addition, Lender shall be entitled, but not required, to
perform any action or execute any document required to be taken or executed
by Owner under this Agreement. Lender's performance of such action or
execution of such documents shall not relieve Owner from any obligation or
cure any default under this Agreement. The powers of attorney described in
this paragraph are coupled with an interest and are irrevocable.
12. USE AND MAINTENANCE OF COLLATERAL. Owner shall use the Collateral
solely in the ordinary course of its business, for the usual purposes
intended by the manufacturer (if applicable), with due care, and in
compliance with the laws, ordinances, regulations requirements and rules of
all federal, state, county and municipal authorities including environmental
laws and regulations and insurance policies. Owner shall not make any
alterations, additions or improvements to the Collateral without the prior
written consent of Lender. Without limiting the foregoing, all alterations,
additions and improvements made to the Collateral shall be subject to the
security interest belonging to Lender, shall not be removed without the
prior written consent of Lender, and shall be made at Owner's sole expense.
Owner shall take all actions and make any repairs or replacements needed to
maintain the Collateral in good condition and working order.
13. LOSS OR DAMAGE. Owner shall bear the entire risk of any loss, theft,
destruction or damage (cumulatively "Loss or Damage") to all or any part of
the Collateral. In the event of any Loss or Damage, Owner will either
restore the Collateral to its previous condition, replace the Collateral
with similar property acceptable to Lender in its sole discretion, or pay or
cause to be paid to Lender the decrease in the fair market value of the
affected Collateral.
14. INSURANCE. The Collateral will be kept insured for its full value
against all hazards including loss or damage caused by fire, collision,
theft or other casualty. If the Collateral consists of a motor vehicle,
Owner will obtain comprehensive and collision coverage in amounts at least
equal to the actual cash value of the vehicle with deductibles not to exceed
$ n/a OWNER MAY FURNISH REQUIRED INSURANCE EITHER THROUGH EXISTING
POLICIES OWNED OR CONTROLLED BY OWNER OR THROUGH ANY INSURANCE COMPANY
AUTHORIZED TO TRANSACT BUSINESS IN TEXAS, BUT LENDER MAY REFUSE ANY INSURER
FOR REASONABLE CAUSE. The insurance policies shall require the insurance
company to provide Lender with at least thirty (30) days' written notice
before such policies are altered or canceled in any manner. The insurance
policies shall name Lender as a loss payee and provide that no act or
omission of Owner or any other person shall affect the right of Lender to be
paid the insurance proceeds pertaining to the loss or damage of the
Collateral. In the event Owner fails to acquire or maintain insurance,
Lender (after providing notice as may be required by law) may in its
discretion procure appropriate insurance coverage upon the Collateral and
charge the insurance cost as an advance of principal under the promissory
note. Owner shall furnish Lender with evidence of insurance indicating the
required coverage. Lender may act as attorney-in-fact for Owner in making
and settling claims under insurance policies, canceling any policy or
endorsing Owner's name on any draft or negotiable instrument drawn by any
insurer.
15. INDEMNIFICATION. Lender shall not assume or be responsible for the
performance of any of Owner's obligations with respect to the Collateral
under any circumstances. Owner shall immediately provide Lender with written
notice of and indemnify and hold Lender and its shareholders, directors,
officers, employees and agents harmless from all claims, damages,
liabilities (including attorneys' fees and legal expenses), causes of
action, actions, suits and other legal proceedings (cumulatively "Claims")
pertaining to its business operations or the Collateral including, but not
limited to, those arising from Lender's performance of Owner's obligations
with respect to the Collateral. It is the express intention of the parties
hereto that the indemnity provided for herein is intended to and shall
indemnify and protect Lender from the consequences of Lender's own
negligence, whether or not that negligence is the sole or concurring cause
of any claim, damage, liability, loss, deficiency, penalty, cost or expense.
Owner, upon the request of Lender, shall hire legal counsel to defend Lender
from such Claims/ and pay the attorneys' fees, legal expenses and other
costs incurred in connection therewith. In the alternative, Lender shall be
entitled to employ its own legal counsel to defend such Claims at Owner's
cost.
16. TAXES AND ASSESSMENTS. Owner shall execute and file all tax returns
and pay all taxes, licenses, fees and assessments relating to its business
operations and the Collateral (including, but not limited to, income taxes,
personal property taxes, withholding taxes, sales taxes, use taxes, excise
taxes and workers' compensation premiums) in a timely manner.
17. INSPECTION OF COLLATERAL AND BOOKS AND RECORDS. Owner shall allow
Lender or its agents to examine, inspect and make abstracts and copies of
the Collateral and Owner's books and records pertaining to Owner's business
operations and financial condition or the Collateral during normal business
hours. Owner shall provide any assistance required by Lender for these
purposes. All of the signatures and information pertaining to the Collateral
or contained in the books and records shall be genuine, true, accurate and
complete in all respects. Owner shall note the existence of Lender's
security interest in its books and records pertaining to the Collateral.
18. DEFAULT. Owner shall be in default under this Agreement in the event
that Owner, Borrower or any guarantor:
(a)fails to make any payment under this Agreement or any other
indebtedness to Lender when due
(b)fails to perform any obligation or breaches any warranty or covenant to
Lender contained in this Agreement or any other present or future
written agreement regarding this or any other indebtedness to Lender
(c)provides or causes any false or misleading signature or representation
to be provided to Lender;
(d)allows any loss, diminution, or impairment of the physical condition,
value, title, priority, possession, or control of any Collateral or
Owner's or Lender's rights therein, including, but not limited to,
allowing any part of the Collateral to be placed into receivership,
removed, impaired, lost, stolen, destroyed, damaged, seized,
confiscated or affected in any material way;
(e)seeks to revoke, terminate or otherwise limit its liability under any
continuing guaranty;
(f)permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Owner, any guarantor, or any of their
property
(g)becomes legally incompetent, is dissolved or terminated, ceases to
operate its business, becomes insolvent, makes an assignment for the
benefit of creditors, or becomes the subject of any bankruptcy,
insolvency or debtor rehabilitation proceeding
(h)allows the Collateral to be used by anyone to transport or store goods,
the possession, transportation, or use of which, is illegal;
(i)causes Lender in good faith to deem itself insecure for any reason. and
Borrower has been unable to provide assurances or restore the Bank's
security.
19. RIGHTS OF LENDER ON DEFAULT. If there is a default under this
Agreement, Lender shall be entitled to exercise one or more of the following
remedies without notice or demand (except as required by law):
(a)to declare the Obligations immediately due and payable in full
(b)to collect the outstanding Obligations with or without resorting to
judicial process
(c)to change Owner's mailing address, open Owner's mail, and retain any
instruments or other remittances constituting the Collateral contained
therein
(d)to lawfully and peaceably take possession of any Collateral in any
manner permitted by law;
(e)to apply for and obtain, without notice and upon ex parte application,
the appointment of a receiver for the Collateral without regard to
Owner's financial condition or solvency, the adequacy of the Collateral
to secure the payment or performance of the obligations, or the
existence of any waste to the Collateral
(f)to require Owner to deliver and make available to Lender any Collateral
at a place reasonably convenient to Owner and Lender;
(g)to sell, lease or otherwise dispose of any Collateral and collect any
deficiency balance with or without resorting to legal process
(h)to set-off Owner's obligations against any amounts due to Owner
including, but not limited to, monies, instruments, and deposit
accounts maintained with Lender, and
(i) to exercise all other rights available to Lender under any other
written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately,
and in any order. If notice to Owner of intended disposition of Collateral
is required by law, Lender will provide reasonable notification of the time
and place of any sale or intended disposition as required under the Uniform
Commercial Code. In the event that Lender institutes an action to recover
any Collateral or seeks recovery of any Collateral by way of a prejudgment
remedy in an action against Owner, Owner waives the posting of any bond
which might otherwise be required. Owner waives and consents to any release
or other impairment of any Collateral because of any failure of Lender to
perfect its security interest, any damage to any Collateral, or any other
reason whatsoever, even if caused by Lender's negligence.
20. APPLICATION OF PAYMENTS. Whether or not a default has occurred under
this Agreement, all payments made by or on behalf of Owner and all credits
due to Owner from the disposition of the Collateral or otherwise may be
applied against the amounts paid by Lender (including attorneys' fees and
legal expenses) in connection with the exercise of its rights or remedies
described in this Agreement and any interest thereon and then to the payment
of the remaining Obligations in whatever order Lender chooses.
21. REIMBURSEMENT OF AMOUNTS EXPENDED BY LENDER. Owner shall reimburse
Lender for all amounts (including attorneys' fees and legal expenses)
expended by Lender in the performance of any action required to be taken by
Owner or the exercise of any right or remedy belonging to Lender under this
Agreement, together with interest thereon at the lower of the highest rate
described in any promissory note or credit agreement executed by Borrower or
Owner or the highest rate allowed by law from the date of payment until the
date of reimbursement. These sums shall be Included in the definition of
Obligations, shall be secured by the Collateral identified in this Agreement
and shall be payable upon demand.
22. ASSIGNMENT. Owner shall not be entitled to assign any of its rights,
remedies or obligations described in this Agreement without the prior
written consent of Lender. Consent may be withheld by Lender in its sole
discretion. Lender shall be entitled to assign some or all of its rights and
remedies described in this Agreement without notice to or the prior consent
of Owner in any manner.
23. MODIFICATION AND WAIVER. The modification or waiver of any of Owner's
Obligations or Lender's rights under this Agreement must be contained in a
writing signed by Lender. Lender may perform any of Owner's Obligations or
delay or fail to exercise any of its rights without causing a waiver of
those Obligations or rights. A waiver on one occasion shall not constitute a
waiver on any other occasion. Owner's Obligations under this Agreement shall
not be affected if Lender amends, compromises, exchanges, fails to exercise,
impairs or releases any of the obligations belonging to any Owner or third
party or any of its rights against any Owner, third party or collateral.
24. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of Owner and Lender and their respective successors,
assigns, trustees, receivers, administrators, personal representatives,
legatees, and devisees.
25. NOTICES. Any notice or other communication to be provided under this
Agreement shall be in writing and sent to the parties at the addresses
described In this Agreement or such other address as the parties may
designate in writing from time to time.
26. SEVERABILITY. If any provision of this Agreement violates the law or
is unenforceable, the rest of the Agreement shall remain valid.
27. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF TEXAS AND APPLICABLE FEDERAL LAW. OWNER OF COLLATERAL CONSENTS TO
THE JURISDICTION AND VENUE OF ANY COURT LOCATED IN THE COUNTY IN WHICH THIS
AGREEMENT IS SIGNED OR IN WHICH OWNER OF COLLATERAL RESIDES IN THE EVENT OF
ANY LEGAL PROCEEDING UNDER THIS AGREEMENT.
28. COLLECTION EXPENSES. If Lender hires an attorney (who is not a
salaried employee of Lender) to assist in collecting amounts owed or
enforcing Lender's rights or remedies, Owner agrees to pay Lender's
reasonable attorneys' fees, court costs and related expenses to the extent
permitted by law, subject to court award.
29. MISCELLANEOUS. This Agreement is executed for commercial purposes.
Owner shall supply information regarding Owner's business operations and
financial condition or the Collateral in the form and manner as requested by
Lender. All information furnished by Owner to Lender shall be true, accurate
and complete in all respects. Owner and Lender agree that time is of the
essence. All references to Owner in this Agreement shall include all parties
signing below. If there is more than one Owner, their obligations shall be
joint and several. This Agreement shall remain in full force and effect
until Lender provides Owner with written notice of termination. This
Agreement and any related documents represent the complete and integrated
understanding between Owner and Lender pertaining to the terms and
conditions of those documents.
30. ADDITIONAL TERMS:
Borrower will have no more than thirty (30) days to cure any default from
the date of written notice by the Bank.
Owner acknowledges that Owner has read, understands, and agrees to the terms
and conditions of this Agreement.
This Agreement and related documents have been signed in the county of
Lender's address unless otherwise specified: LUBBOCK
Dated: April 1, 1997
LENDER: PLAINS NATIONAL BANK OF WEST TEXAS
P.O. Box 271
DARRELL W ADAMS
SENIOR VICE PRESIDENT
OWNER: DSI INDUSTRIES, INC. OWNER:
/s/ Sherman H. Norton, Jr.
SHERMAN H. NORTON, JR. - CHAIRMAN
OF THE BOARD
OWNER: OWNER:
OWNER: OWNER:
OWNER: OWNER:
SCHEDULE A
NORTON DRILLING COMPANY COMMON STOCK CERTIFICATE #1 FOR 1,000 SHARES
SCHEDULE B
SCHEDULE C
SCHEDULE D
Exhibit 10.40
The Plains National Bank PNB
5010 University
Lubbock, Texas 79413
(806-795-7131 "LENDER" Lubbock County
COMMERCIAL CONTINUING GUARANTY
GUARANTOR BORROWER
DSI INDUSTRIES, INC. NORTON DRILLING COMPANY
ADDRESS ADDRESS
5211 BROWNFIELD HWY, SUITE 230 5211 BROWNFIELD HWY, SUITE 230
LUBBOCK, TX 79407 LUBBOCK, TX. 79407
Telephone Identification No. Telephone Identification
No.
785-8400 785-8400
1. CONSIDERATION. This Guaranty is being executed to induce Lender
indicated above to enter into one or more loans or other financial
accommodations with or on behalf of Borrower.
2. GUARANTY. Guarantor hereby unconditionally guarantees the prompt and
full payment and performance of Borrower's present and future, joint and/or
several, direct and indirect, absolute and contingent, express and implied,
indebtedness, liabilities, obligations and covenants to Lender, including
any amendments, extensions modifications, renewals, or substitutions,
thereto (cumulatively "Obligations"):
X UNLIMITED: Guarantor's Obligations under this Guaranty shall be unlimited
and shall include all present or future Obligations between Borrower and
Lender (whether executed for the same or different purposes), together
with all interest and all of Lender's expenses and costs, incurred in
connection with the Obligations.
LIMITED TO: Guarantor's Obligations under this Guaranty shall include all
present and future written agreements between Borrower and Lender
(whether executed for the same or different purposes), but shall be
limited to the principal amount of________________Dollars, together with
all interest and all of Lender 's expenses and costs incurred in connection
with the Obligations.
LIMITED TO THE FOLLOWING DESCRIBED NOTES/AGREEMENTS: Guarantor's
Obligations under this Guaranty shall be limited to the obligations
described in the following notes and agreements together with all
interest and all of Lender's expenses and costs, incurred in connection
with the Obligations:
Interest Principal Amount/ Funding/Maturity Customer Loan
Rate Credit Limit Agreement Date Date Number Number
3. ABSOLUTE AND CONTINUING NATURE OF GUARANTY. Guarantor's obligations
under this Guaranty are absolute and continuing and shall not be affected or
impaired if Lender amends, renews, extends, compromises, exchanges, fails to
exercise, impairs or releases any of the obligations belonging to any
Borrower, Co-guarantor or third party or any of Lender's rights against any
Borrower, Co-guarantor, third party, or collateral. In addition, Guarantor's
Obligations under this Guaranty shall not be affected or impaired by the
death, incompetency, termination, dissolution, insolvency, business
cessation, or other financial deterioration of any Borrower, Guarantor, or
third party.
4. DIRECT AND UNCONDITIONAL NATURE OF GUARANTY. Guarantor's Obligations
under this Guaranty are direct and unconditional and may be enforced without
requiring Lender to exercise, enforce, or exhaust any right or remedy
against any Borrower, Co-guarantor, third party, or collateral.
5. WAIVER OF NOTICE. Guarantor hereby waives notice of the acceptance of
this Guaranty; notice of present and future extensions of credit and other ,
financial accommodations by Lender to any Borrower;
THIS GUARANTY HAS BEEN SIGNED IN THE COUNTY OF THE LENDER'S ADDRESS UNLESS
OTHERWISE SPECIFIED:
GUARANTOR ACKNOWLEDGES GUARANTOR HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS AGREEMENT INCLUDING THE TERMS AND CONDITIONS ON
THE REVERSE SIDE. GUARANTOR ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS
AGREEMENT.
DATED: April 1, 1997
GUARANTOR: DSI INDUSTRIES, INC. GUARANTOR:
/S/ Sherman H. Norton, Jr.
SHERMAN H. NORTON, JR.- CHAIRMAN
OF THE BOARD
GUARANTOR: GUARANTOR:
6. DEFAULT. Guarantor shall be in default under this Guaranty in the
event that any Borrower or Guarantor:
(a) fails to pay any amount under this Guaranty or any other
indebtedness to Lender when due (whether such amount is due by
acceleration or otherwise);
(b) fails to perform any obligation or breaches any warranty or covenant
to Lender contained in this Guaranty or any other present or future
written agreement;
(c)provides or causes any false or misleading signature or
representation to be provided to Lender;
(d) allows any collateral for the Obligations or this Guaranty to be
destroyed, lost or stolen, or damaged in any material respect
(e) permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Borrower, Guarantor, or any of their
property;
(f) becomes legally incompetent, is dissolved or terminated, ceases to
operate its business, becomes insolvent, makes an assignment for the
benefit of creditors, or becomes the subject of any bankruptcy,
insolvency or debtor rehabilitation proceeding; or
(g) causes Lender to deem itself insecure in good faith for any reason.
and Borrower has been unable to provide assurances or
or restore the Bank's security.
7. RIGHTS OF LENDER ON DEFAULT. If there is a default under this Guaranty,
Lender shall be entitled to exercise one or more of the following remedies
without notice or demand (except as required by law):
(a) to declare Guarantor's Obligations under this Guaranty immediately
due and payable in full;
(b) to collect the outstanding obligations under this Guaranty with or
without resorting to judicial process;
(c) to set-off Guarantor's Obligations under this Guaranty against any
amounts due to Guarantor including, but not limited to, monies,
instruments, and deposit accounts maintained with Lender; and
(d) to exercise all other rights available to Lender under any other
written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately,
and in any order. Guarantor waives and consents to any release or other
impairment of any collateral securing the Obligations because of any failure
of Lender to perfect a security interest in any such collateral or any other
reason whatsoever even if caused by Lender's negligence.
8. SUBORDINATION. Any indebtedness of Borrower now or hereafter owed to
or held by Guarantor is hereby subordinated to the payment in full of the
Obligations of Borrower to Lender during the term of this Agreement.
Guarantor agrees that Lender shall be preferred to Guarantor in any
assignment for the benefit of Borrower's creditors in any bankruptcy,
insolvency, liquidation, or reorganization proceeding commenced by or
against Borrower in any federal or state court.
9. INDEPENDENT INVESTIGATION. Guarantor's execution and delivery to
Lender of this Guaranty is based solely upon Guarantor's independent
investigation of Borrower's financial condition and not upon any written or
oral representation of Lender in any manner. Guarantor assumes full
responsibility for obtaining any additional information regarding Borrower's
financial condition and Lender shall not be required to furnish Guarantor
with any information of any kind regarding Borrower's financial condition.
10. ACCEPTANCE OF RISKS. Guarantor acknowledges the absolute and
continuing nature of this Guaranty and voluntarily accepts the full range of
risks associated herewith including, but not limited to, the risk that
Borrower's financial condition shall deteriorate or, if this Guaranty is
unlimited, the risk that Borrower shall incur additional Obligations to
Lender in the future.
11. SUBROGATION. Guarantor, after performing under this Guaranty, shall
not be subrogated to any of Lender's rights against any Borrower which
presently is or may become the subject of any bankruptcy proceedings. Under
these circumstances, Guarantor specifically waives any rights and claims as
a creditor of such Borrower's bankruptcy estate. Other than as mentioned
above, Guarantor, after fully performing under this Guaranty, will be
subrogated to any of Lender's rights against any Borrower, any other
guarantor, any third party or any collateral which may secure the
obligations of any of these parties.
12. APPLICATION OF PAYMENTS. Lender will be entitled to apply any
payments or other monies received from Borrower, any third party, or any
collateral against Borrower s present and future obligations to Lender in
any order.
13. ESSENCE OF TIME. Guarantor and Lender agree that time is of the
essence.
14. TERMINATION. This Guaranty shall remain in full force and effect until
Lender executes and delivers to Guarantor a written release thereof.
Notwithstanding the foregoing, Guarantor shall be entitled to terminate any
unlimited guaranty of Borrower's future Obligations to Lender following any
anniversary of this Guaranty by providing Lender with sixty (60) or more
days' written notice of such termination by hand-delivery or certified mail.
Notice shall be deemed given when received by Lender. Such notice of
termination shall not effect or impair any of the agreements and obligations
of the Guarantor under this Agreement with respect to any of the obligations
(including legal, binding obligations to lend additional funds in the
future) existing prior to the time of actual receipt of such notice by
Lender, any extensions or renewals thereof, and any interest on any of the
foregoing.
15. ASSIGNMENT. Guarantor shall not be entitled to assign any of its
rights or obligations described in this Guaranty without Lender's prior
written consent which may be withheld by Lender in its sole discretion.
Lender shall be entitled to assign some or all of its rights and remedies
described in this Guaranty without notice to or the prior consent of
Guarantor in any manner. Unless the Lender shall otherwise consent in
writing, the Lender shall have an unimpaired right prior and superior to
that of any assignee, to enforce this Guaranty for the benefit of the
Lender, as to those Obligations that the Lender has not assigned
16. MODIFICATION AND WAIVER. The modification or waiver of any of
Guarantor's obligations or Lender's rights under this Guaranty must be
contained in a writing signed by Lender. Lender may delay in exercising or
fail to exercise any of its rights without causing a waiver of those rights.
A waiver on one occasion shall not constitute a waiver on any other
occasion.
17. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon and inure
to the benefit of Guarantor and Lender and their respective successors,
assigns, trustees, receivers, administrators, personal representatives,
legatees, and devisees.
18. NOTICE. Any notice or other communication to be provided under this
Guaranty shall be in writing and sent to the parties at the addresses
described in this Guaranty or such other addresses as the parties may
designate in writing from time to time.
19. SEVERABILITY. If any provision of this Guaranty violates the law or
is unenforceable, the rest of the Guaranty shall remain valid.
20. APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF TEXAS AND APPLICABLE FEDERAL LAWS.
21. COLLECTION COSTS. If Lender hires an attorney to assist in collecting
any amount due or enforcing any right or remedy under this Guaranty,
Guarantor agrees to pay Lender's reasonable attorneys' fees, legal expenses
and other costs as permitted by law.
22. MISCELLANEOUS. This Guaranty is executed in connection with a
commercial or agricultural loan. Guarantor will provide Lender with a
current financial statement upon request. All references to Guarantor in
this Guaranty shall include all entities or persons signing on reverse. If
there is more than one Guarantor, their obligations shall be joint and
several. This Guaranty and any related documents represent the complete and
integrated understanding between Guarantor and Lender pertaining to the
terms and conditions of those documents.
23. ADDITIONAL TERMS:
Borrower will have no more than thirty (30) days to cure any default from
the date of written notice by the bank.
THE PLAINS NATIONAL BANK PNB GUARANTOR
5010 University DSI INDUSTRIES, INC.
Lubbock, Texas 79413 DISCLAIMER OF
(806)-795-7131 "LENDER" ORAL AGREEMENTS
Lubbock County
ADDRESS
5211 Brownfield Hwy, Suite 230
LUBBOCK, TX 79407
Telephone No. Identification No.
785-8400
OFFICER INTEREST PRINCIPAL AMOUNT/ FUNDING/MATURITY CUSTOMER LOAN
INITIALS RATE CREDIT LIMIT AGREEMENT DATE NUMBER NUMBER
DWA VARIABLE $1,000,000.00 04/01/97 04/01/98 1051465
Guarantor and Lender (the "Parties") incorporate by reference into each of
the documents executed in connection with the transaction described above,
the following provision:
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN 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.
Date: April 1, 1997
Lender: Plains National Bank of West Texas
P.O. Box 271
DARRELL W ADAMS
SENIOR VICE PRESIDENT
GUARANTOR: DSI INDUSTRIES, INC. GUARANTOR:
/S/ Sherman H. Norton, Jr.
SHERMAN H. NORTON, JR.- CHAIRMAN
OF THE BOARD
GUARANTOR: GUARANTOR:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarterly period ended February 29, 1997 (Balance Sheet and Statement of
Operations) and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> FEB-28-1997
<CASH> 245,285
<SECURITIES> 0
<RECEIVABLES> 4,434,372
<ALLOWANCES> 278,053
<INVENTORY> 0
<CURRENT-ASSETS> 5,366,570
<PP&E> 14,545,897
<DEPRECIATION> 5,261,359
<TOTAL-ASSETS> 16,168,611
<CURRENT-LIABILITIES> 7,958,400
<BONDS> 0
0
0
<COMMON> 238,934
<OTHER-SE> 4,378,888
<TOTAL-LIABILITY-AND-EQUITY> 16,168,611
<SALES> 0
<TOTAL-REVENUES> 6,958,785
<CGS> 0
<TOTAL-COSTS> 6,327,599
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,925
<INCOME-PRETAX> (45,166)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,166)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
