<PAGE>
Conformed Copy
- --------------------------------------------------------------------------------
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 23, 1998
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-13817 11-2908692
(STATE OR JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
INCORPORATION OR IDENTIFICATION
ORGANIZATION) NUMBER)
5151 SAN FELIPE, SUITE 450
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (713) 621-7911
Former name or former address if changed since last report: Not Applicable
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 23, 1998, Boots & Coots International Well Control, Inc. (the
"Company"), completed the acquisition of 100% of the outstanding shares of
common stock of Elmagco, Inc., a Delaware Corporation ("Elmagco") from
Begemann, Inc., a Delaware Corporation ("Begemann"). Elmagco and its
subsidiaries conduct business using the tradename Baylor Company ("Baylor").
Baylor is engaged in the design and manufacture of electrical braking and
control equipment predominantly used in the drilling and marine markets,
highly engineered specialty products such as SCR systems and custom pedestal
leg locking systems for the offshore market. Additionally, Baylor designs and
manufactures a broad line of custom AC generators, which are used in a variety
of industrial, commercial and governmental applications.
Consideration for the acquisition of Baylor with a June 30, 1998 effective
date was $25,000,000 in cash, retirement of $7,654,000 in secured indebtedness
of Baylor and the issuance at closing of 540,443 shares of the Company's
common stock. Concurrent with the acquisition, and to provide the Company with
cash to fund the acquisition and for other corporate purposes, the Company
completed the sale of $15,000,000 Senior Secured Notes due January 23, 1999
(the "Senior Notes") to The Prudential Insurance Company of America
("Prudential") and $30,000,000 of 11.28% Senior Subordinated Notes due July
23, 2006 (the "Subordinated Notes"). Proceeds from these financing
transactions were used to fund the Baylor acquisitions, repay $5,000,000 in
bridge financing provided through Prudential Securities Credit Corporation on
July 6, 1998 and provide working capital.
The Senior Notes bear interest at the Eurodollar Rate plus 5.5% during the
first ninety days after issuance, the Eurodollar Rate plus 7.5% for the next
thirty days, and thereafter the interest rate increases by an additional 1.0%
for each thirty day period. The Senior Notes are secured by a first priority
lien on substantially all of the assets of the Company and its subsidiaries
and are guaranteed by the domestic subsidiaries of the Company. The
Subordinated Notes are similarly secured and guaranteed but are subordinate in
right of repayment to the Senior Notes.
The loan agreement relating to the Senior Notes requires that the Company
use its best efforts to cause the refinancing of the Senior Notes as soon as
possible and imposes certain restrictions on the Company's activities,
including, without limitation, with respect to the payment of dividends or
other distributions on its capital stock; incurring additional indebtedness;
granting liens to secure any other indebtedness; making loans or advances to,
or investments in, other persons or entities; liquidating, dissolving or
merging with another company; dispositions of assets; transactions with
affiliates; changing the nature of its business; and the issuance of
additional shares of preferred stock.
The Subordinated Note and Warrant Purchase Agreement relating to the
Subordinated Notes imposes restrictions on the Company's activities which are
similar to those imposed by the Senior Loan Agreement but additionally
requires that the Company meet certain minimum financial tests so long as the
Subordinated Notes are outstanding.
The Senior Loan Agreement and the Subordinated Note and Warrant Purchase
Agreement also provide for customary events of default, the occurrence of
which could result in the acceleration of the Company's obligations under such
agreements and foreclosure on the collateral securing such obligations.
In conjunction with the sale of the Notes, the Company issued to Prudential
a warrant to purchase 3,165,396 shares of common stock (the "Warrant") of the
Company at an initial exercise price of $6.70 per share. The Warrant contains
anti-dilution and repricing provisions that may result in downward adjustments
to the exercise price upon the occurrence of certain events and a provision
for the "cashless" exercise of the Warrant. The Company granted Prudential a
one-time demand registration right and unlimited "piggyback" registration
rights for the shares of common stock issuable upon the exercise of the
Warrant. The Company and certain stockholders of the Company also agreed with
Prudential that in the event of significant sales of securities of the Company
by the Company or such stockholders, Prudential would be entitled to
participate in such sale.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
a. Financial Statements and Pro Forma Financial Information.
The financial statement information required under Regulation S-X is
included after the signature page as follows:
--Pro Forma Unaudited Consolidated Balance Sheet, which includes the
Company's March 31, 1998 Unaudited Balance Sheet, Baylor's March 31, 1998
Unaudited Consolidated Balance Sheet, pro forma adjustments and the Pro
Forma Unaudited Consolidated Balance Sheet.
--The Company's Unaudited Consolidated Statement of Operations for the
three months ended March 31, 1998, Code 3, Inc's Unaudited Statement of
Operations for the period from January 1, 1998 to February 19, 1998,
Baylor's Unaudited Consolidated Statement of Operations for the three
months ended March 31, 1998, pro forma adjustments and Pro Forma
Unaudited Consolidated Statements of Operations.
--The Company's Unaudited Consolidated Statement of Operations for the six
months ended December 31, 1997, ITS Supply Corporation's Consolidated
Statement of Operations for the six months ended December 31, 1997, Code
3, Inc.'s Statement of Operations for the six months ended December 31,
1997, pro forma adjustments and Pro Forma Unaudited Consolidated
Statements of Operations.
--Consolidated Statement of Operations for the twelve months ended June 30,
1997 for IWC Services, Inc. (the operating entity of Boots & Coots
International Well Control, Inc. after the merger of July 1997), Boots &
Coots, L.P.'s Unaudited Statement of Operations for the twelve months
ended June 30, 1997, ITS Supply Corporation's Unaudited Consolidated
Statement of Operations for the twelve months ended June 30, 1997, Code
3, Inc.'s Unaudited Statement of Operations for the twelve months ended
June 30, 1997, pro forma adjustments and Pro Forma Unaudited Consolidated
Statements of Operations.
--Baylor's March 31, 1998 and 1997 Unaudited Consolidated Balance Sheets,
Unaudited Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997 and Unaudited Consolidated Statements of
Cash Flows for the three months ended March 31, 1998 and 1997.
--Audited Financial Statements of Baylor for the Years Ended December 31,
1997 and December 31, 1996 together with the Auditor's report.
b. Exhibits.
<TABLE>
<C> <S>
2.1 Stock Purchase Agreement dated June 22, 1998 by and among Elmagco,
Inc., Begemann, Inc. and Boots & Coots International Well Control,
Inc.
2.2 First Amendment to Stock Purchase Agreement dated June 22, 1998 by
and among Elmagco, Inc., Begemann, Inc. and Boots & Coots
International Well Control, Inc.
2.3 Second Amendment to Stock Purchase Agreement dated June 22, 1998 by
and among Elmagco, Inc., Begemann, Inc. and Boots & Coots
International Well Control, Inc.
10.19 Senior Loan Agreement dated July 6, 1998, between Boots & Coots
International Well Control, Inc., and Prudential Securities Credit
Corporation.
10.20 First Amendment to Senior Loan Agreement (Bridge Facility) dated
July 23, 1998, between Boots & Coots International Well Control,
Inc., and The Prudential Insurance Company of America.
10.21 Subordinated Note and Warrant Purchase Agreement dated July 23,
1998, between Boots & Coots International Well Control, Inc., and
The Prudential Insurance Company of America.
10.22 Registration Rights Agreement dated July 23, 1998, between Boots &
Coots International Well Control, Inc., and The Prudential Insurance
Company of America.
10.23 Participation Rights Agreement dated July 23, 1998, by and among
Boots & Coots International Well Control, Inc., The Prudential
Insurance Company of America and certain stockholders of Boots &
Coots International Well Control, Inc.
10.24 Common Stock Purchase Warrant dated July 23, 1998.
99.1 Press release dated July 27, 1998.
</TABLE>
3
<PAGE>
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.
Date: August 7, 1998 Boots & Coots International Well
Control, Inc.
By: /s/ Thomas L. Easley
-----------------------------------
Thomas L. Easley
Chief Financial Officer
(Principal Financial and Accounting
Officer)
4
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet of the Company
as of March 31, 1998 and the unaudited pro forma consolidated statements of
operations of the Company for the three months ended March 31, 1998, the six
months ended December 31, 1997 and the twelve months ended June 30, 1997 (the
"Unaudited Pro Forma Consolidated Financial Statements") give effect to (i)
the Baylor acquisition under the purchase method of accounting, (ii) the
issuance of 540,443 shares of common stock by the Company (iii) the payment of
$25,000,000 in cash and repayment of $7,654,000 of Baylor secured debt from
proceeds provided by $45,000,000 senior secured and senior subordinated debt
financing for the Company closed on July 23, 1998. The Unaudited Pro Forma
Consolidated Financial Statements also give effect to (iv) the acquisition of
Boots & Coots L.P., ABASCO, Inc., ITS Supply Corporation and Code 3, Inc. (the
"Acquired Entities") under the purchase method of accounting, and (v) the
borrowing by the Company of $4,250,000 and $1,000,000 plus an estimated
$500,000 for a financial advisory arrangement, pursuant to which the note
holders are to provide advisory services over a three-year period, to finance
the acquisition of ITS Supply Corporation. The Unaudited Pro Forma
Consolidated Statements of Operations take into effect the issuance of shares
of common stock under a private placement, issuance of 12% senior subordinated
debt and the related costs of conversion into common shares and the addition
of debt for the year ended June 30, 1997, the six months ended December 31,
1997 and the three months ended March 31, 1998.
The unaudited pro forma consolidated statements of operations for the three
months ended March 31, 1998, the six months ended December 31, 1997 and the
twelve months ended June 30, 1997 were prepared assuming that the transactions
described above were consummated as of the beginning of each period presented.
The unaudited pro forma consolidated balance sheet as of March 31, 1998
includes the pro forma purchase accounting entries for the Baylor acquisition
and was prepared assuming that the transactions described in (i), (ii) and
(iii) above were consummated as of March 31, 1998.
The Unaudited Pro Forma Consolidated Financial Statements are based upon the
historical consolidated and combined financial statements of the Company,
Baylor and each of the Acquired Entities described above and should be read in
conjunction with those consolidated and combined financial statements and
historical summary and the notes thereto. The results of the interim periods
presented are not necessarily indicative of the results to be expected for the
full year.
The pro forma adjustments and the resulting Unaudited Pro Forma Consolidated
Financial Statements have been prepared based upon available information and
certain assumptions and estimates deemed appropriate by the Company. A final
determination of required purchase accounting adjustments, and the allocation
of the purchase price to the assets acquired and liabilities assumed based on
their respective fair values, has not yet been made for the Baylor
acquisition. Accordingly, the purchase accounting adjustments for the Baylor
acquisition reflected in the pro forma information are preliminary and have
been made solely for purposes of developing such information. The Company's
management believes, however, that the pro forma adjustments and the
underlying assumptions and estimates reasonably present the significant
effects of the transactions reflected thereby and that any subsequent changes
in the underlying assumptions and estimates will not materially affect the
Unaudited Pro Forma Consolidated Financial Statements presented herein. The
Unaudited Pro Forma Consolidated Financial Statements do not purport to
represent what the Company's consolidated financial position or consolidated
results of operations that actually would have resulted had the Baylor
acquisition occurred on the dates indicated or to project the Company's
consolidated financial position or consolidated results of operations for any
future date or period. Furthermore, the Unaudited Pro Forma Consolidated
Financial Statements do not reflect changes that may occur as the result of
post-combination activities and other matters.
5
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
CONSOLIDATED
BAYLOR PRO FORMA BALANCE
ASSETS COMPANY COMPANY ADJUSTMENTS SHEET
------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Current Assets:
Cash.................. $ 466,000 $ 438,000 $ 9,631,000 (n) $10,535,000
Receivables........... 13,292,000 9,071,000 -- 22,363,000
Inventories........... 5,389,000 6,167,000 -- 11,556,000
Prepaid expenses and
other current assets. 537,000 141,000 -- 678,000
----------- ----------- ----------- -----------
Total current assets. 19,684,000 15,817,000 9,631,000 45,132,000
Property, Plant and
Equipment--net......... 8,174,000 6,763,000 17,252,000 (l) 32,189,000
Other Assets:
Notes receivable
related party........ -- 5,210,000 (5,210,000)(n) --
Deferred financing
costs and other
assets--net.......... 891,000 771,000 1,275,000 2,937,000
Goodwill--net......... 7,828,000 -- -- 7,828,000
----------- ----------- ----------- -----------
Total assets......... $36,577,000 $28,561,000 $22,948,000 $88,086,000
=========== =========== =========== ===========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable...... $10,496,000 $ 2,845,000 $ -- $13,341,000
Accrued liabilities
and customer
advances............. 3,356,000 3,625,000 (551,000)(n) 6,430,000
Senior Secured Debt... -- -- 15,000,000 (n) 15,000,000
Notes payable--current
portion.............. 9,410,000 238,000 (2,648,000)(n) 7,000,000
----------- ----------- ----------- -----------
Total current
liabilities......... 23,262,000 6,708,000 11,801,000 41,771,000
----------- ----------- ----------- -----------
Notes Payable--net of
current portion........ -- --
12% Senior Subordinated
Notes.................. 90,000 -- -- 90,000
Long-term Debt.......... -- 5,412,000 (5,412,000)(n) --
Senior Subordinated
Notes.................. -- 2,051,000 25,567,000 (n)(o) 27,618,000
Commitments and
Contingencies.......... -- -- -- --
Shareholders' Equity.... 13,225,000 14,390,000 (9,008,000)(l)(m)(o) 18,607,000
----------- ----------- ----------- -----------
Total liabilities and
shareholders'
equity.............. $36,577,000 $28,561,000 $22,948,000 $88,086,000
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes to These Unaudited Pro Forma Consolidated Financial
Statements.
6
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------------------------- -------------------------------
COMBINED PRO FORMA CONSOLIDATED
COMPANY CODE 3 BAYLOR COMPANY OPERATIONS ADJUSTMENTS OPERATIONS
--------------- --------------- --------------- ----------- ----------- ------------
FOR THE PERIOD
THREE MONTHS FROM JANUARY 1 THREE MONTHS
ENDED MARCH 31, TO FEBRUARY 19, ENDED MARCH 31,
1998 1998 1998
--------------- --------------- --------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $11,959,000 $1,500,000 $11,020,000 $24,479,000 $24,479,000
Costs and Expenses:
Operating expenses..... 8,095,000 796,000 7,339,000 16,230,000 16,230,000
General and
administrative........ 2,572,000 562,000 1,601,000 4,735,000 4,735,000
Depreciation and
amortization.......... 311,000 12,000 192,000 515,000 338,000 (c)(k) 853,000
----------- ---------- ----------- ----------- ----------- -----------
10,978,000 1,370,000 9,132,000 21,480,000 338,000 21,818,000
----------- ---------- ----------- ----------- ----------- -----------
Operating income (loss). 981,000 130,000 1,888,000 2,999,000 (338,000) 2,661,000
Other expenses--
primarily interest..... 567,000 35,000 602,000 1,127,000 (d) 1,729,000
----------- ---------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes........... 414,000 130,000 1,853,000 2,397,000 (1,465,000) 932,000
Income tax expense...... 258,000 44,000 743,000 1,045,000 (720,000)(g) 317,000
----------- ---------- ----------- ----------- ----------- -----------
Net income (loss)....... $ 156,000 $ 86,000 $ 1,110,000 $ 1,352,000 $ (837,000) $ 615,000
=========== ========== =========== =========== =========== ===========
Net income (loss) per
share--basic and
diluted................ $ 0.01 $ 0.04 $ 0.02
=========== =========== ===========
Weighted average shares
outstanding--basic..... 30,228,000 30,228,000 816,000 (i) 31,044,000
=========== =========== =========== ===========
Weighted average shares
outstanding--diluted... 30,638,000 30,638,000 816,000 (i) 31,454,000
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes to These Unaudited Pro Forma Consolidated Financial
Statements.
7
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------------
BAYLOR COMBINED
COMPANY ITS CODE 3 COMPANY OPERATIONS
------------ ------------ ------------ ------------ -----------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues......... $ 5,389,000 $23,505,000 $2,898,000 $17,084,000 $48,876,000
Costs and
Expenses:
Operating
expenses....... 3,786,000 21,311,000 2,571,000 10,611,000 38,279,000
General and
administrative. 1,536,000 1,552,000 501,000 2,898,000 6,487,000
Depreciation and
amortization... 500,000 112,000 37,000 378,000 1,027,000
----------- ----------- ---------- ----------- -----------
5,822,000 22,975,000 3,109,000 13,887,000 45,793,000
----------- ----------- ---------- ----------- -----------
<CAPTION>
PRO FORMA
--------------------------------------------------------------
BOOTS &
COOTS L.P. ABASCO
PRO FORMA PRO FORMA PRO FORMA CONSOLIDATED
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS OPERATIONS
-------------- --------------- ----------------- -------------
PERIOD FROM PERIOD FROM
JULY 1 TO JULY 1 TO
JULY 31, SEPTEMBER 12,
1997 1997
-------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
Revenues......... $ 216,000 (b) $368,000 (a) $ -- $49,460,000
Costs and
Expenses:
Operating
expenses....... 93,000 (b) 304,000 (a) -- 38,676,000
General and
administrative. 267,000 (b) 150,000 (a) 83,000 (f) 6,987,000
Depreciation and
amortization... -- -- 755,000(c)(k) 1,782,000
-------------- --------------- ----------------- -------------
360,000 454,000 838,000 47,445,000
-------------- --------------- ----------------- -------------
Operating income
(loss).......... (433,000) 530,000 (211,000) 3,197,000 3,083,000
Loss on debt
extinguishment.. 193,000 -- -- -- 193,000
Other expenses--
primarily
interest........ 92,000 -- 2,000 63,000 157,000
----------- ----------- ---------- ----------- -----------
Income (loss)
before income
taxes........... (718,000) 530,000 (213,000) 3,134,000 2,733,000
Income tax
expense
(benefit)....... 41,000 -- -- 1,001,000 1,042,000
----------- ----------- ---------- ----------- -----------
Net income
(loss).......... $ (759,000) $ 530,000 $ (213,000) $ 2,133,000 $ 1,691,000
=========== =========== ========== =========== ===========
Net income (loss)
per share--
basic and
diluted......... $ (0.03) $ 0.07
=========== ===========
Weighted average
shares
outstanding..... 23,864,000 23,864,000
=========== ===========
Operating income
(loss).......... (144,000)(b) (86,000) (838,000) 2,015,000
Loss on debt
extinguishment.. -- -- -- 193,000
Other expenses--
primarily
interest........ 5,000 (b) -- 3,071,000(d)(e) 3,233,000
-------------- --------------- ----------------- -------------
Income (loss)
before income
taxes........... (149,000) (86,000) (3,909,000) (1,411,000)
Income tax
expense
(benefit)....... -- 2,000 (a) (1,003,000)(g) 41,000
-------------- --------------- ----------------- -------------
Net income
(loss).......... $(149,000) $(88,000) $(2,906,000) $(1,452,000)
============== =============== ================= =============
Net income (loss)
per share--
basic and
diluted......... $ (0.06)
=============
Weighted average
shares
outstanding..... 137,000 (j) 1,028,000 (l) 25,029,000
=============== ================= =============
</TABLE>
See Accompanying Notes to These Unaudited Pro Forma Consolidated Financial
Statements.
8
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------------------------------
COMBINED
COMPANY BOOTS & COOTS ITS CODE 3 BAYLOR COMPANY OPERATIONS
-------------- -------------- --------------- -------------- -------------- -----------
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED JUNE 30, ENDED JUNE 30, ENDED MARCH 31, ENDED JUNE 30, ENDED JUNE 30,
1997 1997 1997 1997 1997
-------------- -------------- --------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues......... $2,564,000 $12,314,000 $41,817,000 $2,541,000 $26,664,000 $85,900,000
Costs and
Expenses:
Operating
expenses....... 1,460,000 6,427,000 39,246,000 1,784,000 16,286,000 65,203,000
General and
administrative. 1,061,000 2,889,000 2,477,000 448,000 4,993,000 11,868,000
Depreciation and
amortization... 111,000 699,000 83,000 106,000 719,000 1,718,000
---------- ----------- ----------- ---------- ----------- -----------
2,632,000 10,015,000 41,806,000 2,338,000 21,998,000 78,789,000
---------- ----------- ----------- ---------- ----------- -----------
Operating income
(loss).......... (68,000) 2,299,000 11,000 203,000 4,666,000 7,111,000
Other expenses
(income)--
primarily
interest........ 63,000 59,000 -- (10,000) 215,000 327,000
---------- ----------- ----------- ---------- ----------- -----------
Income (loss)
before income
taxes........... (131,000) 2,240,000 11,000 213,000 4,451,000 6,784,000
Income tax
expense
(benefit)....... 25,000 761,000 -- -- 1,753,000 2,539,000
---------- ----------- ----------- ---------- ----------- -----------
Net income
(loss).......... $ (156,000) $ 1,479,000 $ 11,000 $ 213,000 $ 2,698,000 $ 4,245,000
========== =========== =========== ========== =========== ===========
Net income (loss)
per share....... $ (0.01) $ 0.35
========== ===========
Weighted average
shares
outstanding..... 12,191,000 12,191,000
========== ===========
<CAPTION>
PRO FORMA
------------------------------------------------
ABASCO
PRO FORMA PRO FORMA CONSOLIDATED
ADJUSTMENTS ADJUSTMENTS OPERATIONS
--------------- ------------------ -------------
--------------- ------------------ -------------
<S> <C> <C> <C>
Revenues......... $2,512,000 (a) -- $88,412,000
Costs and
Expenses:
Operating
expenses....... 2,075,000 (a) -- 67,278,000
General and
administrative. 606,000 (a) 167,000 (f) 12,641,000
Depreciation and
amortization... 114,000 (a) 1,774,000 (c)(k) 3,606,000
--------------- ------------------ -------------
2,795,000 1,941,000 83,525,000
--------------- ------------------ -------------
Operating income
(loss).......... (283,000) (1,941,000) 4,887,000
Other expenses
(income)--
primarily
interest........ -- 5,832,000 (d)(e) 6,159,000
--------------- ------------------ -------------
Income (loss)
before income
taxes........... (283,000) (7,773,000) (1,272,000)
Income tax
expense
(benefit)....... 9,000 (a) (2,522,000)(g) 25,000
--------------- ------------------ -------------
Net income
(loss).......... $ (292,000) $(5,250,000) $(1,297,000)
=============== ================== =============
Net income (loss)
per share....... $ (0.06)
=============
Weighted average
shares
outstanding..... 300,000 (j) 9,097,000 (h) 21,568,000
=============== ================== =============
</TABLE>
See Accompanying Notes to These Unaudited Pro Forma Consolidated Financial
Statements.
9
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998,
THE SIX MONTHS ENDED DECEMBER 31, 1997
AND THE YEAR ENDED JUNE 30, 1997
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated balance sheet is presented assuming the
Baylor acquisition occurred on March 31, 1998. The unaudited pro forma
consolidated statements of operations for the year ended June 30, 1997, the
six months ended December 31, 1997 and the three months ended March 31, 1998
are presented as if the Baylor acquisition and the Boots & Coots L.P., ABASCO,
Inc., ITS Supply Corporation, and Code 3, Inc. acquisitions (the
"Acquisitions") occurred at the beginning of each period presented. The
unaudited pro forma consolidated statements of operations may not necessarily
be indicative of the results which would actually have occurred if the
Acquisitions actually had been in effect on the date or for the periods
indicated or which may result in the future.
2. PRO FORMA ADJUSTMENTS
(a) ABASCO, Inc.--The adjustments represent the revenues, operating
expenses, general and administrative expenses, depreciation and federal tax
provision of the ABASCO, Inc. acquisition for the periods prior to the
September 12, 1997 acquisition date.
(b) Boots & Coots L.P.--The adjustments represent the revenues, operating
expenses, general and administrative expenses and depreciation of the Boots &
Coots L.P. acquisition for the period prior to the July 31, 1997 acquisition
date.
(c) Amortization--The adjustments reflect the pro forma amortization expense
based on the allocation of the purchase price to goodwill of Boots & Coots
L.P., ABASCO, Inc., ITS Supply Corporation, and Code 3, Inc. Goodwill is
amortized over 25 years.
(d) Interest Expense--The acquisition adjustments for interest expense
reflect the interest computed on the additional indebtedness incurred for
acquisitions assuming they were financed entirely with debt. The principal
amount of indebtedness incurred for the ITS Supply acquisition was
approximately $6 million, including financial advisory fees. The interest rate
used to calculate the interest expense on the ITS acquisition cost financed
was 10%. The principal amount of indebtedness incurred for the Baylor Company
acquisition, bridge financing repayment and working capital was $45 million.
The principal amount was reduced by the $7,654,000 Baylor secured debt
repayment in order to calculate interest expense. The interest rate used to
calculate the interest expense on the Baylor acquisition costs financed was
11.28%.
(e) Interest Expense--The acquisition adjustments for interest expense
includes the amortization of costs relating to the issuance of warrants for
the financing arrangement to purchase ITS Supply Corporation and the issue of
warrants for the Subordinated Notes to purchase Baylor.
(f) General & Administrative Expense--The acquisition adjustment reflect
expense of deferred financial advisory fees, covering a two year period,
incurred in connection with the bridge financing incurred for the ITS Supply
Corporation acquisition.
(g) Income Tax Expense (Benefit)--The adjustments reflect an effective tax
rate of 34% of pretax income.
(h) Weighted average shares outstanding--The adjustments reflect the
exchange conversion of 15,502,000 shares for the reverse acquisition into
Havenwood Ventures, Inc., the issuance of 260,000 shares for the Boots & Coots
L.P. acquisition, the issuance of 3,867,000 shares for the conversion of the
12% senior subordinated debt, the issuance of 488,000 shares of common stock
for the Code 3, Inc. acquisition and the issuance of 540,000 shares of common
stock for the Baylor acquisition.
10
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998,
THE SIX MONTHS ENDED DECEMBER 31, 1997
AND THE YEAR ENDED JUNE 30, 1997
(i) Weighted average shares outstanding--The adjustments reflect the
issuance of 488,000 shares of common stock for the Code 3 acquisition during
the three months ended March 31, 1998 and the issuance of 540,000 shares of
common stock for the Baylor acquisition.
(j) Weighted average shares outstanding--The adjustments reflect the
issuance of 300,000 shares of common stock for the ABASCO, Inc. acquisition.
(k) Depreciation--The adjustments reflect the pro forma depreciation expense
related to the allocation of the excess Baylor Company purchase price to
property and equipment. Pro forma depreciation is calculated straight-line
over eight to fifteen years.
(l) Purchase accounting entries--The adjustments reflect the allocation of
the Baylor Company purchase price to equity and fixed assets.
(m) Issuance of common stock--The adjustments reflect the issuance of
540,000 shares of Boots & Coots International Well Control, Inc. common stock
valued at $3,000,000 as part of the purchase of Baylor Company.
(n) Debt and cash adjustments--The adjustments reflect $45,000,000 senior
secured and senior subordinated debt financing, closed on July 23, 1998, for
the Company to purchase Baylor Company, repay existing debt and provide
additional working capital.
(o) The adjustment reflects the estimated fair value of warrants issued to
the subordinated note holders. The amount attributed to the warrants, which is
reflected as a discount in the notes, will be amortized over the term of the
notes (8 years).
11
<PAGE>
BAYLOR COMPANY
UNAUDITED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
(000'S)
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ------- -------
<S> <C> <C>
Current Assets
Cash.......................................................... $ 438 $ 787
Receivables:
Trade, net.................................................. 5,994 3,378
Contract receivables........................................ 121 --
Due from parent & affiliates................................ 852 38
Advances due from employees and other....................... 133 182
Costs in excess of billings on uncompleted contracts........ 1,971 --
Prepaid Expenses.............................................. 141 78
Inventories................................................... 6,167 4,818
------- -------
Total current assets........................................ 15,817 9,281
Property, plant and equipment, net.............................. 6,763 6,675
Note receivable--related entity................................. 5,210 5,000
Other assets.................................................... 771 886
------- -------
$28,561 $21,842
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt............................. $ 238 $ 50
Accounts payable--trade....................................... 2,845 1,457
Billings in excess of costs on uncompleted contracts.......... 101 --
Accrued liabilities........................................... 2,064 1,508
Accrued warranty expense...................................... 426 577
Due to parent & affiliates.................................... 1,034 330
------- -------
Total current liabilities................................... 6,708 3,922
Long term debt--bank............................................ 5,312 5,500
Long term debt--other........................................... 100 150
Subordinated debt--note......................................... 2,051 2,051
Accrued interest subordinated debt.............................. -- 16
Stockholders' equity............................................ 14,390 10,203
------- -------
$28,561 $21,842
======= =======
</TABLE>
12
<PAGE>
BAYLOR COMPANY
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(000'S)
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Revenues....................................................... $11,020 $6,218
Costs of goods sold............................................ 7,339 4,024
------- ------
3,681 2,194
Expenses:
General and administrative................................... 1,214 851
Selling...................................................... 307 249
Depreciation................................................. 192 192
Research and development..................................... 80 50
------- ------
Income (loss) from operations.................................. 1,888 852
Non-operating expense (income):
Interest expense............................................. 165 100
Interest income.............................................. (125) (56)
Other........................................................ (5) (9)
------- ------
Income before income taxes and extraordinary items............. 1,853 817
Income tax expense............................................. 743 331
------- ------
Net income..................................................... $ 1,110 $ 486
======= ======
</TABLE>
13
<PAGE>
BAYLOR COMPANY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDING MARCH 31, 1998 AND 1997
(000'S)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Operating Activities:
Net earnings................................................. $ 1,110 $ 486
Adjustments to reconcile net earnings:
Depreciation and amortization............................... 185 192
------- -------
1,295 678
------- -------
Changes in operating assets and liabilities:
Accounts receivable.......................................... (12) (687)
Contract receivables......................................... 81 --
Due from parent & affiliates................................. 84 (39)
Due from employees and other................................. (63) (41)
Contract cost in excess of billing........................... (1,479) --
Prepaid expenses............................................. 38 (152)
Inventories.................................................. (431) 101
Accounts payable............................................. 201 (380)
Contract billings in excess of cost.......................... (370) --
Accrued liabilities.......................................... 228 183
Warranty expense............................................. (29) (55)
Due to parent................................................ 667 (930)
------- -------
Total adjustments......................................... (1,085) (2,000)
Net cash provided (used) by operating activities.............. 210 (1,322)
------- -------
Investing Activities:
Purchases of property, plant and equipment................... (120) (97)
Disposition of net assets.................................... 15 --
------- -------
Net cash provided (used) by investing activities.............. (105) (97)
------- -------
Financing Activities
Net increase (decrease) in revolving debt.................... -0- -0-
Payments of short term debt.................................. -0- (240)
Net increase (decrease) in long term debt.................... -0- 5,090
Net increase (decrease) in long term debt--interco note...... -- (5,000)
Net increase (decrease) in long term debt--sub note.......... -- 30
Net increase (decrease) in long term--receivable--parent..... (210) --
------- -------
Net cash provided (used) by operating activities.............. (210) (120)
Effect of exchange rate change on cash and cash equivalents... 2 (2)
------- -------
Increase (decrease) in cash and cash equivalents.............. (103) (1,541)
Cash and cash equivalents at December 31, 1997................ 541 2,328
------- -------
Cash and cash equivalents at March 31, 1998................... $ 438 $ 787
======= =======
</TABLE>
14
<PAGE>
[LOGO OF KPMG APPEARS HERE]
ELMAGCO, INCORPORATED DBA
BAYLOR COMPANY AND SUBSIDIARIES
(WHOLLY-OWNED BY BEGEMANN USA, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Elmagco, Incorporated:
We have audited the accompanying consolidated balance sheets of Elmagco,
Incorporated dba Baylor Company and subsidiaries (wholly-owned by Begemann,
USA, Inc.) as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholder's equity and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Elmagco,
Incorporated and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Houston, Texas
February 13, 1998
16
<PAGE>
ELMAGCO, INCORPORATED DBA
BAYLOR COMPANY AND SUBSIDIARIES
(WHOLLY-OWNED BY BEGEMANN USA, INC.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 541,140 2,327,881
Trade accounts and notes receivable, less allowance
for doubtful accounts of $216,163 in 1997 and
$205,760 in 1996................................... 5,982,413 2,690,860
Contract receivables................................ 202,476 --
Inventories (note 3)................................ 5,736,270 4,918,795
Due from parent and affiliates (note 5)............. 935,722 93,000
Due from officers and employees..................... 69,615 22,223
Costs in excess of billings on uncompleted contracts
(note 2)........................................... 491,573 --
Prepaid expenses.................................... 179,036 44,409
----------- ----------
Total current assets.............................. 14,138,245 10,097,168
----------- ----------
Note receivable from parent (note 5).................. 5,000,000 --
Property and equipment:
Land and buildings.................................. 4,253,119 4,157,073
Machinery and equipment............................. 4,556,931 4,072,791
Furniture and fixtures.............................. 1,692,763 1,489,099
Construction in progress............................ 80,702 163,991
----------- ----------
10,583,515 9,882,954
Less accumulated depreciation....................... 3,769,621 3,141,023
----------- ----------
Net property and equipment........................ 6,813,894 6,741,931
Other assets, at cost, less accumulated amortization.. 799,989 914,277
----------- ----------
$26,752,128 17,753,376
=========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt (note 4)..... $ 237,500 290,000
Trade accounts payable.............................. 2,644,394 1,836,595
Accrued expenses.................................... 2,290,774 1,957,776
Due to parent and affiliates........................ 367,309 1,368,757
Billings in excess of costs on uncompleted contracts
(note 2)........................................... 470,640 --
----------- ----------
Total current liabilities......................... 6,010,617 5,453,128
Long-term debt, excluding current installments (note
4)................................................... 5,412,500 560,000
Due to parent (note 5)................................ 2,050,530 2,020,826
----------- ----------
Total liabilities................................. 13,473,647 8,033,954
----------- ----------
Stockholder's equity:
Common stock, $1 par value. Authorized 100,000
shares; issued and outstanding 1,000 shares........ 1,000 1,000
Additional paid-in capital.......................... 6,642,698 6,642,698
Retained earnings................................... 6,643,550 3,079,081
Cumulative foreign currency translation adjustment.. (8,767) (3,357)
----------- ----------
Total stockholder's equity........................ 13,278,481 9,719,422
----------- ----------
$26,752,128 17,753,376
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
ELMAGCO, INCORPORATED DBA
BAYLOR COMPANY AND SUBSIDIARIES
(WHOLLY-OWNED BY BEGEMANN USA, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Net sales.............................................. $31,417,775 24,749,619
Cost of goods sold..................................... 19,556,359 15,041,686
----------- ----------
Gross profit....................................... 11,861,416 9,707,933
Selling, general and administrative expenses........... 5,979,169 5,570,263
Research and development............................... 186,502 186,079
----------- ----------
Operating profit................................... 5,695,745 3,951,591
----------- ----------
Other income (expense):
Interest income...................................... 459,999 34,624
Interest expense..................................... (607,949) (308,018)
Other, net........................................... (4,503) (48,391)
----------- ----------
(152,453) (321,785)
----------- ----------
Income before income taxes......................... 5,543,292 3,629,806
Income tax expense (benefit):
Current.............................................. 2,479,500 1,412,725
Deferred............................................. (500,677) (76,000)
----------- ----------
1,978,823 1,336,725
----------- ----------
Net income......................................... $ 3,564,469 2,293,081
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
ELMAGCO, INCORPORATED DBA
BAYLOR COMPANY AND SUBSIDIARIES
(WHOLLY-OWNED BY BEGEMANN USA, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
------ ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1995.................... $1,000 6,642,698 786,000 -- 7,429,698
Net income............... -- -- 2,293,081 -- 2,293,081
Change in translation
adjustment.............. -- -- -- (3,357) (3,357)
------ --------- --------- ------ ----------
Balances at December 31,
1996.................... 1,000 6,642,698 3,079,081 (3,357) 9,719,422
Net income............... -- -- 3,564,469 -- 3,564,469
Change in translation
adjustment.............. -- -- -- (5,410) (5,410)
------ --------- --------- ------ ----------
Balances at December 31,
1997.................... $1,000 6,642,698 6,643,550 (8,767) 13,278,481
====== ========= ========= ====== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
ELMAGCO, INCORPORATED DBA
BAYLOR COMPANY AND SUBSIDIARIES
(WHOLLY-OWNED BY BEGEMANN USA, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 3,564,469 2,293,081
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 761,576 724,550
Deferred income taxes.............................. (500,677) (76,000)
Changes in assets and liabilities:
Trade accounts, notes and contract receivable.... (3,494,029) (101,848)
Due from parent and affiliates................... (342,045) 357,640
Due from officers and employees.................. (47,392) 2,556
Net changes in contract costs and billings....... (20,933) --
Inventories...................................... (817,475) (482,835)
Prepaid expenses................................. (134,627) 19,271
Trade accounts payable........................... 807,799 320,983
Accrued expenses................................. 322,998 471,338
Due to parent and affiliates..................... (971,744) 244,385
----------- ---------
Total adjustments.............................. (4,426,549) 1,480,040
----------- ---------
Net cash provided (used) by operating
activities.................................... (862,080) 3,773,121
----------- ---------
Cash flows from investing activities:
Capital expenditures................................. (719,251) (969,242)
Cash advance to parent............................... (5,000,000) --
----------- ---------
Net cash used in investing activities.......... (5,719,251) (969,242)
----------- ---------
Cash flows from financing activities:
Net payments under revolving line of credit.......... -- (225,000)
Proceeds from issuance of long-term debt............. 5,500,000 --
Principal repayments of long-term debt............... (700,000) (299,538)
----------- ---------
Net cash provided (used) by financing
activities.................................... 4,800,000 (524,538)
----------- ---------
Effect of exchange rate change on cash and cash
equivalents................................... (5,410) (3,357)
----------- ---------
Net increase (decrease) in cash and cash
equivalents................................... (1,786,741) 2,275,984
Cash and cash equivalents at beginning of year......... 2,327,881 51,897
----------- ---------
Cash and cash equivalents at end of year............... $ 541,140 2,327,881
=========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest............................... $ 607,147 265,564
=========== =========
Cash paid for income taxes........................... $ 3,366,950 387,595
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
ELMAGCO, INCORPORATED DBA
BAYLOR COMPANY AND SUBSIDIARIES
(WHOLLY-OWNED BY BEGEMANN USA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Principal Business Activities
Elmagco Incorporated and subsidiaries (the Company) was formed in the state
of Delaware in 1996 for the sole purpose of merging Baylor Company and
Subsidiaries (Baylor Company) into itself. The Company continues doing
business as Baylor Company. In 1996, the Company formed a subsidiary, Baylor
Company Limited (wholly-owned by Baylor Company) in Aberdeen, Scotland. The
Company is engaged in the design and manufacture of electrical braking and
control equipment used predominantly in the drilling and marine markets,
highly engineered specialty products such as SCR systems and custom pedestal
leg locking systems and thruster systems for the offshore market.
Additionally, the Company designs and manufactures a broad line of custom AC
generators which are used in a variety of industrial, commercial and
governmental applications. The Company's customers are in the petroleum, power
generation, government and utility industries at December 31, 1997 and 1996.
The Company's sales are made to both international and domestic concerns. The
majority of the trade receivables were with customers in the South Central
United States and various international locations, primarily Canada,
Singapore, and the North Sea.
On December 23, 1997, the Company entered into an agreement with Schottel-
Werft Josef Becker Gmbh & Co. KG, a German company, to form a joint venture,
Schottel, Inc., a Delaware corporation. Each of the joint venture partners has
a 50% interest in Schottel, Inc. The joint venture is engaged in the selling
and servicing of thrusters to the drilling and marine markets in North
America.
The Company is wholly-owned by Begemann, Inc. (Begemann) and was formed in
1989 under the name Baylor Technology, Inc. to acquire the business and
certain assets and liabilities of the Baylor Company. During 1992, the Company
changed its name to Baylor Company. Begemann is a wholly-owned subsidiary of
the Royal Begemann Group N.V. and was organized pursuant to the laws of the
state of Delaware.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Elmagco
Incorporated and its wholly-owned subsidiaries, Baylor Electronics, Inc.
(BEI), ICC/Baylor, Inc. (ICC) and Baylor, Ltd. All significant intercompany
balances and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
Cash and cash equivalents includes short-term investments with the original
maturity of three months or less.
(d) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
(e) Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets of five to
twelve years.
21
<PAGE>
ELMAGCO, INCORPORATED DBA
BAYLOR COMPANY AND SUBSIDIARIES
(WHOLLY-OWNED BY BEGEMANN USA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(f) Other Assets
Included in other noncurrent assets is a brake design technology of
$1,600,000, which is being amortized using the straight-line basis over an
estimated useful life of fourteen years. Annual amortization expense amounted
to approximately $114,000 in 1997 and 1996.
(g) Revenue Recognition
The Company recognizes profits on long-term contracts on the percentage-of-
completion and completed contract methods of accounting on a contract per
contract basis.
At December 31, 1997, all significant open contracts were accounted for
under the completed contract method. The completed contract method is used
when a lack of dependable estimates and inherent hazards may cause forecasts
to be unreliable. A contract is considered to be complete when all costs
except insignificant items have been incurred and the installation is
operating according to specifications or has been accepted by the customer.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation costs. General and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
Costs in excess of amounts billed are classified as current assets under
costs in excess of billings on uncompleted contracts. Billings in excess of
costs are classified under current liabilities as billings in excess of costs
on uncompleted contracts. Contract retentions are included in accounts
receivable.
(h) Income Taxes
The Company is included in the consolidated federal income tax return of
Begemann. For financial reporting purposes, the Company records income tax
expense or benefit as if a separate return were filed.
The Company follows the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory rates to applicable future years to differences between
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
(i) Foreign Currency Translation
The functional currency for the Company's foreign operations is the
applicable local currency. Translation from applicable foreign currencies to
U.S. dollars is performed on balance sheet accounts using exchange rates in
effect at the balance sheet date and for revenue and expense accounts using
primarily a weighted average exchange rate during the period. Adjustments
resulting from such translation are included as a separate component of
stockholder's equity.
(j) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
22
<PAGE>
ELMAGCO, INCORPORATED DBA
BAYLOR COMPANY AND SUBSIDIARIES
(WHOLLY-OWNED BY BEGEMANN USA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(k) Reclassifications
Certain reclassifications have been made to the 1996 consolidated financial
statements to conform with the current year presentation.
(2) COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
Costs and billings on uncompleted contracts consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----
<S> <C> <C>
Costs incurred on uncompleted contracts.................. $6,267,768 --
Billings on uncompleted contracts........................ 6,246,835 --
---------- ----
$ 20,933 --
========== ====
Included in accompanying balance sheets under the
following captions:
Costs in excess of billings on uncompleted contracts... $ 491,573 --
Billings in excess of costs on uncompleted contracts... 470,640 --
---------- ----
$ 20,933 --
========== ====
</TABLE>
(3) INVENTORIES
Inventories at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Raw materials, manufactured parts and purchased
parts, net......................................... $3,279,112 3,057,034
Work in process..................................... 2,249,137 1,543,535
Finished goods...................................... 208,021 318,226
---------- ---------
$5,736,270 4,918,795
========== =========
</TABLE>
23
<PAGE>
ELMAGCO, INCORPORATED DBA
BAYLOR COMPANY AND SUBSIDIARIES
(WHOLLY-OWNED BY BEGEMANN USA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) BANK LOANS AND LONG-TERM DEBT
Bank loans and long-term debt at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- -------
<S> <C> <C>
Bank Loan
Revolving line of credit of up to $3,000,000 with a
commercial bank, bearing interest at bank's prime (8.5%
at December 31, 1997) payable monthly, with principal
payable on February 28, 1998; secured by substantially
all of the Company's assets.............................. $ -- --
========== =======
Long-term Debt
Term note, bearing interest at bank's prime and prime plus
.5% for 1997 and 1996, respectively, payable to a
commercial bank, in monthly installments of $20,835 plus
interest from April 1, 1998 through April 1, 1999 and
$54,688 plus interest from April 1, 1999, maturing
February 2008; secured by substantially all of the
Company's assets......................................... $5,500,000 650,000
8% promissory note payable in annual installments of
$50,000 plus interest, maturing June 2000................ 150,000 200,000
---------- -------
Total long-term debt.................................... 5,650,000 850,000
Less current installments................................. 237,500 290,000
---------- -------
Long-term debt, excluding current installments.......... $5,412,500 560,000
========== =======
</TABLE>
The aggregate maturities of long-term debt for each of the years subsequent
to December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................... $ 237,500
1999........................................................... 625,521
2000........................................................... 706,250
2001........................................................... 656,250
2002........................................................... 656,250
Thereafter..................................................... 2,768,229
----------
$5,650,000
==========
</TABLE>
(5) RELATED PARTY TRANSACTIONS AND BALANCES
At December 31, 1997 and 1996, the Company had an unsecured note payable
totaling $2,050,530 and $2,020,826, respectively, to Begemann at a prime
commercial lending rate plus 0.5% (9.0% at December 31, 1997) which is
subordinate to the bank debt. Interest on this note amounted to approximately
$184,000 and $182,000 for the years ended December 31, 1997 and 1996,
respectively, payments of which are made quarterly. The note increased by
$29,704 resulting from the addition of interest payable on the date the
Begemann promissory note was issued. Annual principal payments of $400,000 are
subject to bank approval.
On February 28, 1997 the Company transferred $5,000,000 to Begemann and
received a note from Begemann for $5,000,000. The note bears interest at the
prime rate plus 0.5% and is payable in quarterly installments of $60,000 to be
applied as partial payments on interest beginning June 1, 1997. On March 1,
1998, all accrued and unpaid interest shall be added to and constitute a
portion of the principal balance. Beginning
24
<PAGE>
ELMAGCO, INCORPORATED DBA
BAYLOR COMPANY AND SUBSIDIARIES
(WHOLLY-OWNED BY BEGEMANN USA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
June 1, 1998 quarterly payments of accrued and unpaid interest shall be made.
Beginning June 1, 1999, eleven payments consisting of 1/40th of the principal
balance plus interest will be payable quarterly with a final installment of
principal and interest becoming due on March 1, 2002. Accrued interest on the
note at December 31, 1997 amounted to $197,604.
As of December 31, 1997, the Company had an outstanding receivable balance
from Begemann of $126,926 related to merger and financing fees. In addition,
the Company had a receivable balance of $17,515 from Schottel, Inc. at
December 31, 1997. Net deferred tax assets of $593,677 and $93,000 at December
31, 1997 and 1996, respectively, are included in due from parent as the tax
payables and receivables are settled with the parent. As of December 31, 1997
and 1996, the Company had outstanding interest and current taxes payable
balance to Begemann of $367,309 and $1,368,757, respectively.
The Company purchased various goods and services from other companies
affiliated with the Company's president. The total amount of these purchases
during the years ended December 31, 1997 and 1996 was approximately $84,903
and $111,382, respectively.
(6) INCOME TAXES
Total income tax expense differs from the amount computed by applying the
U.S. federal income tax rate of 34% to income before income taxes as a result
of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Computed "expected" tax expense...................... $1,884,719 1,234,134
State tax expense, net............................... 83,160 69,586
Other................................................ 10,944 33,005
---------- ---------
$1,978,823 1,336,725
========== =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Deferred tax assets:
Inventory.......................................... $ 291,000 286,000
Brake technology................................... 272,000 233,000
Warranty accrual................................... 144,000 204,000
Contract and accounts receivable................... 258,000 70,000
Other.............................................. 179,902 --
--------- --------
1,144,902 793,000
Deferred tax liabilities:
Property, plant and equipment...................... (551,225) (518,000)
Other.............................................. -- (182,000)
--------- --------
Net deferred tax asset........................... $ 593,677 93,000
========= ========
</TABLE>
25
<PAGE>
ELMAGCO, INCORPORATED DBA
BAYLOR COMPANY AND SUBSIDIARIES
(WHOLLY-OWNED BY BEGEMANN USA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) EMPLOYEE BENEFITS
The Company sponsors the Baylor 401(k) plan. Employees with six months of
service and at least twenty-one years of age may participate in the Plan.
Employees may elect to contribute (elective contributions) any whole
percentage ranging from 1% to 15% of considered compensation, as defined. Each
year the employer will match 50% of contributions made by the participant, up
to 6% of considered compensation. During 1997 and 1996, the Company
contributed $102,853 and $90,843, respectively, under this plan.
26
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
ELMAGCO, INC.,
A DELAWARE CORPORATION
("ELMAGCO"),
BEGEMANN, INC.
A DELAWARE CORPORATION
("SELLER")
AND
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.,
A DELAWARE CORPORATION
("BUYER")
JUNE 22, 1998
<PAGE>
TABLE OF CONTENTS
STOCK PURCHASE AGREEMENT
BY AND AMONG
BEGEMANN, INC.
("SELLER"),
ELMAGCO, INC.
("ELMAGCO")
AND
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.,
("BUYER")
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE I. PURCHASE AND SALE OF SHARES......................................... 1
1.1 Purchase and Sale....................................................... 1
1.2 Purchase Price.......................................................... 2
1.3 Preparation of Initial and Final Effective Date Financial Statements.... 3
1.4 Purchase Price Adjustment............................................... 5
1.5 Method of Payment....................................................... 6
1.6 338(h)(10) Election; Tax Liability; Allocation of Purchase Price........ 6
ARTICLE II. CLOSING............................................................ 7
2.1 The Closing............................................................. 7
2.2 Termination............................................................. 7
2.3 Breakup Fee............................................................. 8
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER AND ELMAGCO.............. 9
3.1 Organization, Good Standing and Qualification........................... 9
3.2 Authorization........................................................... 9
3.3 Capital of Elmagco...................................................... 10
3.4 Title................................................................... 10
3.5 Subsidiaries............................................................ 10
3.6 No Violation............................................................ 11
3.7 Title to Assets......................................................... 12
3.8 Condition of Assets..................................................... 12
3.9 Accounts Receivable..................................................... 12
3.10 Insurance Policies...................................................... 13
3.11 Employee Benefits....................................................... 13
3.12 Labor Contracts......................................................... 16
3.13 Financial Statements.................................................... 16
3.14 Taxes................................................................... 17
3.15 Litigation.............................................................. 17
3.16 Absence of Material Adverse Change; Conduct of Business................. 18
3.17 Authorization for this Agreement........................................ 19
3.18 Compliance with Laws.................................................... 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
3.19 Compliance with Environmental Laws...................................... 20
3.20 Contracts............................................................... 21
3.21 Real Property and Leases................................................ 22
3.22 Inventory............................................................... 23
3.23 Personal Property....................................................... 23
3.24 Bank Accounts, Guarantees and Powers.................................... 24
3.25 Patents, Trademarks and Licenses........................................ 24
3.26 Permits................................................................. 25
3.27 Transactions with Affiliates............................................ 25
3.28 Disclosure.............................................................. 25
3.29 Consents and Approvals.................................................. 26
3.30 Brokerage or Finder's Fees.............................................. 26
3.31 Year 2000 Compliance.................................................... 26
3.32 Purchase for Own Account................................................ 27
3.33 Suppliers............................................................... 28
3.34 Customers............................................................... 29
3.35 Performance Bonds; Letters of Credit.................................... 29
ARTICLE IV. REPRESENTATIONS OF BUYER........................................... 30
4.1 Organization and Good Standing.......................................... 30
4.2 Authorization........................................................... 30
4.3 No Violation............................................................ 30
4.4 Governmental Consents................................................... 31
4.5 Capitalization of Buyer................................................. 31
4.6 Brokerage or Finder's Fee............................................... 32
ARTICLE V. COVENANTS OF SELLER AND ELMAGCO..................................... 32
5.1 Conduct of the Business Pending Closing................................. 32
5.2 Access to Information................................................... 34
5.3 Consents of Third Parties............................................... 34
5.4 Hart-Scott-Rodino....................................................... 34
5.5 Covenant of Cooperation................................................. 34
ARTICLE VI. COVENANTS OF BUYER................................................. 35
6.1 Consents of Third Parties............................................... 35
6.2 HSR Act................................................................. 35
6.3 Confidentiality......................................................... 35
6.4 Nonsolicitation......................................................... 36
6.5 Covenant of Cooperation................................................. 36
ARTICLE VII. CONDITIONS TO CLOSING............................................. 37
7.1 Conditions to Seller's Obligations...................................... 37
7.2 Conditions to Buyer's Obligations....................................... 38
ARTICLE VIII. DELIVERIES AT CLOSING............................................ 41
8.1 Deliveries of Seller and Elmagco........................................ 41
8.2 Deliveries of Buyer..................................................... 42
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE IX. INDEMNITY AND OTHER POST-CLOSING OBLIGATIONS....................... 43
9.1 General Indemnity....................................................... 43
9.2 Escrow.................................................................. 45
9.3 Defense of Claims....................................................... 47
9.4 Participating Distributees.............................................. 48
ARTICLE X. MISCELLANEOUS PROVISIONS............................................ 49
10.1 Notice.................................................................. 49
10.2 Entire Agreement........................................................ 50
10.3 Binding Effect; Assignment.............................................. 50
10.4 Counterparts............................................................ 51
10.5 Waiver; Consent......................................................... 51
10.6 Other and Further Covenants of Seller................................... 51
10.7 Governing Law........................................................... 51
10.8 Expenses................................................................ 52
10.9 Public Announcements.................................................... 52
10.10 Severability............................................................ 52
10.11 Incorporation by Reference.............................................. 52
ARTICLE XI. DISPUTE RESOLUTION................................................. 52
11.1 Dispute Resolutions..................................................... 52
</TABLE>
iii
<PAGE>
SCHEDULES
Schedule 3.1 Organization, Good Standing and Qualification
Schedule 3.4 Title of Shares
Schedule 3.5 Subsidiaries
Schedule 3.7 Permitted Liens
Schedule 3.9 Account Receivables of Elmagco and the Subsidiaries
Schedule 3.10 Insurance Policies
Schedule 3.11(a) Pension Plans
Schedule 3.11(b) Welfare Plans
Schedule 3.11(c) Compensation Programs
Schedule 3.13 Financial Statements
Schedule 3.14 Tax Disputes
Schedule 3.15 Litigation
Schedule 3.16 Absence of Material Adverse Change; Conduct of Business
Schedule 3.20 Contracts
Schedule 3.21 Real Property and Leases
Schedule 3.22 Inventory
Schedule 3.23 Personal Property
Schedule 3.24 Bank Accounts, Guarantees and Powers
Schedule 3.25 Patents, Trademarks and Licenses
Schedule 3.26 Permits
Schedule 3.27 Transactions with Affiliates
Schedule 3.29 Consents and Approvals
Schedule 3.33 Suppliers
Schedule 3.34 Customers
iv
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of the 22nd day of
June 1998, by and among Elmagco, Inc., a Delaware corporation ("Elmagco"), with
its principal place of business at 500 Industrial Blvd., Sugar Land, Texas
77478; Begemann, Inc., a Delaware corporation ("Seller"), with its principal
place of business at 500 Industrial Blvd., Sugar Land, Texas 77478 and Boots &
Coots International Well Control, Inc., a Delaware corporation, with its
principal place of business at 5151 San Felipe, Suite 450, Houston, Texas 77056
("Buyer").
R E C I T A L S
WHEREAS, Seller is the owner of all of the outstanding capital stock of
Elmagco; and
WHEREAS, on the terms and conditions set forth in this Agreement, Seller
desires to sell to Buyer, Elmagco desires to induce Buyer to purchase from
Seller and Buyer desires to purchase from Seller, all of the issued and
outstanding capital stock of Elmagco, which owns (except as set forth on
Schedule 3.5) all of the issued and outstanding capital stock of its
subsidiaries, Baylor Electronics, Inc., a Texas corporation; Baylor Controls,
Inc., a Texas corporation; Baylor Limited, a United Kingdom corporation; and
Schottel, Inc., a Delaware corporation (being collectively referred to herein as
the "Subsidiaries" and individually as a "Subsidiary");
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, representations, warranties and conditions herein contained, the
parties hereby agree as follows:
ARTICLE I. PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale. Upon the terms and subject to the conditions
provided herein in reliance on the representations, warranties and covenants
hereinafter set forth, on the Closing Date (as defined in Section 2.1 hereof),
Seller agrees to transfer and convey to Buyer,
<PAGE>
and Buyer agrees to acquire from Seller all of the issued and outstanding shares
of capital stock of Elmagco (the "Shares").
1.2 Purchase Price. In consideration for the sale and transfer of the
Shares, Buyer shall pay to Seller, at the times and in the manner herein
provided, a purchase price of Thirty Million Dollars (US $30,000,000), less the
amount of the Dividend (as defined below) and subject to further adjustment as
herein provided (the "Purchase Price"), which Purchase Price shall consist of
(i) cash in the amount equal to (a) the lesser of $25,000,000 or the Purchase
Price (b) less the amount necessary to result in the issuance of shares of the
common stock, $.00001 par value per share ("Common Stock"), of Buyer to Seller
with a value, for purposes hereof, of at least $3,000,000, and (ii) shares of
Common Stock of Buyer with a value, for purposes hereof, equal to the greater of
(a) $3,000,000 or (b) the difference between the cash portion of the Purchase
Price and the Purchase Price. The number of shares of Common Stock to be issued
to Seller in satisfaction of the preceding sentence, shall be determined by
calculating the average of the last reported sales price per share (or the
average of the closing bid and asked prices if no sales have been reported) of
Buyer's Common Stock for each trading day within the thirty (30) calendar days
immediately preceding the Closing Date and dividing such number into the dollar
value thereof to be delivered to Seller as determined above. For example, if the
Dividend were $1,500,000, the Purchase Price would be $28,500,000, and the
difference between the Purchase Price and the cash portion of the Purchase Price
would be $3,500,000 (since the cash portion of the Purchase Price cannot exceed
$25,000,000). If the average of the last reported sales price per share for such
period were $5.00, the number of shares would be calculated as follows:
2
<PAGE>
Difference between cash portion of the Purchase Price
and aggregate Purchase Price $ 3,500,000
Divided by Average Sales Price $ 5
-----------
Aggregate Shares 700,000
For the purposes hereof, the term "Dividend" shall mean the amount, not to
exceed $2,000,000, distributed by Elmagco to Seller prior to Closing (and after
the Effective Date) as a dividend (exclusive of the amount treated as a dividend
under Section 5.1(g)), which shall equal Seller's good faith estimate of
Elmagco's after tax net income from operations for the period from January 1,
1998 through June 30, 1998 (the "Effective Date") computed in accordance with
Generally Accepted Accounting Principles, consistently applied.
1.3 Preparation of Initial and Final Effective Date Financial Statements.
Elmagco shall engage KPMG Peat Marwick LLP to prepare audited financial
statements of Elmagco as of the Effective Date (the "Initial Effective Date
Financial Statements"). The Initial Effective Date Financial Statements shall
include a closing balance sheet of Elmagco (the "Initial Effective Date Balance
Sheet") which shall reflect those assets and liabilities of Elmagco normally
reflected on a balance sheet prepared in accordance with generally accepted
accounting principles, consistently applied, and which assets and liabilities
are divided among the same categories of assets and liabilities contained on the
balance sheet of Elmagco as of December 31, 1997 (the "Base Balance Sheet").
The costs of such audit shall be paid one-half by Buyer and one-half by Seller.
As soon as reasonably practicable after the Closing Date and in any event
no later than sixty (60) days after the Closing Date, the Initial Effective Date
Financial Statements shall be delivered to Buyer. Upon receipt of the Initial
Effective Date Financial Statements, Buyer and its independent accountants
("Buyer's Accountants") shall be permitted during the succeeding thirty (30) day
period to examine such books, records and work papers as reasonably necessary
3
<PAGE>
in connection with its review of the Initial Effective Date Financial
Statements. If Buyer agrees to the Initial Effective Date Financial Statements,
they shall become the Final Effective Date Financial Statements. If Buyer cannot
agree to the Initial Effective Date Financial Statements it shall within such
thirty (30) day period prepare and deliver to Seller a list of disputed
adjustments (the "Disputed Adjustments") Buyer believes should have been
recorded on such financial statements. Buyer and Seller shall use their best
efforts to resolve the Disputed Adjustments. If Buyer and Seller are unable to
reach an agreement on the Disputed Adjustments within thirty (30) calendar days
after receipt by Seller of the Disputed Adjustments, then the Disputed
Adjustments shall be submitted by Buyer and Seller to their independent public
accountants on or before the thirty-first (31st) calendar day after receipt by
Seller of the Disputed Adjustments, and the parties shall use reasonable efforts
to cause these accounting firms to promptly review and assist the parties in
resolving the Disputed Adjustments. Buyer and Seller shall each be responsible
for the fees, costs and expenses of their respective public accountants. If the
independent accountants for Buyer and Seller are unable to reach an agreement on
the Disputed Adjustments within fifty (50) calendar days after receipt by Buyer
of such Disputed Adjustments, then the Disputed Adjustments shall be resolved by
a nationally-recognized firm of certified public accountants mutually acceptable
to the independent accountants of Buyer and Seller (the "Accounting Referee").
The parties shall use reasonable efforts to cause the Accounting Referee to
promptly review the Disputed Adjustments and determine the final value of each
of the Disputed Adjustments. In making such determination, the Accounting
Referee shall consider only the items or amounts in dispute (and any other items
or amounts relating thereto). Such determination shall be made within thirty
(30) calendar days after the date on which the Accounting Referee receives
notice of the Disputed Adjustments, or as soon thereafter as possible. Upon the
resolution of all Disputed Adjustments, the Initial Effective Date Financial
Statements
4
<PAGE>
shall then be amended to reflect the determination of the final value of each of
the Disputed Adjustments and shall become the Final Effective Date Financial
Statements and the balance sheet contained therein shall become the Final
Effective Date Balance Sheet. The fees, costs and expenses of the Accounting
Referee in conducting such review shall be shared one-half by Buyer and one-half
by Seller.
The Final Effective Date Financial Statements shall be deemed to be and
shall be conclusive and binding on the parties to this Agreement for purposes of
determining any adjustment of the Purchase Price pursuant to Section 1.4.
1.4 Purchase Price Adjustment. The Purchase Price shall be adjusted
downward to the extent that the Stockholder's Equity of Elmagco reflected on the
Final Effective Date Balance Sheet (adjusted as hereafter provided) is less than
$13,278,481 (which is the amount of Stockholder's Equity reflected on the Base
Balance Sheet); provided, however that such adjustment shall be made only if
such difference exceeds $300,000. The Stockholder's Equity reflected on the
Final Effective Date Balance Sheet shall be increased by the amount of any
Seller Liabilities (as defined in Section 9.1) reflected on the Final Effective
Date Balance Sheet, plus the amount of any reserves for Seller Liabilities (as
defined in Section 9.1) in excess of $317,000 which are established in
preparation of the Final Effective Date Balance Sheet. In the event the Final
Effective Date Balance Sheet has not been prepared by the Closing Date, Seller
shall make a good faith estimate of the Stockholder's Equity of Elmagco as of
such date and the parties shall adjust the Purchase Price accordingly;
thereafter, upon completion of the Final Effective Date Balance Sheet, Seller or
Buyer, as appropriate, shall pay the difference between the amount of the
adjustment for Stockholder's Equity made on the Closing Date and the amount of
the adjustment required based upon the Final Effective Date Balance Sheet. With
respect to the foregoing adjustment, the net amount of the required payment
shall be made in cash within
5
<PAGE>
five business days after such determination has been made. The amount, if any,
required to be paid pursuant to this Section 1.4 shall bear interest, at the
prime rate announced from time to time by The Wall Street Journal from the
Closing Date through the date of payment of such amount, and the total amount of
such interest shall be paid at the same time and along with such payment.
1.5 Method of Payment. On the Closing Date, Buyer shall pay to Seller the
cash portion of the Purchase Price by wire transfer of immediately available
funds to an account designated by Seller not fewer than three (3) business days
prior to the Closing Date and shall instruct its transfer agent to issue or
cause to be issued in the name of Seller the portion of the Purchase Price to be
paid in shares of Buyer's Common Stock.
1.6 338(h)(10) Election; Tax Liability; Allocation of Purchase Price. At
the request of Buyer, Seller will cooperate with Buyer in making a timely and
effective election under Section 338(h)(10) of the Code, with respect to the
purchase and sale of the Shares hereunder. Upon presentation of Internal Revenue
Service Form 8023 by Buyer to Seller, Seller will, within fifteen (15) days
after the such presentation, execute and deliver said Form 8023 to Buyer. If any
changes or supplements are required to the Form 8023, Seller agrees to make such
changes or supplements. Except as specifically provided herein, any income or
Texas franchise tax liabilities of either Seller or Elmagco (including any
interest and penalties) incurred as a result of the Section 338(h)(10) election
will be the responsibility of Seller. Seller shall be responsible for the
payment of all taxes related to taxable income of the Company during the period
from January 1, 1998 until the Closing Date. Buyer and Seller agree that the
Purchase Price, as adjusted, shall be allocated among the Purchased Assets and
the Noncompete Agreement (as hereinafter defined) in such manner as Seller and
Buyer shall mutually agree at or prior to the Closing, provided such allocation
will be in accordance with the requirements of Section 1060 of the Internal
Revenue Code and the rules and regulations promulgated thereunder. Seller and
Buyer shall cooperate in
6
<PAGE>
making a reasonable allocation of the Purchase Price and all tax returns and
reports filed by Seller, Elmagco and Buyer shall be consistent with the agreed
allocations.
ARTICLE II. CLOSING
2.1 The Closing. The transactions contemplated in this Agreement are to be
closed, and all deliveries to be made at such time in connection therewith are
to be made, at the offices of Brown, Parker & Leahy, L.L.P., 1200 Smith Street,
Suite 3600, Houston, Texas 77002 on July 15, 1998 at 10:00 a.m. local time, or
at such other place, date and/or time as may be mutually agreed upon in writing
by Seller and Buyer (said closing and the date thereof herein referred to as the
"Closing" and the "Closing Date," respectively). The Closing shall be deemed to
have occurred and be effective for all purposes as of 12:01 a.m., Houston time,
on the Closing Date.
2.2 Termination.
Notwithstanding anything contained in this Agreement to the contrary, this
Agreement may be terminated at any time prior to the Closing:
(a) By the mutual written consent of Buyer and Seller;
(b) By either Buyer or Seller by notice delivered to the other if the
Closing shall not have occurred on or before July 15, 1998; provided,
however, that any such termination of this Agreement pursuant to this
Section 2.2 shall not relieve Buyer of any liability to Seller for any
breach of the provisions of Section 2.3 hereof; or
(c) By either Buyer or Seller by notice delivered to the other if
there shall have been entered a final, nonappealable order or injunction of
any governmental authority restraining or prohibiting the consummation of
the transactions contemplated herein or any material part thereof.
7
<PAGE>
In the event of termination of this Agreement each party hereto will pay all of
its own fees and expenses and there will be no further liability hereunder on
the part of any party hereto, except under Section 2.3.
2.3 Breakup Fee. If Buyer fails to consummate the transactions
contemplated herein on or before July 15, 1998 (unless extended in writing by
Seller and Buyer), except for the reasons enumerated below, Buyer shall pay
Seller cash in the amount of $1,000,000. Buyer shall not be required to pay such
amount in the event such failure to close is the result of any of the following:
(i) a material adverse change occurs, in comparison with the same as
of December 31, 1997, in or to: the financial condition, operations or business
prospects of Elmagco and the Subsidiaries, taken as a whole; the fair market
value of Elmagco's and the Subsidiaries' assets; or the amount of Elmagco's and
the Subsidiaries' liabilities required to be accrued for under generally
accepted accounting principles;
(ii) Buyer and Seller are unable, after using their best efforts, to
obtain any required regulatory approvals;
(iii) Seller fails to proceed expeditiously to close on or before
July 15, 1998, other than as a result of a breach by Buyer of its obligations
hereunder; or
(iv) Buyer is unable, after using its best efforts in good faith, to
negotiate a reasonably satisfactory employment agreement with H.B. Payne Jr.
Any required payment pursuant hereto shall be due and payable five business
days following the earlier of termination hereof without cause or July 15, 1998
(unless extended). If, despite such termination, Buyer and Seller subsequently
close the transaction contemplated herein, the amount paid shall be credited to
the cash portion of the Purchase Price to be paid at any such closing.
8
<PAGE>
ARTICLE III. REPRESENTATIONS AND
WARRANTIES OF SELLER AND ELMAGCO
As an inducement to Buyer to enter into this Agreement and to consummate
the transactions contemplated herein, Seller and Elmagco, jointly and severally,
represent and warrant to Buyer as follows:
3.1 Organization, Good Standing and Qualification. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its properties and conduct its business as currently being
conducted by it. Elmagco is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its properties and
conduct its business as currently being conducted by it. Elmagco is duly
qualified to do business and is in good standing in such jurisdictions as the
nature of its business or ownership, leasing or operation of its assets so
requires, except where the failure to so qualify would not have a material
adverse effect on Elmagco or its business. Each jurisdiction in which Elmagco is
qualified to do business is listed on Schedule 3.1 hereto.
3.2 Authorization. Each of Seller and Elmagco has the corporate power and
authority to execute, deliver and perform this Agreement and all other
instruments and documents required or contemplated pursuant to this Agreement
and to carry out its respective obligations hereunder and thereunder. Such
execution, delivery and performance by Seller or Elmagco have been duly
authorized by all necessary corporate and other action by each of Seller and
Elmagco as required under applicable law and this Agreement is, and such
instruments and documents when executed and delivered pursuant hereto will be,
the legal, valid and binding obligations of Seller and Elmagco, as the case may
be, enforceable against Seller and Elmagco, as the case may be, in
9
<PAGE>
accordance with their respective terms, except as enforceability may be limited
by bankruptcy laws, insolvency laws and laws generally relating to the rights of
creditors.
3.3 Capital of Elmagco. The authorized capital stock of Elmagco consists
of 2,000 shares of common stock, having a par value of $1.00 each, of which
1,000 shares are issued and outstanding and 1,000 shares of preferred stock,
having a par value of $1.00 each, none of which are issued and outstanding. All
of the Shares are validly issued, fully paid and non-assessable. There are no
outstanding subscriptions, options, rights, warrants, convertible securities, or
other agreements or commitments obligating Elmagco to issue or to transfer from
treasury any additional shares of its capital stock of any class.
3.4 Title. Seller is the owner, beneficially and of record, of all the
Shares free and clear of all liens, encumbrances, security agreements, equities,
options, claims, charges and restrictions, except those set forth on Schedule
3.4.
3.5 Subsidiaries. Elmagco does not own, directly or indirectly, any
interest or investment (whether equity or debt) in any corporation, partnership,
business, trust, or other entity, except the Subsidiaries. Except as set forth
on Schedule 3.5, Elmagco owns, beneficially and of record, all of the issued and
outstanding capital stock of each Subsidiary. Each Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all necessary power to own its assets and to
carry on its business as presently conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or of its properties makes such qualification necessary, except where
the failure to so qualify would not have a material adverse effect on such
Subsidiary or its business. Each jurisdiction in which each Subsidiary is
qualified to do business is set forth on Schedule 3.5 hereto. All the issued and
outstanding shares of capital stock of each Subsidiary are validly issued, fully
paid and non-assessable, and are owned by Company, free and
10
<PAGE>
clear of all liens, encumbrances, security agreements, equities, options,
claims, charges and restrictions. There are no outstanding subscriptions,
options, rights, warranties, convertible securities or other agreements or
commitments obligating any Subsidiary to issue or to transfer from treasury any
additional shares of its capital stock of any class.
3.6 No Violation. Subject to Elmagco obtaining the Consents (as set forth
in Section 3.29), neither the execution, delivery or performance of this
Agreement or any instrument or document contemplated herein nor the consummation
of the transactions contemplated herein or therein will constitute a violation
of, or be in conflict with, or will result in a cancellation of, or constitute a
default under, or create (or cause the acceleration of the maturity of) any
debt, obligation or liability affecting, or result in the creation or imposition
of any security interest, lien, or other encumbrance upon the Shares or any of
the assets of Elmagco or any Subsidiary under:
(a) any term or provision of the Certificate or Articles of
Incorporation or Bylaws of Seller, Elmagco or any Subsidiary;
(b) any judgment, decree, order, regulation or rule of any court or
governmental authority;
(c) any statute or law;
(d) any contract, agreement, indenture, lease or other commitment to
which Seller, Elmagco or any Subsidiary is a party or by which Seller, Elmagco
or any Subsidiary, as the case may be, is bound; or
(e) cause any material change in the rights or obligations of any
party under any such contract, agreement, indenture, lease or commitment.
Except as provided in Section 3.29 hereof, no consent of, or notice to, any
federal, state or local authority, or any private person or entity, is required
to be obtained or given by Seller or Elmagco in
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connection with the execution, delivery or performance of this Agreement or any
other instrument or document to be executed, delivered or performed hereunder by
Seller or Elmagco.
3.7 Title to Assets. Elmagco and the Subsidiaries have good, marketable
and valid title in and to all of their respective assets, free and clear of any
lien, mortgage, security interest, pledge or other encumbrance, except for those
set forth on Schedule 3.7 (the "Permitted Liens").
3.8 Condition of Assets. All of the tangible assets of Elmagco and the
Subsidiaries are in good operating condition and repair and are useable for the
purposes for which they were intended, except for reasonable wear and tear and
except to the extent of applicable reserves for repair or replacement of such
assets and, to the knowledge of Seller, such assets conform to all applicable
statutes, ordinances and regulations relating to their construction, use and
operation. All buildings and other similar structures used by Elmagco or the
Subsidiaries are free from material defects except to the extent of any
applicable reserves established for repair or replacement.
3.9 Accounts Receivable. Attached hereto as Schedule 3.9 is an accurate
aging schedule of all accounts receivable of Elmagco and the Subsidiaries
through May 31, 1998, except for accounts receivable from Seller and its
affiliates. Such accounts receivable are collectible at the recorded amounts
thereof, net of any allowance for doubtful accounts reflected on the Base
Balance Sheet or subsequently recorded on the books and records of Elmagco and
the Subsidiaries. Such accounts receivable, and all accounts receivable created
after that date, arose from valid sales in the ordinary course of business and
are collectible in the ordinary course of business, subject in the aggregate to
any applicable allowance for doubtful accounts which is consistent with
historical levels.
3.10 Insurance Policies. Schedule 3.10 is a true and accurate list and
summary of current insurance coverage or information concerning any self
insurance program with respect to
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Elmagco and the Subsidiaries. Insurance policies providing such coverage will be
outstanding and in full force and effect through the Closing Date. Neither
Elmagco and the Subsidiaries nor Seller has received notice from any current
insurance carrier of the intention of such carrier (i) to discontinue any
material insurance coverage afforded to such companies; or (ii) to materially
increase the premium costs of such insurance. The types of insurance policies
maintained by Elmagco and the Subsidiaries or Seller with third parties for the
benefit of Elmagco and the Subsidiaries, and the coverage afforded by such
policies with respect to the operations of Elmagco and the Subsidiaries are, in
the opinion of Seller and Elmagco, reasonable in light of the nature of the
business conducted and the risks associated with such business. Except as listed
on Schedule 3.10, during the past year, no application by Seller or Elmagco or
the Subsidiaries for insurance or any bond has been denied for any reason.
3.11 Employee Benefits. With respect to employee benefits provided by
Seller or Elmagco and the Subsidiaries to employees of Elmagco and the
Subsidiaries:
(a) Seller and/or Elmagco and the Subsidiaries currently maintain or
contribute to only those employee pension benefit plans, as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), that are listed on Schedule 3.11 (the "Pension Plans") with respect
to one or more employees of Elmagco or the Subsidiaries. Seller has furnished
to Buyer a copy of each Pension Plan, all amendments thereto, and any funding
arrangement agreement, any investment manager agreement, current summary plan
description, and participant informational material relating thereto as well as
the actuarial reports, if any, and annual reports with attachments for the
immediate past two plan years.
(b) Seller and/or Elmagco and the Subsidiaries currently maintain or
contribute to only those employee welfare benefit plans, as defined in Section
3(1) of ERISA (including, but not limited to, life insurance, medical,
hospitalization, holiday, vacation, dental and vision
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plans) that are listed on Schedule 3.11 (the "Welfare Plans") with respect to
one or more employees of Elmagco of the Subsidiaries. Seller has furnished to
Buyer a copy of each Welfare Plan, all amendments thereto, current summary plan
description, participant informational material, and any funding arrangement
agreement relating thereto as well as the annual report with attachments for the
immediate past two plan years.
(c) Seller and/or Elmagco and the Subsidiaries currently maintain or
have entered into only those written compensation programs and employment
arrangements (including, but not limited to, fringe benefits, incentive
compensation, bonus, severance, deferred compensation, and supplemental
executive compensation plans, employment agreements, and consulting agreements,
but excluding routine administrative procedures or required governmental
programs such as Social Security, unemployment and workers' compensation
programs) that are listed on Schedule 3.11 (the "Compensation Programs") with
respect to one or more employees of Elmagco or the Subsidiaries. Seller has
furnished to Buyer a copy of each Compensation Program as well as a copy of any
funding arrangement agreement relating thereto.
(d) Each Pension Plan and any trust maintained in conjunction
therewith comply and have been administered in form and operation in all
material respects with the provisions of all applicable laws, including but not
limited to ERISA and the Internal Revenue Code of 1986, as amended (the "Code").
Seller and/or Elmagco and the Subsidiaries have not engaged in nor are
contractually bound to enter into any non-exempt "prohibited transaction" as
defined in Section 406 of ERISA or Section 4975 of the Code with respect to any
Pension Plan.
(e) To the knowledge of Seller, neither Seller and/or Elmagco and the
Subsidiaries nor any "controlled company" has participated, or will participate
prior to or after the Closing, in any conduct that could result in the
imposition upon Buyer, Elmagco or the Subsidiaries of any excise tax under
Section 4971 through 4980B of the Code or civil liability
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under Section 502(i) of ERISA. A "controlled company" is any enterprise which,
with Seller and/or Elmagco and the Subsidiaries, forms or formed at any time
since September 2, 1974 a controlled group of corporations within the meaning of
Section 414(b) of the Code, a group of trades or businesses under common control
within the meaning of Section 414(c) of the Code, or any affiliated service
group within the meaning of Section 414(m) of the Code.
(f) To the knowledge of Seller, every employee and former employee of
Elmagco and the Subsidiaries, and every dependent of the foregoing entitled to
continuation of benefit coverage under any Welfare Plan, has been accorded all
of the rights to which such person is entitled as a matter of law or regulation,
including any entitlements arising in connection with the transactions
contemplated in this Agreement.
(g) Elmagco and the Subsidiaries do not sponsor or maintain, nor are
contributing employers or otherwise a parties to, nor have any obligation or
liability under or with respect to, any defined benefit plan within the meaning
of Section 3(35) of ERISA.
(h) Elmagco and the Subsidiaries do not maintain or participate in,
nor are obligated to contribute to, nor have ever maintained or participated in,
nor been obligated to contribute to, any "multiemployer plan" within the meaning
of Section 3(37) of ERISA.
(i) No Welfare Plan provides any health, life or other welfare
coverage to employees of Elmagco and the Subsidiaries beyond termination of
their employment with Elmagco and the Subsidiaries by reason of retirement or
otherwise, other than coverage as may be required under Section 4980B of the
Code or Part 6 of ERISA, or under the continuation of coverage provisions of the
laws of any state or locality.
3.12 Labor Contracts. Elmagco and the Subsidiaries are not a party to and
have no obligation under any collective bargaining agreement or other labor
union contract, white paper or side agreement with any labor union or
organization, nor any obligation to recognize or deal
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with any labor union or organization. There are no pending or, to the knowledge
of Seller and Elmagco, threatened representation campaigns, elections or
proceedings or questions concerning union representation involving any employees
of Seller or Elmagco or the Subsidiaries. To the knowledge of Seller and
Elmagco, there are no activities or efforts of any labor union or organization
(or representatives thereof) to organize any employees, nor of any demands for
recognition or collective bargaining, nor of any strikes, slowdowns, work
stoppages or lock-outs of any kind, or threats thereof, by or with respect to
any of its employees, or any actual or claimed representatives thereof, and no
such activities, efforts, demands, strikes, slowdowns, work stoppages or lock-
outs occurred during the three-year period preceding the date hereof.
3.13 Financial Statements. Schedule 3.13 is the financial statements of
Elmagco for the fiscal years ended December 31, 1997, 1996 and 1995 and
unaudited interim financial statements of Elmagco and the Subsidiaries for the
period ended March 31, 1998 (the "Financial Statements"), along with the
unqualified opinion(s) of KPMG Peat Marwick LLP delivered with respect to the
audited Financial Statements. Except as otherwise provided therein, the
Financial Statements fairly present the assets, liabilities and financial
condition of Elmagco and the Subsidiaries in all material respects as of the
respective dates and for the respective periods above stated and have been
prepared in accordance with generally accepted accounting principles
consistently applied as of the respective dates and for the respective periods
stated above. Neither Elmagco nor the Subsidiaries has any liabilities or
obligations, whether direct, indirect, contingent, absolute, matured or
unmatured, or of any nature whatsoever, whether arising out of contract, tort,
statute or otherwise, which are not reflected, reserved against or given effect
to in the Financial Statements. There is no basis for assertion against Elmagco
or the Subsidiaries of any liabilities or obligations not adequately reflected,
reserved against or given effect to in the Financial Statements.
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3.14 Taxes. Elmagco and the Subsidiaries have filed all income, franchise,
sales and use tax returns required to be filed by them and have paid the taxes
shown to be due and payable thereon, or appropriate extension for payment has
been requested and received and neither Elmagco nor the Subsidiaries is
delinquent thereon. All monies required to be withheld by Elmagco and the
Subsidiaries from employees for income taxes, social security and unemployment
insurance taxes or charges have been collected or withheld, and either paid to
the respective governmental agencies or set aside for such purposes, or accrued,
or reserved against and entered upon the books of Elmagco and the Subsidiaries.
The provisions for taxes reflected in the Financial Statements are adequate, in
all material respects, for federal, state, county and local taxes for the
periods ended thereon. Except as set forth on Schedule 3.14, there are no
present disputes as to taxes of any nature payable by Elmagco or the
Subsidiaries and no tax liabilities of Elmagco or the Subsidiaries.
3.15 Litigation. Except as set forth on Schedule 3.15, neither Seller nor
Elmagco or the Subsidiaries: (i) is engaged in or a party to, or has been
threatened with, any legal action, suit, investigation, arbitration or other
proceeding either at law or in equity before any court, administrative agency or
arbitrator that if asserted and decided adversely to Seller or Elmagco or the
Subsidiaries could materially and adversely affect the operations of Seller or
Elmagco or the Subsidiaries (present or prospective) or the business or assets
(present or prospective) thereof; (ii) has been charged with, or their knowledge
are under investigation with respect to, any violation of any provision of
federal, state or other applicable law or administrative regulation; or (iii) is
subject to any litigation, proceeding or governmental investigation pending or
threatened relating to any of the transactions contemplated in this Agreement or
which questions the validity of this Agreement or which seeks to delay, prohibit
or restrict in any manner any action taken or contemplated to be taken under
this Agreement. Neither Seller nor Elmagco or the Subsidiaries
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is subject to any judgment, restrain, order or decree entered in any lawsuit or
proceeding which would adversely affect Seller's ability to convey the Shares
free of any lien, claim or other encumbrance to Buyer.
3.16 Absence of Material Adverse Change; Conduct of Business. Except as set
forth on Schedule 3.16, since the date of the Base Balance Sheet there has not
been any:
(a) sale, assignment, pledge, hypothecation or other transfer of any
of the assets of Elmagco or the Subsidiaries except in the ordinary course of
business (other than the distribution of the Dividend as contemplated in Section
1.2);
(b) any condition or contingency that might reasonably be expected to
result in any material adverse change in the financial condition or prospects of
Elmagco or the Subsidiaries;
(c) destruction, damage to or loss of, any material asset of Elmagco
or the Subsidiaries (whether or not covered by insurance) that materially and
adversely affects the financial condition or prospects of Elmagco or the
Subsidiaries taken as a whole;
(d) termination of or material amendment to any Contract (as hereafter
defined) or Lease (as hereafter defined) other than in the ordinary course of
business;
(e) waiver or release of any material right or claim of Elmagco or the
Subsidiaries;
(f) increase in compensation payable to, or any employment, bonus or
compensation agreement entered into with, any officer, director, employee, agent
or independent contractor of Elmagco or the Subsidiaries other than in the
ordinary course of business;
(g) labor dispute that materially affects the financial condition of
Elmagco or the Subsidiaries;
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(h) actual or suspected loss of any customer or product line or
cancellation of any material sales order;
(i) agreement by Elmagco or the Subsidiaries to do any of the things
described in the preceding clauses (a) through (h) except as contemplated in
this Agreement.
3.17 Authorization for this Agreement. Except as contemplated by Section
6.2, no authorization, approval or consent of any governmental department,
bureau or agency or other public board or authority is required in connection
with the execution and delivery of this Agreement by Seller or Elmagco, for the
performance of Seller's or Elmagco's respective obligations hereunder and the
consummation by Seller or Elmagco of the transactions contemplated in this
Agreement.
3.18 Compliance with Laws. To the knowledge of Seller, each of Seller and
Elmagco and the Subsidiaries is in compliance with all federal, state, local and
foreign statutes, laws, ordinances, regulations, rules, permits, judgments,
orders or decrees applicable to it, its assets and its business. Neither Seller
nor Elmagco or the Subsidiaries has received any written notice of and, to their
knowledge, there does not exist any basis for, any claim of default under or
violation of any such statute, law, ordinance, regulation, rule, judgment, order
or decree except such defaults or violations, if any, that in the aggregate do
not and will not materially and adversely affect the property, operation,
financial condition or prospects of Elmagco and the Subsidiaries taken as a
whole. Neither Seller nor Elmagco or the Subsidiaries has received any written
opinion or memorandum from any legal counsel to the effect that it, its business
or its assets are exposed to any liability that can reasonably be expected to be
material thereto.
3.19 Compliance with Environmental Laws.
(a) To the knowledge of Seller, any property or facility owned, leased
or operated by Elmagco or the Subsidiaries is and has been owned, leased, or
operated by Elmagco
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or the Subsidiaries in material compliance with all applicable Environmental
Laws, as defined hereinafter.
(b) Each of Elmagco and the Subsidiaries has acquired, obtained,
applied for or made any permits, licenses, notifications, applications or other
reports to or from all governmental or administrative agencies having
jurisdiction over it or any property owned, leased or operated by such company,
as required under any applicable Environmental Laws.
(c) There is no claim, action, suit, proceeding, arbitration,
investigation or inquiry pending or threatened against any of Elmagco or the
Subsidiaries before any federal, state, municipal, foreign or other court, or
any other governmental or administrative body or agency, or any private
arbitrational tribunal, nor has there been any complaint, order, directive,
claim, citation, notice or lien by or in favor of any governmental authority or
private person with respect to (i) the use, storage, generation, treatment,
transportation or disposal by Elmagco or the Subsidiaries of Hazardous
Substances (as hereafter defined); (ii) spills, releases, discharges or
disposals of Hazardous Substances on or into any real property, buildings,
appurtenances, fixtures and facilities owned, leased, or operated by any of
Elmagco or the Subsidiaries, or any other property as a result of operations or
activities on real property owned, leased or operated by any of Elmagco or the
Subsidiaries, or on or into any surface water, groundwater or sewer system;
(iii) air emissions by Elmagco or the Subsidiaries; or (iv) the violation of or
noncompliance by Elmagco or the Subsidiaries with any Environmental Laws, as
defined hereinafter.
(d) As used herein, the term "Environmental Laws" means and includes,
without limitation, any federal, state or local law, statute, regulation or
ordinance, now or hereinafter enacted, promulgated or issued, regulating or
relating to any Hazardous Substances or pertaining to health, safety, industrial
hygiene or the environmental conditions on, under or about the business of
Elmagco or the Subsidiaries or their respective properties, including without
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limitation each of the following: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), 42 U.S.C. (S)
9601 et seq.; the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), 42 U.S.C. (S) 6901 et seq.; the Toxic Substances Control Act, as
amended, 15 U.S.C. (S) 2601 et seq.; the Clean Air Act, as amended, 42 U.S.C.
(S) 7401 et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C.
(S) 1251 et seq.; the Federal Hazardous Materials Transportation Act, 49 U.S.C.
(S) 1801 et seq.; the National Environmental Policy Act of 1975, as amended, 42
U.S.C. (S) 4321 et seq.; the Texas Solid Waste Disposal Act, as amended, Texas
Health and Safety Code (S) 361.001 et seq.; the Texas Water Code, as amended,
(S) 26.001 et seq.; and the rules, regulations and ordinances of the U.S.
Environmental Protection Agency, the Texas Natural Resource Conservation
Commission, and of all other agencies, boards, commissions and other
governmental offices, bodies and political subdivisions thereof having
jurisdiction over the Business and its property or the use or operation thereof.
(e) As used herein, the term "Hazardous Substances" means and includes
petroleum and any substance, material, pollutant or contaminant listed or
defined as hazardous or toxic under any Environmental Law.
3.20 Contracts. Schedule 3.20 is a complete and accurate list of all
contracts, agreements and personal property leases, whether written or oral, to
which Elmagco or any Subsidiary is a party as of the date of this Agreement
(except for certain immaterial contracts, leases or other agreements involving
payments of less than $5,000 individually over the life of such agreements and
$20,000 in the aggregate for all such agreements over the life of such
agreements and which do not impose any significant non-monetary obligations), or
of which Elmagco or any Subsidiary is an assignee (the "Contracts"). True and
correct copies of all written Contracts have been furnished to Buyer by Seller.
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Each Contract is in full force and effect and constitutes a legal, valid and
binding obligation of the parties thereto in accordance with the terms of such
Contract. There have been no material amendments, modifications or supplements
to any Contract, except as set forth on Schedule 3.20. There is no default or
claim of default under any Contract and, no event has occurred that, with the
passage of time or the given of notice (or both), would constitute a default by
Elmagco or any Subsidiary or, to the knowledge of Seller, any other party
thereto, under any Contract, or would permit modification, acceleration, or
termination of any Contract, or result in the creation of any security interest,
lien, mortgage or any encumbrance on any of the assets of Elmagco or any
Subsidiary.
3.21 Real Property and Leases. Schedule 3.21 is a description of all real
property owned or other real estate leased by Elmagco or the Subsidiaries (the
"Leases") according to the character of the property and the location thereof.
Schedule 3.21 sets forth a brief description (including in each case the annual
rental payable, the expiration date, a brief description of the property covered
and the name of the lessor) of every lease or agreement, whether written or
oral, under which Elmagco or the Subsidiaries is lessee of or holds or operates,
any real property. Each of such Leases and agreements is in full force and
effect and constitutes a legal, valid and binding obligation of the respective
parties thereto. There is no default under any Lease or agreement and no event
has occurred that with the passage of time or giving of notice (or both) would
constitute a default by Elmagco or the Subsidiaries, as applicable, or, to the
knowledge of Seller, any other party thereto. Neither Seller nor Elmagco or the
Subsidiaries has received any notice of a proposed increase in the assessed
valuation of the real property. Elmagco or the Subsidiaries, as applicable, now
has and will have at the Closing Date good, marketable and indefeasible title in
fee simple to the owned real property, free and clear of all liens, mortgages
and other security interests except for those set forth on Schedule 3.21. All
utilities required for the operation of the real property are installed and
operating, all installation and connection
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charges have been paid in full, and the right to return of any deposit or
contribution in connection therewith shall inure to Elmagco or the Subsidiaries.
All utilities are available to the real property in sufficient quantities as
required for the operation of the business conducted thereof as presently
conducted.
3.22 Inventory. The inventory reflected in the Financial Statements (the
"Inventory") consists of items that are usable and saleable in the ordinary
course of business by Elmagco and the Subsidiaries, except for applicable
inventory reserves. Subject to such applicable inventory reserve, all items
included in the Inventory are the property of Elmagco and the Subsidiaries, and
are not missing (except for sales made in the ordinary course of business since
December 31, 1997) or obsolete, and are in good condition. Except as set forth
on Schedule 3.22, no items included in the Inventory are held by Elmagco or the
Subsidiaries on consignment from others. The Inventory reflected in the
Financial Statements is based on quantities determined by physical count or
measurement, taken as of December 31, 1997, and is valued at the lower of cost
(determined on a last in, first out basis) or market value and on a basis
consistent with that of prior years. Since December 31, 1997, the Inventory has
been replaced as and when used in a manner consistent with past practice.
3.23 Personal Property. Schedule 3.23 is a complete and accurate list
describing, in all material respects, all trucks, automobiles, trailers, other
titled vehicles, machinery, equipment, furniture, supplies, tools, dies, jigs,
molds, patterns, drawings, and other tangible personal property owned by, in the
possession of, or used by Elmagco or the Subsidiaries, except Inventory. The
property listed on Schedule 3.23 constitutes all tangible personal property
necessary for the conduct by Elmagco and the Subsidiaries of their respective
businesses as now conducted and such property is not missing or obsolete.
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3.24 Bank Accounts, Guarantees and Powers. Schedule 3.24 is a complete and
accurate list (i) a list of all accounts, borrowing resolutions and deposit
boxes maintained by Elmagco and the Subsidiaries at any bank or other financial
institution and the names of the persons authorized to effect transactions in
such accounts and pursuant to such resolutions and with access to such boxes;
(ii) all agreements or commitments of Elmagco and the Subsidiaries guaranteeing
the payment of money or performance of any other Contracts by Elmagco or the
Subsidiaries or by any third persons, and (iii) the names of all persons, firms,
associations, corporations or business organizations holding general or special
powers of attorney from Elmagco or the Subsidiaries, together with a summary of
the terms thereof.
3.25 Patents, Trademarks and Licenses. Schedule 3.25 is a complete and
accurate list of all of Elmagco's and the Subsidiaries patents, trademarks,
service marks, copy rights (whether or not registered) and registrations and
applications therefor, trade names owned or used in any way or relating to the
business of such company; and the list of all licenses, franchise agreements and
other similar agreements relating to any of the foregoing or otherwise owned,
used in or any way relating to such business (the "Proprietary Information"). To
the knowledge of Seller, Elmagco or the Subsidiaries, as appropriate, has the
right and authority to use such Proprietary Information as is necessary to
enable it to conduct and to continue to conduct all phases of its business in
the manner as now conducted by it, and such use does not, and will not, conflict
with, infringe upon or violate any patent or other rights of any person,
corporation or entity. To the knowledge of Seller and Elmagco, no person,
corporation or entity is infringing upon or violating any rights of Elmagco or
the Subsidiaries with respect to such Proprietary Information.
Elmagco or the Subsidiaries, as appropriate, is the sole owner of each
of its trade secrets and has taken all reasonable security measures to protect
the secrecy, confidentiality, and value of such trade secrets. To the knowledge
of Seller, all of the trade secrets of Elmagco are
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presently valid and protectible, and are not part of the public knowledge or
literature, nor have they been used, divulged or appropriated for the benefit of
any past or present employees or other persons, or to the detriment of Elmagco
or the Subsidiaries.
3.26 Permits. Schedule 3.26 is a complete and accurate list of all permits
necessary for the conduct of the business of Elmagco and the Subsidiaries, other
than permits, the lack of which would not have a material adverse effect on
Elmagco and the Subsidiaries or their business (the "Permits"), together with
the expiration date thereof. Except as set forth on Schedule 3.26, such Permits
have been validly and properly issued, established and maintained and are in
full force and effect.
3.27 Transactions with Affiliates. Except as set forth on Schedule 3.27,
there are no contracts or arrangements (formal, informal, written or oral),
directly or indirectly, between Seller and Elmagco or the Subsidiaries or any
other person controlling, under common control with or controlled by Seller.
3.28 Disclosure. No representation or warranty of Seller or Elmagco set
forth hereunder or in the schedules attached hereto or in any certificate,
statement or other document delivered by or on behalf of Seller or Elmagco
hereunder contains any untrue statement of the material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.
3.29 Consents and Approvals. Schedule 3.29 is a complete and accurate list
of all persons, corporations, or entities whose approval, consent, waiver or
authorization (the "Consents") to the execution, delivery of performance of this
Agreement by Seller or Elmagco, or any of the instruments or documents to be
executed by Seller or Elmagco as contemplated herein, is legally or
contractually required or is necessary to duly and validly transfer the Shares
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being transferred to Buyer or necessary to preclude any cancellation, suspension
or termination or reaffirmation of any Contracts, Permits or Leases of Elmagco
or the Subsidiaries.
3.30 Brokerage or Finder's Fees. No broker or finder has acted for or on
behalf of Seller or Elmagco in connection with this Agreement or the
transactions contemplated in this Agreement. No broker or finder is entitled to
any brokerage or finder's fee, or to any commission, based in any way on
agreements, arrangements or understandings made by or on behalf of Seller or
Elmagco, in each case for which Buyer or any affiliate of Buyer has any
liabilities or obligations, contingent or otherwise.
3.31 Year 2000 Compliance. The software and computer programs used by
Elmagco and the Subsidiaries will, except to the extent that a reserve has been
established for the cost of addressing or remedying such issues: (i) accurately
process date information before, during and after January 1, 2000, including,
but not limited to, accepting the date input, providing date output and
performing calculations on dates or portions of dates; (ii) function accurately
and without interruption before, during and after January 1, 2000, without any
change in operations associated with the advent of the new century; (iii)
respond to two (2) digit year date input in a way that resolves the ambiguity as
to century in a disclosed, defined and predetermined manner; and (iv) store and
provide output of date information in ways that are unambiguous as to century.
3.32 Purchase for Own Account. The shares of Common Stock of Buyer, if any,
to be acquired by Seller as part of the Purchase Price pursuant to this
Agreement are being or will be acquired for its own account and with no
intention of distributing or reselling such securities or any part thereof in
any transaction that would be in violation of the securities laws of the United
States of America, or any state, without prejudice, however, to the rights of
Seller at all times to sell or otherwise dispose of all or any part of such
securities under an effective registration statement under the Securities Act,
or under an exemption from such registration available under
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the Securities Act of 1933, as amended (the "Securities Act"), and subject,
nevertheless, to the disposition of Seller's property being at all times within
its control. If Seller should in the future decide to dispose of any of such
shares of Common Stock, Seller understands and agrees that it may do so only in
compliance with the Securities Act and applicable state securities laws, as then
in effect. Seller agrees to the imprinting, so long as required by law of a
legend on certificates representing such shares to the following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS SUPPORTED BY A
WRITTEN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
Seller understands that any shares of Common Stock of Buyer issued to it will
not be registered at the time of their issuance under the Securities Act for the
reason that the sale provided for in this Agreement is exempt pursuant to
Section 4(2) of the Securities Act and that the reliance of Buyer on such
exemption is predicated in part on the representations of Seller set forth
herein. Seller represents that it is experienced in evaluating companies such
as Buyer, has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of its investment and has the
ability to suffer the total loss of its investment. Seller further represents
that it has had the opportunity to ask questions of and receive answers from
executive officers of Buyer concerning the terms and conditions of the offering
and to obtain additional information to the satisfaction of Seller. Seller is
an "accredited investor as that term is defined by Rule 501 of Regulation D
promulgated under the Securities Act.
Buyer acknowledges and agrees that, subject to receipt by Buyer of an
opinion of counsel of Winstead Sechrest & Minick P.C. that the applicable
transfer may be made without registration
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under the securities laws of the United States of America or any state and will
not cause the initial issuance of the Common Stock to Seller to have been made
in violation of the securities laws of the United States of America or any
state, any one or more of the following transfers of such shares of Common Stock
may be made:
(a) Seller may transfer shares to one or more shareholders of Seller
("Shareholder") pursuant to a complete redemption of such
Shareholder's stock in Seller and/or a payment on Seller's
indebtedness owed to such Shareholder;
(b) Seller or a Shareholder may transfer shares to a direct or indirect
80%-or-more-owned subsidiary of Seller or such Shareholder (and
thereafter such subsidiary may retransfer such shares to Seller or
such Shareholder);
(c) a Shareholder may transfer shares to one or more of its shareholders.
3.33 Suppliers. Schedule 3.33 lists all of the material suppliers and
distributors of Elmagco and the Subsidiaries. Except as set forth in Schedule
3.33, no single supplier or distributor accounted for more than 5% of the
services or merchandise purchased by Elmagco or the Subsidiaries during the year
ended as of the date of the Base Balance Sheet, or during the three months ended
March 31, 1998, and no single supplier or distributor is expected to account for
more than 5% of such services or merchandise during the twelve-month period
ending December 31, 1998. Except as set forth in Schedule 3.33, since the date
of the Base Balance Sheet there has not been (i) any material adverse change in
the business relationship of Elmagco or the Subsidiaries with any supplier or
distributor of services or merchandise identified in Schedule 3.33; or (ii) any
change in any material term (including credit terms) of the supply agreements or
related arrangements with any such supplier.
3.34 Customers. Schedule 3.34 sets forth all of the material customers of
Elmagco and the Subsidiaries. Except as set forth in Schedule 3.34, no single
customer accounted for more
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than 5% of the combined sales of Elmagco or the Subsidiaries during the year
ended as of the date of the Base Balance Sheet, or during the three Months ended
March 31, 1998, and no single customer is expected to account for more than 5%
of such sales during the twelve months ended December 31 , 1998. Except as set
forth in Schedule 3.34 since the date of the Base Balance Sheet there has not
been (i) any adverse change in the business relationship of Elmagco or the
Subsidiaries with any customer identified in Schedule 3.34; or (ii) any change
in any term (including credit terms) of the sales agreements or related
agreements with any such customer. During the past two years, neither Elmagco
nor any Subsidiary has received any customer complaints concerning its products
and services, nor has Elmagco or any Subsidiary had any of its products returned
by a purchaser thereof, other than complaints and returns in the ordinary course
of business.
3.35 Performance Bonds; Letters of Credit. There are no performance or
similar bonds or letters of credit currently posted by Elmagco or any
Subsidiary.
ARTICLE IV. REPRESENTATIONS OF BUYER
As an inducement to Buyer to enter into this Agreement and to consummate
the transactions contemplated herein; Buyer represents and warrants to Seller
and Elmagco as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own, lease and operate
its properties and conduct its business as currently being conducted by it.
4.2 Authorization. Buyer has the corporate power and authority to
execute, deliver and perform this Agreement and all other instruments and
documents required or contemplated pursuant to this Agreement and to carry out
its obligations hereunder and thereunder. Such execution, delivery and
performance by Buyer has been duly authorized by all necessary
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corporate and other action by Buyer as required under applicable law and this
Agreement is, and such instruments and documents when executed and delivered
pursuant hereto will be, the legal, valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms, except as
enforceability may be limited by bankruptcy laws, insolvency laws and laws
generally relating to the rights of creditors.
4.3 No Violation. Neither the execution, delivery or performance of this
Agreement or any instrument or document contemplated herein nor the consummation
of the transactions contemplated herein or therein will constitute a violation
of, or be in conflict with, or will result in a cancellation of, or constitute a
default under, or create (or cause the acceleration of the maturity of) any
debt, obligation or liability affecting, or result in the creation or imposition
of any security interest, lien, or other encumbrance upon any of the assets of
Buyer or its subsidiaries under:
(a) any term or provision of the Certificate or Articles of
Incorporation or Bylaws of Buyer or any of its subsidiaries;
(b) any judgment, decree, order, regulation or rule of any court or
governmental authority;
(c) any statute or law;
(d) any contract, agreement, indenture, lease or other commitment to
which Buyer or any of its subsidiary is a party or by which Buyer or any of its
subsidiaries is bound; or
(e) cause any material change in the rights or obligations of any
party under any such contract, agreement, indenture, lease or commitment.
No consent of, or notice to, any federal, state or local authority, or any
private person or entity, is required to be obtained or given by Buyer in
connection with the execution, delivery or
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performance of this Agreement or any other instrument or document to be
executed, delivered or performed hereunder by Buyer.
4.4 Governmental Consents. Except as contemplated by Section 6.2, neither
the execution and delivery of this Agreement by Buyer nor the consummation by
Buyer of the transactions contemplated herein requires any filing with, or the
authorization, approval or consent of any third party or governmental agency or
authority including, without limitation, any filing of a premerger notification.
4.5 Capitalization of Buyer. The authorized capital stock of Buyer is
50,000,000 shares of common stock, $.00001 par value, of which 30,728,298 shares
are issued and outstanding as of the date hereof and 5,000,000 shares of "blank
check" preferred stock ("Preferred Stock"), of which 196,000 shares of the 10%
Junior Redeemable Convertible Preferred Stock are issued and outstanding as of
the date hereof. All outstanding shares of Common Stock and Preferred Stock of
Buyer are validly issued, fully paid and nonassessable. At the time of issuance
thereof, the Common Stock to be delivered to Seller pursuant to this Agreement
will constitute valid and legally issued shares of Common Stock of Buyer, fully
paid and nonassessable and will not have been issued in violation of any
preemptive rights of the stockholders of Buyer.
4.6 Brokerage or Finder's Fee. No broker or finder has acted for or on
behalf of Buyer in connection with this Agreement or the transactions
contemplated in this Agreement. No broker or finder is entitled to any brokerage
or finder's fee, or to any commission, based in any way on agreements,
arrangements or understandings made by or on behalf of Buyer for which Seller or
any affiliate of Seller has any liabilities or obligations, contingent or
otherwise.
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ARTICLE V. COVENANTS OF SELLER AND ELMAGCO
5.1 Conduct of the Business Pending Closing. From the date hereof until
the Closing, except with the prior written consent of Buyer:
(a) Elmagco shall maintain itself at all times as a corporation
validly existing and in good standing under the laws of Delaware and shall cause
each Subsidiary to maintain itself at all times as a corporation validly
existing and in good standing under the laws of its jurisdiction of
incorporation;
(b) Elmagco and each Subsidiary shall carry on its business only in
the ordinary course, in a good and diligent manner on an arm's-length basis and
substantially in the manner carried on historically prior to the date hereof and
will not engage in any acquisition, whether by merger, consolidation or
otherwise, of all or substantially all of any business or organization or
division thereof, or engage in any other activity or transaction or make any
commitment to purchase or spend other than in the ordinary course of its
business as heretofore conducted;
(c) Elmagco and each Subsidiary shall not (i) pay or obligate itself
to pay any compensation, commission or bonus to any director, officer, employee,
agent or independent contractor, as such, except for the regular compensation
and commission and bonuses payable to such director, officer, employee, agent or
independent contractor at the rate in effect on December 31, 1997, or (ii) grant
any severance or termination pay to any director, officer, employee, agent or
independent contractors;
(d) Elmagco and each Subsidiary shall continue to carry all of its
existing insurance policies insuring its properties and operations, business and
assets;
(e) Elmagco and each Subsidiary shall use its best efforts to preserve
its business organization intact, to keep available to Buyer the services of its
employees, agents and
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independent contractors and to preserve for Buyer its relationships with
suppliers, licensees, distributors and customers and others having business
relationships with it; and
(f) Elmagco and each Subsidiary shall not amend, extend, permit to
expire (in each case, except in the ordinary course of business) or terminate
any material Contract, Lease, concession, franchise, license, indenture,
instrument, mortgage, note, loan or credit agreement or other obligation to
which it is a party without the prior written consent of Buyer.
(g) After June 30, 1998 and prior to Closing, (i) Seller shall
contribute to the capital of Elmagco all amounts owing on that certain
promissory note in the amount of $2,050,530 (as reflected on the Base Balance
Sheet), (ii) Elmagco shall distribute as a dividend that certain promissory note
from Seller to Elmagco in the original principal amount of $5,000,000, and (iii)
all deferred tax assets and liabilities and all other amounts (except for tax
sharing payments) due to or from Affiliates of Elmagco or owing between Seller
and Elmagco or the Subsidiaries shall be similarly contributed to capital or
forgiven. The net amount accruing to the benefit of Seller after the
contribution and forgiveness items provided for in this Section 5.1(g) shall
constitute a dividend from Elmagco to Seller, effective immediately prior to
Closing.
5.2 Access to Information. Between the date hereof and the Closing Date,
Seller and Elmagco shall give to Buyer and to Buyer's lawyers, accountants and
other representatives full and complete access, to any and all of the properties
and books and records and other documents of Elmagco and each Subsidiary and
shall furnish Buyer with any information concerning the business of each that
Buyer may reasonably request.
5.3 Consents of Third Parties. Between the date hereof and the Closing
Date, Seller and Elmagco will use their best and proper efforts to obtain, where
required, the consents, authorizations and approvals of all third parties
(including, without limitation, all governmental authorities and agencies) to
the transactions contemplated herein, including, but not limited to,
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those set forth on Schedule 3.29. The form of consent used to obtain such
consents, authorizations and approvals shall be subject to Buyer's reasonable
approval.
5.4 Hart-Scott-Rodino. Seller and Elmagco shall use all reasonable efforts
(i) to cause to be filed as promptly as practicable with the Department of
Justice and the Federal Trade Commission any premerger notifications required by
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) to respond promptly to inquiries from the Department of Justice or
the Federal Trade Commission in connection with the transactions contemplated
herein, and (iii) to obtain the earliest possible termination or waiver of the
HSR Act waiting period, if applicable.
5.5 Covenant of Cooperation. After the Closing Date, Seller will give, or
cause to be given, to Buyer and its representatives, during normal business
hours at Seller's premises and at Buyer's expense, such reasonable access to the
personnel, properties, titles, contracts, books, records, files, documents and
affairs of Seller and copies thereof (at the expense of Buyer) as is necessary,
in Buyer's reasonable judgment, to allow Buyer to obtain information in
connection with the preparation for and any audit of the tax returns of Buyer
and any tax related claims, demands, other audits, suits, actions or proceedings
by or against Buyer as the owner of Elmagco and the Subsidiaries.
ARTICLE VI. COVENANTS OF BUYER
6.1 Consents of Third Parties. From the date hereof to the Closing Date,
Buyer will furnish all reasonable cooperation to Seller in connection with
Seller's efforts to obtain, where required, the Consents of all third parties to
the transfer of the Shares or relating to the use, operation or ownership of the
assets or the business of Elmagco and the Subsidiaries. Notwithstanding the
foregoing, Buyer shall not be required to make any payment or assume any
obligation not existing prior to Seller's attempts to obtain such Consents.
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6.2 HSR Act. Buyer shall use all reasonable efforts (i) to cause to be
filed as promptly as practicable with the Department of Justice and the Federal
Trade Commission any premerger notifications required by the HSR Act, (ii) to
respond promptly to inquiries from the Department of Justice or the Federal
Trade Commission in connection with the transactions contemplated herein, and
(iii) to obtain the earliest possible termination or waiver of the HSR Act
waiting period, if applicable.
6.3 Confidentiality. Buyer acknowledges that Buyer may possess or obtain
confidential information of Seller, Elmagco and the Subsidiaries and agrees that
Buyer will disclose such information only to its officers, directors, employees,
accountants, counsel and other of its representatives who need to know such
information for the purposes of the transactions contemplated herein and will
disclose such information to others only with the prior written consent of
Seller or, where disclosure is required by law or by a government or government
agency, prior notice and an opportunity to respond shall be given to Seller.
Information shall not be considered to be confidential if such information:
(a) is in or passes into the public domain other than by breach of this
Section 6.4; or
(b) is known to Buyer prior to disclosure by Seller, Elmagco or the
Subsidiaries; or
(c) is disclosed to Buyer without restriction by a third party not subject
to an obligation to maintain the confidentiality thereof.
Upon any termination of this Agreement, Buyer shall within five business
days after written demand return all documents and copies of confidential
information to Seller.
6.4 Nonsolicitation. Until the earlier of (i) the Closing of the
transactions contemplated herein or (ii) one year from the date hereof, without
the express written consent of Seller, Buyer shall not solicit the customers of
Elmagco or the Subsidiaries for the purpose of competing with
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the business of Elmagco or the Subsidiaries nor shall Buyer solicit the
employees of Elmagco or the Subsidiaries for the purpose of employing such
employees.
6.5 Covenant of Cooperation. Buyer agrees that after the Closing Date,
Seller, its counsel, accountants, other agents or representatives, and its
successors in interest shall have the right of reasonable access, at all times
consistent with the minimization of disruption to Buyer's business, to all
books, records, and other data (including, as necessary, interviews with
employees) which relate to Elmagco and the Subsidiaries on or before the Closing
Date in order to prepare tax returns, to prepare for or respond to any
governmental audits, assessments or reassessments, in connection with any third-
party litigation, arbitrations, or investigations, in order to prepare financial
statements, and for other similar purposes including, without limitation, for
purposes of presenting evidence or presenting such records in evidence before
any court or other governmental agency or authority and for purposes of
preparing for any testimony or other proceedings or presentations, and Seller
shall reimburse Buyer for any duplicating or similar costs incurred by Buyer in
complying with its obligations under this Section 6.5. In the event that Buyer
proposes at any time within three years after the Closing Date to destroy any of
such books and records, Buyer shall give at least 30 days' prior notice to
Seller and shall, if the Seller so requests by notice to Buyer within fifteen
(15) days of the effective date of Buyer's notice, deliver to Seller at Seller's
expense the books and records otherwise to be destroyed.
ARTICLE VII. CONDITIONS TO CLOSING
7.1 Conditions to Seller's Obligations. The obligation of Seller to
consummate the transactions contemplated in this Agreement is, at its option,
subject to the following conditions:
(a) Representations and Warranties. Buyer's representations and
warranties shall be true and correct as of the date hereof and as of the Closing
Date as though made at the Closing;
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(b) Performance. Buyer shall have performed and complied with all
agreements and conditions on its part herein required to be performed or
complied with at or before the Closing;
(c) Review of Proceedings. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated in this Agreement
or any other agreement to be executed and delivered by any of the parties
hereunder, or in connection herewith, shall be subject to the reasonable
approval of Seller's counsel, and Buyer shall have furnished to such counsel
such documents as such counsel may have reasonably requested for the purpose of
enabling such counsel to pass upon legal matters incidental thereto; and
(d) Governmental Consents. Any and all necessary consents (including,
without limitation, any necessary permits) of and filings with any governmental
authority or agency (including, without limitation, any environmental regulatory
authority or agency) relating to the consummation of the transactions
contemplated in this Agreement shall have been obtained or accomplished, and no
action, proceeding, inquiry or investigation by any private or governmental
agency shall have been brought that questions the validity or legality of the
transactions contemplated in this Agreement;
(e) HSR Act Waiting Period. All waiting periods pursuant to the HSR
Act shall have expired or terminated and the Department of Justice and the
Federal Trade Commission shall have not made a request for additional
information, which information has not been supplied, or have taken any action
to prevent the transactions contemplated in this Agreement.
(f) Other Consents. The consents required from the parties to the
Consents listed on Schedule 3.29 shall have been obtained (unless waived by
Buyer);
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(g) Litigation. No person shall have instituted a lawsuit seeking to
void this Agreement or enjoin consummation of the transactions contemplated
herein which in the opinion of counsel for Seller, after consultation with
counsel for Buyer, has a substantial likelihood of success on the merits; and
(h) Delivery of Closing Documents. Buyer shall have delivered at the
Closing the cash portion of the Purchase Price, shall have instructed its
transfer agent to issue the Shares and shall have delivered all of the documents
described in Section 8.2 below.
7.2 Conditions to Buyer's Obligations. The obligation of Buyer to
consummate the transactions contemplated in this Agreement is, at its option,
subject to the following conditions:
(a) Representations and Warranties. Seller's and Elmagco's
representations and warranties shall be true and correct as of the date hereof
and as of the Closing Date as though made at the Closing;
(b) Performance. Seller and Elmagco shall have performed and complied
with all agreements and commitments on their part herein required to be
performed or complied with at or before the Closing;
(c) Absence of Casualty. Between the date hereof and the Closing,
there shall have been no material damage or destruction to the assets of Elmagco
and the Subsidiaries, taken as a whole, by fire, flood or other Act of God;
(d) Governmental Consents. Any and all necessary consents (including,
without limitation, any necessary permits) of and filings with any governmental
authority or agency (including, without limitation, any environmental regulatory
authority or agency) relating to the consummation of the transactions
contemplated in this Agreement shall have been obtained or accomplished, and no
action, proceeding, inquiry or investigation by any private or
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governmental agency shall have been brought that questions the validity or
legality of the transactions contemplated in this Agreement;
(e) HSR Act Waiting Period. All waiting periods pursuant to the HSR
Act shall have expired or terminated and the Department of Justice and the
Federal Trade Commission shall have not made a request for additional
information, which information has not been supplied, or have taken any action
to prevent the transactions contemplated in this Agreement.
(f) Other Consents. The Consents required from the parties to the
Consents listed on Schedule 3.29 shall have been obtained;
(g) Review of Proceedings. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated in this Agreement
or any other agreement to be executed and delivered by any of the parties
hereunder, or in connection herewith, shall be subject to the reasonable
approval of Buyer's counsel, and Seller and Elmagco shall have furnished to such
counsel such documents as such counsel may have reasonably requested for the
purpose of enabling such counsel to pass upon legal matters incidental thereto;
(h) Delivery of Closing Documents. Seller and Elmagco shall have
delivered at the Closing all of the documents described in Section 8.1 below;
(i) No Material Adverse Change; Due Diligence. Since December 31,
1997, there shall have been no material adverse change in or to the financial
condition, the operations or the business prospects of Elmagco or the
Subsidiaries, taken as a whole, or the fair market value of their assets. Buyer
shall have completed its legal, financial, accounting, operational and other due
diligence, including, but not limited to, environmental audits deemed
appropriate by Buyer and shall have discovered no facts or circumstances which
were not previously disclosed
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to Buyer which, individually or in the aggregate, are material and adverse to
Elmagco or the Subsidiaries or their business assets financial condition or
prospects, taken as a whole;
(j) Employment Agreements. Buyer shall have entered into an
employment agreement with H.B. Payne, Jr. on terms and conditions satisfactory
to Buyer;
(k) Litigation. No person shall have instituted a lawsuit seeking to
void this Agreement or enjoin consummation of the transactions contemplated
herein which in the opinion of counsel for Buyer, after consultation with
counsel for Seller, has a substantial likelihood of success on the merits;
(l) Mortgages. The mortgagees and lien holders under the Permitted
Liens shall have consented to the transaction contemplated herein, if required,
and waived any acceleration of the indebtedness secured thereby or Seller shall
have discharged such Permitted Liens and provided financing to Buyer in a like
amount under substantially identical terms and conditions as existed under the
Contract governing the Permitted Liens and the indebtedness secured thereby; and
(m) Intercompany Debts and Liabilities. Seller shall execute such
releases as may be necessary or appropriate to (i) forgive or contribute all
obligations owing to Seller or its affiliates from Elmagco and the Subsidiaries
to the capital of Elmagco or the Subsidiaries, as appropriate, and to release
any and all liens, claims or encumbrances relating thereto, and (ii) any and all
claims and rights Seller or its affiliates may have against Elmagco or the
Subsidiaries.
ARTICLE VIII. DELIVERIES AT CLOSING
8.1 Deliveries of Seller and Elmagco. At the Closing, Seller shall deliver
or cause to be delivered to Buyer, duly executed:
(a) Stock Certificates. A certificate or certificates representing
the Shares registered in the name of Seller, duly endorsed by Seller for
transfer or accompanied by an
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assignment of the Shares duly executed by Seller, free and clear of all liens,
encumbrances, security agreements, equities, options, claims, charges and
restrictions which shall include a release of all items set forth in Schedule
3.4;
(b) Books and Records. The books and records of Elmagco and the
Subsidiaries;
(c) Opinion of Counsel. The opinion of Winstead Sechrest & Minick
P.C., counsel for Seller and Elmagco, dated the Closing Date in form reasonably
satisfactory to Buyer's counsel;
(d) Officers' Certificates. Certificates signed by the President,
Chairman or an Executive Vice President of Seller and Elmagco dated the Closing
Date, as to the truth and accuracy of the respective representations and
warranties of each at the Closing Date and certifying that all of the covenants,
obligations and conditions to be performed as of the Closing on their part under
this Agreement have been duly performed;
(e) Secretary's Certificate. A Secretary's Certificate shall be
delivered attesting to the incumbency and the signature specimens with respect
to the officers of Seller and Elmagco executing the Agreement and any other
document delivered pursuant to the Agreement by or on behalf of Seller or
Elmagco and attesting to the copies of the corporate actions and proceedings of
Seller and Elmagco required to carry out the transactions contemplated in this
Agreement or incidental thereto and attesting to such other instruments and
documents as counsel for Buyer shall reasonably request;
(f) Assumption of Employment Agreement. Seller shall deliver
evidence, satisfactory to Buyer, that the obligations of Elmagco arising out of
or related to any employment or other compensation agreements with H.B. Payne,
Jr. shall have finally and completely been assumed by Seller.
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(g) Other Requested Documents. Further instruments and documents, in
form and content reasonably satisfactory to counsel for Buyer, as may be
necessary or appropriate more fully to consummate the transaction contemplated
herein.
8.2 Deliveries of Buyer. At the Closing, Buyer shall deliver or cause to
be delivered to Seller:
(a) Purchase Price. The cash portion of the Purchase Price in the
manner described in Section 1.2 above;
(b) Opinion of Counsel. The opinion of Brown, Parker & Leahy, L.L.P.,
counsel to Buyer dated the Closing Date in form reasonably satisfactory to
Seller's counsel; and
(c) Officers' Certificates. Certificates signed by the President,
Chairman or an Executive Vice President of Buyer dated the Closing Date, as to
the truth and accuracy of the representations and warranties of Buyer at the
Closing Date and certifying that all of the covenants, obligations and
conditions to be performed as of the Closing on its part under this Agreement
have been duly performed; and
(d) Secretary's Certificate. A Secretary's Certificate shall be
delivered attesting to the incumbency and the signature specimens with respect
to the officers of Buyer executing the Agreement and any other document
delivered pursuant to the Agreement by or on behalf of Buyer and attesting to
the copies of the corporate actions and proceedings of Buyer required to carry
out the transactions contemplated in this Agreement or incidental thereto and
attesting to such other instruments and documents as counsel for Seller shall
reasonably request.
ARTICLE IX. INDEMNITY AND
OTHER POST-CLOSING OBLIGATIONS
9.1 General Indemnity.
(a) Seller agrees to reimburse, hold harmless, indemnify and defend
Buyer and its officers, directors, controlling persons (if any), employees,
attorneys, agents, partners
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representatives, successors and assigns (the "Buyer Indemnitees") from and
against any loss, suit, claim, action, cause of action, proceeding (formal or
informal), investigation, judgment, deficiency, actual or punitive damage,
settlement, liability, expense or cost of any kind or amount whatever, including
court costs and reasonable attorneys' fees (collectively, "Claims") which
results from or arises out of or is based upon:
(i) the inaccuracy of any representation or warranty made by
Seller or Elmagco (other than Section 3.14 which is covered in Section
9.1(a)(iii) below), or the failure to perform or breach by Seller or
Elmagco of any covenant, obligation or agreement contained in this
Agreement, the Exhibits or Schedules hereto, the bring-down
certificate required by Section 8.1(d) and any amendments that may be
entered into;
(ii) any pending or threatened litigation, claim or assessment
against Elmagco (including but not limited to any claim based on tort
liability, product liability, warranty, negligence or strict
liability) designated by Buyer, in its sole discretion, and set forth
on Schedule 9.1 which is to be delivered by Buyer to Seller at Closing
("Seller's Liabilities"); provided, however, that Seller shall have no
liability under this Section 9.1(a)(ii) until and only to the extent
that the aggregate Claims under this Section 9.1(a)(ii) exceed
$317,000; and
(iii) any inaccuracy of the representation set forth in Section
3.14 or the failure of Seller to pay any taxes, including, without
limitation, any Texas franchise tax liability accruing to either
Elmagco or Seller, and any liability for gain or loss on the sale of
Shares pursuant to this Agreement arising out of or related to the
transactions contemplated in this Agreement.
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; provided further, however, that notwithstanding the other provisions of
this Article IX, (1) Seller shall have no obligation to indemnify any Buyer
Indemnitees with respect to any Claim unless Buyer notifies Seller of the claim
or potential claim for indemnification not later than the first anniversary of
the Closing Date for matters covered by Section 9.1(a)(i) and the third
anniversary of the filing of Seller's 1998 United States federal income tax
return (with attached Section 338(h)(10) election) for matters covered by
Section 9.1(a)(iii); (2) Seller shall have no obligation to indemnify Buyer for
any Claim under Section 9.1(a)(i) until the amount of such Claim equals or
exceeds $50,000 or the sum of all Claims equals or exceeds $100,000, at which
time Buyer shall have the right to indemnification for the full amount of each
such Claim; and (3) Buyer's sole recourse for indemnification of Claims under
Sections 9.1(a)(i) and 9.1(a)(iii) shall be against the Escrow Fund established
pursuant to Section 9.2. Provided further, that of the amount held in the Escrow
Fund, no more than $1,500,000 thereof may be paid out to satisfy claims made
pursuant to Section 9.1(a)(i). The entire amount of the Escrow Fund shall be
subject to being paid out to satisfy claims made pursuant to Section
9.1(a)(iii).
The Indemnity Agreement contained in this Section 9.1(a) shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of Buyer. Any indemnification payments made to Buyer shall be
deemed an adjustment to the Purchase Price.
(b) Buyer agrees to hold harmless, indemnify and defend Seller and its
officers, directors, controlling persons, employees, attorneys, agents,
representatives, successors and assigns (the "Seller Indemnitees") from and
against any loss, claim, cause of action, damage, liability, expense or cost of
any kind or amount whatever including court costs and reasonable attorneys' fees
which result from or arise out of the inaccuracy of any representation or
warranty made by Buyer, or the failure to perform or breach by Buyer of any
covenant, obligation or agreement
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contained in this Agreement, the Exhibits or Schedules hereto, the bring-down
certificate required by Section 8.2(c) and any amendments that may be entered
into.
The Indemnity Agreement contained in this Section 9.1(b) shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of Seller or Elmagco. Any indemnification payments made by Buyer
to Seller shall be deemed an adjustment to the Purchase Price.
9.2 Escrow. (a) The indemnification obligations of Seller under Sections
9.1(a)(i) and (iii) shall be secured by an escrow fund of the number of shares
of the Common Stock of Buyer, which is a portion of the Purchase Price, having a
value, as determined in Section 1.2, of $3,000,000 (the "Escrow Fund"), which
shall be held by a federally insured savings or banking institution mutually
acceptable to Buyer and Seller (the "Escrow Agent") pursuant to the terms of an
escrow agreement in form and substance satisfactory to Buyer and Seller (the
"Escrow Agreement"). The Escrow Agreement shall provide that Seller shall have
the right to receive any cash dividends paid, if any, on the shares of Common
Stock in the Escrow Fund.
(b) In the event that any Buyer Indemnitee has a claim for
indemnification under this Article IX, Buyer shall give written notice of same
to Seller. If Seller has not corrected or remedied such claim within thirty (30)
days following receipt of such notice and does not dispute such claim, then
Buyer shall be entitled to receive immediately from the Escrow Fund an amount of
shares from the Escrow Fund having a value equal to the amount of such claim. If
Seller disputes such claim, Buyer shall not be entitled to receive any amount
from the Escrow Fund with respect to such claim prior to resolution of such
dispute pursuant to Article XI or otherwise, but any such delay shall be without
prejudice to any extension of the Escrow Fund pursuant to Section 9.2(c) hereof.
For purposes of valuing the shares of Common Stock for payment of any Claim,
such value shall be determined by calculating the average of the last
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<PAGE>
reported sales price per share (or the average of the closing bid and asked
prices if no sales have been reported) of Buyer's Common Stock for each trading
day within the thirty (30) calendar days immediately preceding the date of
Buyer's notice of such Claim, or, if no such reports are rendered, the fair
market value of such shares over such period determined in good faith by the
Board of Directors of Buyer.
(c) Provided no dispute then exists as to any claim by Buyer of all or
a portion of the Escrow Fund and provided all obligations of Seller to Buyer
which are payable from the Escrow Fund are satisfied, the remaining Escrow Fund
will be released to Seller on the three (3) year anniversary of the filing of
Seller's 1998 United States federal income tax return. To the extent a dispute
does exist as to a claim or claims on such anniversary date, an amount equal to
the amount of such claim or claims will be withheld from such remaining Escrow
Fund and will continue to be held by the Escrow Agent pursuant to the terms of
the Escrow Agreement until such claim or claims have been fully resolved.
9.3 Defense of Claims. If any Buyer Indemnitee or Seller Indemnitee (the
"Indemnified Party") desires to make a claim against the party obliged to
provide indemnification to such Indemnified Party (the "Indemnitor"), the
Indemnified Party shall give prompt notice in writing (a "Claim Notice") to the
Indemnitor describing in reasonable detail the facts giving rise to any claim
for indemnification hereunder promptly after the receipt of knowledge of the
facts upon which such claim is based (but in no event later than 10 days prior
to the time any response to the asserted claim is required). Upon receipt by the
Indemnitor of a Claim Notice from an Indemnified Party with respect to any claim
of a third party, such Indemnitor may control negotiations towards the
resolution of any such claim without the necessity for litigation, and, if
litigation ensues, assume the defense thereof at such Indemnitor's cost and with
counsel reasonably satisfactory to the Indemnified Party and the Indemnified
Party shall extend reasonable
46
<PAGE>
cooperation in the defense or prosecution thereof and shall furnish such
records, information and testimony and attend all such conferences, discovery
proceedings, hearings, trials and appeals as may be reasonably requested in
connection therewith. The Indemnified Party shall have the right to employ its
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of the Indemnified Party unless (i) the Indemnitor shall not have
promptly employed counsel reasonably satisfactory to such Indemnified Party to
take charge of the defense of such action or (ii) such Indemnified Party shall
have reasonably concluded, based upon the opinion of its outside legal counsel,
that there may be one or more legal defenses available to it, or to any other
Indemnified Party who has submitted a Claim Notice to the Indemnitor, which are
different from or additional to those available to the Indemnitor, in either of
which events such fees and expenses shall be borne by the Indemnitor (but in no
event shall the Indemnitor be required to pay the fees and expenses of more than
one counsel employed by more than one Indemnified Party with respect to any
claim) and the Indemnitor shall not have the right to direct the defense of any
such action on behalf of the Indemnified Party. The Indemnitor shall have the
right, in its sole discretion, to settle any claim for monetary damages for
which indemnification has been sought and is available hereunder; provided,
however, that neither Indemnitor nor the Indemnified Party shall settle,
compromise or make any disposition of any claim under this Article IX which
would or may result in liability to the Indemnified Party or Indemnitor,
respectively, without the written consent of Indemnitee or Indemnitor,
respectively. No claim for indemnification under Section 9.1(a)(i) or Section
9.1(b) may be made more than one year after the Closing Date. No claim to
indemnification under Section 9.1(a)(iii) may be made more than three years
after the date of filing of Seller's 1998 United States federal income tax
return.
47
<PAGE>
9.4 Participating Distributees. This Section 9.4 shall apply if Seller
dissolves while Seller Liabilities remain outstanding.
(a) For purposes of this Section 9.4, the following terms shall have
the meanings set forth below:
(i) "Participating Distributees" shall mean shareholders and
Participating Creditors of Seller who are distributed Purchase
Consideration by Seller.
(ii) "Purchase Consideration" shall mean the cash and Common
Stock constituting the Purchase Price.
(iii) "Section 9.1(a)(ii) Obligations" means Seller's
obligations arising under Section 9.1(a), only insofar as they arise under
Section 9.1(a)(ii).
(b) If shareholders of Seller are distributed less than seventy-five
percent of the Purchase Consideration, Seller shall designate as "Participating
Creditors" one or more of its creditors who receive Purchase Consideration, such
that no less than seventy-five percent of the Purchase Consideration is received
by Seller's shareholders and Participating Creditors.
(c) Prior to the distribution of any Purchase Consideration by Seller,
Seller shall cause each Participating Distributee to execute and deliver to
Buyer agreements, in form and substance reasonably satisfactory to Buyer,
providing for the assumption of Seller's Section 9.1(a)(ii) Obligations upon the
following terms and conditions:
(i) Each Participating Distributee shall be liable for Seller's
Section 9.1(a)(ii) Obligations to the extent, and only to the extent, of
the Purchase Consideration distributed to it by Seller.
(ii) A Participating Distributee shall constitute an
"Indemnitor" under Section 9.3 and shall have all other rights of Seller
under this Agreement insofar as they
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<PAGE>
relate to the Section 9.1(a)(ii) Obligations for which such Participating
Distributee is liable.
(iii) Such other terms and conditions as Seller, Buyer or the
Participating Distributee may reasonably require in order to carry out the
intent of this Section 9.4.
Nothing in this Section 9.4 is intended to, nor shall it be construed to, limit
in any respect Seller's indemnification obligations under this Agreement.
ARTICLE X. MISCELLANEOUS PROVISIONS
10.1 Notice. All notices, requests, demands and other communications
required or permitted under this Agreement shall be made in writing and shall be
deemed to have been duly given and made when delivered personally or sent by
facsimile transmission with a copy following by mail or, if mailed, when
deposited in the United States mail, as follows:
If to the Seller:
Begemann, Inc.
c/o H. B. Payne, Jr.
500 Industrial Boulevard
Sugar Land, Texas 77478
with a copy to:
Winstead Sechrest & Minick P.C.
910 Travis, Suite 1700
Houston, Texas 77002
Attention: Ross D. Margraves, Jr.
If to Buyer:
Boots & Coots International Well Control, Inc.
5151 San Felipe, Suite 450
Houston, Texas 77056
Attention: Larry Ramming, Chief Executive Officer
49
<PAGE>
with a copy to:
Brown, Parker & Leahy, L.L.P.
1200 Smith Street, Suite 3600
Houston, Texas 77002
Attention: Barry Davis
provided, however, that if any party shall have designated a different address
or facsimile number by notice to the other, then such notice shall be sent to
the last address and facsimile number so designated.
10.2 Entire Agreement. This Agreement, including the schedules and exhibits
hereto, and the agreements and other documents expressly referred to herein
embody the entire agreement and the understanding of the parties hereto with
respect to the subject matter hereof.
10.3 Binding Effect; Assignment. This Agreement and the various rights and
obligations arising hereunder shall inure to the benefit of and be binding upon
Buyer, Seller and Elmagco, and their respective legal representatives,
successors and assigns; the parties may assign this Agreement or any rights
hereunder with the written consent of the other parties hereto which consent may
not be unreasonably withheld.
10.4 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original but all of which taken together shall
constitute one and the same instrument.
10.5 Waiver; Consent. Whenever the consent, approval, agreement, waiver,
designation, notice, demand or other written action by Buyer or Seller is
provided for in this Agreement, the same may be given on behalf of such party in
a writing signed by its President, an Executive Vice President or a Vice
President. Except to the extent that a party hereto may have otherwise agreed in
writing, no waiver by that party of any condition of this Agreement or breach by
the other party of any of its obligations or representations hereunder shall be
deemed to be a wavier
50
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of any other condition or subsequent breach of the same or any other obligation
or representation by the other party, nor shall any forbearance by the first
party to seek a remedy for any noncompliance or breach by the other party be
deemed to be a waiver by the first party of its rights and remedies with respect
to such noncompliance or breach.
10.6 Other and Further Covenants of Seller. At any time after the Closing,
and without further consideration, Seller will execute and deliver such other
and further instruments of conveyance, transfer and confirmation as Buyer may
reasonably request in order more effectively to convey, confirm and transfer the
properties transferred hereunder; provided, however, that Buyer shall reimburse
Seller for all out-of-pocket expenses incurred in connection therewith.
10.7 Governing Law. This Agreement shall be deemed to have been executed
and delivered in Houston, Harris County, Texas. Except as otherwise provided
herein, this Agreement and all rights and obligations hereunder, including
matters of construction, validity and performance shall be governed by the laws
of the State of Texas, including the Uniform Commercial Code as enacted in that
jurisdiction, without giving effect to the principles of conflicts of laws
thereof.
10.8 Expenses. Each of the parties to this Agreement shall bear all
expenses incurred by it in connection with the negotiation of this Agreement
and, except as otherwise provided herein, in the consummation of the
transactions provided for herein and the preparation therefor.
10.9 Public Announcements. Prior to Closing, except as may be required by
law, no party hereto shall make any public announcement or filing with respect
to the transactions provided for herein without the prior consent of the other
parties hereto. After the Closing, all public announcements or filings with
respect to the transactions provided for herein shall be subject to the prior
approval of Buyer.
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10.10 Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other terms and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated herein is not affected in any manner
adverse to any party hereto. Upon any such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
will negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner,
to the end that the transaction contemplated by this Agreement is consummated to
the extent possible.
10.11 Incorporation by Reference. The Exhibits and Schedules attached
hereto are an integral part of this Agreement and are incorporated herein by
this reference.
ARTICLE XI. DISPUTE RESOLUTION
11.1 Dispute Resolutions. Except with respect to injunctive relief,
neither party shall institute a proceeding in any court or administrative agency
to resolve a dispute between the parties before that party has sought to resolve
the dispute through direct negotiation with the other party. If the dispute is
not resolved within two weeks after a demand for direct negotiation, the parties
shall attempt to resolve the dispute through mediation. If the parties do not
promptly agree on a mediator, the parties shall request the Association of
Attorney Mediators in Harris County, Texas to appoint a mediator certified by
the Supreme Court of Texas. If the mediator is unable to facilitate a settlement
of the dispute within a reasonable period of time, as determined by the
mediator, the mediator shall issue a written statement to the parties to that
effect and any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three arbitrators in Houston, Texas, in accordance with the
rules of the American Arbitration Association then in effect, subject to the
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provisions of this Article. Each party shall appoint one arbitrator from the
panels of arbitrators of the American Arbitration Association within thirty days
after the statement issued by the mediator and these two arbitrators shall
appoint a third arbitrator within ten days after their selection. The
arbitration shall commence within thirty days after all of the arbitrators have
been selected and shall conclude within thirty days thereafter. The arbitrators
shall render their decision within thirty days after the conclusion of the
arbitration. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The costs and expenses, including reasonable attorneys'
fees, of the prevailing party in any dispute arising under this Agreement will
be promptly paid by the other party.
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IN WITNESS WHEREOF, Seller, Elmagco and Buyer have caused this
Agreement to be duly executed in their respective corporate names by their
respective duly authorized officers, all as of the day and year first above
written.
BUYER: SELLER:
BOOTS & COOTS INTERNATIONAL BEGEMANN, INC., a Delaware
WELL CONTROL, INC., a Delaware corporation
corporation
By: By:
---------------------------- --------------------------
Name: Name:
-------------------------- ------------------------
Title: Title:
------------------------- -----------------------
ELMAGCO:
ELMAGCO, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
<PAGE>
EXHIBIT 2.2
FIRST AMENDMENT
TO STOCK PURCHASE AGREEMENT
This First Amendment to Stock Purchase Agreement (the "First Amendment")
dated July 15, 1998, is by and among Elmagco, Inc., a Delaware corporation
("Elmagco"), Begemann, Inc., a Delaware corporation ("Seller"), and Boots &
Coots International Well Control, Inc., a Delaware corporation ("Buyer").
W I T N E S S T H:
WHEREAS, Elmagco, Seller, and Buyer have entered into that certain Stock
Purchase Agreement dated June 22, 1998 (the "Purchase Agreement") pursuant to
which Buyer is purchasing from Seller all of the issued and outstanding stock of
Elmagco; and
WHEREAS, Elmagco, Seller, and Buyer desire to amend the Purchase Agreement
as herein set forth.
NOW THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Unless the context hereof indicates otherwise, all
capitalized terms used herein shall have the same meaning as such capitalized
terms are defined in the Purchase Agreement.
2. Amendment to Defend Terms. The parties hereto agree that the term
"Subsidiaries" and "Subsidiary" as used in the Purchase Agreement shall be
defined to include the following entities, both collectively and individually:
(i) Baylor Electronics, Inc. a Texas corporation, (ii) Baylor Controls, Inc., a
Texas corporation, (iii) Baylor Company, a Texas corporation, (iv) Baylor
Limited, a United Kingdom corporation, and (v) Schottel, Inc., a Delaware
corporation.
3. Amendment to Section 3.3. The parties hereto agree that Section 3.3
of the Purchase Agreement shall be amended and replaced in its entirety by the
following paragraph:
"3.3 Capital of Elmagco. The authorized capital stock of Elmagco
consists of 2,000 shares of common stock, having a par value of $1.00 each,
of which 100 shares are issued and outstanding and 1,000 shares of
preferred stock, having a par value of $1.00 each, none of which are issued
and outstanding. All of the Shares are validly issued, fully paid and non-
assessable. There are no outstanding subscriptions, options, rights,
warrants, convertible securities, or other agreements or commitments
obligating Elmagco to issue or to transfer from treasury any additional
shares of its capital stock of any class."
4. Amendment to Schedule 3.5. The attached Schedule 3.5 is incorporated
herein
<PAGE>
and made a part of this Agreement and part of the Purchase Agreement by this
reference. Effective July 15, 1998, the amended Schedule 3.5 shall supersede the
Schedule 3.5 that was attached to the Purchase Agreement on June 22, 1998.
5. Ratification. The terms and provisions as set forth in this First
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Purchase Agreement. Except as expressly modified and superseded by
this First Amendment, the terms and provisions of the Purchase Agreement and any
instruments executed in connection with the Purchase Agreement are hereby
ratified and confirmed and shall continue in full force and effect. Except as
expressly modified and superseded by this First Amendment, each of the parties
hereto specifically ratifies all representations and warranties made in the
Purchase Agreement and certifies that the representations and warranties made
therein remain true and correct as if the representations and warranties were
made herein as of the date hereof. Buyer hereby waives any and all claims with
respect to any representation or warranty made in Section 3.3 of the Purchase
Agreement, Section 3.5 of the Purchase Agreement or Schedule 3.5 attached to the
Purchase Agreement, to the extent such claim is based on a representation or
warranty that has been superseded by this First Amendment.
6. Extension.
(a) The parties hereto agree that the Closing shall take place at
such time and date, no later than 5:00 p.m. Houston time on July
23, 1998, as may be mutually agreed upon by Seller and Buyer, or,
if Seller and Buyer do not otherwise so agree, at 10:00 a.m.
Houston time on July 23, 1998. Five o'clock p.m. Houston time,
on July 23, 1998 is hereinafter referred to as the "New Closing
Deadline."
(b) In consideration of Seller's agreement to extend the date of
Closing beyond July 15, 1998, Buyer shall pay to Seller upon
execution of this First Amendment by Elmagco, Buyer, and Seller
the amount of $500,000.00 (the "Extension Fee") by wire transfer
to Seller's counsel, Winstead Sechrest & Minick P.C. Buyer
unconditionally and irrevocably authorizes Winstead Sechrest &
Minick P.C. to disburse the Extension Fee to Seller. The
Extension Fee is non-refundable, but shall be applied to the cash
portion of the Purchase Price at Closing if Seller receives the
cash portion of the Purchase Price prior to the New Closing
Deadline (receipt by Seller of the cash portion of the Purchase
Price is hereinafter referred to as "Funding").
(c) If Funding does not occur by the New Closing Deadline, Seller
shall be entitled to: (i) terminate the Purchase Agreement and
retain the Extension Fee; (ii) receive and recover from Buyer the
breakup fee pursuant to, and subject to the conditions of,
Section 2.3 of the Purchase Agreement, except that the parties
hereto agree that such break up fee shall be reduced by the
amount of the Extension Fee.
<PAGE>
(d) In addition to the foregoing, the Purchase Price and the cash
portion thereof due at Closing shall be increased by $27,000,000,
multiplied by Comerica Bank-Texas' base rate on July 15, 1998,
divided by 365, multiplied by the number of days after July 15,
1998 through and including the date on which Funding occurs.
7. Execution Counterparts. This First Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
8. Governing Law. This First Amendment shall be governed by and
construed in accordance with the internal laws of the State of Texas.
9. Successors and Assigns. This First Amendment is binding upon and
shall inure to the benefit of Elmagco, Seller, Buyer, and their respective
successors and assigns.
10. Headings. The headings, captions and arrangements used in this First
Amendment are for convenience only and shall not affect the interpretation of
this First Amendment.
11. NO ORAL AGREEMENTS. THIS FIRST AMENDMENT, WHEN TAKEN TOGETHER WITH
THE PURCHASE AGREEMENT AND THE SCHEDULES THERETO, CONSTITUTE THE ENTIRE
AGREEMENT AMONG THE PARTIES CONCERNING THE SUBJECT MATTER HEREOF AND SUPERSEDES
ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS
BETWEEN THE PARTIES HERETO.
EXECUTED this 15th day of July, 1998.
ELMAGCO, INC.
By:
H.B. Payne, Jr.
President and Chief Executive Officer
BEGEMANN, INC.
By:
James H. McTurnan
President
BOOTS & COOTS INTERNATIONAL WELL
CONTROL, INC.
By:
Larry H. Ramming
Chairman of the Board
<PAGE>
EXHIBIT 2.3
SECOND AMENDMENT
TO STOCK PURCHASE AGREEMENT
This Second Amendment to Stock Purchase Agreement (the "Second Amendment")
dated July 23, 1998, is by and among Elmagco, Inc., a Delaware corporation
("Elmagco"), Begemann, Inc., a Delaware corporation ("Seller"), and Boots &
Coots International Well Control, Inc., a Delaware corporation ("Buyer").
W I T N E S S T H:
WHEREAS, Elmagco, Seller, and Buyer have entered into that certain Stock
Purchase Agreement dated June 22, 1998 (the "Purchase Agreement") pursuant to
which Buyer is purchasing from Seller all of the issued and outstanding stock of
Elmagco;
WHEREAS, Elmagco, Seller and Buyer have entered into that certain First
Amendment to Stock Purchase Agreement dated July 21, 1998 (the "First
Amendment"); and
WHEREAS, Elmagco, Seller, and Buyer desire to further amend the Purchase
Agreement as herein set forth.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Unless the context hereof indicates otherwise, all
capitalized terms used herein shall have the same meaning as such capitalized
terms are defined in the Purchase Agreement.
2. Amendment. As of the Closing Date, Seller is entitled to receive from
Elmagco, as a dividend, a tax sharing payment for the period through the Closing
Date. The amount of such tax sharing payment is hereby recognized and approved
as a dividend from Elmagco to Seller as of the Closing Date. The amount of the
tax sharing payment, net of certain other balances between Elmagco and Seller
which are being offset as of the Closing Date, is herein referred to as the
"Additional Distribution." Pursuant to Section 1.6 of the Purchase Agreement,
Seller is responsible for all franchise taxes of Elmagco resulting from the
Section 338(h)(10) election described therein (the "Resulting Franchise Taxes").
As of the date hereof, the amount of the Resulting Franchise Taxes is unknown.
Accordingly, Buyer and Seller hereby agree that Elmagco shall withhold from the
Additional Distribution, as security for Seller's obligation to pay the
Resulting Franchise Taxes, the sum of $600,000 (the "Withheld Tax Amount").
Seller hereby authorizes Buyer and Elmagco to utilize the Withheld Tax Amount to
pay the Resulting Franchise Taxes, which Seller agrees shall be paid pursuant to
a timely filed franchise tax return (or returns, if Resulting Franchise Taxes
are due to more than one state). If the Resulting Franchise Taxes exceed the
Withheld Tax Amount, Buyer and Elmagco will promptly notify Seller, and Seller
will wire transfer to Elmagco the balance of the Resulting Franchise Taxes. If
the Withheld Tax Amount exceeds the Resulting Franchise Taxes reflected on such
return or returns, Buyer and Elmagco shall immediately release the excess to
Seller.
<PAGE>
3. Ratification. The terms and provisions as set forth in this Second
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Purchase Agreement as amended. Except as expressly modified and
superseded by this Second Amendment, the terms and provisions of the Purchase
Agreement, as amended and any instruments executed in connection with the
Purchase Agreement, as amended are hereby ratified and confirmed and shall
continue in full force and effect. Each of the parties hereto specifically
ratifies all representations and warranties made in the Purchase Agreement, as
amended and certifies that the representations and warranties made therein
remain true and correct as if the representations and warranties were made
herein as of the date hereof.
4. Execution Counterparts. This Second Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and of which taken together shall constitute but one and the same instrument.
5. Governing Law. This Second Amendment shall be governed by and
construed in accordance with the internal laws of the State of Texas.
6. Successors and Assigns. This Second Amendment is binding upon and
shall inure to the benefit of Elmagco, Seller, Buyer, and their respective
successors and assigns.
7. Headings. The headings, captions and arrangements used in this Second
Amendment are for convenience only and shall not affect the interpretation of
this Second Amendment.
8. NO ORAL AGREEMENTS. THIS SECOND AMENDMENT, WHEN TAKEN THERETO
TOGETHER WITH THE PURCHASE AGREEMENT AND THE FIRST AMENDMENT AND THE SCHEDULES
CONSTITUTES THE ENTIRE AGREEMENT AMONG THE PARTIES CONCERNING THE SUBJECT MATTER
HEREOF AND SUPERSEDES ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
ORAL AGREEMENTS BETWEEN THE PARTIES HERETO.
EXECUTED this 23rd day of July, 1998.
ELMAGCO, INC.
By:___________________________________
H.B. Payne, Jr.
President and Chief Executive Officer
-2-
<PAGE>
BEGEMANN, INC.
By:____________________________________
Name:_________________________________
Title:_______________________________
BOOTS & COOTS INTERNATIONAL
WELL CONTROL, INC.
By:____________________________________
Thomas L. Easley
Vice President
-3-
<PAGE>
EXHIBIT 10.19
$5,000,000
SENIOR LOAN AGREEMENT
(BRIDGE FACILITY)
DATED AS OF JULY 6, 1998
BY AND BETWEEN
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
AS BORROWER
AND
PRUDENTIAL SECURITIES CREDIT CORPORATION
AS LENDER
<PAGE>
TABLE OF CONTENTS
PAGE
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ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms....................................... 1
SECTION 1.02. Computation of Time Periods................................. 15
SECTION 1.03. Accounting Terms............................................ 15
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances................................................ 15
SECTION 2.02. [Reserved].................................................. 15
SECTION 2.03. Repayment................................................... 15
SECTION 2.04. Prepayments................................................. 15
SECTION 2.05. Interest.................................................... 16
SECTION 2.06. Fees........................................................ 16
SECTION 2.07. Increased Costs, Etc........................................ 16
SECTION 2.08. Payments and Computations................................... 17
SECTION 2.09. Taxes....................................................... 18
SECTION 2.10. Sharing of Payments, Etc.................................... 20
SECTION 2.11. Use of Proceeds............................................. 20
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Borrowing........................... 21
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.............. 24
SECTION 4.02. Survival of Representations and Warranties.................. 29
SECTION 4.03. Ranking..................................................... 29
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants....................................... 29
SECTION 5.02. Negative Covenants.......................................... 31
SECTION 5.03. Reporting Requirements...................................... 34
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ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default........................................... 36
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendments, Etc............................................. 39
SECTION 7.02. Notice, Etc................................................. 39
SECTION 7.03. No Waiver; Remedies......................................... 40
SECTION 7.04. Costs and Expenses; Indemnification......................... 40
SECTION 7.05. Right of Set-off............................................ 42
SECTION 7.06. Binding Effect.............................................. 43
SECTION 7.07. Assignments and Participations.............................. 43
SECTION 7.08. Governing Law; Submission to Jurisdiction................... 44
SECTION 7.09. Execution in Counterparts................................... 44
SECTION 7.10. Confidentiality............................................. 45
SECTION 7.11. Waiver of Jury Trial........................................ 45
Exhibit A - Form of Note
Exhibit B - Form of Guaranty
Exhibit C - Form of Security Agreement Amendments
Exhibit D - Form of Stock Pledge Agreement Amendments
Exhibit E - Form of Assignment and Option Agreement
Schedule 3.01(c) - Liabilities
Schedule 3.01(f) - Permitted Debt
Schedule 4.01(b) - Subsidiaries
Schedule 5.02(a) - Permitted Liens
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SENIOR LOAN AGREEMENT
SENIOR LOAN AGREEMENT dated as of July 6, 1998 among BOOTS & COOTS
INTERNATIONAL WELL CONTROL, INC., a Delaware corporation (the "BORROWER"), and
PRUDENTIAL SECURITIES CREDIT CORPORATION ("PRUDENTIAL").
PRELIMINARY STATEMENTS:
WHEREAS, the Borrower intends to borrow (x) up to $40,000,000 of
subordinated debt (the "SUB DEBT") and/or (y) up to $45,000,000 of senior bank
debt (the "BANK DEBT"); and
WHEREAS, the Borrower intends to issue up to $10,000,000 in preferred stock
to certain purchasers in a private placement offering (the "PREFERRED
OFFERING"); and
WHEREAS, the Borrower has requested that Prudential fund advances for the
purposes set forth in Section 2.11 hereof pending the borrowing of the Sub Debt
or the Bank Debt; and
WHEREAS, Prudential is willing to agree to provide such financing on the
terms and conditions of this Agreement; and
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ADVANCE" has the meaning specified in Section 2.01.
"AFFILIATE" means, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with
such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 5% or more of the
Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
Voting Stock, by contract or otherwise.
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"APPLICABLE MARGIN" means (x) for the period from the Closing Date to
the ninetieth day after the Closing Date, 5.5% per annum, (y) for the
period from the ninety-first day after the Closing Date to the one hundred
twentieth day after the Closing Date, 7.5% per annum, and (z) for each
thirty day period beginning on the one hundred twenty-first day after the
Closing Date, an additional 1.0% above the rate applicable on the day
immediately preceding the first day of such thirty day period until the
Notes are repaid in full.
"ASSET DISPOSITION" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions)
by the Borrower or any Subsidiary or Affiliate of the Borrower, including
any disposition by means of a merger, consolidation or similar transaction,
of (i) any shares of capital stock of a Subsidiary or Affiliate, (ii) all
or substantially all of the assets of any division or line of business of
the Borrower or any Subsidiary or Affiliate of the Borrower or (iii) any
other assets of the Borrower or any Subsidiary or Affiliate of the Borrower
outside the ordinary course of business of the Borrower or any Subsidiary
or Affiliate of the Borrower.
"ASSIGNMENT AND OPTION AGREEMENT" means the Assignment and Option
Agreement between Larry H. Ramming, the Borrower and the Lender dated the
date hereof.
"BANK DEBT" has the meaning specified in the preamble hereto.
"BORROWER" has the meaning specified in the preamble hereto.
"BUSINESS DAY" means a day of the year on which banks are not required
or authorized to close in New York City.
"CAPITALIZED LEASES" has the meaning specified in clause (e) of the
definition of Debt.
"CAPITAL STOCK" of any Person means any and all shares, partnership
interests, participations, rights in or other equivalents of, or interests
in, the equity of such Person, but excluding any debt securities
convertible into such equity.
"CASH EQUIVALENTS" means any of the following, to the extent owned by
the Borrower free and clear of all Liens and having a maturity of not
greater than 90 days from the date of issuance thereof: (a) readily
marketable direct obligations of the Government of the United States or any
agency or instrumentality thereof or obligations unconditionally guaranteed
by the full faith and credit of the Government of the United States, (b)
insured certificates of deposit of or time deposits with any commercial
bank that is a Lender or a member of the Federal Reserve System, issues (or
the parent of which issues) commercial paper rated as described in clause
(c), is organized under the laws of
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the United States or any State thereof and has combined capital and surplus
of at least $1 billion, or (c) commercial paper issued by any corporation
organized under the laws of any State of the United States and rated at
least "Prime-1" (or the then equivalent grade) by Moody's Investors
Services, Inc. or "A-1" (or the then equivalent grade) by Standard & Poor's
Rating Group.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980.
"CHANGE OF CONTROL" means the occurrence of any of the following
events:
(a) Any Person or "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person will
be deemed to have "beneficial ownership" of all securities that such Person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 50%
of the voting power of all classes of Voting Stock of the Borrower;
(b) During any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Borrower
(together with any new directors whose election to such Board of Directors,
or whose nomination for election by the stockholders of the Borrower, was
approved by a vote of 66-2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Borrower then in
office; or
(c) The Borrower is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than a transaction that complies with the
provisions of clause (d) or (e) of Section 5.02.
"CLOSING DATE" means the date on which all conditions set forth in
Section 3.01 have been satisfied or waived by all of the Lenders and the
Advance or Advances contemplated by Section 2.01 have been made.
"COMMITMENT" means, with respect to Prudential, $5,000,000 or, if
Prudential has assigned all or a portion of its Commitment, the amount set
forth for such assignee in the Register maintained by Prudential pursuant
to Section 7.07(b) as such assignee's "Commitment".
"COMMON STOCK" means fully paid and nonassessable whole shares of
common stock, par value $.00001 per share, of the Borrower.
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"CONFIDENTIAL INFORMATION" means information that the Borrower
furnishes to any Lender in a writing designated as confidential, but does
not include any such information that is or becomes generally available to
the public or that is or becomes available to any Lender from a source
other than the Borrower that is not, to the best of such Lender's
knowledge, acting in violation of a confidentiality agreement with the
Borrower.
"CONSOLIDATED" refers to the consolidation of accounts of the Borrower
and its Subsidiaries in accordance with GAAP.
"CONTROL EVENT" means:
(i) the execution by the Borrower or any of its Subsidiaries or
Affiliates of any agreement or letter of intent with respect to any
proposed transaction or event or series of transactions or events which,
individually or in the aggregate, may reasonably be expected to result in a
Change in Control;
(ii) the execution of any written agreement which, when fully
performed by the parties thereto, would result in a Change in Control; or
(iii) the making of any written offer by any person (as such term is
used in section 13(d) and section 14(d)(2) of the Exchange Act as in effect
on the Closing Date) or related persons constituting a group (as such term
is used in Rule 13d-5 under the Exchange Act as in effect on the Closing
Date) to the holders of the Common Stock of the Borrower, which offer if
accepted by the requisite number of holders, would result in a Change in
Control.
"DEBT" of any Person means, without duplication,
(a) all indebtedness of such Person for borrowed money;
(b) all Obligations of such Person for the deferred purchase price of
property or services;
(c) all Obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments;
(d) all Obligations of such Person created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of
the seller or lender under such agreement in the event of default are
limited to repossession or sale of such property);
(e) all Obligations of such Person as lessee under leases that have
been or should be, in accordance with GAAP, recorded as capital leases
("CAPITALIZED LEASES");
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(f) all Obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities;
(g) all Obligations of such person to purchase, redeem, retire,
defease or otherwise make any payment in respect of any capital stock of or
other ownership or profit interest in such Person or any other Person or
any warrants, rights or options to acquire such capital stock;
(h) all Obligations of such Person in respect of Hedge Agreements;
(i) all Debt of others referred to in clauses (a) through (h) above
guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an
agreement (i) to pay or purchase such Debt or to advance or supply funds
for the payment or purchase of such Debt, (ii) to purchase, sell or lease
(as lessee or lessor) property, or to purchase or sell services, primarily
for the purpose of enabling the debtor to make payment of such Debt or to
assure the holder of such Debt against loss, (iii) to supply funds to or in
any other manner invest in the debtor (including any agreement to pay for
property or services irrespective of whether such property is received or
such services are rendered) or (iv) otherwise to assure a creditor against
loss; and
(j) all Debt referred to in clauses (a) through (h) above secured by
(or for which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such Debt.
"DEFAULT" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be given
or time elapse or both.
"ENVIRONMENTAL ACTION" means any administrative, regulatory or
judicial action, suit, demand, demand letter, claim, notice of non-
compliance or violation, investigation, proceeding, consent order or
consent agreement relating in any way to any Environmental Law or any
Environmental Permit including, without limitation, (a) any claim by any
governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any
Environmental Law and (b) any claim by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief resulting from Hazardous Materials or arising from alleged injury or
threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW" means any federal, state or local law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award relating to the environment, health, safety or Hazardous Materials,
including, without limitation,
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CERCLA, the Resource Conservation and Recovery Act, the Hazardous Materials
Transportation Act, the Clean Water Act, the Toxic Substances Control Act,
the Clean Air Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide and Rodenticide Act and the Occupational
Safety and Health Act.
"ENVIRONMENTAL PERMIT" means any permit, approval, identification
number, license or other authorization required under any Environmental
Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA AFFILIATE" of any Person means any other Person that for
purposes of Title IV of ERISA is a member of such Person's controlled
group, or under common control with such Person, within the meaning of
Section 414 of the Internal Revenue Code.
"ERISA EVENT" with respect to any Person means (a) the occurrence of a
reportable event, within the meaning of Section 4043 of ERISA, with respect
to any Plan of such Person or any of its ERISA Affiliates unless the 30-day
notice requirement with respect to such event has been waived by the PBGC;
(b) the provision by the administrator of any Plan of such Person or any of
its ERISA Affiliates of a notice of intent to terminate such Plan, pursuant
to Section 4041(a)(2) of ERISA (including any such notice with respect to a
plan amendment referred to in Section 4041(e) of ERISA); (c) the cessation
of operations at a facility of such Person or any of its ERISA Affiliates
in the circumstances described in Section 4062(e) of ERISA; (d) the
withdrawal by such Person or any of its ERISA Affiliates from a Multiple
Employer Plan during a plan year for which it was a substantial employer,
as defined in Section 4001(a)(2) of ERISA; (e) the failure by such Person
or any of its ERISA Affiliates to make a payment to a Plan required under
Section 302(f)(1) of ERISA; (f) the adoption of an amendment to a Plan of
such Person or any of its ERISA Affiliates requiring the provision of
security to such Plan, pursuant to Section 307 of ERISA; or (g) the
institution by the PBGC of proceedings to terminate a Plan of such Person
or any of its ERISA Affiliates, pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042 of ERISA
that could constitute grounds for the termination of, or the appointment of
a trustee to administer, such Plan.
"EUROCURRENCY LIABILITIES" has the meaning specified in Regulation D
of the Board of Governors of the Federal Reserve System, as in effect from
time to time.
"EURODOLLAR RATE" means, for each Interest Period shall mean (x) the
London interbank offered rate for United States of America Dollar deposits
for a period equal in length to such Interest Period that appears as of
11:00 A.M. (London time) on the second Business Day next preceding the
first day of such Interest Period on the display page
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designated as Page 3750 on the Telerate Monitor (or such other page or
service as shall replace the Telerate Monitor for the purposes of
displaying the London interbank offered rate for United States of America
Dollar deposits), divided by (y) 1 minus the applicable Eurodollar Rate
Reserve Percentage for such Interest Period. If (i) on the date on which
the Borrower shall seek to determine the Eurodollar Rate for an Interest
Period, no quotation is given on Telerate Monitor page 3750, or (ii) the
Borrower shall have failed to give at least two Business Days' prior
written notice to request the advance of funds hereunder, the Eurodollar
Rate shall be equal to the Lender's cost of funds for United States Dollar
deposits for a period comparable to such Interest Period on the date of
determination for amounts approximately equal to the then-outstanding
principal balance of the Note.
The period between the date hereof and the date of payment in full of
the principal amount hereof shall be divided into successive periods of
three calendar months (each, an "INTEREST PERIOD"), with each such Interest
Period ending on the last day of a calendar month, except that the initial
Interest Period shall begin on the Closing Date and end on the last day of
the calendar month occurring three months after the last day of the
calendar month in which the Closing Date occurs. Each subsequent Interest
Period shall begin on the last day of the preceding Interest Period;
provided, that, (i) any Interest Period that would otherwise end on a day
that is not a Business Day shall, subject to clauses (ii) and (iii) below,
be extended to the next succeeding Business Day unless such Business Day
falls in another calendar month, in which case such Interest Period shall
end on the next preceding Business Day; (ii) any Interest Period that
begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall, subject to clause (iii), end on the last
Business Day of a calendar month; and (iii) any Interest Period that would
otherwise end after the Maturity Date shall end on the Maturity Date.
"EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest Period means the
reserve percentage applicable two Business Days before the first day of
such Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without limitation,
any emergency, supplemental or other marginal reserve requirement) for a
member bank of the Federal Reserve System in New York City with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities
(or with respect to any other category of liabilities that includes
deposits by reference to which the interest rate on Eurodollar Rate
Advances is determined) having a term equal to such Interest Period.
"EVENTS OF DEFAULT" has the meaning specified in Section 6.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
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"EXECUTIVE LOAN" means the loan outstanding on the Closing Date made
by Mr. Larry H. Ramming to the Borrower pursuant to that certain promissory
note effective April 30, 1998 in the original principal amount of
$7,000,000.
"FACILITY" means, at any time, the aggregate amount of the Lenders'
Commitments at such time.
"GAAP" has the meaning specified in Section 1.03.
"GUARANTOR" means each of IWC Services, Inc., a Texas corporation,
Code 3, Inc., a Texas corporation, Hell Fighters, Inc., a Texas
corporation, ITS Supply Corporation, a Delaware corporation, ABASCO, Inc.,
a Texas corporation and IWC Engineering, Inc. a Texas corporation and each
other Subsidiary that executes and delivers a Guaranty Supplement as
required under this Agreement.
"GUARANTY" has the meaning specified in Section 3.01(h)(xiv).
"GUARANTY SUPPLEMENT" means a guaranty supplement in the form of Annex
A to the Guaranty.
"HAZARDOUS MATERIALS" means (a) petroleum or petroleum products,
natural or synthetic gas, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation and radon gas, (b) any
substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants" or "pollutants," or words of similar
import, under any Environmental Law and (c) any other substance exposure to
which is regulated under any Environmental Law.
"HEDGE AGREEMENTS" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements,
currency future or option contracts and other similar agreements.
"INSUFFICIENCY" means, with respect to any Plan, the amount, if any,
of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of
ERISA.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"INTEREST PERIOD" shall have the meaning specified in the defined term
"Eurodollar Rate."
"INVESTMENT" in any Person means any loan or advance to such Person,
any purchase or other acquisition of any capital stock, warrants, rights,
options, obligations
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or other securities of such Person, any capital contribution to such Person
or any other investment in such Person, to such Person or any other
investment in such Person, including, without limitation, any arrangement
pursuant to which the investor incurs Debt of the types referred to in
clauses (i) and (j) of the definition of "DEBT" in respect of such Person.
"LENDERS" means, on the Closing Date and thereafter, Prudential and
each assignee that shall become a party hereto from time to time.
"LIEN" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Guaranty, each
Guaranty Supplement, the Security Agreements, the Security Agreement
Amendments, the Stock Pledge Agreements, the Stock Pledge Agreement
Amendments, and the Assignment and Option Agreement, and each other
document or instrument executed and delivered in connection therewith.
"LOAN PARTY" means each party to a Loan Document other than the
Lenders.
"MARGIN STOCK" has the meaning specified in Regulation U.
"MATERIAL ADVERSE CHANGE" means any material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower and its Subsidiaries taken as a
whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower or the Borrower and any of its
Subsidiaries taken as a whole, (b) the rights and remedies of any Lender
under any Loan Document, or (c) the ability of the Borrower or any other
Person to perform its Obligations under any Loan Document.
"MATERIAL CONTRACT" means, with respect to any Person, each contract
to which such Person is a party involving aggregate consideration payable
to or by such Person of $50,000 or more in any year or otherwise material
to the business, condition (financial or otherwise), operations,
performance, properties or prospects of such Person.
"MATURITY DATE" means the date occurring six months after the Closing
Date.
"MULTIEMPLOYER PLAN" of any Person means a multiemployer plan, as
defined in Section 4001(a)(3) of ERISA, to which such Person or any of its
ERISA Affiliates is
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making or accruing an obligation to make contributions, or has within any
of the preceding five plan years made or accrued an obligation to make
contributions.
"MULTIPLE EMPLOYER PLAN" of any Person means a single employer plan,
as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of such Person or any of its ERISA Affiliates and at least one
Person other than such Person and its ERISA Affiliates or (b) was so
maintained and in respect of which such Person or any of its ERISA
Affiliates could have liability under Section 4064 or 4069 of ERISA in the
event such plan has been or were to be terminated.
"NET CASH PROCEEDS" means, with respect to any sale, lease, transfer
or other disposition of any asset or the sale or issuance of any Debt or
capital stock, any securities convertible into or exchangeable for capital
stock or any warrants, rights or options to acquire capital stock by any
Person, the aggregate amount of cash received from time to time by or on
behalf of such Person in connection with such transaction after deducting
therefrom only (a) reasonable and customary brokerage commissions,
underwriting fees and discounts, legal fees, finder's fees and other
similar fees and commissions and (b) the amount of taxes payable in
connection with or as a result of such transaction and (c) the amount of
any Debt secured by a Lien on such asset that, by the terms of such
transaction, is required to be prepaid upon such disposition, in each case
to the extent, but only to the extent, that the amounts so deducted are, at
the time of receipt of such cash, actually paid to a Person that is not an
Affiliate and are properly attributable to such transaction or to the asset
that is the subject thereof.
"NOTE" means a promissory note of the Borrower payable to the order of
any Lender, in substantially the form of Exhibit A hereto, evidencing the
indebtedness of the Borrower to such Lender resulting from the Advance made
by such Lender.
"OBLIGATION" means, with respect to any Person, any obligation of such
Person of any kind, including, without limitation, any liability of such
Person on any claim, whether or not the right of any creditor to payment in
respect of such claim is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, disputed, undisputed, legal, equitable, secured
or unsecured, and whether or not such claim is discharged, stayed or
otherwise affected by any proceeding referred to in Section 6.01(f).
Without limiting the generality of the foregoing, the Obligations of the
Borrower under the Loan Documents include (a) the obligation to pay
principal, interest, charges, expenses, fees, attorneys' fees and
disbursements, indemnities and other amounts payable by the Borrower under
any Loan Document and (b) the obligation to reimburse any amount in respect
of any of the foregoing that any Lender, in its sole discretion, may elect
to pay or advance on behalf of the Borrower.
"OTHER TAXES" has the meaning specified in Section 2.09(b).
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"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED LIENS" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced:
(a) Liens for taxes, assessments and governmental charges or levies
to the extent not required to be paid under Section 5.01(b)
hereof;
(b) Liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's Liens and other similar
Liens arising in the ordinary course of business securing
obligations under workers' compensation laws or similar
legislation or to secure public or statutory obligations;
(c) easements, rights of way and other encumbrances on title to real
property that do not render title to the property encumbered
thereby unmarketable or materially adversely affect the use of
such property for its present purposes;
(d) Liens arising in the ordinary course of the Borrower's or any of
its Subsidiaries' business by operation of law, but only if
payment in respect of any such Lien is not at the time required,
or the Debt secured by any such Lien is being contested in good
faith and by proper proceedings and appropriate reserves are being
maintained as to such contested Debt, and such Liens do not
materially detract from the value of the property of the Borrower
or such Subsidiary and do not materially impair the use thereof in
the operation of the Borrower's or such Subsidiary's business;
(e) purchase money Liens or purchase money security interests upon or
in any property acquired or held by the Borrower or any of its
Subsidiaries in the ordinary course of business to secure the
purchase price of such property or to secure Debt incurred solely
for the purpose of financing the acquisition of such property;
(f) Liens securing Debt of a Subsidiary of the Borrower to the
Borrower or to another Subsidiary and Liens securing Debt of the
Borrower to any Subsidiary of the Borrower to the extent such Debt
is permitted to exist hereunder;
(g) Liens arising by virtue of the rendition, entry or issuance
against the Borrower or any of its Subsidiaries, or any property
of the Borrower or any of its Subsidiaries, of any judgment, writ,
order, or decree that involves the payment of money in an amount
that exceeds the uncontested insurance
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available therefor by $100,000 or more for so long as any such
Lien is in existence for less than 20 consecutive days after it
first arises or is being contested in good faith and by proper
proceedings and as to which appropriate reserves are being
maintained;
(h) Liens incurred or deposits made in the ordinary course of business
to secure the performance of tenders, bids, leases, contracts,
statutory obligations and other similar obligations or arising as
a result of progress payments under government contracts; and
(i) such other Liens as appear on Schedule 5.02(a) hereto, to the
extent provided therein.
"PERSON" means any individual, partnership, corporation (including a
business trust), limited liability company or partnership, joint stock
company, trust, unincorporated organization, association, joint venture or
other entity, or a government or any political subdivision or agency
thereof.
"PLAN" means a Single Employer Plan or a Multiple Employer Plan.
"PREFERRED OFFERING" has the meaning specified in the preamble hereto.
"PREFERRED STOCK" means, with respect to any corporation, capital
stock issued by such corporation that is entitled to a preference or
priority over any other capital stock issued by such corporation upon any
distribution of such corporation's assets, whether by dividend or upon
liquidation.
"PRUDENTIAL" has the meaning specified in the preamble hereto.
"REDEEMABLE" means, with respect to any capital stock, Debt or other
right or Obligation, any such right or Obligation that (a) the issuer has
undertaken to redeem at a fixed or determinable date or dates, whether by
operation of a sinking fund or otherwise, or upon the occurrence of a
condition not solely within the control of the issuer or (b) is redeemable
at the option of the holder.
"REGISTER" has the meaning specified in Section 7.07(b).
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REQUIRED LENDERS" means at any time Lenders owed or holding more than
50% of the sum of the aggregate principal amount of the Advances
outstanding at such time,
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or, if no such principal amount is outstanding at such time, Lenders
holding more than 50% of the aggregate Commitments at such time.
"SALE-AND-LEASEBACK TRANSACTION" means a transaction or series of
transactions pursuant to which the Borrower or any Subsidiary shall sell or
transfer to any Person (other than the Borrower or a Subsidiary) any
property, whether now owned or hereafter acquired, and, as part of the same
transaction or series of transactions, the Borrower or any Subsidiary shall
rent or lease as lessee (other than pursuant to a Capitalized Lease), or
similarly acquire the right to possession or use of, such property or one
or more properties which it intends to use for the same purpose or purposes
as such property.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES OFFERING" means the public or private issuance or sale by
the Borrower, any Subsidiary of the Borrower, or any Affiliate of the
Borrower or any Subsidiary thereof, of any equity or debt securities, any
securities convertible into or exchangeable for any equity or debt
securities or any warrants, rights or options to acquire or subscribe for
any equity or debt securities.
"SECURITY AGREEMENTS" means the Security Agreements between the
Borrower and Geneva Associates, L.L.C., as collateral agent for itself and
Main Street Merchant Partners II, L.P., and between each of the Guarantors
and Geneva Associates, L.L.C., as collateral agent for itself and Main
Street Merchant Partners II, L.P., in each case dated January 2, 1998
except with respect to Code 3, Inc., which is dated March 5, 1998, as
amended through the date hereof.
"SECURITY AGREEMENT AMENDMENTS" means the First and Second Amendments
to the Security Agreements dated the date hereof between each of the
Borrower and the Guarantors and the Lender.
"SINGLE EMPLOYER PLAN" of any Person means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of such Person or any of its ERISA Affiliates and no Person other
than such Person and its ERISA Affiliates or (b) was so maintained and in
respect of which such Person or any of its ERISA Affiliates could have
liability under Section 4069 of ERISA in the event such plan has been or
were to be terminated.
"SOLVENT" and "SOLVENCY" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property of
such Person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person, (b) the present
fair salable value of the assets of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured, (c) such Person does not intend
to, and does not believe that
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it will, incur debts or liabilities beyond such Person's ability to pay as
such debts and liabilities mature and (d) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute an
unreasonably small capital. The amount of contingent liabilities at any
time shall be computed as the amount that, in the light of all the facts
and circumstances existing at such time, represents the amount that can
reasonably be excepted to become an actual or matured liability.
"STOCK PLEDGE AGREEMENTS" means the Stock Pledge Agreement dated
January 2, 1998 between the Borrower and Geneva Associates, L.L.C., as
collateral agent for itself and Main Street Merchant Partners II, L.P., as
amended through the date hereof, and the Stock Pledge Agreement dated March
5, 1998 between IWC Services, Inc. and Geneva Associates, L.L.C., as
collateral agent for itself and Main Street Merchant Partners II, L.P., as
amended through the date hereof.
"STOCK PLEDGE AGREEMENT AMENDMENTS" means the First Amendment to Stock
Pledge Agreement between IWC Services, Inc. and the Lender dated the date
hereof and the Second Amendment to Stock Pledge Agreement between the
Borrower and the Lender dated the date hereof.
"SUB DEBT" has the meaning specified in the preamble hereto.
"SUBSIDIARY" of any Person means any corporation, limited liability
company, partnership, joint venture, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon
the occurrence of any contingency), (b) the interest in the capital or
profits of such partnership or joint venture or (c) the beneficial interest
in such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"THIRD AMENDMENT" means the Third Amendment to Note Purchase Agreement
between Larry H. Ramming and the Borrower of even date herewith to the Note
Purchase Agreement dated as of January 2, 1998 among the Borrower, Main
Street Merchant Partners II, L.P. and Geneva Associates, L.L.C.
"TAXES" has the meaning specified in Section 2.09(a).
"VOTING STOCK" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors,
managers or trustees of any Person (irrespective
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of whether or not, at the time, stock of any other class or classes has, or
might have, voting power by reason of the happening of any contingency).
"WELFARE PLAN" means a welfare plan, as defined in Section 3(1) of
ERISA.
"WITHDRAWAL LIABILITY" has the meaning specified in Part I of Subtitle
E of Title IV of ERISA.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 4.01(f) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. THE ADVANCES. Each Lender severally agrees, on the terms
and conditions hereinafter set forth, to make a single advance (an "ADVANCE") to
the Borrower on the Closing Date in an amount not to exceed such Lender's
Commitment. Amounts borrowed under this Section 2.01 and repaid or prepaid may
not be reborrowed.
SECTION 2.02. [RESERVED].
SECTION 2.03. REPAYMENT. The Borrower shall repay to the Lenders the
aggregate outstanding principal amount of the Advances on the Maturity Date.
SECTION 2.04. PREPAYMENTS. (a) OPTIONAL. The Borrower may, upon at
least two Business Days' notice to the Lenders stating the proposed date and
aggregate principal amount of the prepayment, and if such notice is given the
Borrower shall, prepay the outstanding aggregate principal amount of the
Advances in whole or ratably in part; provided, however, that each partial
prepayment shall be in an aggregate principal amount of $1,000,000 or an
integral multiple of $1,000,000 in excess thereof.
(b) MANDATORY. (i) The Borrower shall, on the date of receipt of the Net
Cash Proceeds from any Securities Offering or issuance of Debt, including,
without limitation, the Sub Debt, the Bank Debt or the Preferred Offering,
prepay an aggregate principal amount of the Advances equal to the amount of such
Net Cash Proceeds (not to exceed the outstanding principal amount of the
Advances).
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(ii) The Borrower shall, on the date of receipt of the Net Cash
Proceeds from any Asset Disposition, prepay an aggregate principal amount
of the Advances equal to the amount of such Net Cash Proceeds.
(iii) Upon the occurrence of a Change of Control, the Borrower shall
on the date of such Change of Control, prepay all Advances outstanding at
such time in an amount equal to 101% of the principal amount thereof and
cancel the Commitments in whole.
(c) INTEREST. All prepayments under subsections (a) and (b) above
shall be made together with accrued interest to the date of such prepayment on
the aggregate principal amount prepaid.
SECTION 2.05. INTEREST. (a) ORDINARY INTEREST. The Borrower shall pay
interest on the unpaid principal amount of each Advance owing to each Lender
from the date of such Advance until such principal amount shall be paid in full,
at a rate per annum equal at all times during each Interest Period for such
Advance to the sum of (i) the Eurodollar Rate for such Interest Period for such
Advance plus (ii) the Applicable Margin in effect during such Interest Period,
payable in arrears on the last day of such Interest Period.
(b) Notwithstanding anything to the contrary set forth in clause (a) above,
the interest rate applicable to any Advances shall not exceed, at any time, the
lesser of (i) 18% per annum and (ii) the maximum amount permitted by applicable
law.
(c) DEFAULT INTEREST. Upon the occurrence and during the continuance of a
Default, the Borrower shall pay interest on (i) the unpaid principal amount of
each Advance owing to each Lender, payable in arrears on the dates referred to
in clause (a) above, at a rate per annum equal at all times to 2% per annum
above the rate per annum then required to be paid on such Advance and (ii) the
amount of any interest, fee or other amount payable hereunder which is not paid
when due, from the date such amount shall be due until such amount shall be paid
in full, payable in arrears on the date such amount shall be paid in full and on
demand, at a rate per annum equal at all times to 2% per annum above the rate
per annum required to be paid on Advances pursuant to clause (a) above.
SECTION 2.06. FEES. The Borrower shall pay to Prudential on the Closing
Date for its own account a funding fee in the amount of $200,000, and such other
reasonable out-of-pocket fees and expenses as may from time to time be agreed
between the Borrower and Prudential.
SECTION 2.07. INCREASED COSTS, ETC. (a) If, due to either (i) the
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender of maintaining the Advances, then the
Borrower shall from time to time, upon demand by
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such Lender, pay to such Lender additional amounts sufficient to compensate such
Lender for such increased cost. A certificate as to the amount of such increased
cost, submitted to the Borrower and Prudential by such Lender, shall be
conclusive and binding for all purposes, absent manifest error.
(b) If any Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender and that the amount of such
capital is increased by or based upon the existence of such Lender's commitment
to lend hereunder and other commitments of such type, then, upon demand by such
Lender, the Borrower shall pay to such Lender, from time to time as specified by
such Lender, additional amounts sufficient to compensate such Lender in the
light of such circumstances, to the extent that such Lender reasonably
determines such increase in capital to be allocable to the existence of such
Lender's commitment to lend hereunder. A certificate as to such amounts
submitted to the Borrower and Prudential by such Lender, shall be conclusive and
binding for all purposes, absent manifest error.
(c) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender to perform its
obligations hereunder to maintain Advances hereunder, then, on notice thereof
and demand therefor by such Lender to the Borrower, each Advance will
automatically, upon such demand, be due and payable.
SECTION 2.08. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall make
each payment under any Loan Document not later than 1:00 P.M. (New York City
time) on the day when due in U.S. dollars to each Lender in same day funds at
each such Lender's account as designated to the Borrower by each such Lender in
writing.
(b) The Borrower hereby authorizes each Lender, if and to the extent
payment owed to such Lender is not made when due under any Loan Document held by
such Lender, to charge from time to time against any and all of the Borrower's
accounts with such Lender any amount so due.
(c) All computations of interest and fees shall be made on the basis
of a year of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or fees are payable. Each determination by Prudential of an interest
rate or fee hereunder shall be conclusive and binding for all purposes, absent
manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding
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Business Day, and such extension of time shall in such case be included in the
computation of such payment; provided, however, that, if such extension would
cause payment of interest on or principal of Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
SECTION 2.09. TAXES. (a) Any and all payments by the Borrower hereunder
or under the Notes shall be made, in accordance with Section 2.08, free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender, net income taxes that are
imposed by the United States and franchise taxes and net income taxes that are
imposed on such Lender by the state or foreign jurisdiction under the laws of
which such Lender is organized or any political subdivision thereof and, in the
case of each Lender, franchise taxes and net income taxes that are imposed on
such Lender by the state or foreign jurisdiction of such Lender's Applicable
Lending Office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "TAXES"). If the Borrower shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder or under any
Note to any Lender, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.09) such Lender receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions and (iii) the Borrower shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or
under the other Loan Documents (hereinafter referred to as "OTHER TAXES").
(c) The Borrower shall indemnify each Lender for the full amount of
Taxes and Other Taxes, and for the full amount of taxes imposed by any
jurisdiction on amounts payable under this Section 2.09, paid by such Lender and
any liability (including penalties, additions to tax, interest and expenses)
arising therefrom or with respect thereto. This indemnification shall be made
within 30 days from the date such Lender makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to each Lender, at its address referred to in Section
7.02, the original receipt of payment thereof or a certified copy of such
receipt. In the case of any payment hereunder or under the Notes by the
Borrower through an account or branch outside the United States or on behalf of
the Borrower by a payor that is not a United States person, if the Borrower
determines that no Taxes are payable in respect thereof, the Borrower shall
furnish, or shall cause such payor to furnish, to each Lender, at such address,
an opinion of counsel acceptable to Prudential stating that such payment is
exempt from Taxes. For purposes of this subsection (d) and subsection (e), the
terms
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"UNITED STATES" and "UNITED STATES PERSON" shall have the meanings specified in
Section 7701 of the Internal Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction outside the
United States shall, on or prior to the date of its execution and delivery of
this Agreement in the case of Prudential, and on the date on which it became a
Lender, in the case of each other Lender, and from time to time thereafter if
requested in writing by the Borrower (but only so long thereafter as such Lender
remains lawfully able to do so), provide the Borrower with Internal Revenue
Service form 1001 or 4224, as appropriate, or any successor form prescribed by
the Internal Revenue Service, certifying that such Lender is entitled to
benefits under an income tax treaty to which the United States is a party that
reduces the rate of withholding tax on payments under this Agreement or the
Notes or certifying that the income receivable pursuant to this Agreement or the
Notes is effectively connected with the conduct of a trade or business in the
United States. If the form provided by a Lender at the time such Lender first
becomes a party to this Agreement indicates a United States interest withholding
tax rate in excess of zero, withholding tax at such rate shall be considered
excluded from Taxes unless and until such Lender provides the appropriate form
certifying that a lesser rate applies, whereupon withholding tax at such lesser
rate only shall be considered excluded from Taxes for periods governed by such
form; provided, however, that, if at the date on which a Lender assignee becomes
a party to this Agreement, the Lender assignor was entitled to payments under
subsection (a) in respect of United States withholding tax with respect to
interest paid at such date, then, to such extent, the term Taxes shall include
(in addition to withholding taxes that may be imposed in the future or other
amounts otherwise includable in Taxes) United States withholding tax, if any,
applicable with respect to the Lender assignee on such date. If any form or
document referred to in this subsection (e) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service form 1001 or
4224, that the Lender reasonably considers to be confidential, the Lender shall
give notice thereof to the Borrower and shall not be obligated to include in
such form or document such confidential information; provided, however, that the
Borrower shall have no obligation to "gross-up" under subsection (a) (with
respect to the Lender contemplated by clauses (x) - (z) below) in any case where
(x) the Lender is a person other than the Lender originally named herein and (y)
at the time the new Lender acquires, through assignment or otherwise, an
interest in the Advance, the Lender is unable to deliver either a Form 1001 or a
Form 4224 to the Borrower and (z) the assignor of such interest or other person
from whom the new Lender acquired its interest was, at such time of such
assignment or other transfer, able to deliver such forms.
(f) For any period with respect to which a Lender has failed to
provide the Borrower with the appropriate form described in subsection (e)
(other than if such failure is due to a change in law occurring after the date
on which a form originally was required to be provided or if such form otherwise
is not required under subsection (e)), such Lender shall not be entitled to
indemnification under subsection (a) or (c) with respect to Taxes imposed by the
United States; provided, however, that should a Lender become subject to Taxes
because of its failure to deliver
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a form required hereunder, the Borrower shall take such steps as such Lender
shall reasonably request to assist such Lender to recover such Taxes.
(g) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.09 shall survive the payment in full of principal and interest
hereunder and under the Notes.
SECTION 2.10. SHARING OF PAYMENTS, ETC. If any Lender shall obtain at
any time any payment (whether voluntary, involuntary, through the exercise of
any right of set-off, or otherwise) (a) on account of Obligations due and
payable to such Lender hereunder and under the other Loan Documents at such time
in excess of its ratable share (according to the proportion of (i) the amount of
such Obligations due and payable to such Lender at such time to (ii) the
aggregate amount of the Obligations due and payable to all Lenders hereunder and
under the other Loan Documents at such time) of payments on account of the
Obligations due and payable to all Lenders hereunder and under the other Loan
Documents at such time obtained by all the Lenders at such time or (b) on
account of Obligations owing (but not due and payable) to such Lender hereunder
and under the other Loan Documents at such time in excess of its ratable share
(according to the proportion of (i) the amount of such Obligations owing to such
Lender at such time to (ii) the aggregate amount of the Obligations owing (but
not due and payable) to all Lenders hereunder and under the other Loan Documents
at such time) of payments on account of the Obligations owing (but not due and
payable) to all Lenders hereunder and under the other Loan Documents at such
time obtained by all the Lenders at such time, such Lender shall forthwith
purchase from the other Lenders such participations in the Obligations due and
payable or owing to them, as the case may be, as shall be necessary to cause
such purchasing Lender to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each other
Lender shall be rescinded and such other Lender shall repay to the purchasing
Lender the purchase price to the extent of such other Lender's ratable share
(according to the proportion of (i) the purchase price paid to such Lender to
(ii) the aggregate purchase price paid to all lenders) of such recovery together
with an amount equal to such Lender's ratable share (according to the proportion
of (i) the amount of such other Lender's required repayment to (ii) the total
amount so recovered from the purchasing Lender) of any interest or other amount
paid or payable by the purchasing Lender in respect of the total amount so
recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 2.10 may, to the fullest extent
permitted by law, exercise all of its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
SECTION 2.11. USE OF PROCEEDS. The proceeds of the Advances shall be
available (and the Borrower agrees that it shall use such proceeds) (i) to repay
all amounts due and payable under the Promissory Note dated July 31, 1997, made
by IWC Services, Inc., a Texas corporation ("IWC SERVICES") in the face amount
of $2,066,597 and approximately $300,000 owed to LaSalle Cattle Company, Ltd.
pursuant to a Stock Purchase Agreement dated December 1997 between the
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Borrower and LaSalle Cattle Company, Ltd., pursuant to which the Company
acquired all of the stock of ITS Supply Corporation and (ii) for working capital
purposes (but only to the extent of any excess over the amounts paid under
clause (i) of this Section 2.11).
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. CONDITIONS PRECEDENT TO BORROWING. The obligation of each
Lender to make an Advance on the Closing Date is subject to the following
conditions precedent:
(a) The Lenders shall be reasonably satisfied with the corporate and
legal structure and capitalization of each Loan Party, including the terms
and conditions of the charter, bylaws and each class of Capital Stock of
each Loan Party and of each agreement or instrument relating to such
structure or capitalization.
(b) No Material Adverse Change shall have occurred since March 31,
1998, and no material inaccuracy in the financial statements prepared as of
such date and delivered to the Lenders pursuant to clause (d) of this
Section 3.01 shall exist.
(c) Since March 31, 1998, the Borrower shall not have incurred any
liability or obligation whatsoever, whether accrued, absolute, contingent
or otherwise, except as disclosed to the Lenders in the most recent
Consolidated financial statements of the Borrower and its Subsidiaries, and
the footnotes thereto, and except for liabilities or obligations incurred
by the Borrower and its Subsidiaries taken as a whole in the ordinary
course of business or which are not material to the Borrower and its
Subsidiaries taken as a whole or as otherwise disclosed in Schedule 3.01(c)
hereto. The Borrower and its Subsidiaries shall have no material
liabilities except those set forth in such financial statements or
disclosed in the footnotes thereto.
(d) Prior to the Closing Date, each of the Lenders shall have received
(i) audited consolidated financial statements of the Borrower and its
Subsidiaries for the three-year period ended June 30, 1997 and the six
months ended December 31, 1997; and (ii) unaudited financial statements for
the Borrower and its Subsidiaries as of and for the three months ended
March 31, 1998.
(e) There shall not have occurred any material disruption or material
adverse change, as determined in the sole judgment of each of the Lenders,
in the financial or capital markets generally, or in the markets for
subordinated debt or equity securities in particular or affecting
syndication or funding of the Advance hereunder (or the refinancing such
Advances).
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(f) The Lenders shall be satisfied (i) that all Debt, other than the
Executive Loan or the Debt identified on Schedule 3.01(f), has been
prepaid, redeemed or defeased in full or otherwise satisfied and
extinguished and that all Liens securing such Debt shall have been
unconditionally and irrevocably released and (ii) that, pursuant to a
Subordination Agreement and the Third Amendment, the Obligations of the
Borrower in respect of the Executive Loan are (x) subordinate in right of
payment to the Obligations of the Borrower under the Loan Documents and (y)
unsecured.
(g) The Lenders shall have completed a due diligence investigation of
the Borrower and its Subsidiaries in scope, and with results, reasonably
satisfactory to the Lenders, and nothing shall have come to the attention
of the Lenders during the course of such due diligence investigation to
lead them to believe that any disclosure made to them by the Borrower or
any Subsidiary or other Affiliate thereof was or has become misleading,
incorrect or incomplete in any material respect; without limiting the
generality of the foregoing, the Lenders shall have been given such access
to the management, records, books of account, contracts and properties of
the Borrower, its Subsidiaries and other Affiliates as they shall have
requested.
(h) Prudential shall have received on or before the Closing Date, the
following, each dated such day (unless otherwise specified), in form and
substance satisfactory to each Lender (unless otherwise specified) and
(except for the Notes) in sufficient copies for each Lender:
(i) The Notes to the order of the Lenders;
(ii) Certified copies of the resolutions of the Board of
Directors of each Loan Party approving the Loan Documents to which it
is a party, and of all documents evidencing other necessary corporate
action and governmental approvals, if any, with respect to such Loan
Documents;
(iii) A copy of the articles or certificate of incorporation, as
applicable, of each Loan Party and each amendment thereto, certified
(as of a date reasonably near the Closing Date) by the Secretary of
State of the State of incorporation of such Loan Party as being a true
and correct copy thereof;
(iv) With respect to each Loan Party, a copy of a certificate of
the appropriate governmental authority of the State of its
incorporation, dated reasonably near the Closing Date, certifying that
such Loan Party is duly incorporated and in good standing under the
laws of such State;
(v) A copy of a certificate of the Secretary of State of, with
respect to the Borrower, the State of Texas and, with respect to ITS
Supply Corporation, the State of Texas in each case, dated reasonably
near the Closing Date, stating that
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such Loan Party is duly qualified and in good standing as a foreign
corporation in each such State;
(vi) A certificate of each Loan Party, signed on behalf of such
Loan Party by its Chairman and Chief Executive Officer, President or a
Vice President and its Secretary or any Assistant Secretary, dated the
Closing Date (the statements made in which certificate shall be true
on and as of the Closing Date), certifying as to (A) the absence of
any amendments to the charter of such Loan Party since the date of the
Secretary of State's certificate referred to in clause (iii) above,
(B) a true and correct copy of the bylaws of such Loan Party as in
effect on the Closing Date, (C) the due incorporation and good
standing of such Loan Party as a corporation organized under the laws
of the State of its incorporation, and the absence of any proceeding
for the dissolution or liquidation of such Loan Party, (D) the truth
of the representations and warranties contained in each of the Loan
Documents as though made on and as of the Closing Date and (E) after
giving effect to the Advance pursuant to Section 2.01, the absence of
any event occurring and continuing, or resulting from the Advance or
the application of the proceeds therefrom, that constitutes a Default;
(vii) A certificate of the Secretary or an Assistant Secretary
of each Loan Party certifying the names and true signatures of the
officers of such Loan Party authorized to sign the Loan Documents to
which it is or will be a party and the other documents to be delivered
thereunder;
(viii) Such financial, business and other information regarding
the Borrower and its Subsidiaries as the Lenders shall have reasonably
requested including, without limitation, information as to possible
contingent liabilities, tax matters, environmental matters and
obligations under ERISA and such other approvals, opinions or
documents as any Lender may reasonably request as to the legality,
validity, binding effect or enforceability of the Loan Documents;
(ix) Letters and certificates, in form and substance satisfactory
to the Lenders, attesting to the Solvency of the Borrower after giving
effect to the transactions contemplated hereby, from its chief
financial officer;
(x) A letter, in form and substance satisfactory to Prudential,
from the Borrower to Hein & Associates LLP, its independent certified
public accountants, advising such accountants that the Lenders have
been authorized to exercise all rights of the Borrower to require such
accountants to disclose any and all financial statements and any other
information of any kind that they may have with respect to the
Borrower and its Subsidiaries and directing such accountants to comply
with any reasonable request of any Lender for such information.
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(xi) Favorable opinions of counsel to the Loan Parties, in each
case in form and substance satisfactory to Prudential.
(xii) A guaranty in substantially the form of Exhibit B (as
amended from time to time in accordance with its terms, a "GUARANTY"),
duly executed by each Guarantor.
(xiii) The Security Agreement Amendments, the Stock Pledge
Agreement Amendments and the Assignment and Option Agreement, in each
case, duly executed by the parties thereto, in substantially the form
of Exhibits C, D and E, respectively.
(xiv) Each Lender shall have received such other approvals,
opinions or documents as any Lender may reasonably request.
(xv) Certificates representing the Collateral (as defined in the
Stock Pledge Agreements) accompanied by undated stock powers executed
in blank.
(xvi) Evidence that all other actions necessary or, in the
opinion of the Lender, desirable to perfect and protect the security
interests created by the Assignment and Option Agreement, Stock Pledge
Agreements and Security Agreements have been taken.
(i) The Borrower shall have paid all reasonable fees and expenses
incurred by or on behalf of each Lender (including the fees and expenses of
counsel to the Lender).
(j) The Borrower shall have received (i) from Prudential Capital and
Investment Services, Inc. written commitments to purchase an aggregate of
at least $30 million of Sub Debt and (ii) from Comerica Bank a written
commitment to provide the Borrower at least $45 million of Bank Debt.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants as follows:
(a) The Borrower (i) is a corporation duly organized, validly existing
and good standing under the laws of the jurisdiction of its incorporation,
(ii) is duly qualified and in good standing as a foreign corporation in
each other jurisdiction in which the conduct of its business or ownership
of property requires it to so qualify except where the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect
and
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(iii) has all requisite corporate power and authority to own or lease and
operate its properties and to carry on its business as now conducted. All
of the outstanding capital stock of the Borrower has been validly issued,
is fully paid and non-assessable.
(b) Set forth on Schedule 4.01(b) hereto is a complete and accurate
list of all Subsidiaries of the Borrower, showing as of the date hereof (as
to each such Subsidiary) the jurisdiction of its incorporation, the number
of shares of each class of capital stock authorized, and the number
outstanding, on the date hereof and the percentage of the outstanding
shares of each such class owned (directly or indirectly) by the Borrower.
Each such Subsidiary (i) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which the conduct of its business
or ownership of property requires it to so qualify except where the failure
to so qualify could not reasonably be expected to have a Material Adverse
Effect and (iii) has all requisite corporate power and authority to own or
lease and operate its properties and to carry on its business as now
conducted.
(c) The execution, delivery and performance by the Borrower of this
Agreement, the Notes and each other Loan Document are within the Borrower's
corporate powers, have been duly authorized by all necessary corporate
action, and do not (i) contravene the Borrower's certificate of
incorporation or bylaws, (ii) violate any law (including, without
limitation, the Exchange Act and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970), rule,
regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System), order, writ, judgment,
injunction, decree, determination or award, (iii) conflict with or result
in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument
binding on or affecting the Borrower, any of its Subsidiaries or any of
their properties or (iv) result in or require the creation or imposition of
any Lien upon or with respect to any of the properties of the Borrower or
any of its Subsidiaries. Neither the Borrower nor any of its Subsidiaries
is in violation of any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or in breach of any such
contract, loan agreement, indenture, mortgage, deed of trust, lease or
other instrument, the violation or breach of which is reasonably likely to
have a Material Adverse Effect.
(d) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for (i) the due execution, delivery or performance
by the Borrower of this Agreement, the Notes or any other Loan Document, or
(ii) to the best knowledge of the Borrower, the exercise by any Lender of
its rights under the Loan Documents.
(e) This Agreement has been, and each of the Notes and each other Loan
Document when delivered hereunder will have been, duly executed and
delivered by the
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Loan Party thereto. This Agreement is, and each of the Notes and each other
Loan Document when delivered hereunder will be, the legal, valid and
binding obligation of the Loan Party thereto, enforceable against such Loan
Party in accordance with its terms.
(f) The Consolidated financial statements of the Borrower and its
Subsidiaries for and as of the end of the year ended June 30, 1997,
accompanied by a report of Hein & Associates LLP, independent public
accountants, copies of which have been furnished to each Lender, fairly
present, the Consolidated financial condition of the Borrower and its
Subsidiaries for the period ended on such date, all in accordance with GAAP
applied on a consistent basis, and since March 31, 1998, there has been no
Material Adverse Change.
(g) The Borrower is, individually and together with its Subsidiaries,
Solvent.
(h) All written information, reports and other papers and data
furnished to the Lenders by, on behalf of, or at the direction of the
Borrower or any other Loan Party were, at the time the same were so
furnished, complete and correct in all material respects, to the extent
necessary to give the recipient true and accurate knowledge of the subject
matter, or in the case of financial statements, present fairly, in
accordance with GAAP consistently applied, the financial position of the
Persons involved as at the date thereof and the results of operations for
such periods. Neither the Loan Documents nor any of the schedules,
attachments, written statements, documents, certificates or other items
prepared or supplied to the Lenders by or on behalf of the Borrower with
respect to the transactions contemplated thereby contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements herein or therein, in light of the circumstances under
which they were made, not misleading. There is no fact which the Borrower
has not disclosed to the Lenders in writing and of which any of its
officers, directors or executive employees is aware and which has had or
would reasonably be expected to have a Material Adverse Effect.
(i) There is no action, suit, investigation, litigation or proceeding
affecting the Borrower or any of its Subsidiaries, including any
Environmental Action, pending or, to the best knowledge of the Borrower,
threatened before any court, governmental agency or arbitrator that (i) if
determined adversely, could reasonably be expected to have a Material
Adverse Effect, or (ii) purports to affect the legality, validity or
enforceability of this Agreement, any Note or any other Loan Document or
the consummation of the transactions contemplated hereby.
(j) No proceeds of any Advance will be used to acquire any equity
security of a class that is registered pursuant to Section 12 of the
Exchange Act.
(k) The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying Margin Stock, and no proceeds of
any Advance will be
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used to purchase or carry any Margin Stock or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock.
(l) Following application of the proceeds of each Advance, not more
than 25 percent of the value of the assets (either of the Borrower only or
of the Borrower and its Subsidiaries on a Consolidated basis) will be
Margin Stock.
(m) No ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan of the Borrower or any of its ERISA Affiliates
that has resulted in or is reasonably likely to result in a material
liability of the Borrower or any of its ERISA Affiliates.
(n) Neither the Borrower nor any of its ERISA Affiliates has incurred
or is reasonably expected to incur any Withdrawal Liability with respect to
any Multiemployer Plan.
(o) Neither the Borrower nor any of its ERISA Affiliates has been
notified by the sponsor of a Multiemployer Plan of the Borrower or any of
its ERISA Affiliates that such Multiemployer Plan is in reorganization or
has been terminated, within the meaning of Title IV of ERISA, and no such
Multiemployer Plan is reasonably expected to be in reorganization or to be
terminated, within the meaning of Title IV of ERISA.
(p) Neither the business nor the properties of the Borrower or any of
its Subsidiaries are affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo,
act of God or of the public enemy or other casualty (whether or not covered
by insurance) that would be reasonably likely to have a Material Adverse
Effect.
(q) The operations and properties of the Borrower and each of its
Subsidiaries comply in all material respects with all Environmental Laws,
all necessary Environmental Permits have been obtained and are in effect
for the operations and properties of the Borrower and its Subsidiaries, the
Borrower and its Subsidiaries are in compliance in all material respects
with all such Environmental Permits, and no circumstances exist that would
be reasonably likely to (i) form the basis of an Environmental Action
against the Borrower or any of its Subsidiaries or any of their properties
that could have a Material Adverse Effect or (ii) cause any such property
to be subject to any restrictions on ownership, occupancy, use or
transferability under any Environmental Law.
(r) Neither the Borrower nor any of its Subsidiaries has transported
or arranged for the transportation of any Hazardous Materials to any
location that is listed or proposed for listing on the National Priorities
List under CERCLA or on the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the
Environmental Protection Agency or any analogous state list, Hazardous
Materials
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have not been generated, used, treated, handled, stored or disposed of on,
or released or transported to or from, any property of the Borrower or any
of its Subsidiaries or, to the best of its knowledge, any adjoining
property, except in compliance in all material respects with all
Environmental Laws and Environmental Permits, and all other wastes
generated at any such properties have been disposed of in compliance in all
material respects with all Environmental Laws and Environmental Permits.
(s) None of the Borrower or any of its Subsidiaries is in violation of
its respective organizational documents or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which the Borrower or any
such Subsidiary is a party or by which the Borrower or any such Subsidiary
may be bound or to which any of the property or assets of the Borrower or
any such Subsidiary is subject, except for such violations or defaults that
could not result in a Material Adverse Effect.
(t) The Borrower and each of its Subsidiaries has filed, has caused to
be filed or has been included in all tax returns (Federal, state, local and
foreign) required to be filed and has paid all taxes shown thereon to be
due, together with applicable interest and penalties.
(u) Neither the Borrower nor any of its Subsidiaries is an "investment
company," or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended. Neither the making of any
Advances nor the application of the proceeds or repayment thereof by the
Borrower, nor the consummation of the other transactions contemplated
hereby, will violate any provision of such Act or any rule, regulation or
order of the Securities and Exchange Commission thereunder.
(v) Neither the Borrower nor any of its Subsidiaries is a "holding
company", or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
(w) Each of the Borrower and its Subsidiaries has good and valid title
in fee simple to all real property, and title to all personal property,
owned by each of them and necessary to conduct the business now operated by
them, in each case free and clear of all Liens except Permitted Liens.
(x) Upon execution and delivery of the Security Agreement Amendments,
the Stock Pledge Agreement Amendments and the Assignment and the completion
of the filings and recordings relating to Security Agreement Amendments,
the security interests created in favor of the Collateral Agent (as defined
in the Security Agreement
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Amendments, the Stock Pledge Agreement Amendments and the Assignment) for
the benefit of the Lender will constitute valid, first priority, perfected
security interests in the Collateral described therein, subject to no other
Liens whatsoever, except Permitted Liens.
SECTION 4.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in Section 4.01 shall survive until the
repayment in full of the Advances in full, together with accrued interest
thereon.
SECTION 4.03. RANKING. The Obligations under this Agreement and the
other Loan Documents rank pari passu with or senior to all other unsecured Debt
of the Borrower and senior to all subordinated Debt of the Borrower.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower will,
unless the Required Lenders shall otherwise consent in writing:
(a) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders, such compliance to include, without
limitation, compliance with ERISA and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970.
(b) PAYMENT OF TAXES, ETC. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges or levies imposed upon
it or upon its property and (ii) all lawful claims that, if unpaid, might
by law become a Lien upon its property; provided, however, that neither the
Borrower nor any of its Subsidiaries shall be required to pay or discharge
any such tax, assessment, charge or claim that is being contested in good
faith and by proper proceedings and as to which appropriate reserves are
being maintained, unless and until any Lien resulting therefrom attaches to
its property and becomes enforceable against its other creditors.
(c) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause each of its
Subsidiaries and all lessees and other Persons occupying its properties to
comply, in all material respects, with all Environmental Laws and
Environmental Permits applicable to its operations and properties; obtain
and renew all Environmental Permits necessary for its operations and
properties; and conduct, and cause each of its Subsidiaries to conduct, any
investigation, study, sampling and testing, and undertake any cleanup,
removal, remedial or other action necessary to remove and clean up all
Hazardous Materials from
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any of its properties, in accordance with the requirements of all
Environmental Laws; provided, however, that neither the Borrower nor any of
its Subsidiaries shall be required to undertake any such cleanup, removal,
remedial or other action to the extent that its obligation to do so is
being contested in good faith and by proper proceedings and appropriate
reserves are being maintained with respect to such circumstances.
(d) MAINTENANCE OF INSURANCE. Maintain, and cause each of its
Subsidiaries to maintain insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is
usually carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower or such
Subsidiary operates.
(e) PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and maintain,
and cause each of its Subsidiaries to preserve and maintain, its corporate
existence, rights (charter and statutory) and franchises; provided,
however, that the Borrower and its Subsidiaries may consummate any merger
or consolidation permitted under Section 5.02(d).
(f) VISITATION RIGHTS. At any reasonable time and from time to time,
upon prior notice to the Borrower, permit any of the Lenders or any agents
or representatives thereof, at the expense of the Borrower, to examine and
make copies of and abstracts from the records and books of account of, and
visit the properties of, the Borrower and any of its Subsidiaries, and to
discuss the affairs, finances and accounts of the Borrower and any of its
Subsidiaries with any of their officers or directors and with their
independent certified public accountants.
(g) KEEPING OF BOOKS. Keep, and cause each of its Subsidiaries to
keep, proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of
the Borrower and each such Subsidiary in accordance with generally accepted
accounting principles in effect from time to time.
(h) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and cause
each of its Subsidiaries to maintain and preserve, all of its properties
that are used or useful in the conduct of its business in good working
order and condition, ordinary wear and tear excepted.
(i) PERFORMANCE OF MATERIAL CONTRACTS. Perform and observe all the
terms and provisions of each Material Contract to be performed or observed
by it, maintain each such Material Contract in full force and effect,
enforce each such Material Contract in accordance with its terms, take all
such action to such end as may be from time to time requested by any Lender
and, upon request of any Lender, make to each other party to each such
Material Contract such demands and requests for information and reports or
for
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action as the Borrower is entitled to make under such Material Contract,
and cause each of its Subsidiaries to do so.
(j) TRANSACTIONS WITH AFFILIATES. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under the
Loan Documents with any of their Affiliates on terms that are fair and
reasonable and no less favorable to the Borrower or such Subsidiary than it
would obtain in a comparable arm's-length transaction with a Person not an
Affiliate.
(k) USE OF PROCEEDS. Use the proceeds of the Advances solely for the
purposes described in Section 2.11.
(l) REFINANCING. Use its best efforts to cause the refinancing of the
Facility hereunder as soon as possible but in no event later than the
Maturity Date.
(m) ADDITIONAL GUARANTIES. With respect to any Person that becomes a
domestic Subsidiary of the Borrower after the Closing Date, substantially
contemporaneously with becoming a domestic Subsidiary, the Borrower shall
promptly deliver, or cause to be delivered, to the Lenders:
(i) a Guaranty Supplement duly executed by such Subsidiary; and
(ii) such legal opinions, officers' certificates, financing
statements, applications for registration, directors and shareholders
resolutions and other agreements, instruments and documents as the
Lender may reasonably request in connection with such Guaranty
Supplement.
(m) MATERIAL CONTRACTS. The Borrower shall deliver to Prudential,
within 10 business days after the date of this Agreement, certified copies
of all Material Contracts of the Borrower and its Subsidiaries.
SECTION 5.02. NEGATIVE COVENANTS. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder the Borrower will not,
at any time, without the written consent of the Required Lenders or, if required
under Section 7.01, of all of the Lenders:
(a) LIENS, ETC. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien on or with respect to any of its properties of any character
(including, without limitation, accounts) whether now owned or hereafter
acquired, or sign or file, or permit any of its Subsidiaries to sign or
file, under the Uniform Commercial Code of any jurisdiction, a financing
statement that names the Borrower or any of its Subsidiaries as debtor, or
sign, or permit any of its Subsidiaries to sign, any security agreement
authorizing any secured party thereunder to file such financing statement,
or assign, or permit any of its Subsidiaries to assign, any
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accounts or other right to receive income, excluding, however, from the
operation of the foregoing restrictions, Permitted Liens.
(b) DEBT. Create, incur, assume or suffer to exist, or permit any of
its Subsidiaries to create, incur, assume or suffer to exist, any Debt
other than:
(i) Debt under the Loan Documents;
(ii) the Executive Loan; and
(iii) Debt listed on Schedule 3.01(f) hereto.
(c) LEASE OBLIGATIONS. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist,
any obligations as lessee for the rental or hire of other real or personal
property of any kind under leases or agreements to lease including
Capitalized Leases having an original term of one year or more that would
cause the direct and contingent liabilities of the Borrower and its
Subsidiaries, on a Consolidated basis, in respect of all such obligations
to exceed $1,100,000 payable in any period of 12 consecutive months,
provided that (i) with respect to the lease to be entered into by the
Borrower relating to the 777 Post Oak office facility located in Houston,
Texas, the Borrower will use its reasonable best efforts to cause the
lessor of such facility to waive all rights that it may have under Texas
law or otherwise to seize, foreclose on or sell any property or assets of
the Borrower located at such facility and any liens, whether statutory or
otherwise, relating to any such property or assets and (ii) with respect to
the lease to be entered into by the Borrower for a plant and office
facility for Abasco, Inc. and relating to Code 3, Inc.'s operations in
Houston, Texas, to obtain the consent of the Lender prior to entering into
any such lease, which consent shall not be unreasonably withheld.
(d) MERGERS, ETC. In a single transaction or series of transactions,
merge into or consolidate with or acquire any Person or permit any Person
to merge into it, or permit any of its Subsidiaries to do so, except that
(i) any Subsidiary of the Borrower may merge into or consolidate with any
other Subsidiary of the Borrower provided that, in the case of any such
consolidation, the Person formed by such consolidation shall be a
Subsidiary of the Borrower, and provided further that in any merger or
consolidation among Subsidiaries of the Borrower involving a Guarantor, the
surviving Person shall be a Guarantor, and (ii) any of the Borrower's
Subsidiaries may merge into the Borrower.
(e) SALES, ETC. OF ASSETS. Sell, lease, transfer or otherwise dispose
of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise
dispose of, any assets, or grant any option or other right, except sales in
the ordinary course of its business and sales that do not, individually or
in the aggregate, exceed $50,000 in any year.
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(f) INVESTMENTS IN OTHER PERSONS. Make or hold, or permit any of its
Subsidiaries to make or hold, any Investment in any Person other than:
(i) Investments by the Borrower and its Subsidiaries in
Subsidiaries that are Guarantors; and
(ii) Investments by the Borrower and its Subsidiaries in
Subsidiaries that are not Guarantors (A) existing on the Closing Date
provided such Investments do not exceed $500,000 and (B) in an
aggregate amount invested from the date hereof not to exceed $250,000.
(g) DIVIDENDS, ETC. Declare or pay any dividends, purchase, redeem,
retire, defease or otherwise acquire for value any of its capital stock or
any warrants, rights or options to acquire such capital stock, now or
hereafter outstanding, return any capital to its stockholders as such, make
any distribution of assets, capital stock, warrants, rights, options,
obligations or securities to its stockholders as such or issue or sell any
capital stock or any warrants, rights or options to acquire such capital
stock, or permit any of its Subsidiaries to purchase, redeem, retire,
defease or otherwise acquire for value any capital stock of the Borrower or
any warrants, rights or options to acquire such capital stock, except that,
so long as no Default shall have occurred and be continuing, the Borrower
may declare and deliver dividends and distributions payable only in common
stock of the Borrower.
(h) CHANGE IN NATURE OF BUSINESS. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business as
carried on at the date hereof.
(i) ACCOUNTING CHANGES. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or
reporting practices, except as required by GAAP.
(j) AMENDMENTS. Amend its certificate of incorporation or bylaws.
(k) AMENDMENT, ETC. OF MATERIAL CONTRACTS. Cancel or terminate any
Material Contract or consent to or accept any cancellation or termination
thereof, amend or otherwise modify any Material Contract or give any
consent, waiver or approval thereunder, waive any default under or breach
of any Material Contract, agree in any manner to any other amendment,
modification or change of any term or condition of any Material Contract or
take any other action in connection with any Material Contract that would
impair the value of the interest or rights of the Borrower thereunder or
that would impair the interest or rights of any Lender, or permit any of
its Subsidiaries to do any of the foregoing.
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(l) PARTNERSHIPS. Become a general partner in any general or limited
partnership, or permit any of its Subsidiaries to do so, other than any
Subsidiary the sole assets of which consist of its interest in such
partnership.
(m) TRANSACTIONS WITH AFFILIATES. Enter into any transaction or
series of related transactions, whether or not in the ordinary course of
business, with any Affiliate of the Borrower, other than on terms and
conditions substantially as favorable to the Borrower as would be
obtainable by the Borrower at the time in a comparable arm's length
transaction with a Person not an Affiliate.
(n) SALE LEASEBACKS. Permit or permit any of its Subsidiaries to,
directly or indirectly, become or remain liable as lessee or as guarantor
or other surety with respect to any Sale-and-Leaseback Transaction.
SECTION 5.03. REPORTING REQUIREMENTS. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will, unless the Required Lenders shall otherwise consent in writing, furnish to
the Lenders:
(a) DEFAULT NOTICE. As soon as possible and in any event within two
days after the Borrower becomes aware of the occurrence of each Default
continuing on the date of such statement, a statement of the chief
financial officer of the Borrower setting forth details of such Default and
the action that the Borrower has taken and proposes to take with respect
thereto.
(b) MONTHLY FINANCIALS. As soon as available and in any event within
30 days after the end of each month, a Consolidated balance sheet of the
Borrower and its Subsidiaries as of the end of such month and Consolidated
statements of income and cash flows of the Borrower and its Subsidiaries
for the period commencing at the end of the previous month and ending with
the end of such month, setting forth in each case in comparative form the
corresponding figures for the preceding month, all in reasonable detail and
duly certified by the chief financial officer of the Borrower.
(c) QUARTERLY FINANCIALS. As soon as available and in any event
within 45 days after the end of each of the first three quarters of each
fiscal year of the Borrower, a Consolidated balance sheet of the Borrower
and its Subsidiaries as of the end of such quarter and Consolidated
statements of income and cash flows of the Borrower and its Subsidiaries
for the period commencing at the end of the previous fiscal year and ending
with the end of such quarter, setting forth in each case in comparative
form the corresponding figures for the corresponding period of the
preceding fiscal year, all in reasonable detail and duly certified (subject
to year-end audit adjustments) by the chief financial officer of the
Borrower as having been prepared in accordance with GAAP, together with a
certificate of said officer stating that no Default has occurred and is
continuing or, if a Default has occurred and is continuing, a statement as
to the nature
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thereof and the action that the Borrower has taken and proposes to take
with respect thereto.
(d) ANNUAL FINANCIALS. As soon as available and in any event within
90 days after the end of each fiscal year of the Borrower, a copy of the
annual audit report for such year for the Borrower and its Subsidiaries,
including therein a Consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of such fiscal year and Consolidated statements
of income and cash flows of the Borrower and its Subsidiaries for such
fiscal year, in each case accompanied by an opinion acceptable to the
Required Lenders of Hein & Associates LLP or other independent public
accountants of recognized standing acceptable to the Required Lenders,
together with (i) a certificate of such accounting firm to the Lenders
stating that in the course of the regular audit of the business of the
Borrower and its Subsidiaries, which audit was conducted by such accounting
firm in accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge that a Default has occurred and
is continuing, or if, in the opinion of such accounting firm, a Default has
occurred and is continuing, a statement as to the nature thereof, and (ii)
a certificate of the chief financial officer of the Borrower stating that
no Default has occurred and is continuing or, if a default has occurred and
is continuing, a statement as to the nature thereof and the action that the
Borrower has taken and proposes to take with respect thereto.
(e) ERISA EVENTS. Promptly and in any event within 10 days after the
Borrower or any of its ERISA Affiliates knows or has reason to know that
any ERISA Event with respect to the Borrower or any of its ERISA Affiliates
has occurred, a statement of the chief financial officer of the Borrower
describing such ERISA Event and the action, if any, that the Borrower or
such ERISA Affiliate has taken and proposes to take with respect thereto.
(f) PLAN TERMINATIONS. Promptly and in any event within two Business
Days after receipt thereby by the Borrower or any of its ERISA Affiliates,
copies of each notice from the PBGC stating its intention to terminate any
Plan of the Borrower or any of its ERISA Affiliates or to have a trustee
appointed to administer any such Plan.
(g) PLAN ANNUAL REPORTS. Promptly and in any event within 30 days
after the filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
with respect to each Plan of each Loan Party or any of its ERISA
Affiliates.
(h) MULTIEMPLOYER PLAN NOTICES. Promptly and in any event within five
Business Days after receipt thereof by the Borrower or any of its ERISA
Affiliates from the sponsor of a Multiemployer Plan of the Borrower or any
of its ERISA Affiliates, copies of each notice concerning (i) the
imposition of Withdrawal Liability by any such Multiemployer Plan, (ii) the
reorganization or termination, within the meaning of Title IV
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of ERISA, of any such Multiemployer Plan or (iii) the amount of liability
incurred, or that may be incurred, by the Borrower or any of its ERISA
Affiliates in connection with any event described in clause (i) or (ii).
(i) LITIGATION. Promptly after the commencement thereof, notice of
all actions, suits, investigations, litigation and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any of its
Subsidiaries of the type described in Section 4.01(i).
(j) SECURITIES REPORTS. Promptly after the sending or filing thereof,
copies of all proxy statements, financial statements and reports that the
Borrower or any of its Subsidiaries sends to its stockholders, and copies
of all regular, periodic and special reports, and all registration
statements, that the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission or any governmental authority that may
be substituted therefor, or with any national securities exchange.
(k) ENVIRONMENTAL CONDITIONS. Promptly after the occurrence thereof,
notice of any condition or occurrence on any property of the Borrower or
any of its Subsidiaries that results in a material noncompliance by the
Borrower or any of its Subsidiaries with any Environmental Law or
Environmental Permit or could (i) form the basis of an Environmental Action
against the Borrower or any of its Subsidiaries or such property that could
have a Material Adverse Effect or (ii) cause any such property to be
subject to any restrictions on ownership, occupancy, use or transferability
under any Environmental Law.
(l) NOTICE OF CHANGE OF CONTROL. Promptly and in any event within two
days after the occurrence of any Control Event, written notice of such
Control Event.
(m) OTHER INFORMATION. Such other information respecting the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower or any of its Subsidiaries as any
Lender may from time to time reasonably request.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following events ("EVENTS
OF DEFAULT") shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of, or interest on,
any Advance, or any Loan Party shall fail to make any other payment under
any Loan Document, in each case when the same becomes due and payable; or
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(b) any representation or warranty made by any Loan Party (or any of
its officers) under or in connection with any Loan Document shall prove to
have been incorrect in any material respect when made; or
(c) the Borrower shall fail to perform or observe any term, covenant
or agreement contained in Section 5.01(e), 5.01(l), 5.02 or 5.03; or
(d) any Loan Party shall fail to perform any other term, covenant or
agreement contained in any Loan Document on its part to be performed or
observed if such failure shall remain unremedied for 10 days after written
notice thereof shall have been given to the Borrower by any Lender; or
(e) the Borrower or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any other amount payable in respect
of any Debt that is outstanding in a principal amount of at least $100,000
in the aggregate (but excluding Debt outstanding hereunder), when the same
becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the
agreement or instrument relating to such Debt; or any other event shall
occur or condition shall exist under any agreement or instrument relating
to any such Debt and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such event
or condition is to accelerate, or to permit the acceleration of, the
maturity of such Debt or otherwise to cause, or to permit the holder
thereof to cause, such Debt to mature; or any such Debt shall be declared
to be due and payable or required to be prepaid or redeemed (other than by
a regularly scheduled required prepayment or redemption), purchased or
defeased, or an offer to prepay, redeem, purchase or defease such Debt
shall be required to be made, in each case prior to the stated maturity
thereof; or
(f) the Borrower or any of its Subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against
the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or for
any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it) that is being
diligently contested by it in good faith, either such proceeding shall
remain undismissed or unstayed for a period of 30 days or any of the
actions sought in such proceeding (including, without limitation, the entry
of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or any substantial part of its
property) shall occur; or the Borrower
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or any of its Subsidiaries shall take any corporate action to authorize any
of the actions set forth above in this subsection (f); or
(g) any judgment or order for the payment of money in excess of
$100,000 shall be rendered against the Borrower or any of its Subsidiaries
and either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any period of
10 consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
or
(h) any provision of any Loan Document after delivery thereof pursuant
to Section 3.01 shall for any reason cease to be valid and binding on or
enforceable against any Loan Party a party to such Loan Document, or such
Loan Party shall so state in writing; or
(i) a Change of Control shall have occurred; or
(j) any ERISA Event shall have occurred with respect to a Plan of the
Borrower or any of its ERISA Affiliates and the sum (determined as of the
date of occurrence of such ERISA Event) of the Insufficiency of such Plan
and the Insufficiency of any and all other Plans of the Borrower and its
ERISA Affiliates with respect to which an ERISA Event shall have occurred
and then exist (or the liability of the Borrower and its ERISA Affiliates
related to such ERISA Event) exceeds $100,000; or
(k) the Borrower or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan in an amount that, when
aggregated with all other amounts required to be paid to Multiemployer
Plans by the Borrower and its ERISA Affiliates as Withdrawal Liability
(determined as of the date of such notification), exceeds $100,000; or
(l) the Borrower or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan of the Borrower or any of
its ERISA Affiliates that such Multiemployer Plan is in reorganization or
is being terminated, within the meaning of Title IV of ERISA, and as a
result of such reorganization or termination the aggregate annual
contributions of the Borrower and its ERISA Affiliates to all Multiemployer
Plans that are then in reorganization or being terminated have been or will
be increased over the amounts contributed to such Multiemployer Plans for
the plan years of such Multiemployer Plans immediately preceding the plan
year in which such reorganization or termination occurs by an amount
exceeding $100,000;
(m) a Material Adverse Change shall have occurred; or
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(n) at any time after 30 days after the Closing Date, the Security
Agreements, Stock Pledge Agreements or Assignment and Option Agreement
shall cease to create a valid and perfected first priority security
interest in any of the collateral purported to be covered thereby;
then, and in any such event, Prudential (i) shall at the request, or may with
the consent, of the Required Lenders, by notice to the Borrower, declare the
obligation of each Lender to make Advances to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the Notes,
all interest thereon and all other amounts payable under this Agreement and the
other Loan Documents to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided, however, that
upon the occurrence of an Event of Default pursuant to the terms of subsection
(f) of this Section 6.01, (x) the obligation of each Lender to make Advances
shall automatically be terminated and (y) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. AMENDMENTS, ETC. No amendment or waiver of any provision
of this Agreement or any other Loan Document nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Lenders, do any of the following at any
time: (i) waive any of the conditions specified in Section 3.01 or, in the case
of the initial Borrowing, 3.02, (ii) change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Notes, or the number of Lenders,
that shall be required for the Lenders or any of them to take any action
hereunder, (iii) amend this Section 7.01 or Section 2.04(b), (iv) increase the
Commitments of the Lenders or subject the Lenders to any additional obligations,
(v) reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder or (vi) postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder or amend Section 2.06.
SECTION 7.02. NOTICE, ETC. All notices and other communications provided
for hereunder shall be in writing (including telecopy) and mailed, telecopied,
or delivered as follows:
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(a) if to the Borrower, at 5151 San Felipe, Suite 450, Houston, Texas
77056; Attn: Thomas L. Easley, Vice President and Chief Financial Officer;
telephone: 713-621-7911; telecopier: 713-621-7988;
(b) if to Prudential, at One Seaport Plaza, New York, New York 10292;
Attn: Fred Robustelli; telephone: 212-214-6813; telecopier: 212-214-7938;
with a copy to Prudential Securities Incorporated, One New York Plaza, New
York, New York 10292; Attn: Christopher J. Barber; telephone: (212) 778-
1361; telecopier: (212) 778-5718; and
(c) if to any other Lender, at such address as shall be designated by
such Lender in a written notice to the other parties;
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other parties. All such notices and communications
shall, when mailed, telegraphed, telecopied, telexed or cabled, be effective
when deposited in the mails, delivered to the telegraph company, transmitted by
telecopier, confirmed by telex answerback or delivered to the cable company,
respectively, except that notices and communications to the Lenders pursuant to
Article II or III shall not be effective until received by such Lenders.
SECTION 7.03. NO WAIVER; REMEDIES. No failure on the part of any Lender,
and no delay in exercising, any right under any Loan Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies provided under any Loan Document are cumulative and not
exclusive of any remedies provided by law.
SECTION 7.04. COSTS AND EXPENSES; INDEMNIFICATION. (a) The Borrower
agrees to pay on demand (i) all reasonable costs and expenses of the Lenders in
connection with the modification, amendment and syndication of the Loan
Documents (including, without limitation, the reasonable fees and expenses of
counsel for Prudential with respect thereto, with respect to advising the
Lenders as to its rights and responsibilities, or the perfection, protection or
preservation of rights or interests, under the Loan Documents, with respect to
negotiations with the Borrower or with other creditors of the Borrower or any of
its Subsidiaries arising out of any Default or any events of circumstances that
may give rise to a Default and with respect to presenting claims in or otherwise
participating in or monitoring any bankruptcy, insolvency or other similar
proceedings involving creditors' rights generally and any proceeding ancillary
thereto) and (ii) all costs and expenses of the Lenders in connection with the
enforcement of the Loan Documents, whether in any action, suit or litigation,
any bankruptcy, insolvency or other similar proceeding affecting creditors'
rights generally or otherwise (including, without limitation, the reasonable
fees and expenses of counsel for each Lender with respect thereto).
(b) (i) The Borrower agrees that it will indemnify and hold harmless
the Lenders to the fullest extent permitted by law, from and against any
and all losses, claims, damages, obligations, penalties, judgments, awards,
liabilities, costs, expenses and
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disbursements (and any and all actions, suits, proceedings and
investigations in respect thereof and any and all legal or other costs,
expenses and disbursements in giving testimony or furnishing documents in
response to a subpoena or otherwise), including, without limitation, the
costs, expenses and disbursements, as and when incurred, of investigating,
preparing or defending any such action, proceeding or investigation
(whether or not in connection with litigation in which any of the Lenders
is a party thereto), directly or indirectly, caused by, relating to, based
upon, arising out of or in connection with (a) this Agreement and the other
Loan Documents, or (b) any untrue statement or alleged untrue statement of
a material fact contained in, or omissions or alleged omissions from any
filing with any governmental agency or similar statements or omissions in
or from any information furnished by the Borrower or any of its
Subsidiaries or Affiliates to any of the Lenders or any other person in
connection with this Agreement and the other Loan Documents; provided,
however, that such indemnity agreement shall not apply to any such loss,
claim, damage, obligation, penalty, judgment, award, liability, cost,
expense or disbursement to the extent it is found in a final judgment by a
court of competent jurisdiction (not subject to further appeal) to have
resulted primarily and directly from the gross negligence or willful
misconduct of any of the Lenders. The Borrower also agrees that the Lenders
shall have no liability (whether direct or indirect, in contract or tort or
otherwise) to the Borrower for or in connection with this Agreement and the
other Loan Documents or the transactions contemplated thereby, except for
any such losses, claims, damages, obligations, penalties, judgments,
awards, liabilities, costs, expenses and disbursements that are finally
judicially determined by a court of competent jurisdiction (not subject to
further appeal) to have resulted from the bad faith or gross negligence of
any of the Lenders.
(ii) The indemnification provisions in this Section shall be in
addition to any liability which the Borrower may have to the Lenders or the
Persons indemnified below in this sentence and shall extend to the
following: the Lenders, Prudential, their respective affiliated entities,
directors, officers, employees, legal counsel, agents and controlling
persons (within the meaning of the federal securities laws), and none of
such indemnified persons shall be liable for any act or omission of any of
the others. All references to "Lender(s)" in these indemnification
provisions shall be understood to include any and all of the foregoing.
(iii) If any action, suit, proceeding or investigation is commenced,
as to which any indemnified party proposes to demand indemnification, it
shall notify the Borrower with reasonable promptness; provided, however,
that any failure by any indemnified party to so notify the Borrower shall
not relieve the Borrower from its obligations hereunder. Prudential, on
behalf of the Lenders, shall have the right to retain counsel of its choice
to represent the Lenders, and the Borrower shall pay the reasonable fees,
expenses and disbursements of such counsel; and such counsel shall, to the
extent consistent with its professional responsibilities, cooperate with
the Borrower and any counsel designated by the Borrower. The Borrower
shall be liable for any settlement of any claim against any
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of the Lenders made with the Borrower's written consent, which consent
shall not be unreasonably withheld. The Borrower shall not, without the
prior written consent of Prudential, settle or compromise any claim, or
permit a default or consent to the entry of any judgment in respect
thereof, unless such settlement, compromise or consent includes, as an
unconditional term thereof, the giving by the claimant to each of the
Lenders of an unconditional and irrevocable release from all liability in
respect of such claim.
(iv) In order to provide for just and equitable contribution, if a
claim for indemnification pursuant to the indemnification provisions
contained in this Section is made but is found in a final judgment by a
court of competent jurisdiction (not subject to further appeal) that such
indemnification may not be enforced in such case, even though the express
provisions hereof provide for indemnification in such case, then the
Borrower, on the one hand, and the Lenders, on the other hand, shall
contribute to the losses, claims, damages, obligations, penalties,
judgments, awards, liabilities, costs, expenses and disbursements to which
the indemnified persons may be subject in accordance with the relative
benefits received by the Borrower, on the one hand, and the Lenders, on the
other hand, and also the relative fault of the Borrower, on the one hand,
and the Lenders, on the other hand, in connection with the statements, acts
or omissions which resulted in such losses, claims, damages, obligations,
penalties, judgments, awards, liabilities, costs, expenses and
disbursements and the relevant equitable considerations shall also be
considered. No person found liable for a fraudulent misrepresentation
shall be entitled to contribution from any person who is not also found
liable for such fraudulent misrepresentation.
(v) Neither termination of the Commitments nor repayment of the
Advances shall affect the indemnification provisions contained in this
Section which shall then remain operative and in full force and effect.
(c) If any payment of principal of any Advance is made by the Borrower
to or for the account of a Lender other than on the last day of the Interest
Period for such Advance, as a result of a payment or conversion pursuant to
Section 2.07(c), acceleration of the maturity of the Notes pursuant to Section
6.01 or for any other reason, the Borrower shall, upon demand by such Lender,
pay to such Lender any amounts required to compensate such Lender for any
additional losses, costs or expenses that it may reasonably incur as a result of
such payment, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by any Lender to fund or
maintain such Advance.
(d) If the Borrower fails to pay when due any costs, expenses or other
amounts payable by it under any Loan Document, including, without limitation,
fees and expenses of counsel and indemnities, such amount may be paid on behalf
of the Borrower by any Lender, in its sole discretion.
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SECTION 7.05. RIGHT OF SET-OFF. Upon (a) the occurrence and during the
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 6.01 to authorize Prudential to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Lender is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and otherwise apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any and all of the Obligations of
the Borrower now or hereafter existing under this Agreement and the Note or
Notes held by such Lender, irrespective of whether such Lender shall have made
any demand under this Agreement or such Note or Notes and although such
obligations may be unmatured. Each Lender agrees promptly to notify the
Borrower after any such set-off and application; provided, however, that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender under this Section are in addition to
other rights and remedies (including, without limitation, other rights of set-
off) that such Lender may have.
SECTION 7.06. BINDING EFFECT. This Agreement shall become effective when
it shall have been executed by the Borrower and Prudential and thereafter shall
be binding upon and inure to the benefit of the Borrower, Prudential and each
Lender party thereto from time to time and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders.
SECTION 7.07. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may assign
to one or more banks or other entities all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment or Commitments and the Advances owing to it and the
Note or Notes held by it.
(b) Prudential shall maintain at its address referred to in Section 7.02 a
register for the recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the Advances owing under the Facility to,
each Lender from time to time (the "REGISTER"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower and the Lenders may treat each Person whose name is recorded in the
Register as a Lender hereunder for all purposes of this Agreement. The Register
shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(c) The Borrower hereby agrees to cooperate with the Lenders in connection
with the assignment of the Commitments and Advances under Section 7.07(a).
Within five Business Days after its receipt of notice, the Borrower, at its own
expense, shall execute and deliver to the applicable Lender in exchange for the
surrendered Note or Notes a new Note to the order of such Lender's assignee in
an amount equal to the Commitment assumed by it and, if the assigning Lender has
retained a Commitment hereunder, a new Note to the order of the assigning Lender
in an amount equal to the Commitment retained by it hereunder. Such new Note or
Notes shall
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be in an aggregate principal amount equal to the aggregate principal amount of
such surrendered Note or Notes, shall be dated the effective date of such
assignment.
(d) Each Lender may sell participations in or to all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitments and the Advances owing to it and the Note or
Notes held by it); provided, however, that (i) such Lender's obligations under
this Agreement (including, without limitation, its Commitments) shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Lender shall remain
the holder of any such Note for all purposes of this Agreement, (iv) the
Borrower and the Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and (v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of any Loan Document,
or any consent to any departure by the Borrower therefrom, except to the extent
that such amendment, waiver or consent would reduce the principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation, postpone any date fixed for
any payment of principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation.
(e) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 7.07, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to the Borrower furnished to such Lender by or on behalf of the
Borrower; provided, however, that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any Confidential Information received by it from such Lender.
(f) Notwithstanding any other provision set forth in this Agreement, any
Lender may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Advances owing
to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
SECTION 7.08. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT
AND THE NOTES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS
OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, EXCLUDING
CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE
APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. THE COMPANY
HEREBY SUBMITS TO THE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK
LOCATED IN NEW YORK COUNTY, NEW YORK AND THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO SOLE
AND ABSOLUTE ELECTION OF THE HOLDERS OF THE NOTES AND TO THE EXTENT PERMITTED BY
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APPLICABLE LAW, ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT OR THE
NOTES OR ANY OTHER LOAN DOCUMENT SHALL BE LITIGATED IN SUCH COURTS, AND THE
COMPANY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM
NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURTS.
SECTION 7.09. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Agreement by telecopier shall be
effective as delivery of a manually executed counterpart of this Agreement.
SECTION 7.10. CONFIDENTIALITY. Neither Prudential nor any Lender shall
disclose any Confidential Information to any Person without the consent of the
Borrower, other than (a) to such Lender's Affiliates and their officers,
directors, employees, agents and advisors and to actual or prospective assignees
and participants, and then only on a confidential basis, (b) as required by any
law, rule or regulation or judicial process and (c) as requested or required by
any state, federal or foreign authority or examiner regulating banks or banking.
SECTION 7.11. WAIVER OF JURY TRIAL. Each of the Borrower and the Lenders
hereby irrevocably waives all right to trial by jury in any action, proceeding
or counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to any of the Loan Documents, the Advances or the actions of any Lender
in the negotiation, administration, performance or enforcement thereof.
[Signatures on Next Page]
45
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BOOTS & COOTS INTERNATIONAL
WELL CONTROL, INC., as Borrower
By: /s/ Thomas L. Easley
-----------------------------------
Name: Thomas L. Easley
Title: Vice President & CFO
PRUDENTIAL SECURITIES CREDIT
CORPORATION, as a Lender
By: /s/ Jeff K. French
-----------------------------------
Name:
Title:
S-1
<PAGE>
EXHIBIT A
FORM OF PROMISSORY NOTE
$5,000,000 Dated: _________ __, 1998
FOR VALUE RECEIVED, the undersigned, BOOTS & COOTS INTERNATIONAL WELL
CONTROL, INC., a Delaware corporation (the "BORROWER"), HEREBY PROMISES TO PAY
to the order of PRUDENTIAL SECURITIES CREDIT CORPORATION (the "LENDER") the
aggregate principal amount of FIVE MILLION UNITED STATES DOLLARS ($5,000,000)
pursuant to the Credit Agreement (as defined below) on the Maturity Date.
The Borrower promises to pay interest on the unpaid principal amount of
each Advance from the date of such Advance until such principal amount is paid
in full, at such interest rates, and payable at such times, as are specified in
the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to the Lender at its office specified in the Credit Agreement
in same day funds.
This Promissory Note is one of the Notes referred to in, and is entitled to
the benefits of, the Senior Loan Agreement, dated as of [_________], 1998 (the
"CREDIT AGREEMENT"; capitalized terms used herein and not otherwise defined
shall have the meanings set forth in the Credit Agreement) by and between the
Borrower and the Lender. The Credit Agreement contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified.
This Note shall be construed in accordance with and governed by the laws of
the State of New York.
BOOTS & COOTS INTERNATIONAL
WELL CONTROL, INC., as Borrower
By:__________________________________
Name:
Title:
<PAGE>
EXHIBIT C
FORM OF SECURITY AGREEMENT AMENDMENTS
<PAGE>
EXHIBIT D
FORM OF STOCK PLEDGE AGREEMENT AMENDMENTS
<PAGE>
EXHIBIT E
FORM OF ASSIGNMENT AND OPTION AGREEMENT
<PAGE>
SCHEDULE 3.01(c)
(Liabilities)
None
<PAGE>
SCHEDULE 3.01(f)
(Permitted Debt)
$90,000 of IWC Services, Inc.'s 12% Senior Subordinated Notes due December 31,
2000 dated July 9, 1997 and May 8, 1997 and payable to Jeff Scott Cofsky in the
original aggregate face amount of $100,000.
Trade debt incurred by the Borrower or any Subsidiary in the ordinary course of
business.
<PAGE>
SCHEDULE 4.01(b)
(Subsidiaries)
IWC Services, Inc.; Texas corporation; 1,000 shares authorized; 6,740,000 shares
(pre merger) outstanding; 100% of capital stock owned by Borrower.
Code 3, Inc.; Texas corporation; 100,000 shares authorized; 1,000 shares
outstanding; 100% of capital stock owned by Borrower.
Hell Fighters, Inc.; Texas corporation; 1,000,000 shares authorized; 80,000
shares outstanding; 100% of capital stock owned by IWC Services, Inc.
Boots & Coots Overseas, Ltd.; British Virgin Islands corporation; whose
oustanding capital stock is 100% owned by IWC Services, Inc.
International Well Control Services, Ltd.; Cayman Islands corporation; whose
oustanding capital stock is 100% owned by IWC Services, Inc.
ITS Supply Corporation; Delaware corporation; 1,000 shares authorized; 1,000
shares outstanding; 100% of capital stock owned by IWC Services, Inc.
Abasco, Inc.; Texas corporation; 1,000 shares authorized; 1,000 shares
outstanding; 100% of capital stock owned by IWC Services, Inc.
IWC Engineering, Inc.; Texas corporation; 100,000 shares authorized; 100 shares
outstanding; 100% of capital stock owned by IWC Services, Inc.
Boots & Coots de Venezuela, S.A.; Venezuelan corporation; whose oustanding
capital stock is 100% owned by Boots & Coots Overseas, Ltd.
International Tool & Supply de Venezuela S.A.; Venezuelan corporation; whose
oustanding capital stock is 100% owned by ITS Supply Corporation.
International Tool & Supply Peru; Peruvian corporation; whose oustanding capital
stock is 100% owned by ITS Supply Corporation.
International Tool and Supply UK; corporation organized under the laws of the
United Kingdom; whose oustanding capital stock is 100% owned by ITS Supply
Corporation.
<PAGE>
SCHEDULE 5.02(a)
(Permitted Liens)
None
<PAGE>
Page 1
EXHIBIT 10.20
FIRST AMENDMENT TO
SENIOR LOAN AGREEMENT (BRIDGE FACILITY)
THIS FIRST AMENDMENT TO SENIOR LOAN AGREEMENT (BRIDGE FACILITY) (this
"AMENDMENT"), dated as of July 23, 1998, is by and between BOOTS & COOTS
INTERNATIONAL WELL CONTROL, INC., a Delaware corporation ( the "BORROWER") and
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (the "LENDER").
WHEREAS, the Borrower entered into that certain Senior Loan Agreement
(Bridge Facility), dated as of July 6, 1998 (the "ORIGINAL AGREEMENT"), with
Prudential Securities Credit Corporation ("PSCC"), pursuant to which, upon the
terms and conditions therein set forth, PSCC agreed to lend to the Borrower the
principal sum of $5,000,000, which principal indebtedness is evidenced by that
certain promissory note of the Borrower in the principal amount of $5,000,000
(such promissory note being herein referred to as the "ORIGINAL NOTE"); and
WHEREAS, Lender acquired the Original Note from PSCC and in connection
therewith PSCC assigned to Lender all of PSCC's rights, interest and title in
and to the Original Agreement; and
WHEREAS, Borrower and Lender have executed that Subordinated Note and
Warrant Purchase Agreement, dated as of July 23, 1998 (the "SUBORDINATED NOTE
AGREEMENT"), and hereby desire to amend the Original Agreement to (i) reflect
the acquisition of the Original Note by Lender from PSCC and to reflect the
Lender's acquisition of PSCC's rights, title and interest in and to the Original
Agreement and (ii) increase the amount to be lent to Borrower under the Original
Agreement to the aggregate principal sum of $15,000,000, which principal
indebtedness will be evidenced by a promissory note or notes of Borrower.
NOW THEREFORE, the Borrower and Lender agree as follows:
1. AMENDMENTS TO THE ORIGINAL AGREEMENT. The Original Agreement is hereby
amended as follows:
(a) The term "PRUDENTIAL" (as defined in the Preamble to the Original
Agreement) shall mean "The Prudential Insurance Company of America."
(b) The definition "ASSIGNMENT AND OPTION AGREEMENT" in Section 1.01 is
amended by adding the following to the end of the definition: "including any
subsequent amendments to such agreement."
(c) The definition of "COMMITMENT" in Section 1.01 is amended to replace
the reference to "$5,000,000" with "$15,000,000."
<PAGE>
Page 2
(d) The definition of "Confidential Information" in Section 1.01 is amended
to read as follows, "Confidential Information" means any material non-public
information regarding the Borrower or any of its Subsidiaries that is marked by
the Borrower as confidential and is provided to the holder of the Note, any
Person that purchases a participation in the Note or any offeree of the Note or
of a participation therein pursuant to this Agreement, other than information
(i) that was publicly known or otherwise know to such holder, such Person or
such offeree at the time of disclosure, (ii) that subsequently becomes publicly
known through no act or omission of such holder, such Person or such offeree or
(iii) that otherwise becomes known to such holder, such Person or such offeree
other than disclosure by the Borrower or any Subsidiary.
(e) The definition of "LOAN DOCUMENTS" in Section 1.01 is amended to add
the following clause after the end of the definition: "including (where the
context allows) all subsequent amendments of any of the foregoing documents."
(f) The definition of "SECURITY AGREEMENT AMENDMENTS" in Section 1.01 is
replaced in its entirety with the following:
"SECURITY AGREEMENT AMENDMENTS" means the First, Second and Third
Amendments to the Security Agreements executed by the Borrower and the
Guarantors, as applicable."
(g) The definition of "STOCK PLEDGE AGREEMENT AMENDMENTS" in Section 1.01
is replaced in its entirety with the following:
"STOCK PLEDGE AGREEMENT AMENDMENTS" means the First and Second
Amendment to Stock Pledge Agreement executed by IWC Services, Inc. and
the First, Second and Third Amendments to the Stock Pledge Agreement
executed by the Borrower."
(h) The clause in Section 2.11 following the "(ii)" is amended in its
entirety to read as follows:
"(ii) for working capital purposes (but only to the extent of any
excess over the amounts paid under clause (i) of this Section 2.11),
including any acquisitions as are acceptable to the Required Lenders."
(i) Section 5.02(f) is amended by deleting the "and" after the (i) clause,
deleting the period after the (ii) clause and replacing it with "; and" and by
adding the following clause:
"(iii) any investment to be made pursuant to that certain Stock
Purchase Agreement, dated as of June 22, 1998, by and among Elmagco,
Inc., Begemann, Inc. and Borrower."
(j) Section 7.02(b) is deleted in its entirety and replaced with the
following:
<PAGE>
Page 3
"(b) if to Prudential, to it at The Prudential Insurance Company
of America, c/o Prudential Capital Group, 2200 Ross Avenue, Suite
4200E, Dallas, Texas 75201, Attn: Managing Director, telephone: (214)
720-6200, telecopier: (214) 720-6299; and"
(k) A new Section 7.12 is added, after Section 7.11, to read as follows:
7.12 DISCLOSURE TO OTHER PERSONS. Except as provided in the
second sentence of this Section 7.12, each holder of the Note and each
Person that purchases a participation in the Note or any part thereof
agrees that it will hold in confidence in accordance with such
procedures such holder or Person applies generally to the information
of this kind and not to disclose any Confidential Information provided
by the Borrower or any Subsidiary; provided that such holder or Person
will be free, after notice to the Borrower, to correct any false or
misleading information which may become public concerning the
relationship of such holder or Person to the Borrower. The Borrower
acknowledges that the holder of any Note may deliver copies of any
financial statements and other documents or materials delivered to
such holder, and disclose any other information disclosed to such
holder, and disclose any other information disclosed to such holder,
by or on behalf of the Borrower or any Subsidiary in connection with
or pursuant to this Agreement or the other Loan Documents to (i) such
holder's directors, officers, employees, agents and professional
consultants, (ii) any other holder of any Note, (iii) any Person to
which such holder offers to sell such Note or any part thereof, (iv)
any Person to which such holder sells or offers to sell a
participation in all or any part of such Note, (v) any Person from
which such holder offers to purchase any security of the Borrower,
(vi) any federal or state regulatory authority having jurisdiction
over such holder, (vii) the National Association of Insurance
Commissioners or any similar organization or (viii) any other Person
to which such delivery or disclosure may be necessary or appropriate
(a) in compliance with any law, rule, regulation or order applicable
to such holder, (b) in response to any subpoena or other legal process
or informal investigative demand or (c) in connection with any
litigation to which such holder is a party. Each holder of the Note
agrees to use confidential information for internal purposes only. As
used herein, "Confidential Information" means any material non-public
information regarding the Borrower or any of its Subsidiaries that is
marked by the Borrower as confidential and is provided to the holder
of the Note, any Person that purchases a participation in the Note or
any offeree of the Note or of a participation therein pursuant to this
Agreement, other than information (i) that was publicly known or
otherwise known to such holder, such Person or such offeree at the
time of disclosure, (ii) that subsequently becomes publicly known
through no act or omission of such holder, such Person or such offeree
or (iii) that otherwise becomes known to such holder, such Person or
such offeree other than through disclosure by the Borrower or any
Subsidiary.
(l) The Form of Promissory Note at Exhibit A attached hereto hereby
replaces Exhibit A to the Original Agreement.
<PAGE>
Page 4
(m) Schedule 3.01(f) is amended to add the following sentence:
"All Debt incurred by the Borrower pursuant to or permitted under the
terms of that certain Subordinated Note and Warrant Purchase
Agreement, dated as of July 23, 1998, by and between Borrower and
Lender."
(n) Schedule 5.02(a) is amended to add the following sentence:
"Liens securing Debt incurred by the Borrower pursuant to or permitted
under the terms of that certain Subordinated Note and Warrant Purchase
Agreement, dated as of July 23, 1998, by and between Borrower and
Lender."
2. REAFFIRMATION OF AGREEMENT. This Amendment shall be deemed to be an
amendment to the Original Agreement, and the Original Agreement, as amended
hereby, is hereby ratified, approved and confirmed in each and every respect.
Borrower hereby acknowledges that it is bound by the provisions of the Original
Agreement, as amended hereby, without defense, setoff or counterclaim, and
represents that there exists no Event of Default under the Original Agreement as
amended hereby. All references to the Original Agreement in the Original
Agreement and the other Loan Documents (as defined in the Original Agreement,
but excluding this Amendment) shall hereafter be deemed to refer to the Original
Agreement, as amended hereby. Additionally, all references to the Original
Agreement in the Subordinated Note Agreement and the other Subordinated Note
Documents (as defined in the Subordinated Note Agreement) shall be deemed to
refer to the Original Agreement, as amended hereby.
3. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and
inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, except that the Borrower may not assign any of its
rights or obligations under the Original Agreement, as amended by this
Amendment, except to the extent permitted therein.
4. HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AMENDMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CHOICE-OF-LAW
PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE
LAWS OF A JURISDICTION OTHER THAN SUCH STATE. THE BORROWER HEREBY SUBMITS TO THE
JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK LOCATED IN NEW YORK
COUNTY, NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO SOLE AND ABSOLUTE ELECTION
OF THE LENDER AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, ALL
<PAGE>
Page 5
ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
SHALL BE LITIGATED IN SUCH COURTS, AND THE BORROWER WAIVES ANY OBJECTION WHICH
IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF
ANY PROCEEDING IN ANY SUCH COURTS. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY
OF THE LOAN DOCUMENTS OR THE ACTIONS OF ANY LENDER IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7. SEVERABILITY. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Amendment, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
[Remainder of page intentionally left blank]
<PAGE>
Page 6
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of
the day and year first written above.
BORROWER:
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
By:
Name:
Title:
LENDER:
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By:
Name:
Title:
<PAGE>
EXHIBIT 10.21
_________________________________________________________________
_________________________________________________________________
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
$30,000,000
11.28% SENIOR SUBORDINATED NOTES DUE JULY 23, 2006
AND
COMMON STOCK PURCHASE WARRANTS
_______________
SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT
_______________
DATED AS OF JULY 23, 1998
_________________________________________________________________
_________________________________________________________________
NOTE: This Agreement contains
confidentiality obligations
(paragraph 12H)
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
Page
----
1. AUTHORIZATION OF ISSUE OF SECURITIES.................................... 1
1A. Authorization of Issue of Notes..................................... 1
1B. Authorization of Issue of Warrants.................................. 1
2. PURCHASE AND SALE OF SECURITIES......................................... 2
2A. Purchase and Sale of Notes.......................................... 2
2B. Purchase and Sale of Warrants....................................... 2
3. CONDITIONS PRECEDENT.................................................... 2
3A. Certain Documents................................................... 2
3B. Representations and Warranties; No Default; No Material Adverse
Change.............................................................. 5
3C. Purchase Permitted By Applicable Laws............................... 5
3D. Proceedings......................................................... 6
3E. Related Proceedings................................................. 6
3F. Consummation of Acquisition......................................... 6
3G. Private Placement Number............................................ 6
3H. Fees................................................................ 6
4. PREPAYMENTS............................................................. 7
4A. Required Prepayments................................................ 7
4B. Optional Prepayment of Notes with Yield Maintenance Amount.......... 7
4B(1). Optional Prepayment of Notes................................. 7
4B(2). Optional Prepayment of Notes Upon Material Public Offering... 8
4C. Offer to Prepay Notes in the Event of a Change in Control........... 8
4D. Partial Payments Pro Rata........................................... 9
4E. Retirement of Notes................................................. 10
5. AFFIRMATIVE COVENANTS................................................... 10
5A. Financial Statements................................................ 10
5B. Information Required by Rule 144A................................... 13
5C. Inspection of Property.............................................. 13
5D. Covenant to Secure Notes Equally.................................... 14
5E. Taxes, Existence, Regulations, Property, Etc........................ 14
5F. Maintenance of Insurance............................................ 14
5G. Maintenance of Directors' and Officers' Insurance................... 14
i
<PAGE>
5H. ERISA Compliance.................................................... 14
5I. Maintenance of Committed Credit Facility............................ 15
5J. Collateral; New Subsidiaries; Foreign Subsidiaries.................. 15
5K. Enforcement of Acquisition Documents................................ 17
5L. Maintenance of Books of Record; Reserves............................ 17
6. NEGATIVE COVENANTS...................................................... 17
6A. Financial Covenants................................................. 17
6A(1). Total Debt to EBITDA Ratio................................... 17
6A(2). Consolidated Net Worth....................................... 17
6A(3). Current Ratio................................................ 17
6A(4). EBITDA to Consolidated Interest Expense and Preferred
Dividends Ratio.............................................. 17
6A(5). EBITDA to Consolidated Interest Expense and Preferred
Dividends plus Scheduled Principal Payments Ratio............ 18
6A(6). Priority Debt................................................ 18
6B. Limitation on Restricted Payments................................... 18
6C. Liens, Indebtedness, and Other Restrictions......................... 18
6C(1). Liens........................................................ 18
6C(2). Limitation on Indebtedness................................... 19
6C(3). Loans and Investments........................................ 19
6C(4). Mergers, Consolidations and Acquisitions, Dispositions of
Assets, etc.................................................. 20
6C(5). Limitation on Asset Dispositions............................. 20
6C(6). Sale or Discount of Receivables.............................. 21
6C(7). Transactions With Affiliates................................. 21
6C(8). Limitation on Sale-Leaseback Transactions.................... 21
6C(9). Prepayment of Certain Indebtedness........................... 21
6D. Nature of Business.................................................. 21
6E. Certificates of Incorporation; Bylaws; Trade Names.................. 21
6F. Other Agreements.................................................... 22
6G. Limitation on Certain Restrictive Agreements........................ 22
6H. Prohibition Against Layering........................................ 22
6I. Limitation on Subsidiaries Activities............................... 22
6J. Limitation on Issuance of Preferred Stock........................... 22
7. SUBORDINATION OF NOTES.................................................. 23
7A. Subordination....................................................... 23
7B. Obligation of the Company Unconditional............................. 24
7C. Subrogation......................................................... 25
7D. Subordination Definitions........................................... 25
ii
<PAGE>
8. EVENTS OF DEFAULT..................................................... 26
8A. Acceleration...................................................... 26
8B. Rescission of Acceleration........................................ 29
8C. Notice of Acceleration or Rescission.............................. 29
8D. Other Remedies.................................................... 29
9. REPRESENTATIONS, COVENANTS AND WARRANTIES............................. 29
9A. Organization and Qualification.................................... 29
9B. Financial Statements.............................................. 30
9C. Actions Pending................................................... 30
9D. Outstanding Indebtedness.......................................... 30
9E. Title to Properties............................................... 31
9F. Possession of Franchises, Licenses................................ 31
9G. Taxes............................................................. 31
9H. Conflicting Agreements and Other Matters.......................... 31
9I. Authorized Capital Stock.......................................... 32
9J. Offering of the Securities........................................ 32
9K. Use of Proceeds................................................... 32
9L. ERISA............................................................. 33
9M. Governmental Consent.............................................. 33
9N. Environmental Compliance.......................................... 33
9O. Fiscal Year....................................................... 33
9P. Disclosure........................................................ 33
9Q. Investment Company Act............................................ 34
9R. Acquisition Representations and Warranties........................ 34
10. REPRESENTATIONS OF THE PURCHASER...................................... 34
10A. Nature of Purchase............................................... 34
10B. Source of Funds.................................................. 34
11. DEFINITIONS........................................................... 34
11A. Yield Maintenance Terms.......................................... 35
11B. Other Terms...................................................... 36
11C. Accounting Principles, Terms and Determinations.................. 50
iii
<PAGE>
12. MISCELLANEOUS......................................................... 50
12A. Note Payments.................................................... 50
12B. Expenses......................................................... 51
12C. Consent to Amendments............................................ 51
12D. Form, Registration, Transfer and Exchange of Notes; Lost Notes... 51
12E. Persons Deemed Owners; Participations............................ 52
12F. Survival of Representations and Warranties; Entire Agreement..... 52
12G. Successors and Assigns........................................... 52
12H. Disclosure to Other Persons...................................... 53
12I. Notices.......................................................... 53
12J. Payments Due on Non-Business Days................................ 53
12K. Satisfaction Requirement......................................... 54
12L. Governing Law.................................................... 54
12M. Waiver of Jury Trial; Consent to Jurisdiction.................... 54
12N. Severability..................................................... 55
12O. Descriptive Headings............................................. 55
12P. Maximum Interest Payable......................................... 55
12Q. Counterparts..................................................... 55
iv
<PAGE>
PURCHASER SCHEDULE
SCHEDULE 9A -- LIST OF SUBSIDIARIES
SCHEDULE 9D -- EXISTING DEBT AND LIENS
SCHEDULE 9H -- LIST OF AGREEMENTS RESTRICTING DEBT
SCHEDULE 9I -- LIST OF WARRANTS, OPTIONS AND CONVERTIBLE
SECURITIES
SCHEDULE 9K -- USE OF PROCEEDS
EXHIBIT A -- FORM OF NOTE
EXHIBIT B -- FORM OF WARRANT
EXHIBIT C -- FORM OF OPINION OF COMPANY'S COUNSEL
EXHIBIT D -- FORM OF COMPLIANCE CERTIFICATE
EXHIBIT E -- FORM OF GUARANTY AGREEMENT
EXHIBIT F -- FORM OF MORTGAGE
EXHIBIT G -- FORM OF PARTICIPATION RIGHTS AGREEMENT
EXHIBIT H -- FORM OF PLEDGE AGREEMENT
EXHIBIT I -- FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT J -- FORM OF SECURITY AGREEMENT
v
<PAGE>
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
5151 SAN FELIPE, SUITE 450
HOUSTON, TEXAS 77056
As of July 23, 1998
The Prudential Insurance Company of America
c/o Prudential Capital Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
$30,000,000 11.28% SENIOR SUBORDINATED NOTES DUE 2006
COMMON STOCK PURCHASE WARRANTS
Ladies and Gentlemen:
The undersigned, Boots & Coots International Well Control, Inc., a Delaware
corporation (the "COMPANY"), hereby agrees with you as follows:
PARAGRAPH 1. AUTHORIZATION OF ISSUE OF SECURITIES.
1A. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the issue of
its 11.28% senior subordinated notes in the aggregate principal amount of
$30,000,000, to be dated the date of issue thereof, to mature July 23, 2006, to
bear interest on the unpaid balance thereof from the date thereof until the
principal thereof shall have become due and payable at a rate of 11.28% per
annum and on overdue payments at the rate specified therein; such 11.28% senior
subordinated notes shall be substantially in the form of Exhibit A attached
hereto. The term "NOTES" as used herein shall include each such 11.28% senior
subordinated note delivered pursuant to any provision of this Agreement and each
such 11.28% senior subordinated note delivered in substitution or exchange for
any other Note pursuant to any such provision. Capitalized terms used herein
have the meanings specified in paragraph 11.
1B. AUTHORIZATION OF ISSUE OF WARRANTS. The Company will also authorize the
issue of its Common Stock Purchase Warrants (any such Common Stock Purchase
Warrants which have been issued pursuant to this Agreement, and any such Common
Stock Purchase Warrants which may be issued in substitution or exchange
therefor, herein collectively called the "WARRANTS") evidencing rights to
purchase from the Company an aggregate of 3,165,396 shares of the Company's
common stock, par value $0.00001 per share (the "COMMON STOCK"), at an initial
exercise price per share of
1
<PAGE>
$6.70, at any time or from time to time after July 23, 2000 (subject to the
exceptions set forth in section 1H of the Warrants), and prior to 5:00 p.m., New
York City time, on the later of (i) July 23, 2008 and (ii) six months after the
date the Notes are fully retired, all subject to the terms, conditions and
adjustments set forth in the Warrants; such Warrants shall be substantially in
the form of Exhibit B attached hereto.
PARAGRAPH 2. PURCHASE AND SALE OF SECURITIES.
2A. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to you and,
subject to the terms and conditions herein set forth, you agree to purchase from
the Company, Notes in the aggregate principal amount of $30,000,000 at 100% of
such aggregate principal amount. The Company will deliver to you, at the offices
of Baker & Botts, L.L.P. at 910 Louisiana, Houston, Texas 77002, one or more
Notes registered in your name, evidencing the aggregate principal amount of
Notes to be purchased by you and in the denomination or denominations specified
in the Purchaser Schedule attached hereto, against payment of the purchase price
thereof by transfer of immediately available funds for credit to the Company's
account specified in the letter from the Company described in paragraph 3A(xv),
on the date of closing, which shall be July 23, 1998 or any other date on or
before July 31, 1998 upon which the Company and you may mutually agree (the
"CLOSING" or the "DATE OF CLOSING").
2B. PURCHASE AND SALE OF WARRANTS. The Company hereby agrees to sell to you
and, subject to the terms and conditions herein set forth, you agree to purchase
from the Company Warrants evidencing rights to purchase an aggregate of
3,165,396 shares of Common Stock. The aggregate purchase price for the Warrants
shall be $10.00. The Company will deliver to you, at the offices of Baker &
Botts, L.L.P. at 910 Louisiana, Houston, Texas 77002, one or more Warrants,
registered in your name, evidencing rights to purchase an aggregate of 3,165,396
shares of Common Stock, such Warrant or Warrants to evidence rights to purchase
the number of shares of Common Stock specified in the Purchaser Schedule
attached hereto, against payment of the purchase price for the Warrants by
transfer of immediately available funds for credit to the Company's account
specified in the letter from the Company described in paragraph 3A(xv), on the
Date of Closing.
PARAGRAPH 3. CONDITIONS PRECEDENT.
3. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the
Securities to be purchased by you hereunder is subject to the satisfaction, on
or before the Date of Closing, of the following conditions:
3A. CERTAIN DOCUMENTS. You shall have received the following, each
dated the Date of Closing (unless a different date is indicated below), and each
in form, scope and substance satisfactory to you:
(i) the Notes to be purchased by you;
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(ii) the Warrants to be purchased by you;
(iii) certified copies of the resolutions of the Board of Directors
of each of the Transaction Parties approving each of the Subordinated Note
Documents to which each is a party, and certified copies of all documents
evidencing other necessary corporate action and governmental approvals, if
any, with respect to each of the Subordinated Note Documents to which each
is a party;
(iv) a certificate of the Secretary or an Assistant Secretary of each
of the Transaction Parties certifying the names and true signatures of the
officers of such Transaction Party authorized to sign the Subordinated
Note Documents to which it is a party and the other documents to be
delivered hereunder by such Transaction Party;
(v) certified copies of the Certificate or Articles of Incorporation
(certified by the Secretary of State or other governmental authority, as
applicable, within 10 Business Days of the Date of Closing) and bylaws,
each as amended to date, of each of the Transaction Parties;
(vi) a favorable opinion of Brown, Parker & Leahy, L.L.P., counsel to
the Transaction Parties, substantially in the form of Exhibit C attached
hereto;
(vii) a favorable opinion of Baker & Botts, L.L.P., who are acting as
special counsel for you in connection with this transaction, as to such
matters incident to the matters herein contemplated as you may reasonably
request;
(viii) reliance letters in respect of all legal opinions delivered in
connection with the Acquisition and the other transactions related thereto;
(ix) certified copies of Requests for Information or Copies (Form UCC-
11) or equivalent reports, dated within 20 days of the Date of Closing,
listing all effective financing statements which name any of the
Transaction Parties or the Acquired Company (under any of their present
names and any previous names) as debtor and which are filed in all
jurisdictions in which any of the Transaction Parties or the Acquired
Company own property or conduct business, together with copies of such
financing statements;
(x) the Registration Rights Agreement, duly executed and delivered by
the Company;
(xi) the Participation Rights Agreement, duly executed and delivered
by the Company and the Company's stockholders parties thereto;
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(xii) certified copies of each of the Acquisition Documents, the terms
and conditions of which shall be reasonably satisfactory to you and in full
force and effect and shall not have been amended, modified or waived except
with your prior consent;
(xiii) copies of (a) a pro forma consolidated balance sheet for the
Transaction Parties as at the Closing Date, reflecting the issuance of the
Notes hereunder, the issuance of the Indebtedness under the Bridge Loan
Agreement, and the consummation of the Acquisition, certified by an
authorized financial officer of the Company and (b) good-faith management
projections and pro forma financial statements for the Transaction Parties
for fiscal years 1998 through 2002;
(xiv) Guaranty Agreements, duly executed and delivered by each
Domestic Subsidiary of the Company;
(xv) written instructions from a Responsible Officer of the Company,
set forth on the Company's letterhead, authorizing and directing you to pay
the purchase price of the Securities by transfer of immediately available
funds for credit to the bank account of the Company identified in such
instructions;
(xvi) a letter from each of (a) the Chairman of the Company and (b)
an authorized representative of the Company's financial advisors with
respect to the issuance of the Contemplated Preferred Stock, that describe,
in scope and substance satisfactory to you, the progress made as of the
Date of Closing toward the issuance of the Contemplated Preferred Stock.
(xvii) the Security Documents, duly executed and delivered by each of
the Company and the other Transaction Parties thereto;
(xviii) all Uniform Commercial Code financing statements deemed
necessary or appropriate by you to perfect the Liens in favor of the
Collateral Agent arising under the Security Documents, duly executed and
delivered by the appropriate Transaction Parties, to be recorded with the
appropriate filing offices;
(xix) evidence satisfactory to you and your special counsel that the
Company or one of its Subsidiaries has good and marketable title to the
real property encumbered by the Mortgages and that the Collateral Agent
possesses mortgage liens with respect to such real property, which evidence
may include, without limitation, mortgagee policies of the title insurance,
title reports and title opinions;
(xx) certificates of insurance naming the Collateral Agent as loss
payee and the Collateral Agent and all holders of Notes as additional
insureds, as required by paragraph 5F;
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(xxi) the Bridge Loan Documents, duly executed and delivered by each
of the Company and the other Transaction Parties thereto;
(xxii) evidence satisfactory to you and your special counsel that (a)
all Indebtedness of the Company and any Transaction Party to Geneva
Associates, L.L.C. or to Main Street Merchant Partners II, L.P., and any
Liens with respect thereto, have been transferred to Larry H. Ramming
pursuant to the terms of the Assigned Loan Documents, (b) all Liens
securing Indebtedness of the Company or any Transaction Party to Larry H.
Ramming have been transferred to Prudential Securities Credit Corporation
pursuant to the Assigned Loan Documents, (c) all Indebtedness of the
Company and any Transaction Party to Prudential Securities Credit
Corporation, and any Liens with respect thereto, have been transferred to
you pursuant to the Bridge Loan Documents and (d) that all Indebtedness of
the Company or any Transaction Party to Prudential Securities Credit
Corporation, and any Liens with respect thereto, have been terminated, and
you shall have received all UCC termination statements or other
documentation necessary or required by you or your special counsel to
effectuate or evidence the requirements of the foregoing clauses (a)
thought (d); and
(xxiii) copies of all Assigned Loan Documents, certified as true,
complete and correct by a Responsible Officer;
(xxiv) copies of all stock certificates of the Company subject to the
Participation Rights Agreement legended pursuant to the Participation
Rights Agreement;
(xxv) evidence satisfactory to you and your special counsel that
Arizona Securities Group, Inc. and Paradise Valley Securities Group, Inc.
have each waived its right to enforce the provisions of that certain
Placement Agent Agreement, dated August 7, 1997, that restrict the
Company's ability to issue the Warrants and you shall and your special
counsel be satisfied that the execution and delivery of the Warrants does
not, and the sale of the Common Stock thereunder will not, conflict with
the terms of such agreement (after giving effect to the waiver required
hereby).
3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT; NO MATERIAL ADVERSE CHANGE.
The representations and warranties of the Company and each of the other
Transaction Parties contained in this Agreement, the other Subordinated Note
Documents and in the Acquisition Documents shall be true on and as of the Date
of Closing, except to the extent of changes caused by the transactions herein
contemplated; there shall exist on the Date of Closing no Event of Default or
Default; there shall exist or have occurred no condition, event or act which
could reasonably be expected to have a Material Adverse Effect and the Company
and each of the other Transaction Parties shall have delivered to you an
Officer's Certificate, dated the Date of Closing, to both such effects.
3C. PURCHASE PERMITTED BY APPLICABLE LAWS. The offer by the Company of, and
the purchase of and payment for, the Securities to be purchased by you on the
Date of Closing on the terms and conditions herein provided (including the use
of the proceeds of such Securities by the
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Company) shall not violate any applicable law or governmental regulation
(including, without limitation, section 5 of the Securities Act or Regulation U
or X of the Board of Governors of the Federal Reserve System) and shall not
subject you to any tax, penalty, liability or other onerous condition under or
pursuant to any applicable law or governmental regulation, and you shall have
received such certificates or other evidence as you may request to establish
compliance with this condition.
3D. PROCEEDINGS. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to you, and you
shall have received all such counterpart originals or certified or other copies
of such documents as you may reasonably request.
3E. RELATED PROCEEDINGS. All corporate and other proceedings taken or
to be taken in connection with (i) the Acquisition, (ii) the execution and
delivery of, and performance under, the Bridge Loan Agreement and the other
Bridge Loan Documents, (iii) the assignment, termination or release of the
Indebtedness of the Company or any Transaction Party (other than Indebtedness
owing to Larry H. Ramming), and any Liens relating thereto, under any of the
Assigned Loan Documents and (iv) the other transactions contemplated thereby,
and all documents incident thereto, shall be satisfactory in substance and form
to you, and you shall have received all such counterpart originals or certified
or other copies of such documents as you may reasonably request.
3F. CONSUMMATION OF ACQUISITION. You shall have received satisfactory
evidence that the Acquisition has been consummated prior to or concurrently with
issuance of the Securities pursuant to and in accordance with the terms and
conditions of the Acquisition Documents (no material terms thereof having been
amended, supplemented, waived or otherwise modified without your prior written
consent).
3G. PRIVATE PLACEMENT NUMBER. Private Placement numbers issued by
Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities
Valuation Office of the National Association of Insurance Commissioners) shall
have been obtained for the Notes and for the Warrants.
3H. FEES. (i) You shall have received (a) the structuring fee with
respect to this Agreement in the amount of $150,000 (b) the structuring fee with
respect to the Bridge Loan Agreement in the amount of $75,000 and (c) all other
fees which are due and payable on or before the Closing Date pursuant to any
written agreement between the Company and you, and (ii) without limiting the
provisions of paragraph 12B, your special counsel shall have received its fees,
charges and disbursements to the extent reflected in a statement of such special
counsel rendered to the Company at least one Business Day prior to the Closing.
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PARAGRAPH 4. PREPAYMENTS.
4. PREPAYMENTS. The Notes shall be subject to prepayment only with respect to
the prepayments specified in paragraphs 4A, 4B and 4C.
4A. REQUIRED PREPAYMENTS. Until the Notes shall be paid in full, the
Company shall apply to the prepayment of the Notes, without premium, the sum of
$6,000,000 on July 23 in each of the years 2002, 2003, 2004 and 2005, and such
principal amounts of the Notes, together with interest thereon to the prepayment
dates, shall become due on such prepayment dates. The remaining outstanding
principal amount of the Notes, together with interest accrued thereon, shall
become due on the maturity date of the Notes.
4B. OPTIONAL PREPAYMENT OF NOTES WITH YIELD MAINTENANCE AMOUNT.
4B(1). OPTIONAL PREPAYMENT OF NOTES.
(i) The Notes shall be subject to prepayment, on any Business Day
after the date hereof, in whole at any time or from time to time in part
(in integral multiples of $1,000,000), at the option of the Company, at
100% of the principal amount so prepaid, plus interest thereon to the
prepayment date and the Yield Maintenance Amount, if any, with respect to
each Note so prepaid. Any partial prepayment of the Notes pursuant to this
paragraph 4B(1) shall be applied in satisfaction of required prepayments of
principal under paragraph 4A in inverse order of their scheduled due dates.
(ii) The Company shall give the holder of each Note irrevocable
written notice of any prepayment pursuant to this paragraph 4B(1) not less
than ten Business Days prior to the prepayment date, specifying such
prepayment date and the principal amount of the Notes, and of the Notes
held by such holder, to be prepaid on such date and stating that such
prepayment is to be made pursuant to this paragraph 4B(1). Notice of
prepayment having been given as aforesaid, the principal amount of the
Notes specified in such notice, together with interest thereon to the
prepayment date and together with the Yield Maintenance Amount, if any,
with respect thereto, shall become due and payable on such prepayment date.
The Company shall, on or before the day on which it gives written notice of
any prepayment pursuant to this paragraph 4B(1), give telephonic notice of
the principal amount of the Notes to be prepaid and the prepayment date to
each holder which shall have designated a recipient of such notices in the
Purchaser Schedule attached hereto or by notice in writing to the Company.
On the Business Day preceding the date of prepayment the Company shall
deliver to each holder of Notes being prepaid a statement showing the Yield
Maintenance Amount due in connection with such prepayment and setting forth
the details of the computation of such amount.
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4B(2). OPTIONAL PREPAYMENT OF NOTES UPON MATERIAL PUBLIC OFFERING.
(i) In connection with a Material Public Offering, up to 35% of the
principal amount of Notes originally issued shall be subject to prepayment
with the proceeds of such Material Public Offering, on any Business Day
that is 30 Business Days after the closing of such Material Public
Offering, in whole at any time or from time to time in part (in integral
multiples of $1,000,000), at the option of the Company, at 100% of the
principal amount so prepaid plus interest thereon to the prepayment date
and the Yield Maintenance Amount, if any, with respect to each Note so
prepaid. Any partial prepayment of the Notes pursuant to this paragraph
4B(2) shall be applied in satisfaction of required prepayments of principal
under paragraph 4A in inverse order of their scheduled due dates.
(ii) The Company shall give the holder of each Note irrevocable
written notice of any prepayment pursuant to this paragraph 4B(2) not less
than ten Business Days prior to the prepayment date, specifying such
prepayment date and the principal amount of the Notes, and of the Notes
held by such holder, to be prepaid on such date and stating that such
prepayment is to be made pursuant to this paragraph 4B(2). Notice of
prepayment having been given as aforesaid, the principal amount of the
Notes specified in such notice, together with interest thereon to the
prepayment date and together with the Yield Maintenance Amount, if any,
with respect thereto, shall become due and payable on such prepayment date.
The Company shall, on or before the day on which it gives written notice of
any prepayment pursuant to this paragraph 4B(2), give telephonic notice of
the principal amount of the Notes to be prepaid and the prepayment date to
each holder which shall have designated a recipient of such notices in the
Purchaser Schedule attached hereto or by notice in writing to the Company.
On the Business Day preceding the date of prepayment the Company shall
deliver to each holder of Notes being prepaid a statement showing the Yield
Maintenance Amount due in connection with such prepayment and setting forth
the details of the computation of such amount.
4C. OFFER TO PREPAY NOTES IN THE EVENT OF A CHANGE IN CONTROL.
(i) Notice of Impending Change in Control. The Company will not take
any action that consummates or finalizes a Change in Control unless at
least 30 days prior to such action it shall have given to each holder of
Notes written notice of such impending Change in Control.
(ii) Notice of Occurrence of Change in Control. The Company will,
within five Business Days after obtaining Knowledge of the occurrence of
any Change in Control, give written notice of such Change in Control to
each holder of Notes. If a Change in Control has occurred, such notice
shall contain and constitute an offer to prepay the Notes as described in
clause (iii) of this paragraph 4C and shall be accompanied by the
certificate described in clause (vi) hereof.
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(iii) Offer to Prepay Notes. The offer to prepay Notes contemplated by
the foregoing clause (ii) shall be an offer to prepay, in accordance with
and subject to this paragraph 4C, all, but not less than all, the Notes
held by each holder (in this case only, "holder" in respect of any Note
registered in the name of a nominee for a disclosed beneficial owner shall
mean such beneficial owner) on a date specified in such offer (the
"PROPOSED PREPAYMENT DATE"). Such Proposed Prepayment Date shall be not
less than 30 days and not more than 60 days after the date of such offer
(if the Proposed Prepayment Date shall not be specified in such offer, the
Proposed Prepayment Date shall be the 30th day after the date of such
offer).
(iv) Rejection; Acceptance. A holder of Notes may accept the offer
made pursuant to this paragraph 4C to prepay all, but not less than all,
the Notes held by such holder by causing a notice of such acceptance to be
delivered to the Company at least five days prior to the Proposed
Prepayment Date. A failure by a holder of Notes to respond to an offer to
prepay made pursuant to this paragraph 4C shall be deemed to constitute a
rejection of such offer by such holder.
(v) Prepayment; Reduction of Required Prepayments. Prepayment of the
Notes to be prepaid pursuant to this paragraph 4C shall be at 100% of the
principal amount of such Notes, plus the Yield Maintenance Amount
determined for the date of prepayment with respect to such principal
amount, together with interest on such Notes accrued to the date of
prepayment. On the Business Day preceding the date of prepayment, the
Company shall deliver to each holder of Notes being prepaid a statement
showing the Yield Maintenance Amount due in connection with such prepayment
and setting forth the details of the computation of such amount. The
prepayment shall be made on the Proposed Prepayment Date. Upon any partial
prepayment of Notes pursuant to this paragraph 4C, the principal amount of
the required prepayment of the Notes becoming due under paragraph 4A on or
after the date of such prepayment shall be reduced in the same proportion
as the aggregate unpaid principal amount of Notes is reduced as a result of
such prepayment.
(vi) Officer's Certificate. Each offer to prepay the Notes pursuant
to this paragraph 4C shall be accompanied by a certificate, executed by a
Responsible Officer of the Company and dated the date of such offer,
specifying: (a) the Proposed Prepayment Date; (b) that such offer is made
pursuant to this paragraph 4C; (c) the principal amount of each Note
offered to be prepaid; (d) the estimated Yield Maintenance Amount due in
connection with such prepayment (calculated as if the date of such notice
were the date of the prepayment) and the details of such calculation; (e)
the interest that would be due on each Note offered to be prepaid, accrued
to the Proposed Prepayment Date; (f) that the conditions of this paragraph
4C have been fulfilled; and (g) in reasonable detail, the nature and date
of the Change in Control.
4D. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of Notes
pursuant to paragraph 4A or 4B, the principal amount so prepaid shall be
allocated to all Notes at the time
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outstanding (including, for the purpose of this paragraph 4D only, all such
Notes prepaid or otherwise retired or purchased or otherwise acquired by the
Company or any of its Subsidiaries or Affiliates other than by prepayment
pursuant to paragraph 4A, 4B or 4C) in proportion to the respective outstanding
principal amounts thereof. Upon any partial prepayment of Notes pursuant to
paragraph 4C, the principal amount so prepaid shall be allocated to all Notes at
the time outstanding and held by holders who have accepted the Company's offer
of prepayment made pursuant to paragraph 4C in proportion to the respective
outstanding principal amounts thereof.
4E. RETIREMENT OF NOTES. The Company shall not, and shall not permit
any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or
in part prior to their stated final maturity (other than by prepayment pursuant
to paragraph 4A, 4B or 4C or upon acceleration of such final maturity pursuant
to paragraph 8A), or purchase or otherwise acquire, directly or indirectly,
Notes held by any holder unless the Company or such Subsidiary or Affiliate
shall have offered to prepay or otherwise retire or purchase or otherwise
acquire, as the case may be, the same proportion of the aggregate principal
amount of Notes held by each other holder of Notes at the time outstanding upon
the same terms and conditions. Any Notes so prepaid or otherwise retired or
purchased or otherwise acquired by the Company or any of its Subsidiaries or
Affiliates shall not be deemed to be outstanding for any purpose under this
Agreement, except as provided in paragraph 4D.
PARAGRAPH 5. AFFIRMATIVE COVENANTS.
5. AFFIRMATIVE COVENANTS.
So long as any Note shall remain unpaid (or, if no Note shall remain unpaid
but any Warrant shall remain outstanding, (i) if at the time in question the
Common Stock is listed or admitted to trading on any national securities
exchange or is traded in the over-the-counter market and is subject to bid and
asked prices with respect thereto being quoted in the NASDAQ National Market,
then only with respect to the covenants of the Company set forth in paragraphs
5A(i), (ii) and (iii) and 5B, or (ii) if the Common Stock is not so listed,
admitted to trading or subject to such bid and asked prices being so quoted,
then only with respect to the covenants of the Company set forth in paragraphs
5A, 5B and 5C) the Company covenants that:
5A. FINANCIAL STATEMENTS. The Company will deliver to each holder in
duplicate:
(i) as soon as practicable and in any event within 45 days after the
end of each quarterly period (other than the last quarterly period) in each
fiscal year, consolidating and consolidated statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries for
the period from the beginning of the current fiscal year to the end of such
quarterly period, and a consolidating and consolidated balance sheet of the
Company and its Subsidiaries as at the end of such quarterly period,
setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year, all in reasonable detail
and satisfactory in form to the Required Holder(s) and certified by an
authorized financialofficer of the Company, subject to changes resulting
from year-end adjustment; provided,
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that delivery pursuant to clause (iii) below of copies of the Quarterly
Report on Form 10-Q or 10-QSB, as the case may be, of the Company for such
quarterly period filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this clause (i) with respect to
consolidated financial statements if such financial statements are included
in such report;
(ii) as soon as practicable and in any event within 90 days after the
end of each fiscal year, consolidating and consolidated statements of
income and cash flows and a consolidated statement of stockholders' equity
of the Company and its Subsidiaries for such year, and a consolidating and
consolidated balance sheet of the Company and its Subsidiaries as at the
end of such year, setting forth in each case in comparative form
corresponding consolidated figures from the preceding annual audit, all in
reasonable detail and satisfactory in form to the Required Holder(s) and,
as to the consolidated statements, reported on by independent public
accountants of recognized national standing selected by the Company whose
report shall be without limitation as to the scope of the audit and
satisfactory in substance to the Required Holder(s) and, as to the
consolidating statements, certified by an authorized financial officer of
the Company; provided, that delivery pursuant to clause (iii) below of
copies of the Annual Report on Form 10-K or 10-KSB, as the case may be, of
the Company for such fiscal year filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this clause (ii)
with respect to consolidated financial statements if such financial
statements are included in such report;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its public stockholders and copies of all registration statements
(without exhibits) and all reports which it files with the Securities and
Exchange Commission (or any governmental body or agency succeeding to the
functions of the Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any Subsidiary by independent accountants in
connection with any annual, interim or special audit made by them of the
books of the Company or any Subsidiary;
(v) as soon as practicable and in any event within five Business Days
after obtaining Knowledge (a) of any condition or event which, in the
opinion of management of the Company, would have a Material Adverse Effect,
(b) that any Person has given any notice to the Company or any of its
Subsidiaries or taken any other action with respect to a claimed default or
event or condition of the type referred to in clause (iii) of paragraph 8A,
(c) of the institution of any litigation involving claims against the
Company or any of its Subsidiaries equal to or greater than $100,000 with
respect to any single cause of action or of any adverse determination in
any court proceeding in any litigation involving a potential liability to
the Company or any of its Subsidiaries equal to or greater than $500,000
with respect to any single cause of action which makes the likelihood of an
adverse determination in such litigation against the Company or such
Subsidiary substantially more probable or (d)
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of any regulatory proceeding which may have a Material Adverse Effect, an
Officer's Certificate specifying the nature and period of existence of any
such condition or event, or specifying the notice given or action taken by
such Person and the nature of any such claimed default, event or condition,
or specifying the details of such proceeding, litigation or dispute and
what action the Company or any of its Subsidiaries has taken, is taking or
proposes to take with respect thereto;
(vi) (a) within five Business Days after receipt, a copy of any notice
of complete or partial withdrawal liability under Title IV of ERISA and any
notice from the PBGC under Title IV of ERISA of an intent to terminate or
appoint a trustee to administer any Plan, (b) if requested by any holder of
the Notes, promptly after the filing thereof with the United States
Secretary of Labor or the PBGC or the Internal Revenue Service, copies of
each annual and other report with respect to each Plan or any trust created
thereunder, (c) immediately upon becoming aware of the occurrence of any
"reportable event," as such term is defined in Section 4043 of ERISA, for
which the disclosure requirements of Regulation Section 2615.3 promulgated
by the PBGC have not been waived, or of any "prohibited transaction," as
such term is defined in Section 4975 of the Code, in connection with any
Plan or any trust created thereunder, a written notice signed by an
authorized officer of the Company or the applicable member of the
Controlled Group specifying the nature thereof, what action the Company or
the applicable member of the Controlled Group is taking or proposes to take
with respect thereto, and, when known, any action taken by the PBGC, the
Internal Revenue Service or the Department of Labor with respect thereto,
(d) promptly after the filing or receiving thereof by the Company or any
member of the Controlled Group of any notice of the institution of any
proceedings or other actions which may result in the termination of any
Plan, and (e) each request for waiver of the funding standards or extension
of the amortization periods required by Sections 303 and 304 of ERISA or
Section 412 of the Code promptly after the request is submitted by the
Company or any member of the Controlled Group to the Secretary of the
Treasury, the Department of Labor or the Internal Revenue Service, as the
case may be;
(vii) promptly upon delivery thereof to the Bank, copies of all such
notices, reports and other materials which the Company or any Subsidiary is
required under the Credit Agreement to deliver to the Bank;
(viii) promptly upon completion thereof on an annual basis within 60
days following each fiscal year end, a copy of each operating budget and
projection of financial performance prepared by or for the Company or any
of its Subsidiaries;
(ix) within five Business Days after the removal or resignation of, or
the death or disability of any Executive Officer or Responsible Officer or
senior firefighter of the Company or any of its Subsidiaries, written
notice thereof, together with information in reasonable detail with respect
thereto; and
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(x) with reasonable promptness, such other information respecting the
condition or operations, financial or otherwise, of the Company or any of
its Subsidiaries as such holder may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each Significant Holder an Officer's
Certificate in the form of Exhibit D attached hereto demonstrating (with
computations in reasonable detail) compliance by the Company and its
Subsidiaries with the provisions of paragraphs 6A, 6C(2), 6C(3)and 6C(5) and
stating that there exists no Event of Default or Default, or, if any Event of
Default or Default exists, specifying the nature and period of existence thereof
and what action the Company proposes to take with respect thereto. Together
with each delivery of financial statements required by clause (ii) above, the
Company will deliver to each Significant Holder a certificate of such
accountants stating that, in making the audit necessary for their report on such
financial statements, they have obtained no knowledge of any Event of Default or
Default, or, if they have obtained knowledge of any Event of Default or Default,
specifying the nature and period of existence thereof. Such accountants,
however, shall not be liable to anyone by reason of their failure to obtain
knowledge of any Event of Default or Default which would not be disclosed in the
course of an audit conducted in accordance with generally accepted auditing
standards.
The Company also covenants that immediately after obtaining Knowledge of an
Event of Default or Default, it will deliver to each Significant Holder an
Officer's Certificate specifying the nature and period of existence thereof and
what action the Company proposes to take with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company will, upon the
request of the holder of any Security, provide such holder, and any qualified
institutional buyer designated by such holder, such financial and other
information as such holder may reasonably determine to be necessary in order to
permit compliance with the information requirements of Rule 144A under the
Securities Act in connection with the resale of Notes or Warrants, except at
such times as the Company is subject to the reporting requirements of section 13
or 15(d) of the Exchange Act. For the purpose of this paragraph 5B, the term
"qualified institutional buyer" shall have the meaning specified in Rule 144A
under the Securities Act.
5C. INSPECTION OF PROPERTY. The Company will permit any Person
designated by any Significant Holder in writing, at the Company's expense during
the continuance of a Default or Event of Default and otherwise at such
Significant Holder's expense, to visit and inspect, on behalf of such holder,
any of the properties of the Company and its Subsidiaries, to examine the
corporate books and financial records of the Company and its Subsidiaries and
make copies thereof or extracts therefrom and to discuss the affairs, finances
and accounts of any of such corporations with the principal officers of the
Company and its independent public accountants, all at such reasonable times and
as often as such holder may reasonably request; provided, that such Significant
Holder and such other Person shall have agreed to comply with the
confidentiality provisions set forth in paragraph 12H.
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5D. COVENANT TO SECURE NOTES EQUALLY. The Company will, if it or any
Subsidiary shall create or assume any Lien upon any of its property or assets,
whether now owned or hereafter acquired, other than Liens permitted by the
provisions of paragraph 6C(1) (unless prior written consent to the creation or
assumption thereof shall have been obtained pursuant to paragraph 12C), make or
cause to be made effective provision whereby the Notes will be secured by such
Lien equally and ratably with any and all other Indebtedness thereby secured so
long as any such other Indebtedness shall be so secured pursuant to such
agreements and instruments as shall be approved by the Required Holder(s), and
the Company will cause to be delivered to the holder of each Note an opinion of
independent counsel to the effect that such agreements and instruments are
enforceable in accordance with their terms and that the Notes are equally and
ratably secured with such other Indebtedness.
5E. TAXES, EXISTENCE, REGULATIONS, PROPERTY, ETC. The Company will at
all times, except where failure or noncompliance could not reasonably be
expected to have a Material Adverse Effect: (i) pay when due all taxes and
governmental charges of every kind upon it or against its income, profits or
Property, unless and only to the extent that the same shall be contested
diligently in good faith and adequate reserves in accordance with GAAP have been
established therefor; (ii) do all things necessary to preserve its existence,
qualifications, rights and franchises; (iii) comply with all applicable Legal
Requirements (including without limitation Requirements of Environmental Law) in
respect of the conduct of its business and the ownership of its Property, and
(iv) cause its Property to be protected, maintained and kept in good repair and
make all replacements and additions to such Property as may be reasonably
necessary to conduct its business properly and efficiently.
5F. MAINTENANCE OF INSURANCE. The Company will carry and maintain, and
cause each Subsidiary to carry and maintain, insurance (subject to customary
deductibles and retentions) in at least such amounts and against such
liabilities and hazards and by such methods as customarily maintained by other
companies operating similar businesses. The Collateral Agent and all holders of
Securities shall be named as additional insureds, and the Collateral Agent shall
be named as loss payee, on each insurance policy obtained or maintained by the
Company and its Subsidiaries with respect to their properties and businesses.
5G. MAINTENANCE OF DIRECTORS' AND OFFICERS' INSURANCE. The Company
will carry and maintain directors' and officers' liability insurance in at least
such amounts and against such liabilities and hazards and by such methods as
customarily maintained by other companies operating similar businesses which, in
any event, shall be in at least such amounts (subject to customary deductibles
and retentions) and against such liabilities and by such methods as are
maintained by the Company as of the Date of Closing.
5H. ERISA COMPLIANCE. To the extent required under applicable
statutory funding requirements, the Company will fund, or will cause the
applicable member of the Controlled Group to fund, all current service pension
liabilities as they are incurred under the provisions of all Plans from time to
time in effect, and comply with all applicable provisions of ERISA, in each
case, except
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to the extent that failure to do the same could not reasonably be expected to
have a Material Adverse Effect. The Company covenants that it shall and shall
cause each member of the Controlled Group to (i) make contributions to each Plan
in a timely manner and in an amount sufficient to comply with the contribution
obligations under such Plan and the minimum funding standards requirements of
ERISA; (ii) prepare and file in a timely manner all notices and reports required
under the terms of ERISA including but not limited to annual reports; and (iii)
pay in a timely manner all required PBGC premiums, in each case, except to the
extent that failure to do the same could not reasonably be expected to have a
Material Adverse Effect.
5I. MAINTENANCE OF COMMITTED CREDIT FACILITY. The Company will at all
times after the earlier of (i) January 6, 1999 or (ii) the effective date of the
initial Credit Agreement maintain a committed revolving credit facility of not
less than $2,500,000 and maintain its ability to satisfy all conditions
precedent to its ability to obtain advances thereunder, and the remaining
commitment period with respect to such facility shall at all times be at least
12 months.
5J. COLLATERAL; NEW SUBSIDIARIES; FOREIGN SUBSIDIARIES.
(i) It is the intent of the parties that all obligations of the
Company and its Subsidiaries under the Subordinated Note Documents shall be
secured by, among other things, substantially all the property and assets
(whether now existing or hereafter acquired) of the Company and its
Domestic Subsidiaries and Significant Foreign Subsidiaries and, during the
existence of a Default or an Event of Default, each Subsidiary (in each
case, whether now existing or hereafter acquired or created), including,
without limitation, real property and other properties acquired subsequent
to the Date of Closing and whether owned by existing Subsidiaries or by
subsequently acquired or organized Subsidiaries.
(ii) At its expense the Company shall execute and deliver, and shall
cause its Subsidiaries to execute and deliver, any and all documents,
financing statements, agreements and instruments, and take all action
(including, without limitation, filing Uniform Commercial Code and other
financing statements, mortgages and deeds of trust and any notices or other
documents customarily filed with the U.S. Patent and Trademark Office or
the U.S. Copyright Office) that may be required under applicable law, or
that the Required Holders or the Collateral Agent may reasonably request,
in order to effectuate the transactions contemplated by the Subordinated
Note Documents and in order to grant, preserve, protect and perfect the
validity and priority of the security interests and Liens created or
purported to be created by the Security Documents or in order to effectuate
the intent of the parties set forth in clause (i) of this paragraph 5J.
(iii) At the cost and expense of the Company, the Company will (a)
cause each subsequently acquired or organized Domestic Subsidiary
(contemporaneously with such acquisition or organization) to execute and
deliver a Guaranty Agreement in favor of the holders of the Notes and each
Security Document that the Collateral Agent or the Required Holders may
request in order to grant the Collateral Agent a valid, perfected pledge or
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security interest in the assets and properties, including, without
limitation, the capital stock or other equity interest of such Domestic
Subsidiary in its Domestic Subsidiaries, (b) cause any Domestic Subsidiary
that has not executed a Pledge Agreement and that itself has a subsequently
acquired or organized Domestic Subsidiary to execute and deliver a Pledge
Agreement pledging all of the capital stock or other equity interests of
such subsequently acquired or organized Domestic Subsidiary in favor of the
Collateral Agent and (c) pursuant to any applicable Pledge Agreement of the
Company or a Subsidiary, deliver, or cause such Subsidiary to deliver, to
the Collateral Agent the certificates, stock powers and notices required by
such Pledge Agreement with respect to such subsequently acquired or
organized Domestic Subsidiary (or take or cause such Subsidiary to take
such other actions as are necessary to provide the Collateral Agent with a
perfected pledge of, or security interest in, the capital stock or other
equity interests of such subsequently acquired or organized Domestic
Subsidiary that is the subject of such Pledge Agreement).
(iv) At the cost and expense of the Company and upon the request of
the Collateral Agent or the Required Holders, the Company will (a) cause
each Significant Foreign Subsidiary (or, during the existence of a Default
or an Event of Default, any Subsidiary) to execute and deliver a Guaranty
Agreement, in favor of the holder of the Notes, and each Security Document
that the Collateral Agent or the Required Holders may request in order to
grant the Collateral Agent a valid, perfected pledge or security interest
in the assets and properties, including, without limitation, the capital
stock or other equity interest owned by such Significant Foreign Subsidiary
in its own Subsidiaries, (b) cause any Subsidiary that has not executed a
Pledge Agreement and that itself has a Significant Foreign Subsidiary (or,
during the existence of a Default or an Event of Default, a Subsidiary that
is not a Domestic Subsidiary) to execute and deliver a Pledge Agreement
pledging all of the capital stock or other equity interests of such
Subsidiary in favor of the Collateral Agent and (c) pursuant to any
applicable Pledge Agreement of the Company or a Subsidiary, deliver or
cause such Subsidiary to deliver to the Collateral Agent the certificates,
stock powers and notices required by such Pledge Agreement with respect to
such Subsidiary (or take or cause such Subsidiary to take such other
actions as are necessary to provide the Collateral Agent with a perfected
pledge of or security interest in the capital stock or other equity
interests of the Subsidiary covered by such Pledge Agreement).
(v) Any security interests and Liens granted by the Company and its
Subsidiaries pursuant to this paragraph 5J will be created under the
Security Documents and any other security agreements, mortgages, deeds of
trust, other instruments and documents in form, scope and substance
satisfactory to the Required Holders and the Collateral Agent and, at its
expense, the Company will deliver or cause to be delivered to the
Collateral Agent, all such instruments and documents (including, without
limitation, legal opinions, title insurance policies, surveys and lien
searches or searches for liens on encumbrances upon intellectual property)
as the Required Holders or the Collateral Agent shall reasonably request to
evidence compliance with this paragraph 5J. The Company agrees to provide
from time to
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time such evidence as the Required Holders or the Collateral Agent shall
reasonably request as to the perfection and priority status of each such
security interest and Lien.
5K. ENFORCEMENT OF ACQUISITION DOCUMENTS. The Company will enforce,
and will cause each of its Subsidiaries parties thereto to enforce (except where
failure to so enforce could not have a Material Adverse Effect), all covenants,
agreements and other obligations contained in the Acquisition Documents which
are binding upon the other parties thereto and which survive the consummation of
the Acquisition, including, without limitation, all indemnification obligations.
5L. MAINTENANCE OF BOOKS OF RECORD; RESERVES. The Company, both
individually and on a consolidated basis, will keep proper books of record and
account and set aside appropriate reserves, all in accordance with GAAP.
PARAGRAPH 6. NEGATIVE COVENANTS.
6. NEGATIVE COVENANTS. So long as any Note shall remain unpaid the Company
covenants that:
6A. FINANCIAL COVENANTS. The Company will not permit:
6A(1). TOTAL DEBT TO EBITDA RATIO. At any time during the period set
forthbelow, the ratio of Total Debt to EBITDA for the four fiscal quarters
most recently ended, commencing with the four fiscal quarters ended on June
30, 1998, to be greater than the ratio set forth opposite such period
below:
Period Maximum Ratio
------ -------------
Date of Closing through June 30, 1999 4.25 to 1.00
July 1, 1999 through June 30, 2000 3.75 to 1.00
July 1, 2000 through June 30, 2001 3.50 to 1.00
July 1, 2001 until all Notes have been paid 3.25 to 1.00
6A(2). CONSOLIDATED NET WORTH. At any time Consolidated Net Worth
to be less than the sum of (i)$17,476,800 plus (ii) 75% of any Net Equity
Proceeds plus (iii) the cumulative total of 80% of Consolidated Net Income
for each fiscal quarter after the Date of Closing in which Consolidated Net
Income is positive.
6A(3). CURRENT RATIO. At any time, the ratio of (i)(a) Consolidated
Current Assets plus (b) the unused commitments, if any, under the Credit
Agreement to (ii) Consolidated Current Liabilities to be less than 1.00 to
1.00.
6A(4). EBITDA TO CONSOLIDATED INTEREST EXPENSE AND PREFERRED
DIVIDENDS RATIO. At any time, the ratio of EBITDA to Consolidated Interest
Expense and Preferred
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Dividends, each for the four fiscal quarters most recently ended, to be
greater than 1.75 to 1.00.
6A(5). EBITDA TO CONSOLIDATED INTEREST EXPENSE AND PREFERRED
DIVIDENDS PLUS SCHEDULED PRINCIPAL PAYMENTS RATIO. At any time, the ratio
of EBITDA to Consolidated Interest Expense and Preferred Dividends, plus
Scheduled Principal Payments, each for the four fiscal quarters most
recently ended, to be greater than 1.25 to 1.00.
6A(6). PRIORITY DEBT. At any time, Priority Debt to exceed 5% of
Consolidated Net Worth.
6B. LIMITATION ON RESTRICTED PAYMENTS. The Company will not and will
not permit any Subsidiary to directly or indirectly declare, order, pay, make or
set apart any sum for any Restricted Payment.
6C. LIENS, INDEBTEDNESS, AND OTHER RESTRICTIONS. The Company will not
and will not permit any Subsidiary to:
6C(1). LIENS. Create, assume or suffer to exist any Lien upon any
of its properties or assets, whether now owned or hereafter acquired
(whether or not provision is made for the equal and ratable securing of the
Notes in accordance with the provisions of paragraph 5D), except:
(i) Liens in favor of the Collateral Agent securing the Notes and
the payment, performance and observance of the other obligations under
this Agreement and the other Subordinated Note Documents;
(ii) Liens securing Senior Debt of the Company and its
Subsidiaries to the Senior Lenders under the applicable Senior Loan
Agreement and other Senior Loan Documents;
(iii) Liens on property of the Company and its Subsidiaries
outstanding on the Date of Closing, described in Schedule 9D attached
hereto, and securing Indebtedness permitted by paragraph 6C(2);
(iv) statutory Liens incidental to the conduct of business or the
ownership of properties of the Company and its Subsidiaries (including
Liens in connection with worker's compensation, unemployment insurance
and other like laws (other than ERISA Liens), warehousemen's and
mechanic's liens and statutory landlord's liens) and Liens to secure
the performance of bids, tenders or purchase, construction or sales
contracts, or to secure statutory obligations, property taxes and
assessments or governmental charges, surety or appeal bonds or other
Liens of like general nature which in each case are incurred in the
ordinary course of business and not in
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connection with the borrowing of money, the obtaining of advances or
credit or the payment of the deferred purchase price of property and
which do not in any event materially impair the value or use of the
property encumbered thereby in the operation of the business of the
Company and its Subsidiaries; provided in each case, that the
obligation secured is not overdue;
(v) any Lien created to secure all or any part of the purchase
price, or to secure Indebtedness incurred or assumed to pay all or any
part of the purchase price, of property acquired by the Company or its
Subsidiaries after the Date of Closing, provided, that any such Lien
shall be confined solely to the item or items of property so acquired
and, if required by the terms of the instrument originally creating
such Lien, other property which is an improvement to or is acquired
for specific use in connection with such acquired property; and
(vi) Liens securing the Permitted Subordinated Debt so long as
the Liens granted pursuant to the Security Documents, that secure
payment and performance of this Agreement, the Notes and the other
Subordinated Note Documents, remain in effect.
6C(2). LIMITATION ON INDEBTEDNESS. Create, incur, assume or permit
to exist any Indebtedness other than:
(i) Indebtedness incurred pursuant to this Agreement, as
evidenced by the Notes, and the guaranty obligations of the Company's
Subsidiaries with respect thereto;
(ii) Indebtedness incurred pursuant to the applicable Senior Loan
Agreement not in excess of $55,000,000 and the guaranty obligations of
the Company's Subsidiaries with respect thereto;
(iii) trade payables and current Indebtedness (other than for
borrowed money) incurred in, and deposits and advances accepted in,
the ordinary course of business;
(iv) Indebtedness of the Company and its Subsidiaries outstanding
on the Date of Closing and described in Schedule 9D attached hereto;
(v) Indebtedness secured by the Liens permitted pursuant to
clause (v) of paragraph 6C(1); and
(vi) the Permitted Subordinated Debt.
6C(3). LOANS AND INVESTMENTS. Make any loan, advance, extension of
credit or capital contribution to, or make or have any Investment in, any
Person, or make any commitment to make any such extension of credit or
Investment, except (i) Permitted Investments; (ii) normal and reasonable
advances in the ordinary course of business to
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officers and employees; (iii) accounts receivable and accounts payable
arising in the ordinary course of business; (iv) deposits in money market
funds investing exclusively in Permitted Investments; (v) Investments
disclosed in the financial statements delivered pursuant to paragraph 5A;
(vi) routine advances by any Transaction Party to another Transaction Party
(or any Subsidiary of a Transaction Party) in the ordinary course of
business other than Investments, not to exceed $500,000 in the aggregate at
any time; and (vii) other Investments not to exceed $500,000 in the
aggregate at any time.
6C(4). MERGERS, CONSOLIDATIONS AND ACQUISITIONS, DISPOSITIONS OF
ASSETS, ETC. (i) In any single transaction or series of transactions,
directly or indirectly: (a) liquidate or dissolve provided that any
Subsidiary of the Company may liquidate, dissolve or take action to wind-up
its operations if (1) the Company determines such action to be in the best
interests of the Company and its Subsidiaries, (2) liquidating dividends
are paid to the Company, and (3) the Company gives the holder of each Note
and the Collateral Agent written notice of such action at least thirty (30)
days prior to taking such action; (b) be a party to any merger or
consolidation unless and so long as (1) no Default or Event of Default has
occurred that is then continuing, (2) immediately thereafter and giving
effect thereto, no event will occur and be continuing which constitutes a
Default or an Event of Default, (3) a Transaction Party is the surviving
Person (provided, that the Company must be the surviving Person in a merger
or consolidation that involves the Company); (4) the surviving Person
ratifies and assumes each Subordinated Note Document to which any party to
such merger was a party, and (5) the holder of each Note and the Collateral
Agent are given at least 30 days' prior notice of such merger or
consolidation; or (c) except for Liens securing Senior Debt of the Company
and its Subsidiaries to the Senior Lenders under the applicable Senior Loan
Agreement and other Senior Loan Documents and Liens in favor of the
Collateral Agent, pledge, transfer or otherwise dispose of any equity
interest in any of the Company's Subsidiaries or any Indebtedness of any of
the Company's Subsidiaries or issue or permit any Subsidiary of the Company
to issue any additional equity interest other than stock dividends subject
to a Lien in favor of the Collateral Agent or the Senior Lenders under the
applicable Senior Loan Agreement or the other Senior Loan Documents or (ii)
acquire any real Property or any material personal Property after the Date
of Closing with respect to which the aggregate consideration for a single
transaction in the form of cash and assumed Indebtedness would exceed
$5,000,000.
6C(5). LIMITATION ON ASSET DISPOSITIONS. Except as permitted under
paragraph 6C(4), make or permit to be made in any consecutive twelve month
period, any Asset Disposition or series of Asset Dispositions that,
individually or in the aggregate, involve more than 3% of the Consolidated
Tangible Assets of the Company and its Subsidiaries as determined on last
day of the most recently ended fiscal quarter.
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6C(6). SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse,
discount (other than to the extent of finance and interest charges included
therein) or otherwise sell for less than face value thereof, any of its
notes or accounts receivable, except notes or accounts receivable the
collection of which is doubtful in accordance with GAAP.
6C(7). TRANSACTIONS WITH AFFILIATES. Directly or indirectly,
purchase, acquire or lease any property from, or sell, transfer or lease
any property to, or otherwise deal with, in the ordinary course of business
or otherwise (i) any Affiliate, (ii) any Person owning, beneficially or of
record, directly or indirectly, either individually or together with all
other Persons to whom such Person is related by blood, adoption or
marriage, stock of the Company (of any class having ordinary voting power
for the election of directors) aggregating 5% or more of such voting power
or (iii) any Person related by blood, adoption or marriage to any Person
described or coming within the provisions of clause (i) or (ii) of this
paragraph 6C(7), except in the ordinary course and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and
upon fair and reasonable terms no less favorable to the Company or such
Subsidiary than would be obtainable in a comparable arm's-length
transaction with a Person not an Affiliate.
6C(8). LIMITATION ON SALE-LEASEBACK TRANSACTIONS. Enter into any
arrangement with any lender or investor or to which such lender or investor
is a party providing for the leasing by the Company or any Subsidiary of
real or personal property which has been or is to be sold or transferred by
the Company or any Subsidiary to such lender or investor or to any Person
to whom funds have been or are to be advanced by such lender or investor on
the security of such property or rental obligations of the Company or any
Subsidiary (each such arrangement, a "SALE-LEASEBACK TRANSACTION").
6C(9). PREPAYMENT OF CERTAIN INDEBTEDNESS. Pay, purchase, prepay,
acquire or otherwise retire prior to maturity or in violation of the
provisions of that certain Subordination Agreement, dated as of July 23,
1998, between Larry H. Ramming and you, in whole or in part, any
Indebtedness of the Company to Larry H. Ramming unless (i) such
Indebtedness is prepaid out of the proceeds of the Credit Agreement or the
issuance of the Permitted Subordinated Debt or the Contemplated Preferred
Stock and (ii) no Default or Event of Default exists either immediately
prior to, or after giving effect to, such prepayment.
6D. NATURE OF BUSINESS. The Company will not and will not permit any
Subsidiary to change the nature of its business or enter into any business which
is substantially dissimilar from the businesses in which it is presently engaged
or presently proposes to engage as described in public filings of the Company as
of the date hereof.
6E. CERTIFICATES OF INCORPORATION; BYLAWS; TRADE NAMES. The Company
will not and will not permit any Subsidiary to amend, alter, modify or restate
its Certificate of Incorporation or bylaws in any way which would (i) change its
corporate name or adopt a trade name, or (ii) in any
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manner adversely affect the obligations or covenants of the Company and its
Subsidiaries hereunder or under any of the other Subordinated Note Documents.
6F. OTHER AGREEMENTS. The Company will not and will not permit any of
its Subsidiaries to enter into or permit to exist any agreement (i) which would
cause a Default or Event of Default hereunder or (ii) which contains any
provision which would be violated or breached by the performance of the
obligations of the Company and its Subsidiaries hereunder or under any of the
other Subordinated Note Documents.
6G. LIMITATION ON CERTAIN RESTRICTIVE AGREEMENTS. The Company will
not, and will not permit any of its Subsidiaries to, enter into or suffer to
exist any contractual obligation, other than the applicable Senior Loan
Agreement and the other Senior Loan Documents and the Subordinated Note
Documents, which in any way restricts the ability of the Company or any of its
Subsidiaries to (i) create, incur, assume or suffer to exist any Lien upon any
of its property, assets or revenues, (ii) make any prepayments or purchases of
the Notes required under this Agreement, (iii) make any dividends or
distributions, or any payments required under this Agreement or any other
Subordinated Note Document or (iv) transfer any of its property or assets
(whether as a dividend or otherwise) to the Company or a Wholly Owned Subsidiary
of the Company.
6H. PROHIBITION AGAINST LAYERING. The Company will not and will not
permit any Subsidiary to incur, create, issue, assume, guarantee or in any other
manner become directly or indirectly liable with respect to or responsible for,
or permit to remain outstanding, any Indebtedness (including, without
limitation, Indebtedness permitted pursuant to paragraphs 6A and 6C(2)), that is
subordinate or junior in right of payment to any Senior Debt or any Guarantee in
respect thereof other than Permitted Subordinated Debt.
6I. LIMITATION ON SUBSIDIARIES ACTIVITIES. (i) The Company will not
permit any Subsidiary to issue any Voting Stock of such Subsidiary or other
equity interest in such Subsidiary except to the Company or a Wholly Owned
Subsidiary, (ii) the Company will not and will not permit any Subsidiary to sell
or transfer any Indebtedness or Voting Stock of another Subsidiary or other
equity interests in such other Subsidiary except to the Company or a Wholly
Owned Subsidiary and (iii) the Company will not and will not permit any
Subsidiary to form, create or acquire any Subsidiary, except that the Company
may (subject to the other provisions of this Agreement) form, create or acquire
a Wholly Owned Subsidiary so long as (a) immediately thereafter and giving
effect thereto, no event will occur and be continuing which constitutes a
Default; (b) such Subsidiary (and, where applicable, the Company) shall execute
and deliver a Guaranty Agreement and such Security Documents as the Required
Holders may reasonably require, and (c) the holder of each Note and the
Collateral Agent is given at least 30 days' prior notice of such formation,
creation or acquisition.
6J. LIMITATION ON ISSUANCE OF PREFERRED STOCK. At any time prior to
July 23, 1999, the Company will not issue, and will not permit to remain
outstanding, any shares of capital stock of the Company that are entitled to
preference or priority over any other shares of the capital stock of the
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Company in respect of payment of dividends or distribution of assets upon
liquidation other than the Existing Preferred Stock and the Contemplated
Preferred Stock.
PARAGRAPH 7. SUBORDINATION OF NOTES.
7. SUBORDINATION OF NOTES.
7A. SUBORDINATION. Anything in this Agreement to the contrary
notwithstanding, the indebtedness evidenced by the Notes, for the principal,
Yield Maintenance Amount, if any, and interest, shall be subordinate and junior
to the extent set forth in subparagraphs (i) to (v), inclusive, below, to all
Senior Debt.
(i) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to the Company, and in the
event of any proceedings for voluntary liquidation, dissolution or other
winding up of the Company, whether or not involving insolvency or
bankruptcy proceedings, then all Senior Debt shall first be paid in full
before any payment of or on account of principal, Yield Maintenance Amount,
if any, or interest is made by the Company upon the Notes.
The consolidation of the Company with, or the merger of the Company with or
into, another corporation or entity or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation or entity upon the terms
and conditions provided in paragraph 6C(4) shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this paragraph if
such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in paragraph 6C(4).
(ii) In any of the proceedings referred to in subparagraph (i) above,
any payment or distribution of any kind or character, whether in cash,
property, stock or obligations, which may be payable or deliverable by the
Company in respect of the Notes shall be paid or delivered directly to the
holders of Senior Debt (or to a banking institution selected by the court
or Person making the payment or delivery or designated by any holder of
Senior Debt) for application in payment thereof in accordance with the
priorities then existing among such holders, unless and until all Senior
Debt shall have been paid in full; provided, however, that
(a) if the payment or delivery by the Company of such cash,
property, stock or obligations to the holders of the Notes is authorized by
an order or decree giving effect, and stating in such order or decree that
effect is given, to the subordination of the Notes to Senior Debt, and made
in a reorganization proceeding under any applicable bankruptcy or
reorganization law, no payment or delivery by the Company of such cash,
property, stock or obligations payable or deliverable with respect to the
Notes shall be made to the holders of Senior Debt; and
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(b) no such delivery shall be made to holders of Senior Debt of
stock or obligations which are issued pursuant to reorganization
proceedings if such stock or obligations are subordinate and junior
(whether by law or agreement) at least to the extent provided in this
paragraph 7 to the payment of all Senior Debt then outstanding and to the
payment of any stock or obligations which are issued in exchange or
substitution for any Senior Debt then outstanding.
(iii) If the Company shall default in the payment of any principal
of or interest on any Senior Debt in an amount in excess of $250,000 owing
under any single instrument when the same becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration of
acceleration or otherwise, then, unless and until the date on which such
default shall have been remedied by payment in full or waived, no holder of
the Notes shall accept or receive any direct or indirect payment of or on
account of any indebtedness in respect of the Notes.
(iv) Upon the occurrence and during the continuance of any Default
Subordination Event (other than under circumstances when the terms of
subparagraph (i) above are applicable), no holder of the Notes shall accept
or receive any direct or indirect payment by set-off or otherwise of or on
account of any indebtedness in respect of the Notes during the Stand-Still
Period, provided that (a) there shall be no more than two Stand-Still
Periods during the term of the Notes and only one in any period of 365
consecutive days and (b) in the case of any payment on or in respect of any
Notes which would (in the absence of any such Default Subordination Event)
have been due and payable on any date during such Stand-Still Period, the
provisions of this subparagraph (iv) shall not prevent such payment on or
after the date immediately following the termination of such Stand-Still
Period.
(v) If any payment or distribution of any character, whether in cash,
securities or other property, shall be received by any holder of Notes in
contravention of any of the terms of this paragraph 7 and before all the
Senior Debt shall have been paid in full, such payment or distribution
shall be received in trust for the benefit of the holders of the Senior
Debt at the time outstanding and shall forthwith be paid over or delivered
and transferred to the holders of Senior Debt.
7B. OBLIGATION OF THE COMPANY UNCONDITIONAL. The provisions of this
paragraph 7 are for the purpose of defining the relative rights of the holders
of Senior Debt on the one hand, and the holders of the Notes on the other hand,
against the Company and its property, and nothing herein shall impair, as
between the Company and the holders of the Notes, the obligation of the Company,
which is unconditional and absolute, to pay to the holders thereof the principal
thereof and Yield Maintenance Amount, if any, and interest thereon in accordance
with their terms and the provisions
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hereof, nor shall anything herein prevent the holders of the Notes from
exercising all remedies otherwise permitted by applicable law or hereunder upon
default hereunder or under the Notes (including, without limitation, the right
to demand payment and sue for performance hereof and of the Notes and to
accelerate the maturity thereof as provided in paragraph 8A), subject to the
rights, if any, under this paragraph 7 of holders of Senior Debt to receive
cash, property, stock or obligations otherwise payable or deliverable by the
Company to the holders of the Notes.
7C. SUBROGATION. Upon full and final payment of Senior Debt, the
holders of the Notes shall be subrogated to the rights of the holders of the
Senior Debt to receive payments or distributions of assets of the Company made
on Senior Debt until the principal of and Yield Maintenance Amount, if any, and
interest on the Notes shall be paid in full, and, for the purposes of such
subrogation, no payments to the holders of Senior Debt of any cash, property,
stock or obligations to which the holders of the Notes would be entitled (except
for the provisions of paragraph 7A(ii) above) shall, as between the Company, its
creditors (other than the holders of the Senior Debt) and the holders of the
Notes, be deemed to be a payment by the Company to or on account of Senior Debt.
7D. SUBORDINATION DEFINITIONS.
"DEFAULT SUBORDINATION EVENT" shall mean the existence of all of the
following: (i) a Subordination Event of Default shall have occurred and be
continuing in respect of any Senior Debt, (ii) the holders of the Notes shall
have received a notice from or on behalf of any holder of such Senior Debt
identifying each Subordination Event of Default which has occurred and is
continuing and that such notice constitutes a "DEFAULT SUBORDINATION NOTICE" and
(iii) no other Default Subordination Notice shall have been delivered by any
holder of Senior Debt within the 365 day period immediately preceding the giving
of such notice; provided that no fact or circumstances or a Subordinated Event
of Default existing on the date of such Default Subordinated Notice may be used
as a basis for any subsequent Default Subordination Notice. The "STAND-STILL
PERIOD" relating to any Default Subordination Event shall be deemed to continue
until the earlier of (x) the Subordination Event of Default under the Senior
Debt giving rise thereto shall have been cured or waived, (y) a period of 90
days shall have elapsed from the giving of the Default Subordination Notice
relating thereto and (z) the maturity of such Senior Debt shall have been
accelerated.
"SENIOR DEBT" shall mean Indebtedness for borrowed money, principal,
interest and premium, if any, outstanding under the applicable Senior Loan
Agreement not incurred in violation of any covenant contained in this Agreement.
"SUBORDINATION EVENT OF DEFAULT" shall mean (i) any default in the payment
of any principal or interest on any Senior Debt in an amount of $250,000 or less
owing under any single instrument when the same becomes due and payable, or (ii)
any event of default under any agreement evidencing Senior Debt arising as a
result of a breach of covenants which would entitle the holders of such Senior
Debt to accelerate the obligations under such Senior Debt.
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PARAGRAPH 8. EVENTS OF DEFAULT.
8. EVENTS OF DEFAULT.
8A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of or Yield
Maintenance Amount payable with respect to any Note, in either case, when
the same shall become due, either by the terms thereof or otherwise as
herein provided; or
(ii) the Company defaults in the payment of any interest on any Note
for more than five Business Days after the date due; or
(iii) the Company or any Subsidiary (a) defaults (whether as primary
obligor or as guarantor or other surety) in any payment of principal of or
interest on any other obligation for money borrowed (or any Capitalized
Lease Obligation, any obligation under a conditional sale or other title
retention agreement, any obligation issued or assumed as full or partial
payment for property whether or not secured by a purchase money mortgage or
any obligation under notes payable or drafts accepted representing
extensions of credit) beyond any period of grace provided with respect
thereto or (b) fails to perform or observe any other agreement, term or
condition contained in any agreement under which any such obligation is
created (or if any other event thereunder or under any such agreement shall
occur and be continuing) and the effect of such failure or other event is
to cause such obligation to become due (or to be repurchased by the Company
or any Subsidiary) prior to any stated maturity; provided, that the
aggregate amount of all obligations as to which such a payment default
shall occur and be continuing or such a failure or other event causing
acceleration (or sale to the Company or any Subsidiary) shall occur and be
continuing exceeds $2,500,000; or
(iv) any representation or warranty made by the Company or any of its
Subsidiaries herein or in any of the other Subordinated Note Documents, or
by the Company or any of its officers in any writing furnished in
connection with or pursuant to this Agreement shall be false in any
material respect on the date as of which made; or
(v) the Company fails to perform or observe any term, covenant or
agreement contained in paragraph 6; or
(vi) the Company or any Subsidiary fails to perform or observe any
other agreement, covenant, term or condition contained herein or in any of
the other Subordinated Note Documents and such failure continues unremedied
for a period of 30 days after (a) notice thereof is given by the holder of
any Note to the Company or (b) the Company otherwise obtains Knowledge of
such default, whichever is earlier; or
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(vii) the Company or any Significant Subsidiary makes an assignment
for the benefit of creditors or is generally not paying its debts as such
debts become due; or
(viii) any decree or order for relief in respect of the Company or
any Subsidiary is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
or similar law, whether now or hereafter in effect (the "BANKRUPTCY LAW"),
of any jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies to any
Tribunal for, or consents to, the appointment of, or taking possession by,
a trustee, receiver, custodian, liquidator or similar official of the
Company or any Subsidiary, or of any substantial part of the assets of the
Company or any Subsidiary, or commences a voluntary case under the
Bankruptcy Law of the United States or any proceedings (other than
proceedings for the voluntary liquidation and dissolution of a Subsidiary)
relating to the Company or any Subsidiary under the Bankruptcy Law of any
other jurisdiction; or
(x) any such petition or application is filed, or any such proceedings
are commenced, against the Company or any Subsidiary and the Company or
such Subsidiary by any act indicates its approval thereof, consent thereto
or acquiescence therein, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or similar
official, or approving the petition in any such proceedings, and such
order, judgment or decree remains unstayed and in effect for more than 60
days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment or decree remains unstayed and in effect for more than 30
days; or
(xii) any order, judgment or decree is entered in any proceedings
against the Company or any Subsidiary decreeing a split-up of the Company
or such Subsidiary which requires the divestiture of assets representing
10% or more of the Consolidated Net Worth, or the divestiture of assets or
stock of a Significant Subsidiary, and such order, judgment or decree
remains unstayed and in effect for more than 30 days; or
(xiii) any judgment or order, or series of judgments or orders, in an
amount in excess of $500,000, is rendered against the Company or any
Subsidiary and either (i) enforcement proceedings have been commenced by
any creditor upon such judgment or order or (ii) within 60 days after entry
thereof, such judgment is not discharged or execution thereof stayed
pending appeal, or within 60 days after the expiration of any such stay,
such judgment is not discharged; or
(xiv) any Termination Event with respect to a Plan shall have
occurred and, within 30 days after the occurrence thereof, (a) such
Termination Event (if correctable) shall not
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have been corrected and (b) the then present value of such Plan's vested
benefits exceeds the then current value of assets accumulated in such Plan
by more than the amount of $1,000,000 (or in the case of a Termination
Event involving the withdrawal of a "substantial employer" (as defined in
Section 4001(a) (2) of ERISA), the withdrawing employer's proportionate
share of such excess shall exceed such amount); or
(xv) the Company or any of its ERISA Affiliates as employer under a
Multiemployer Plan shall have made a complete or partial withdrawal from
such Multiemployer Plan and the plan sponsor of such Multiemployer Plan
shall have notified such withdrawing employer that such employer has
incurred a withdrawal liability in an aggregate amount exceeding
$1,000,000; or
(xvi) any Guaranty Agreement shall for any reason cease to be valid
and binding on the applicable guarantor or any party to a Guaranty
Agreement states to any holder of a Note or asserts in writing that the
applicable Guaranty Agreement is not valid and binding on such guarantor;
or
(xvii) any Security Document shall for any reason cease to be valid
and binding on the Company or any Subsidiary that is a party thereto, the
Company or any Subsidiary that is a party to a Security Document states to
any holder of a Note or asserts in writing that the applicable Security
Document is not valid and binding against it or any Security Document shall
for any reason cease to create a valid, perfected Lien in all or a
substantial portion of the Collateral purported to be covered thereby;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of
this paragraph 8A, the holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may at its option, by notice in writing to the
Company, declare such Note to be, and such Note shall thereupon be and become,
immediately due and payable at par together with interest accrued thereon,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Company, (b) if such event is an Event of Default
specified in clause (viii), (ix) or (x) of this paragraph 8A, all of the Notes
at the time outstanding shall automatically become immediately due and payable
together with interest accrued thereon and together with the Yield Maintenance
Amount, if any, with respect to each Note, without presentment, demand, protest
or notice of any kind, all of which are hereby waived by the Company, and (c) if
such event is not an Event of Default specified in clause (viii), (ix) or (x) of
this paragraph 8A, the Required Holder(s) may at its or their option, by notice
in writing to the Company, declare all of the Notes to be, and all of the Notes
shall thereupon be and become, immediately due and payable together with
interest accrued thereon and together with the Yield Maintenance Amount, if any,
with respect to each Note, without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Company.
The Company acknowledges, and the parties hereto agree, that each holder of a
Note has the right to maintain its investment in the Notes free from repayment
by the Company (except as herein specifically provided for) and that the
provisions for payment of the Yield Maintenance Amount by
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the Company in the event that the Notes are prepaid or are accelerated as a
result of an Event of Default are intended to provide compensation for the
deprivation of such right under such circumstances.
8B. RESCISSION OF ACCELERATION. At any time after any or all of the
Notes shall have been declared immediately due and payable pursuant to paragraph
8A, the Required Holder(s) may, by notice in writing to the Company, rescind and
annul such declaration and its consequences if (i) the Company shall have paid
all overdue interest on the Notes, the principal of the Notes which has become
due otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal at the rate specified in the Notes, (ii) the
Company shall not have paid any amounts which have become due solely by reason
of such declaration, (iii) all Events of Default and Defaults, other than non-
payment of amounts which have become due solely by reason of such declaration,
shall have been cured or waived pursuant to paragraph 12C, and (iv) no judgment
or decree shall have been entered for the payment of any amounts due pursuant to
the Notes or this Agreement. No such rescission or annulment shall extend to or
affect any subsequent Event of Default or Default or impair any right arising
therefrom.
8C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 8A or any such
declaration shall be rescinded and annulled pursuant to paragraph 8B, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
8D. OTHER REMEDIES. If any Event of Default or Default shall occur and
be continuing, (i) the holder of any Note may proceed to protect and enforce its
rights under this Agreement, such Note and the other Subordinated Note Documents
by exercising such remedies as are available to such holder in respect thereof
under applicable law, either by suit in equity or by action at law, or both,
whether for specific performance of any covenant or other agreement contained in
this Agreement or the other Subordinated Note Documents or in aid of the
exercise of any power granted in this Agreement or the other Subordinated Note
Documents, and (ii) both the Collateral Agent and the holders of the Notes may
exercise any rights or remedies in their respective capacities under the
Security Documents in accordance with the provisions thereof. No remedy
conferred in this Agreement or the other Subordinated Note Documents upon the
holder of any Note or the Collateral Agent is intended to be exclusive of any
other remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter exist ing
at law or in equity or by statute or otherwise.
PARAGRAPH 9. REPRESENTATIONS, COVENANTS AND WARRANTIES.
9. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants as follows:
9A. ORGANIZATION AND QUALIFICATION. Each of the Transaction Parties is
a corporation duly organized and validly existing in good standing under the
laws of its state of incorporation, and
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is duly licensed and in good standing as a foreign corporation in each
jurisdiction in which the nature of the business transacted or the property
owned is such as to require licensing or qualification as a foreign corporation.
The Company has no Subsidiaries other than the Subsidiaries listed on Schedule
9A, each of which is a Wholly Owned Subsidiary of the Company. The execution,
delivery and performance by the Company of the Notes, the Warrants, this
Agreement, the other Subordinated Note Documents and the Acquisition Documents
to which it is a party, and the execution, delivery and performance by each of
the other Transaction Parties of the Subordinated Note Documents and Acquisition
Documents to which it is a party, are within the Company's and the other
Transaction Parties' respective corporate powers and have been duly authorized
by all necessary corporate action.
9B. FINANCIAL STATEMENTS. The Company has furnished you with the
following financial statements, identified by a principal financial officer of
the Company: (i) consolidated balance sheets of the Company and its
Subsidiaries as at December 31, 1997, and consolidated statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries for the
six months ended December 31,1997, all reported on by Hein + Associates, LLP;
(ii) consolidated balance sheets of the Company and its Subsidiaries as at June
30 in each of the years 1996 and 1997 and consolidated statements of income,
stockholders' equity and cash flows for the fiscal years ended on each such
date, reported on by Hein + Associates, LLP; and (iii) consolidated balance
sheets of the Company and its Subsidiaries as of March 31, 1998, and
consolidated statements of income, stockholders' equity and cash flows for the
three months ended March 31, 1998, prepared by the Company. Such financial
statements (including any related schedules and/or notes) are true and correct
in all material respects (subject, as to interim statements, to changes
resulting from audits and year-end adjustments), have been prepared in
accordance with GAAP consistently followed through out the periods involved and
show all liabilities, direct and contingent, of the Company and its Subsidiaries
required to be shown in accordance with such principles. The balance sheets
fairly present the condition of the Company and its Subsidiaries as at the dates
thereof, and the statements of income, stockholders' equity and cash flows
fairly present the results of the operations of the Company and its Subsidiaries
and their cash flows for the periods indicated. There has been no Material
Adverse Effect since December 31, 1997.
9C. ACTIONS PENDING. There is no action, suit, investigation or
proceeding pending or, to the Knowledge of the Company, threatened against the
Company or any of its Subsidiaries, or any properties or rights of the Company
or any of its Subsidiaries, by or before any court, arbitrator or administrative
or governmental body which, if adversely determined, might result in a liability
of greater than $100,000 or might otherwise result in any Material Adverse
Effect. There is no action, suit, investigation or proceeding pending or
threatened against the Company or any of its Subsidiaries which purports to
affect the validity or enforceability of this Agreement, any Note, any Warrant,
any of the other Subordinated Note Documents or any of the Acquisition
Documents.
9D. OUTSTANDING INDEBTEDNESS. Neither the Company nor any of its
Subsidiaries has outstanding any Indebtedness except as permitted by paragraphs
6A and 6C(2), all of which Indebtedness is described in Schedule 9D attached
hereto. There exists no default under (and no
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waiver of default is currently in effect with respect to) the provisions of any
instrument evidencing such Indebtedness or of any agreement relating thereto,
and no event or condition exists with respect to any Indebtedness of the Company
or any Subsidiary that would permit (or that with notice or the lapse of time,
or both, would permit) one or more Persons to cause such Indebtedness to become
due and payable before its stated maturity or before its regularly scheduled
dates of payment.
9E. TITLE TO PROPERTIES. The Company has and each of its Subsidiaries
has good and marketable title to its respective real properties (other than
properties which it leases) and good title to all of its other respective
properties and assets, including the properties and assets reflected in the
balance sheet as at December 31, 1997 referred to in paragraph 9B (other than
properties and assets disposed of in the ordinary course of business), subject
to no Lien of any kind except Liens permitted by paragraph 6C(1). All leases
necessary in any material respect for the conduct of the respective businesses
of the Company and its Subsidiaries are valid and subsisting and are in full
force and effect.
9F. POSSESSION OF FRANCHISES, LICENSES. The Company and each of its
Subsidiaries possesses all franchises, certificates, licenses, permits and other
authorizations from governmental political subdivisions or regulatory
authorities, free from burdensome restrictions, that are necessary in any
material respect for the ownership, maintenance and operation of its respective
properties and assets, and none of the Company or any of its Subsidiaries is in
violation of any thereof in any material respect.
9G. TAXES. The Company has and each of its Subsidiaries has filed all
federal, state and other income tax returns which, to the Knowledge of the
Company, are required to be filed, and each has paid all taxes as shown on such
returns and on all assessments received by it to the extent that such taxes have
become due, except such taxes as are being contested in good faith by
appropriate proceedings and for which adequate reserves have been established in
accordance with GAAP.
9H. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any of
its Subsidiaries is a party to any contract or agreement or subject to any
charter or other corporate restriction which could reasonably be expected to
have a Material Adverse Effect. Neither the execution nor delivery of this
Agreement, the Notes, the Warrants, the other Subordinated Note Documents or the
Acquisition Documents, nor the offering, issuance and sale of the Notes and the
Warrants, nor fulfillment of nor compliance with the terms and provisions of
this Agreement, the Notes, the Warrants, the other Subordinated Note Documents
or the Acquisition Documents will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or result in
any violation of, or result in the creation of any Lien (except Liens created
under the Security Documents) upon any of the properties or assets of the
Company or any of its Subsidiaries pursuant to, the charter or bylaws of the
Company or any of its Subsidiaries, any award of any arbitrator or any agreement
(including any agreement with stockholders), instrument, order, judgment,
decree, statute, law, rule or regulation to which the Company or any of its
Subsidiaries is subject. Neither the Company nor any of its Subsidiaries is a
party to, or otherwise subject to any provision contained in, any instrument
evidencing Indebtedness of the Company or such Subsidiary,
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any agreement relating thereto or any other contract or agreement (including its
charter) which limits the amount of, or otherwise imposes restrictions on the
incurring of, Indebtedness of the Company of the type to be evidenced by the
Notes except as set forth in the agreements listed in Schedule 9H attached
hereto.
9I. AUTHORIZED CAPITAL STOCK. The authorized capital stock of the
Company consists of 50,000,000 shares of common stock, $0.00001 per share par
value, and 5,000,000 shares of preferred Stock, $0.00001 per share par value.
The outstanding capital stock of the Company consists of 32,331,517 shares of
Common Stock and the Existing Preferred Stock. All of the outstanding shares of
Common Stock are duly authorized, validly issued, fully paid and nonassessable.
The Company does not have outstanding any warrants, options, convertible
securities or other rights for the purchase or acquisition of shares of its
capital stock other than (a) the Warrants and (b) the agreements described in
Schedule 9I attached hereto. The Warrants and the shares of Common Stock
issuable upon the exercise of the Warrants have been duly and validly
authorized, and such shares of Common Stock have been duly reserved for issuance
upon exercise of the Warrants. No shareholder of the Company or any other
Person is entitled to preemptive or similar rights with respect to the shares of
Common Stock which are issuable upon exercise of the Warrants and, if and when
issued upon exercise of the Warrants in accordance with the provisions thereof,
such shares will be validly issued, fully paid and nonassessable shares.
9J. OFFERING OF THE SECURITIES. Neither the Company nor any agent
acting on its behalf has, directly or indirectly, offered the Securities or any
similar security of the Company for sale to, or solicited any offers to buy the
Securities or any similar security of the Company from, or otherwise approached
or negotiated with respect thereto with, any Person other than institutional
investors, and neither the Company nor any agent acting on its behalf has taken
or will take any action which would subject the issuance or sale of the
Securities to the provisions of section 5 of the Securities Act or to any
similar provisions of any securities or Blue Sky law of any applicable
jurisdiction.
9K. USE OF PROCEEDS. Neither the Company nor any Subsidiary owns or
has any present intention of acquiring any "margin stock" as defined in
Regulation U (12 CFR Part 221) of the Board of Governors of the Federal Reserve
System ("MARGIN STOCK"). The proceeds of sale of the Securities will be used as
set forth in Schedule 9K. None of such proceeds will be used, directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any margin stock or for the purpose of maintaining,
reducing or retiring any Indebtedness which was originally incurred to purchase
or carry any stock that is currently a margin stock or for any other purpose
which might constitute this transaction a "purpose credit" within the meaning of
such Regulation U. Neither the Company nor any agent acting on its behalf has
taken or will take any action which might cause this Agreement or the Securities
to violate Regulation U or any other regulation of the Board of Governors of the
Federal Reserve System or to violate the Exchange Act, in each case as in effect
now or as the same may hereafter be in effect.
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9L. ERISA. No accumulated funding deficiency (as defined in section
302 of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan (other than a Multiemployer Plan). No liability to the PBGC
has been or is expected by the Company or any ERISA Affiliate to be incurred
with respect to any Plan (other than a Multiemployer Plan) by the Company, any
Subsidiary or any ERISA Affiliate which is or would be a Material Adverse
Effect. Neither the Company, any Subsidiary nor any ERISA Affiliate has incurred
or presently expects to incur any withdrawal liability under Title IV of ERISA
with respect to any Multiemployer Plan which is or would be a Material Adverse
Effect. The execution and delivery of this Agreement and the issuance and sale
of the Securities will be exempt from, or will not involve any transaction which
is subject to, the prohibitions of section 406 of ERISA and will not involve any
transaction in connection with which a penalty could be imposed under section
502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code.
The representation by the Company in the next preceding sentence is made in
reliance upon and subject to the accuracy of your representation in paragraph
10B.
9M. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any
Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Securities is such as to require any authorization, consent, approval, exemption
or other action by or notice to or filing with any court or administrative or
governmental or regulatory body (other than routine filings after the Date of
Closing with the Securities and Exchange Commission and/or state Blue Sky
authorities and the possible requirement that a filing be made pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 in connection with an
exercise of the Warrants) in connection with the execution and delivery of this
Agreement, the other Subordinated Note Documents or the Acquisition Documents
and the offering, issuance, sale or delivery of the Securities or fulfillment of
or compliance with the terms and provisions of this Agreement, the Registration
Rights Agreement or the Participation Rights Agreement or of the Securities.
9N. ENVIRONMENTAL COMPLIANCE. The Company and its Subsidiaries and all
of their respective properties and facilities have complied at all times and in
all respects with all federal, state, local and regional statutes, laws,
ordinances and judicial or administrative orders, judgments, rulings and
regulations relating to protection of the environment except, in any such case,
where failure to comply would not result in a Material Adverse Effect.
9O. FISCAL YEAR. The fiscal year of the Company and each of its
Subsidiaries ends as of December 31 of each year.
9P. DISCLOSURE. Neither this Agreement, the other Subordinated Note
Documents nor any other document, certificate or statement furnished to you by
or on behalf of the Company in connec tion herewith contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not misleading. There
is no fact peculiar to the Company or any of its Subsidiaries which constitutes
a Material Adverse Effect
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or in the future may (so far as the Company can now foresee) constitute a
Material Adverse Effect and which has not been set forth in this Agreement, the
other Subordinated Note Documents or in the other documents, certificates and
statements furnished to you by or on behalf of the Company prior to the date
hereof in connection with the transactions contemplated hereby. The pro forma
financial projections dated as of June 3, 1998 and previously delivered to you
by the Company are reasonable based on the assumptions stated therein and the
best information available to the officers of the Company.
9Q. INVESTMENT COMPANY ACT. Neither the Company, any of its
Subsidiaries nor any Person controlling the Company or any of its Subsidiaries
is an "investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
9R. ACQUISITION REPRESENTATIONS AND WARRANTIES. To induce you to enter
into this Agreement and to purchase the Securities, the Company agrees that you
shall be entitled to rely upon each of the representations and warranties of the
Company or any of its Subsidiaries set forth in any of the Acquisition Documents
as fully as if set forth in this Agreement.
PARAGRAPH 10. REPRESENTATIONS OF THE PURCHASER.
10. REPRESENTATIONS OF THE PURCHASER. You represent as follows:
10A. NATURE OF PURCHASE. You are not acquiring the Securities to be
purchased by you hereunder with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act, provided that the
disposition of your property shall at all times be and remain within your
control.
10B. SOURCE OF FUNDS. No part of the funds being used by you to pay
the purchase price of the Securities being purchased by you hereunder
constitutes assets allocated to any separate account maintained by you in which
any employee benefit plan, other than employee benefit plans identified on a
list which has been furnished by you to the Company, participates to the extent
of 10% or more. For the purpose of this paragraph 10B the terms "separate
account" and "employee benefit plan" shall have the respective meanings
specified in section 3 of ERISA.
PARAGRAPH 11. DEFINITIONS.
11. DEFINITIONS. For the purpose of this Agreement, the terms defined in the
introductory sentence and elsewhere in this Agreement shall have the respective
meanings specified therein, and the following terms shall have the meanings
specified with respect thereto below (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
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11A. YIELD MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to paragraph 4B or 4C or is declared to
be immediately due and payable pursuant to paragraph 8A, as the context
requires.
"DESIGNATED SPREAD" shall mean, (i) with respect to the Called Principal of
any Note that is prepaid pursuant to paragraphs 4B(2) or 4C, 2.50% (250 basis
points), and (ii) in all other cases 1.00% (100 basis points).
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" shall mean the sum of the Designated Spread and the
yield to maturity implied by (i) the yields reported, as of 10:00 a.m. (New York
City time) on the Business Day next preceding the Settlement Date with respect
to such Called Principal, on the display designated as "Page 678" on the Bridge
Telerate (or such other display as may replace Page 678 on the Bridge Telerate
for actively traded U.S. Treasury securities having a maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date, or
if such yields shall not be reported as of such time or the yields reported as
of such time shall not be ascertainable, (ii) the Treasury Constant Maturity
Series yields reported, for the latest day for which such yields shall have been
so reported as of the Business Day next preceding the Settlement Date with
respect to such Called Principal, in Federal Reserve Statistical Release H.15
(519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied yield
shall be determined, (a) if necessary, by (x) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (y) interpolating linearly between yields reported for various
maturities and (b) by converting all such implied yields to a quarterly payment
basis in accordance with accepted financial practice.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal
of any Note, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the products
obtained by multiplying (a) each Remaining Scheduled Payment of such Called
Principal (but not of interest thereon) by (b) the number of years (calculated
to the nearest one-twelfth year) which will elapse between the Settlement Date
with respect to such Called Principal and the scheduled due date of such
Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after
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the Settlement Date with respect to such Called Principal if no payment of such
Called Principal were made prior to its scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4B or 4C or is declared to be immediately due and payable pursuant to
paragraph 8A, as the context requires.
"YIELD MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Called Principal of
such Note over the sum of (i) such Called Principal plus (ii) interest accrued
thereon as of (including interest due on) the Settlement Date with respect to
such Called Principal. The Yield Maintenance Amount shall in no event be less
than zero.
11B. OTHER TERMS.
"ACQUIRED COMPANY" shall mean Elmagco, Inc., a Delaware corporation doing
business as Baylor Company.
"ACQUISITION" shall mean the purchase of all of the issued and outstanding
capital stock of the Acquired Company by the Company, pursuant to the
Acquisition Documents.
"ACQUISITION AGREEMENT" shall mean the Stock Purchase Agreement dated as of
June 22, 1998 by and among the Company, the Acquired Company and Begemann, Inc.,
a Delaware corporation as the same has been amended prior to the Date of
Closing.
"ACQUISITION DOCUMENTS" shall mean the Acquisition Agreement and all other
written agreements, documents, instruments and certificates now or hereafter
executed and delivered by any Person which are required by the terms of the
Acquisition Agreement to be delivered to consummate the Acquisition, and any and
all amendments, supplements and other modifications thereof and all renewals,
extensions, restatement or substitutions from time to time of all or any of the
foregoing.
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company,
except a Subsidiary. A Person shall be deemed to control another Person if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether through
the ownership of voting securities, by contract or otherwise.
"AGREEMENT" means this Subordinated Note and Warrant Purchase Agreement,
as it may from time to time be amended, modified, restated or supplemented.
"ASSET DISPOSITION" shall mean, with respect to the Company or any
Subsidiary, any transaction or series of related transactions in which such
Person sells, conveys, transfers or leases
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(as lessor) or parts with control of (collectively, for purposes of this
definition, a "transfer"), directly or indirectly, any of its property or
assets, including, without limitation, any Indebtedness of any Subsidiary or
capital stock of or other equity interests in any Subsidiary (including the
issuance of such stock or other equity interests by such Subsidiary), other than
transfers of cash or cash equivalents; provided, that a sale of equipment by the
Company or any of its Subsidiaries shall not be an Asset Disposition if (i) at
the time of such sale the Company or such Subsidiary intends in good faith to
replace the equipment so sold with similar equipment of the same or greater Fair
Market Value, (ii) within 60 days of such sale the Company or such Subsidiary
actually replaces the equipment so sold with similar equipment of the same or
greater Fair Market Value, and (iii) such sale comports with the past business
practices of the Company or such Subsidiary.
"ASSIGNED LOAN DOCUMENTS" shall mean any and all credit agreements, loan
agreements, promissory notes, assignment agreements, option agreements,
subordination agreements and guaranty agreements executed in connection with the
incurrence or maintenance of the Indebtedness of the Company or any Transaction
Party to Geneva Associates, L.L.C., Main Street Merchant Partners II, L.P.,
Larry H. Ramming or Prudential Securities Credit Corporation, and any and all
security agreements, pledge agreements, mortgages or deeds of trust, financing
statements, assignments, pledges, lien entry forms, documents and other writings
executed and delivered from time to time to secure the Indebtedness incurred
pursuant to the foregoing and the obligations owed to any lenders in connection
therewith and all other instruments, certificates, documents and other writings
now or hereafter executed and delivered by any Transaction Party or any other
Person pursuant to or in connection with any of the foregoing or any of the
transactions contemplated thereby, and any and all amendments, restatements,
supplements and other modifications to any of the foregoing.
"BANK" shall mean a financial institution, reasonably acceptable to the
Required Holders, that is designated as the "lead lender" (or fulfills a similar
role) pursuant to the Credit Agreement and its successors and assigns with
respect to the Credit Agreement.
"BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of
paragraph 8A.
"BRIDGE LOAN AGREEMENT" shall mean, that certain Senior Loan Agreement
(Bridge Facility), dated as of July 6, 1998, as amended by that certain First
Amendment to Senior Loan Agreement (Bridge Facility), dated as of July 23, 1998,
between the Company and you, as the same may be further amended, supplemented
and otherwise modified from time to time.
"BRIDGE LOAN DOCUMENTS" shall mean the Bridge Loan Agreement and all
promissory notes, guaranty agreements, security agreements, pledge agreements,
mortgages or deeds of trust, financing statements, assignments, pledges, lien
entry forms, documents and other writings executed and delivered from time to
time to secure the Indebtedness incurred pursuant to the Bridge Loan Agreement
and the obligations owed to any lenders in connection with the Bridge Loan
Agreement and all other instruments, certificates, documents and other writings
now or hereafter
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executed and delivered by any Transaction Party or any other Person pursuant to
or in connection with any of the foregoing or any of the transactions
contemplated thereby, and any and all amendments, restatements, supplements and
other modifications to any of the foregoing.
"BUSINESS DAY" shall mean any day on which banks are open for business in
New York City (other than a Saturday, a Sunday or a legal holiday in the States
of New York or New Jersey).
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which,
under GAAP, would be required to be capitalized on the books of the Company or
any Subsidiary, taken at the amount thereof accounted for as indebtedness (net
of interest expense) in accordance with such principles.
"CHANGE IN CONTROL" shall mean (i) the acquisition (other than an
acquisition by the heirs, legatees, descendants, or blood relatives of a
shareholder as a result of the death of such shareholder) by (a) any person (as
such term is used in section 13(d) and section 14(d)(2) of the Exchange Act as
in effect on the Date of the Closing) or (b) related persons constituting a
group (as such term is used in Rule 13d-5 under the Exchange Act as in effect on
the Date of the Closing), of beneficial ownership of 25% or more of the
outstanding shares of Voting Stock of the Company or (ii) an event or series of
events that results in the resignation or removal of a majority of (a) the
Executive Officers or (b) the Board of Directors of the Company.
"CLOSING" or "DATE OF CLOSING" shall have the meaning specified in
paragraph 2.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and interpretations
thereof or thereunder by the Internal Revenue Service.
"COLLATERAL" shall mean the collateral described in the Security Documents
which secures payment of the Notes and payment, performance and observance of
the obligations of the Company and its Subsidiaries under this Agreement and the
other Subordinated Note Documents.
"COLLATERAL AGENT" shall mean (i) The Prudential Insurance Company of
America, in its capacity as Collateral Agent for the holders of Notes, as
provided under documentation, if any, satisfactory to the Required Holders or
(ii) any financial institution that is mutually acceptable to the Required
Holders and the Company that is designated as the Collateral Agent.
"COMMON STOCK" shall have the meaning specified in paragraph 1B.
"CONFIDENTIAL INFORMATION" shall mean any material non-public information
regarding the Company or any of its Subsidiaries that is marked by the Company
as confidential and is provided to the holder of a Note, any Person that
purchases a participation in a Note or any offeree of a Note or of a
participation therein pursuant to this Agreement, other than information (i)
that was
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publicly known or otherwise known to such holder, such Person or such offeree at
the time of disclosure, (ii) that subsequently becomes publicly known through no
act or omission of such holder, such Person or such offeree or (iii) that
otherwise becomes known to such holder, such Person or such offeree other than
through disclosure by the Company or any Subsidiary.
"CONSOLIDATED INTEREST EXPENSE" shall mean, with respect to any period, the
sum (without duplication) of the following (in each case, eliminating all
offsetting debits and credits between the Company and its Subsidiaries and all
other items required to be eliminated in the course of the preparation of
consolidated financial statements of the Company and its Subsidiaries in
accordance with GAAP): (i) all interest and prepayment charges in respect of
Indebtedness of the Company and its Subsidiaries (including imputed interest in
respect of Capitalized Lease Obligations and net costs of Swaps) deducted in
determining consolidated net income for such period, together with all interest
capitalized or deferred during such period and not deducted in determining
consolidated net income for such period, and (ii) all debt discount and expense
amortized or required to be amortized in the determination of Consolidated Net
Income for such period.
"CONSOLIDATED NET INCOME" shall mean, with respect to any period, the net
income (or loss) of the Company and its Subsidiaries for such period (taken as a
cumulative whole), as determined in accordance with GAAP, after eliminating all
offsetting debits and credits between the Company and its Subsidiaries and all
other items required to be eliminated in the course of the preparation of
consolidated financial statements of the Company and its Subsidiaries, in
accordance with GAAP.
"CONSOLIDATED CURRENT ASSETS" shall mean, on any date as of which the
amount thereof is to be determined, the total assets of the Company and its
Subsidiaries which would be shown as current assets on a balance sheet of the
Company and its Subsidiaries prepared in accordance with GAAP at such time.
"CONSOLIDATED CURRENT LIABILITIES" shall mean, on any date as of which the
amount thereof is to be determined, the total liabilities of the Company and its
Subsidiaries which would be shown as current liabilities on a balance sheet of
the Company and its Subsidiaries prepared in accordance with GAAP at such time.
"CONSOLIDATED NET WORTH" shall mean, on any date as of which the amount
thereof is to be determined, the sum of the following for the Company and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP: (i)
the amount of stated capital (less cost of treasury shares) plus (ii) the amount
of surplus and retained earnings (or, in the case of a surplus or retained
earnings deficit, minus the amount of such deficit).
"CONSOLIDATED TANGIBLE ASSETS" means, at any time, the total assets of the
Company and its Subsidiaries which would be shown as assets on a consolidated
balance sheet of the Company and its Subsidiaries as of such time prepared in
accordance with GAAP, after eliminating all amounts properly attributable to
minority interests, if any, in the stock and surplus of Subsidiaries
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minus the net book amount of all Intangibles of the Company and its Subsidiaries
(after deducting any reserves applicable thereto).
"CONTEMPLATED PREFERRED STOCK" shall mean the preferred stock that is
issued, in an amount and upon such other terms satisfactory to the Required
Holders, pursuant to the Contemplated Preferred Stock Documents.
"CONTEMPLATED PREFERRED STOCK AGREEMENT" shall mean an agreement, in form
and substance satisfactory to the Required Holders, by and among the Company and
Halliburton Company ("HALLIBURTON"), or some other purchaser which purchaser is
reasonably satisfactory to the Required Holders, pursuant to which the Company
will issue the Contemplated Preferred Stock to Halliburton or such other
purchaser.
"CONTEMPLATED PREFERRED STOCK DOCUMENTS" shall mean the Contemplated
Preferred Stock Agreement, the certificate of designation with respect to the
Contemplated Preferred Stock, and all other written agreements, documents,
instruments and certificates, all in form and substance satisfactory to the
Required Holders, that have been or will be executed and delivered by any Person
which are required by the terms of the Contemplated Preferred Stock Agreement to
be delivered to consummate the purchase and sale of the Contemplated Preferred
Stock, and any and all amendments, supplements and other modifications thereof
and all renewals, extensions, restatement or substitutions from time to time of
all or any of the foregoing.
"CONTROLLED GROUP" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Company, are treated as a single
employer under Section 414 of the Code.
"CONVERTIBLE SECURITIES" shall mean any debt instrument that is by its
terms convertible, in whole or in part, into an equity interest in the Company
or any of its Subsidiaries.
"CREDIT AGREEMENT" shall mean a credit agreement, in form and substance
satisfactory to the Required Holders, by and among the Company, the Bank, you
and the other lenders or parties from time to time party thereto that is entered
into in replacement of the Bridge Facility, as such credit agreement may be
amended, supplemented and otherwise modified from time to time.
"CREDIT AGREEMENT DOCUMENTS" shall mean the Credit Agreement and all
promissory notes, guaranty agreements, security agreements, pledge agreements,
mortgages or deeds of trust, financing statements, assignments, pledges, lien
entry forms, documents and other writings executed and delivered from time to
time to secure the Indebtedness incurred pursuant to the Credit Agreement and
the obligations owed to any lenders in connection with the Credit Agreement and
all other instruments, certificates, documents and other writings now or
hereafter executed and delivered by any Transaction Party or any other Person
pursuant to or in connection with any of the
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foregoing or any of the transactions contemplated thereby, and any and all
amendments, restatements, supplements and other modifications to any of the
foregoing.
"DOMESTIC SUBSIDIARY" shall mean any Subsidiary that is organized under the
laws of the United States, one of the several states thereof or the District of
Columbia.
"EBITDA" shall mean, for any period, the sum of (i) Consolidated Net
Income, plus (ii) to the extent deducted in the determination of Consolidated
Net Income, (a) all provisions for federal, state and other income tax, (b)
Consolidated Interest Expense and (c) provisions for depreciation and
amortization, provided however, that so long as the Company shall have delivered
to the holder of each Note financial information in form and substance
satisfactory to the Required Holders regarding the Property acquired which
disclose the prior operating results of such Property, the pro forma effect of
any acquisition by the Company or any of its Subsidiaries of any Subsidiary
during such 12-month period may (in the reasonable discretion of the Required
Holders) be included in EBITDA for the Company or such Subsidiary as if such
acquisition occurred on the first day of such period.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the U.S. Department
of Labor thereunder.
"ERISA AFFILIATE" shall mean any corporation which is a member of the same
controlled group of corporations as the Company within the meaning of section
414(b) of the Code, or any trade or business which is under common control with
the Company within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph 8A,
provided that there has been satisfied any requirement in connection with such
event for the giving of notice, or the lapse of time, or the happening of any
further condition, event or act, and "DEFAULT" shall mean any of such events,
whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXECUTIVE OFFICER" shall mean the chairman of the board, chief executive
officer, president, chief operating officer, chief financial officer or chief
accounting officer of the Company.
"EXISTING PREFERRED STOCK" shall mean the 196,000 shares of 10% Junior
Redeemable Convertible Preferred Stock of the Company that has been issued as of
the Date of Closing pursuant to the Certificate of Designation of Rights and
Preferences Relating to 10% Junior Redeemable Convertible Preferred Stock.
"FAIR MARKET VALUE" shall mean, at any time and with respect to any
property, the sale value of such property that would be realized in an arm's-
length sale at such time between an
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informed and willing buyer and an informed and willing seller (neither being
under a compulsion to buy or sell).
"GAAP" shall have the meaning specified in paragraph 11B.
"GOVERNMENTAL AUTHORITY" shall mean any foreign governmental authority, the
United States of America, any State of the United States, and any political
subdivision of any of the foregoing, and any central bank, agency, department,
commission, board, bureau, court or other tribunal having jurisdiction over the
holder of any Note, any Transaction Party or their respective Property.
"GUARANTEE" shall mean, with respect to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which such
Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire
such obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or for
any transportation or services regardless of the non-delivery or non-furnishing
thereof, in any such case if the purpose or intent of such agreement is to
provide assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof. The amount of any
Guarantee shall be equal to the outstanding principal amount of the obligation
guaranteed or such lesser amount to which the maximum exposure of the guarantor
shall have been specifically limited.
"GUARANTY AGREEMENTS" shall mean the Senior Subordinated Guaranty
Agreements, dated as of July 23, 1998, made by each Domestic Subsidiary of the
Company, each in favor of you and all subsequent holders of the Notes,
substantially in the form of Exhibit E attached hereto, and any Senior
Subordinated Guaranty Agreement hereafter executed by any Subsidiary as
contemplated under paragraph 5J, as each may be amended, restated, supplemented
and otherwise modified from time to time.
"HAZARDOUS SUBSTANCE" shall mean petroleum products and any hazardous or
toxic waste or substance defined or regulated as such from time to time by any
law, rule, regulation or order described in the definition of "Requirements of
Environmental Law".
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"INDEBTEDNESS" shall mean, with respect to any Person or consolidated group
of Persons, without duplication, (i) all items (excluding items of contingency
reserves or of reserves for deferred income taxes) which in accordance with GAAP
would be included in determining total liabilities as shown on the liability
side of a balance sheet of such Person or consolidated group of Persons as of
the date on which Indebtedness is to be determined; (ii) all indebtedness
secured by any Lien on, or payable out of the proceeds of production from, any
property or asset owned or held by such Person subject thereto, whether or not
the indebtedness secured thereby shall have been assumed; (iii) redemption
obligations in respect of mandatorily redeemable preferred stock; (iv) Swaps;
(v) unfunded pension liabilities; (vi) obligations as an account party in
respect of letters of credit; and (vii) Guarantees of Indebtedness of other
Persons of the types described in the foregoing clauses (i) through (vi).
"INTANGIBLES" shall include, without limitation, (i) deferred charges;
(ii) the amount of any write-up in the book value of any acquired assets in
excess of fair market value and (iii) the aggregate of all amounts appearing on
the assets side of any such balance sheet for franchises, licenses, permits,
patents, patent applications, copyrights, trademarks, trade names, goodwill,
treasury stock, experimental or organizational expenses and other like
intangibles.
"INVESTMENT" shall mean the purchase or other acquisition of any securities
or Indebtedness of, or the making of any loan, advance, transfer of Property
(other than transfers in the ordinary course of business) or capital
contribution to, or the incurring of any liability (other than accounts arising
in the ordinary course of business), contingently or otherwise, in respect of
the Indebtedness of, any Person.
"KNOWLEDGE" of the Company shall mean the actual knowledge of any Executive
Officer.
"LEGAL REQUIREMENT" shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, or regulation (or interpretation of any of
the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, whether presently existing or arising in the future.
"LIEN" shall mean any mortgage, pledge, priority, security interest,
encumbrance, contractual deposit arrangement, lien (statutory or otherwise) or
charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any production payment, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction) or
any other type of preferential arrangement for the purpose, or having the
effect, of protecting a creditor against loss or securing the payment or
performance of an obligation.
"MATERIAL ADVERSE EFFECT" shall mean any material and adverse effect on the
ability of the Company or any of its Subsidiaries to perform its obligations
under any Subordinated Note Document to which it is a party or on the business,
condition (financial or otherwise), results of
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operations, assets, liabilities or prospects of the Company and its Subsidiaries
on a consolidated basis.
"MATERIAL PUBLIC OFFERING" shall mean any offering of securities of the
Company that is registered (otherwise than on Form S-4 or S-8 or their successor
forms) under the Securities Act and that generates a least $25,000,000 in net
cash proceeds for the Company. The term "NET CASH PROCEEDS" as used in this
definition of Material Public Offering shall mean an amount equal to the
difference of (i) the aggregate amount of the consideration actually received by
the Company in respect of the offering contemplated by the preceding sentence of
this definition (valued at the Fair Market Value of such consideration at the
time of the consummation of such offering) minus (ii) all ordinary and
reasonable out-of-pocket costs and expenses actually incurred by the Company in
connection with such offering.
"MORTGAGES" shall mean the mortgages, deeds of trust or other real estate
security documents executed, acknowledged and delivered by the Company or one or
more of its Subsidiaries, whether (i) as of the Date of Closing and
substantially in the form of Exhibit F attached hereto or (ii) after the Date of
Closing as contemplated under paragraph 5J and substantially in the form of
Exhibit F attached hereto, pursuant to which mortgage liens in and to the
Collateral described therein shall be provided in favor of the Collateral Agent,
and any and all amendments, restatements, supplements and other modifications to
any of the foregoing.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
"NET EQUITY PROCEEDS" shall mean the aggregate sum of (i) the net proceeds
received after the Date of Closing by the Company from the sale of Common Stock
or other equity interests, plus (ii) the net proceeds received after the Date of
Closing by the Company upon (a) the exercise of the Warrants, or any other
warrants, options or similar instruments issued by the Company and (b) the
conversion of any Convertible Securities into Common Stock or other equity
interests in the Company. The term "NET PROCEEDS" as used in this definition of
Net Equity Proceeds shall mean an amount equal to the difference of (y) the
aggregate amount of the consideration actually received by the Company in
respect of a sale, exercise or conversion contemplated by clauses (i) or (ii) of
this definition (valued at the Fair Market Value of such consideration at the
time of the consummation of such sale, exercise or conversion) minus (z) all
ordinary and reasonable out-of-pocket costs and expenses actually incurred by
the Company in connection with such sale, exercise or conversion.
"NOTES" shall have the meaning specified in paragraph 1A.
"OBLIGATIONS" shall mean, as at any date of determination thereof, the
sum of the following: (i) the aggregate principal amount of Notes outstanding
on such date, plus (ii) all other outstanding liabilities, obligations and
Indebtedness of any Transaction Party under this Agreement, any Note, the
Guaranty Agreements, the Security Documents or any of the other Subordinated
Note Documents on such date.
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"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of a
Transaction Party by its President, one of its Vice Presidents or its Treasurer.
"PARTICIPATION RIGHTS AGREEMENT" shall mean the Participation Rights
Agreement, dated of even date herewith, substantially in the form of Exhibit G
attached hereto, by and among you, the Company and certain holders of the
Company's common stock as the same may be amended, restated, supplemented or
otherwise modified from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED INVESTMENTS" shall mean: (i) readily marketable securities
issued or fully guaranteed by the United States of America with maturities of
not more than one year; (ii) commercial paper rated "Prime 1" by Moody's
Investors Service, Inc. or "A-1" by Standard and Poor's Ratings Services with
maturities of not more than 180 days, (iii) certificates of deposit or
repurchase obligations issued by any U.S. domestic bank having capital surplus
of at least $100,000,000 or by any other financial institution acceptable to
you, all of the foregoing not having a maturity of more than one year from the
date of issuance thereof, and (iv) the 50% of the Voting Stock of Schottel owned
by the Acquired Company on the Date of Closing.
"PERMITTED SUBORDINATED DEBT" shall mean subordinated Indebtedness of the
Company (and Guarantees thereof by any Domestic Subsidiary) that (i) has
principal payments and prepayments due on the same dates and in the same
relative amounts as the Notes, (ii) is pari passu with the Indebtedness incurred
pursuant to this Agreement or the Guaranty Agreements, as applicable, (iii) is
issued on terms (including, without limitation, interest rate, yield and voting
rights) substantially identical to the terms of this Agreement and the Guaranty
Agreements, respectively, (iv) the issuance of which does not violate any term
or covenant of this Agreement or any other Subordinated Note Document and (v) in
connection therewith, the Required Holders and each Person to which the Company
has issued such subordinated Indebtedness shall have entered into an
intercreditor agreement with respect to such subordinated Indebtedness in form
and substance reasonably satisfactory to the Required Holders.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, a limited liability company, an unincorporated
organization and a government or any department or agency thereof.
"PLAN" shall mean an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code and is either (i) maintained by the Company or any member of the
Controlled Group for employees of the Company or any member of the Controlled
Group or (ii) maintained pursuant to a collective bargaining agreement or any
other arrangement under which more than one employer makes contributions and to
which the Company or any member of the Controlled Group is then making or
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accruing an obligation to make contributions or has within the preceding five
plan years made contributions.
"PLEDGE AGREEMENTS" shall mean (i) the Third Amendment to Stock Pledge
Agreement dated as of July 23, 1998, executed and delivered by the Company, (ii)
the Second Amendment to Stock Pledge Agreement dated as of July 23, 1998,
executed and delivered by IWC Services, Inc., (iii) the Stock Pledge Agreement,
dated as of July 23, 1998, substantially in the form of Exhibit H attached
hereto, executed and delivered by the Acquired Company, and (iv) all stock
pledge agreements hereafter executed by any Subsidiary as contemplated under
paragraph 5J, as each may be amended, restated, supplemented and otherwise
modified from time to time.
"PREFERRED DIVIDENDS" shall mean, with respect to any period, dividends or
other charges in respect of shares of the capital stock of the Company that are
entitled to preference or priority over any other shares of the capital stock of
the Company in respect of payment of dividends or distribution of assets upon
liquidation.
"PRIORITY DEBT" shall mean, at any time, without duplication, an amount
equal to the sum of the amount of all Indebtedness of Subsidiaries, other than
Indebtedness in the form of Guarantees in respect of Indebtedness of the Company
outstanding pursuant to the applicable Senior Loan Agreement or this Agreement
or the agreement pursuant to which Permitted Subordinated Debt is outstanding
(in each case, whether or not secured by any Lien), outstanding at such time
plus the amount of all Indebtedness of the Company and its Subsidiaries
outstanding at such time that is secured by one or more Liens not otherwise
permitted under clauses (i), (ii), (iv) or (vi) of paragraph 6C(1).
"PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"PROPOSED PREPAYMENT DATE" shall have the meaning specified in clause (iii)
of paragraph 4C.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement, dated of even date herewith, substantially in the form of Exhibit I
attached hereto, by and between you and the Company as the same may be amended,
restated, supplemented or otherwise modified from time to time.
"REQUIRED HOLDER(S)" shall mean the holder or holders of at least 66 2/3%
of the aggregate principal amount of the Notes from time to time outstanding.
"REQUIREMENTS OF ENVIRONMENTAL LAW" shall mean all requirements imposed
by any law (including for example and without limitation The Resource
Conservation and Recovery Act and The Comprehensive Environmental Response,
Compensation, and Liability Act), rule, regulation, or order of any federal,
state or local executive, legislative, judicial, regulatory or
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administrative agency, board or authority in effect at the applicable time which
relate to (i) noise; (ii) pollution, protection or clean-up of the air, surface
water, ground water or land; (iii) solid, gaseous or liquid waste generation,
treatment, storage, disposal or transportation; (iv) exposure to Hazardous
Substances; (v) the safety or health of employees or (vi) regulation of the
manufacture, processing, distribution in commerce, use, discharge or storage of
Hazardous Substances.
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of a
Transaction Party.
"RESTRICTED PAYMENT" shall mean (i) the declaration of any dividend on, or
the incurrence of any liability to make any other payment or distribution in
respect of any capital stock or equity equivalent (except, in the case of a
Subsidiary, dividends or other payments or distributions in respect of its
capital stock to the Company or a Wholly Owned Subsidiary) or (ii) the
distribution on account of the purchase, redemption or other retirement of any
such capital stock (except, in the case of a Subsidiary, purchases, redemptions
or other retirements of its capital stock from the Company or a Wholly Owned
Subsidiary), provided, however, that so long as no Default or Event of Default
is then exiting or would result therefrom, (a) the declaration and payment of
any dividends to be paid in respect of the Existing Preferred Stock or the
Contemplated Preferred Stock, (b) the redemption, if any, of the Existing
Preferred Stock prior to the nine month anniversary of the issuance thereof (as
contemplated by subparagraph 4A of the Certificate of Designation of Rights and
Preferences Relating to the Existing Preferred Stock) or (c) the declaration and
payment of dividends in respect of common stock payable solely in common stock,
shall not constitute Restricted Payments.
"SALE-LEASEBACK TRANSACTION" shall have the meaning specified in paragraph
6C(8).
"SCHEDULED PRINCIPAL PAYMENTS" shall mean scheduled principal payments due
with respect to Indebtedness of the Company or any of its Subsidiaries (other
than any amounts due upon the maturity of the Senior Loan Agreement) whether
such scheduled payment is due because of amortization or maturity of such
Indebtedness.
"SCHOTTEL" shall mean Schottel, Inc., a Delaware corporation.
"SECURITIES" shall mean the Notes and the Warrants.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SECURITY AGREEMENTS" shall mean the Third Amendments to Security
Agreement, each dated as of July 23, 1998, and those Security Agreements
substantially in the form of Exhibit J attached hereto, executed and delivered
by each of the Transaction Parties respectively in favor of the Collateral
Agent, and all security agreements hereafter executed by any Subsidiary as
contemplated under paragraph 5J, as each may be amended, restated, supplemented
and otherwise modified from time to time.
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"SECURITY DOCUMENTS" shall mean the Security Agreements, the Pledge
Agreements, the Mortgages and all financing statements, assignments, pledges,
lien entry forms, documents and other writings executed and delivered from time
to time to secure the Notes and the obligations owed to the holders of Notes in
connection therewith, and any and all amendments, supplements and other
modifications thereto.
"SENIOR LENDER" shall mean (i) initially, you, in your capacity as a lender
under the Bridge Loan Agreement, and (ii) upon termination of the Bridge Loan
Agreement and the effectiveness of the Credit Agreement, the Bank, in its
capacity as a lender under the Credit Agreement, you, in your capacity as a
lender under the Credit Agreement, and any other lender or lenders from time to
time party to the Credit Agreement.
"SENIOR LOAN AGREEMENT" shall mean (i) initially, the Bridge Loan Agreement
and (ii) upon termination of the Bridge Loan Agreement and the effectiveness of
the Credit Agreement, the Credit Agreement.
"SENIOR LOAN DOCUMENTS" shall mean (i) initially, the Bridge Loan Documents
and (ii) upon termination of the Bridge Loan Agreement and the effectiveness of
the Credit Agreement, the Credit Agreement Documents.
"SIGNIFICANT FOREIGN SUBSIDIARY" shall mean, at any time, any Subsidiary
that is not a Domestic Subsidiary and that accounts for 5% or more of (i) the
Company's and its Subsidiaries' total assets, determined in accordance with
GAAP, at such time, (ii) EBITDA (a) for the fiscal year most recently ended or
(b) for the current fiscal year (as reasonably estimated by the Company in good
faith) or (iii) Consolidated Net Worth at such time.
"SIGNIFICANT HOLDER" shall mean (i) you, so long as you shall hold any
Note, or (ii) any other holder of at least 5% of the aggregate principal amount
of the Notes from time to time outstanding.
"SIGNIFICANT SUBSIDIARY" shall mean any Subsidiary that accounts for 10% or
more of (i) the Company's and its Subsidiaries' total assets, determined in
accordance with GAAP, at any time, (ii) EBITDA (a) for the fiscal year most
recently ended or (b) for the current fiscal year (as reasonably estimated by
the Company in good faith) or (iii) Consolidated Net Worth at any time.
"SUBORDINATED NOTE DOCUMENTS" shall mean this Agreement, the Notes, the
Warrants, the Participation Rights Agreement, the Registration Rights Agreement,
the Guaranty Agreements, the Security Documents and all other instruments,
certificates, documents and other writings now or hereafter executed and
delivered by any Transaction Party or any other Person pursuant to or in
connection with any of the foregoing or any of the transactions contemplated
thereby, and any and all amendments, restatements, supplements and other
modifications to any of the foregoing.
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"SUBSIDIARY" shall mean (i) any corporation, at least 50% of the total
combined voting power of all classes of Voting Stock of which shall, at the time
as of which any determination is being made, be owned by the Company, either
directly or through Subsidiaries (including, without limitation, the Acquired
Company), and (ii) any partnership, limited liability company, joint venture or
similar entity if at least a 50% interest in the profits or capital thereof is
owned by the Company, either directly or through Subsidiaries (unless such
entity can and does ordinarily take major business actions without the prior
approval, direct or indirect, of the Company), provided, however, that
notwithstanding anything to the contrary contained in the foregoing, the term
Subsidiary shall not include Schottel, as long as the Company, either directly
or through Subsidiaries, does not own more than 50% of the total combined voting
power of all classes of Voting Stock of Schottel.
"SWAPS" shall mean with respect to any Person, payment obligations with
respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
"TERMINATION EVENT" shall mean (i) a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder (other than a Reportable
Event not subject to the provision for 30-day notice to the PBGC under such
regulations), or (ii) the withdrawal of the Company or any of its ERISA
Affiliates from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (iv) the institution of proceedings
to terminate a Plan by the PBGC, or (v) any other event or condition that might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan.
"TOTAL DEBT" shall mean the total Indebtedness of the Company and its
Subsidiaries on a consolidated basis, provided, that Total Debt shall not
include (i) Indebtedness of the Company and its Subsidiaries permitted by clause
(iii) of paragraph 6C(2) and (ii) until the earlier of (a) the date on which the
Indebtedness under the Bridge Loan Agreement is paid in full and (b) January 6,
1999, $7,000,000 principal amount of Indebtedness owing by the Company to Larry
H. Ramming.
"TRANSACTION PARTIES" shall mean the Company, its Domestic Subsidiaries and
the Acquired Company.
"TRANSFEREE" shall mean any direct or indirect transferee of all or any
part of any Note or Warrant purchased by you under this Agreement.
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"TRIBUNAL" shall mean any municipal, state, commonwealth, federal, foreign,
territorial or other sovereign, governmental entity, governmental department,
court, commission, board, bureau, agency or instrumentality.
"VOTING STOCK" shall mean securities or other equity interest of any class
or classes, the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election or removal of corporate
directors or persons (such as general partners or managers) performing similar
functions in the case of business entities other than corporations.
"WARRANTS" shall have the meaning specified in paragraph 1B.
"WHOLLY OWNED SUBSIDIARY" shall mean any Subsidiary all of the equity
interests (except directors' qualifying shares) of which are owned, directly or
indirectly, by the Company or other Wholly Owned Subsidiaries.
11C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All references
in this Agreement to "GAAP" shall be deemed to refer to generally accepted
accounting principles in effect in the United States at the time of application
thereof. Unless otherwise specified herein, all accounting terms used herein
shall be interpreted, all determinations with respect to accounting matters
hereunder shall be made, and all unaudited financial statements and certificates
and reports as to financial matters required to be furnished hereunder shall be
prepared, in accordance with generally accepted accounting principles, applied
on a basis consistent with the most recent audited consolidated financial
statements of the Company and its Subsidiaries delivered pursuant to clause (ii)
of paragraph 5A or, if no such statements have been so delivered, the most
recent audited financial statements referred to in clause (i) of paragraph 9B.
PARAGRAPH 12. MISCELLANEOUS.
12. MISCELLANEOUS.
12A. NOTE PAYMENTS. So long as you shall hold any Note, the Company
will make payments of principal of, interest on and Yield Maintenance Amount, if
any, with respect to such Note, which comply with the terms of this Agreement,
by wire transfer of immediately available funds for credit (not later than 12:00
noon, New York City time, on the date due) to your account or accounts as
specified in the Purchaser Schedule attached hereto, or such other account or
accounts in the United States as you may designate in writing, notwithstanding
any contrary provision herein or in any Note with respect to the place of
payment. You agree that, before disposing of any Note, you will make a notation
thereon (or on a schedule attached thereto) of all principal payments previously
made thereon and of the date to which interest thereon has been paid. The
Company agrees to afford the benefits of this paragraph 12A to any Transferee
which shall have made the same agreement as you have made in this paragraph 12A.
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12B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save you, any Transferee
and the Collateral Agent harmless against liability for the payment of, all out-
of-pocket expenses arising in connection with such transactions, including (i)
all document production and duplication charges and the fees and expenses of any
special counsel engaged by you, such Transferee and the Collateral Agent in
connection with this Agreement, the transactions contemplated hereby and any
subsequent proposed modification of, or proposed consent under, this Agreement
or the other Subordinated Note Documents, whether or not such proposed
modification shall be effected or proposed consent granted, and (ii) the costs
and expenses, including attorneys' fees, incurred by you, such Transferee and
the Collateral Agent in enforcing (or determining whether or how to enforce) any
rights under this Agreement, the Securities or the other Subordinated Note
Documents or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement, the other
Subordinated Note Documents or the transactions contemplated hereby or thereby,
or by reason of your or such Transferee's having acquired any Note or Warrant,
including without limitation costs and expenses incurred in any bankruptcy case.
The obligations of the Company under this paragraph 12B shall survive the
transfer of any Note or Warrant or portion thereof or interest therein by you or
any Transferee, the payment of any Note or Warrant, the enforcement, amendment
or waiver of any provision of this Agreement or the other Subordinated Note
Documents, and the termination of this Agreement or any of the other
Subordinated Note Documents.
12C. CONSENT TO AMENDMENTS. This Agreement and any of the other
Subordinated Note Documents may be amended, and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, if the Company shall obtain the written consent to such amendment, action or
omission to act, of the Required Holder(s) except that, without the written
consent of the holder or holders of all Notes at the time outstanding, no
amendment to this Agreement shall change the maturity of any Note, or change the
principal of, or the rate or time of payment of interest on any Note, or affect
the time, amount or allocation of any prepayments, or change the proportion of
the principal amount of the Notes required with respect to any consent,
amendment, waiver or declaration. Each holder of any Securities at the time or
thereafter outstanding shall be bound by any consent authorized by this
paragraph 12C, whether or not such Securities shall have been marked to indicate
such consent, but any Securities issued thereafter may bear a notation referring
to any such consent. No course of dealing between the Company and the holder of
any Securities nor any delay in exercising any rights hereunder or under any
Securities shall operate as a waiver of any rights of any holder of such
Securities. As used herein and in the Securities, the term "THIS AGREEMENT" and
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
12D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES.
The Notes are issuable as registered notes without coupons in denominations of
at least $100,000, except as may be necessary to reflect any principal amount
not evenly divisible by $100,000. The Company shall keep at its principal
office a register in which the Company shall provide for the registration of
Notes and of transfers of Notes. Upon surrender for registration of transfer of
any Note at the principal
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office of the Company, the Company shall, at its expense, execute and deliver
one or more new Notes of like tenor and of a like aggregate principal amount,
registered in the name of such transferee or transferees. At the option of the
holder of any Note, such Note may be exchanged for other Notes of like tenor and
of any authorized denominations, of a like aggregate principal amount, upon
surrender of the Note to be exchanged at the principal office of the Company.
Whenever any Notes are so surrendered for exchange, the Company shall, at its
expense, execute and deliver the Notes which the holder making the exchange is
entitled to receive. Every Note surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer duly executed, by the holder of such Note or such holder's attorney
duly authorized in writing. Any Note or Notes issued in exchange for any Note
or upon transfer thereof shall carry the rights to unpaid interest and interest
to accrue which were carried by the Note so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from the holder of any Note of the
loss, theft, destruction or mutilation of such Note and, in the case of any such
loss, theft or destruction, upon receipt of such holder's unsecured indemnity
agreement, or in the case of any such mutilation upon surrender and cancellation
of such Note, the Company will make and deliver a new Note, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Note.
12E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment
for registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of and interest on such Note and for all other
purposes whatsoever, whether or not such Note shall be overdue, and the Company
shall not be affected by notice to the contrary. Subject to the preceding
sentence, the holder of any Note may from time to time grant participations in
such Note to any Person on such terms and conditions as may be determined by
such holder in its sole and absolute discretion, provided that any such
participation shall be in a principal amount of at least $100,000.
12F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representa tions and warranties contained herein or in the other Subordinated
Note Documents or otherwise made in writing by or on behalf of the Company and
its Subsidiaries in connection herewith and therewith shall survive the
execution and delivery of this Agreement, the Notes, the Warrants and the other
Subordinated Note Documents, the transfer by you of any Note or Warrant or
portion thereof or interest therein and the payment of any Note, and may be
relied upon by any Transferee, regardless of any investigation made at any time
by or on behalf of you or any Transferee. Subject to the preceding sentence,
this Agreement, the Notes, the Warrants and the other Subordinated Note
Documents embody the entire agreement and understanding between you and the
Company and supersede all prior agreements and understandings relating to the
subject matter hereof.
12G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in
this Agreement contained by or on behalf of either of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto (including, without limitation, any Transferee) whether so
expressed or not.
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12H. DISCLOSURE TO OTHER PERSONS. Except as provided in the second
sentence of this paragraph 12H, each holder and each Person that purchases a
participation in a Note or any part thereof agrees that it will hold in
confidence, in accordance with such procedures as such holder or Person applies
generally to information of this kind, any Confidential Information provided by
the Company or any Subsidiary; provided that such holder or Person will be free,
after notice to the Company, to correct any false or misleading information
which may become public concerning the relationship of such holder or Person to
the Company. The Company acknowledges that the holder of any Note or Warrant
may deliver copies of any financial statements and other documents or materials
delivered to such holder, and disclose any other information disclosed to such
holder, and disclose any other information disclosed to such holder, by or on
behalf of the Company or any Subsidiary in connection with or pursuant to this
Agreement or the other Subordinated Note Documents to (i) such holder's
directors, officers, employees, agents and professional consultants, (ii) any
other holder of any Note or Warrant, (iii) any Person to which such holder
offers to sell such Note or Warrant or any part thereof, (iv) any Person to
which such holder sells or offers to sell a participation in all or any part of
such Note or Warrant, (v) any Person from which such holder offers to purchase
any security of the Company, (vi) any federal or state regulatory authority
having jurisdiction over such holder, (vii) the National Association of
Insurance Commissioners or any similar organization or (viii) any other Person
to which such delivery or disclosure may be necessary or appropriate (a) in
compliance with any law, rule, regulation or order applicable to such holder,
(b) in response to any subpoena or other legal process or informal investigative
demand or (c) in connection with any litigation to which such holder is a party.
Each holder agrees to use Confidential Information for internal purposes only.
12I. NOTICES. All notices or other communications provided for
hereunder (except for the telephonic notice required by paragraph 4B) shall be
in writing and sent by first class mail or nationwide overnight delivery service
(with charges prepaid) and (i) if to you, addressed to you at the address
specified for such communications in the Purchaser Schedule attached hereto, or
at such other address as you shall have specified to the Company in writing,
(ii) if to any other holder of any Note or Warrant, addressed to such other
holder at such address as such other holder shall have specified to the Company
in writing or, if any such other holder shall not have so specified an address
to the Company, then addressed to such other holder in care of the last holder
of such Note or Warrant which shall have so specified an address to the Company,
and (iii) if to the Company, addressed to it at 5151 San Felipe, Suite 450,
Houston, Texas 77056, Attention: Chief Financial Officer, or at such other
address as the Company shall have specified to the holder of each Note or
Warrant in writing.
12J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or
the Notes to the contrary notwithstanding, any payment of principal of or
interest on any Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day. If the date for any payment is
extended to the next succeeding Business Day by reason of the preceding
sentence, the period of such extension shall not be included in the computation
of the interest payable on such Business Day.
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12K. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to you or to the Required Holder(s), the
determination of such satisfaction shall be made by you or the Required
Holder(s), as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
12L. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF NEW YORK. This Agreement may not be changed orally, but (subject
to the provisions of paragraph 12C) only by an agreement in writing signed by
the party against whom enforcement of any waiver, change, modification or
discharge is sought.
12M. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION.
(I) THE COMPANY AND EACH HOLDER OF SECURITIES HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY
JURY IN ANY LITIGATION OF ANY CLAIM WHICH IS BASED HEREON, OR ARISES OUT
OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, THE NOTES, THE WARRANTS OR
THE OTHER SUBORDINATED NOTE DOCUMENTS, OR ANY TRANSACTIONS RELATING HERETO
OR THERETO, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE COMPANY, THE HOLDERS OF THE
SECURITIES OR THE COLLATERAL AGENT. THE COMPANY ACKNOWLEDGES THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR YOU TO ENTER INTO THIS AGREEMENT.
(II) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT,
THE NOTES, THE WARRANTS, THE OTHER SUBORDINATED NOTE DOCUMENTS OR ANY
TRANSACTIONS RELATING HERETO OR THERETO, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE
COMPANY, THE HOLDERS OF SECURITIES OR THE COLLATERAL AGENT MAY BE BROUGHT
IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND THE COMPANY HEREBY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY AND EACH
HOLDER OF SECURITIES HEREBY IRREVOCABLY WAIVES ANY OBJECTIONS, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO
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THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS.
12N. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12O. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
12P. MAXIMUM INTEREST PAYABLE. The Company, you and all other holders
of the Notes specifically intend and agree to limit contractually the amount of
interest payable under this Agreement, the Notes and all other instruments and
agreements related hereto and thereto to the maximum amount of interest lawfully
permitted to be charged under applicable law. Therefore, none of the terms of
this Agreement, the Notes or any instrument pertaining to or relating to this
Agreement or the Notes shall ever be construed to create a contract to pay
interest at a rate in excess of the maximum rate permitted to be charged under
applicable law, and neither the Company, any guarantor nor any other party
liable or to become liable hereunder, under the Notes, any guaranty or under any
other instruments and agreements related hereto and thereto shall ever be liable
for interest in excess of the amount determined at such maximum rate, and the
provisions of this paragraph 12P shall control over all other provisions of this
Agreement, any Notes, any guaranty or any other instrument pertaining to or
relating to the transactions herein contemplated. If any amount of interest
taken or received by you or any holder of a Note shall be in excess of said
maximum amount of interest which, under applicable law, could lawfully have been
collected by you or such holder incident to such transactions, then such excess
shall be deemed to have been the result of a mathematical error by all parties
hereto and shall be refunded promptly by the Person receiving such amount to the
party paying such amount, or, at the option of the recipient, credited ratably
against the unpaid principal amount of the Note or Notes held by you or such
holder, respectively. All amounts paid or agreed to be paid in connection with
such transactions which would under applicable law be deemed "interest" shall,
to the extent permitted by such applicable law, be amortized, prorated,
allocated and spread throughout the stated term of this Agreement and the Notes.
"APPLICABLE LAW" as used in this paragraph means that law in effect from time to
time which permits the charging and collection of the highest permissible
lawful, nonusurious rate of interest on the transactions herein contemplated
including laws of the State of New York and of the United States of America, and
"MAXIMUM RATE" as used in this paragraph means, with respect to each of the
Notes, the maximum lawful, nonusurious rates of interest (if any) which under
applicable law may be charged to the Company from time to time with respect to
such Notes.
12Q. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
55
<PAGE>
If you are in agreement with the foregoing, please sign the form of acceptance
on the enclosed counterpart of this letter and return the same to the Company,
whereupon this letter shall become a binding agreement between the Company and
you.
Very truly yours,
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
By:______________________________________
Title:
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By:____________________________________
Vice President
<PAGE>
PURCHASER SCHEDULE
<TABLE>
<CAPTION>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Aggregate Principal
Amount of Notes to
be Purchased Note Denomination(s)
---------------------- --------------------
<S> <C> <C>
$30,000,000 $30,000,000
(No. R-1)
Aggregate Number
of Shares of
Common Stock for
which Warrant is
Initially Exercisable Warrant Number
--------------------- --------------
3,165,396 WA-1
(1) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
Account No. 890-0304-391
The Bank of New York
101 Barclay Street
New York, New York
(ABA No.: 021-000-018)
Each such wire transfer shall set forth the name of the Company, a
reference to "11.28% Senior Secured Subordinated Notes due July 23,
2006, Security No. 099469 A * 9 !INV6115!", and the due date and
application (as among principal, interest and Yield Maintenance
Amount) of the payment being made.
(2)Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Attention: Investment Operations Group
(Attention: Manager)
</TABLE>
<PAGE>
(3) Address for all other communications and notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200E
Dallas, Texas 75201
Attention: Managing Director
(4) Recipient of telephonic prepayment notices:
Manager, Investment Operations Group
(201) 802-5260
(5) Tax Identification No.: 22-1211670
<PAGE>
SCHEDULE 9A
LIST OF SUBSIDIARIES
<PAGE>
SCHEDULE 9D
EXISTING DEBT AND LIENS
<PAGE>
SCHEDULE 9H
LIST OF AGREEMENTS RESTRICTING DEBT
<PAGE>
SCHEDULE 9I
LIST OF WARRANTS, OPTIONS AND CONVERTIBLE SECURITIES
<PAGE>
SCHEDULE 9K
USE OF PROCEEDS
<PAGE>
EXHIBIT A
[FORM OF NOTE]
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
11.28% SENIOR SUBORDINATED NOTE DUE JULY 23, 2006
No.______________ [Date]
$________________ PPN 099469 A * 9
FOR VALUE RECEIVED, the undersigned, BOOTS & COOTS INTERNATIONAL WELL
CONTROL, INC. (the "COMPANY"), a corporation organized and existing under the
laws of the State of Delaware, hereby promises to pay to _____________________
___________________________, or registered assigns, the principal sum of
_____________ ______________ DOLLARS ($______________) on July 23, 2006, with
interest (computed on the basis of a 360-day year -- 30-day month) (a) on the
unpaid balance thereof at the rate of 11.28% per annum from the date hereof,
payable quarterly on the 23rd day of October, January, April and July in each
year, commencing with the October 23, January 23, April 23 or July 23 next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) so long as an Event of Default (as defined in the Note
Agreement referred to below) is continuing, on the unpaid balance thereof, any
overdue payment of interest and any overdue payment of any Yield Maintenance
Amount (as defined in the Note Agreement referred to below), payable quarterly
as aforesaid (or, at the option of the registered holder hereof, on demand), at
a rate per annum from time to time equal to the lesser of (a) the maximum rate
permitted by applicable law or (b) the greater of (i) 2.0% over the rate of
interest then in effect with respect to this Note or (ii) 2.0% over the rate of
interest publicly announced by The Bank of New York from time to time in New
York City as its Prime Rate.
Payments of principal of, interest on and any Yield Maintenance Amount
payable with respect to this Note are to be made at the main office of The Bank
of New York in New York City or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States of
America.
This Note is one of a series of 11.28% Senior Subordinated Notes (the
"NOTES") issued pursuant to a Subordinated Note and Warrant Purchase Agreement,
dated as of July 23, 1998 (the "AGREEMENT"), between the Company and The
Prudential Insurance Company of America, is entitled to the benefits thereof and
is guaranteed by each of the Guaranty Agreements (as defined in the Agreement)
and secured by each of the Security Documents (as defined in the Agreement) in
favor of the Collateral Agent (as defined in the Agreement) for the benefit of
the holders of the Notes. Capitalized terms used and not otherwise defined
herein have the meanings assigned to them in the Agreement.
<PAGE>
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
of like tenor for a like principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
This Note is entitled to the benefits of the Security Documents and the
Guaranty Agreements. This Note is subject to required and optional prepayment,
in whole or from time to time in part, on the terms specified in the Note
Agreement.
If an Event of Default, as defined in the Agreement, shall occur and be
continuing, the principal of this Note may be declared or otherwise become due
and payable in the manner and with the effect provided in the Agreement.
The Company, and the purchaser and the registered holder of this Note
specifically intend and agree to limit contractually the amount of interest
payable under this Note to the maximum amount of interest lawfully permitted to
be charged under applicable law. Therefore, none of the terms of this Note
shall ever be construed to create a contract to pay interest at a rate in excess
of the maximum rate permitted to be charged under applicable law, and neither
the Company nor any other party liable or to become liable hereunder shall ever
be liable for interest in excess of the amount determined at such maximum rate,
and the provisions of paragraph 12P of the Agreement shall control over any
contrary provision of this Note.
THIS NOTE IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF SUCH STATE.
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
By:___________________________________
[Vice] President
A-2
<PAGE>
EXHIBIT B
[FORM OF WARRANT]
B-1
<PAGE>
EXHIBIT C
[FORM OF OPINION OF COMPANY'S COUNSEL]
C-1
<PAGE>
EXHIBIT D
[FORM OF COMPLIANCE CERTIFICATE]
D-1
<PAGE>
EXHIBIT E
[FORM OF GUARANTY AGREEMENT]
E-1
<PAGE>
EXHIBIT F
[FORM OF MORTGAGE]
F-1
<PAGE>
EXHIBIT G
[FORM OF PARTICIPATION RIGHTS AGREEMENT]
G-1
<PAGE>
EXHIBIT H
[FORM OF PLEDGE AGREEMENT]
H-1
<PAGE>
EXHIBIT I
[FORM OF REGISTRATION RIGHTS AGREEMENT]
I-1
<PAGE>
EXHIBIT J
[FORM OF SECURITY AGREEMENT]
J-1
<PAGE>
EXHIBIT 10.22
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of July 23, 1998, between BOOTS &
COOTS INTERNATIONAL WELL CONTROL, INC., a Delaware corporation (the "COMPANY"),
and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (the "PURCHASER").
1. Background. The Company and the Purchaser have entered into that
certain Subordinated Note and Warrant Purchase Agreement (the "PURCHASE
AGREEMENT"), dated as of the date hereof, pursuant to which the Company has
agreed, among other things, to issue and sell its Common Stock Purchase Warrants
(the "WARRANTS"), evidencing rights to purchase an aggregate of 3,165,396
shares(subject to adjustment as provided therein) of the Company's common stock,
par value $0.00001 per share (the "COMMON STOCK"). This agreement shall become
effective upon the issuance of such Warrants.
2. Registration under Securities Act, etc.
2.1. Registration on Request.
(a) Request by Holders of Warrants or Registrable Securities. At any time
after July 23, 2000, the Requisite Holders may request in writing that the
Company effect the registration under the Securities Act of the number of
Registrable Securities held by the Requisite Holders and specified in such
request, provided, that such number shall constitute at least 33 1/3% of the
aggregate number of Registrable Securities. Such request shall specify the
intended method of disposition thereof and whether or not such requested
registration is to be an underwritten offering. Promptly after receiving such
request, the Company will give written notice of such requested registration to
all other holders of Warrants or Registrable Securities and thereupon the
Company will use its best efforts to effect the registration under the
Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register by such holders, and
(ii) all other Registrable Securities which the Company has been
requested to register by such other holders of Warrants or Registrable
Securities by written request given to the Company within 30 days after the
giving of such written notice by the Company (which request shall specify
the intended method of disposition of such
<PAGE>
Registrable Securities), all to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid)
of the Registrable Securities so to be registered.
Notwithstanding the foregoing, if at the time of any request to register
Registrable Securities pursuant to this Section 2.1(a) the Company is engaged in
a registered public offering or is otherwise engaged in a merger or acquisition
which, in the good faith determination of the Board of Directors of the Company,
would be materially adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a reasonable period not in excess of (x) 90
days from the effective date or termination of such offering or (y) 90 days from
the date of completion or termination of such merger or acquisition, as the case
may be, such right to delay a request to be exercised by the Company not more
than once during the period in which this Agreement is in effect; provided,
however, that if the Company does not file or abandons its plan for a registered
offering or merger or acquisition, then such request shall promptly proceed;
provided, further, that if the Company exercises its right to delay a request
within the one-year period immediately preceding the expiration date of the
Warrants, the Company, concurrently with the exercise of its right to delay such
request, shall extend such expiration date by an additional two years.
(b) Registration of Other Securities. Whenever the Company shall
effect a registration pursuant to this Section 2.1 in connection with an
underwritten offering by one or more holders of Registrable Securities, no
securities other than Registrable Securities shall be included among the
securities covered by such registration unless (a) the managing underwriter of
such offering shall have advised each holder of Registrable Securities to be
covered by such registration (and each holder of Warrants therefor) in writing
that the inclusion of such other securities would not adversely affect such
offering or (b) the holders of all Registrable Securities to be covered by such
registration (and the holders of all Warrants therefor) shall have consented in
writing to the inclusion of such other securities.
(c) Registration Statement Form. Registrations under this Section 2.1
shall be on such appropriate registration form of the Commission (i) as shall be
selected by the Company and as shall be reasonably acceptable to the Requisite
Holders and (ii) as shall permit the disposition of such Registrable Securities
in accordance with the intended method or methods of disposition specified in
their request for such registration. The Company agrees to include in any such
registration statement all information which holders of Registrable Securities
being registered (or holders of Warrants therefor) shall reasonably request.
(d) Expenses. The Company will pay all Registration Expenses in
connection with any registration requested pursuant to this Section 2.1.
(e) Effective Registration Statement. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected (i)
unless a registration statement with respect
2
<PAGE>
thereto has become effective, (ii) if after it has become effective, such
registration is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court for any
reason, or (iii) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied.
(f) Selection of Underwriters. If a requested registration pursuant
to this Section 2.1 involves an underwritten offering, the underwriter or
underwriters thereof shall be selected by the Company with the approval of the
Requisite Holders.
(g) Priority in Requested Registrations. If a requested registration
pursuant to this Section 2.1 involves an underwritten offering, and the managing
underwriter shall advise the Company in writing (with a copy to each holder of
Warrants or Registrable Securities requesting registration) that, in its
opinion, the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering within a price range
acceptable to the Requisite Holders, the Company will include in such
registration to the extent of the number which the Company is so advised can be
sold in such offering Registrable Securities requested to be included in such
registration, pro rata among the holders of Registrable Securities (or Warrants
therefor) requesting such registration on the basis of the percentage of such
Registrable Securities held by or issuable to such holders. In connection with
any registration as to which the provisions of this clause (g) apply, no
securities other than Registrable Securities shall be covered by such
registrations, including, without limitation, securities that would otherwise be
includible under clause (b) of this Section 2.1.
The holders of Warrants or Registrable Securities shall be entitled to
only one requested registration pursuant to this Section 2.1.
2.2. Incidental Registration.
(a) Right to Include Registrable Securities. If the Company at any
time proposes to register any of its securities under the Securities Act (other
than by a registration on Form S-4 or S-8 or any successor or similar form and
other than pursuant to Section 2.1), whether or not for sale for its own
account, it will each such time give prompt written notice to all holders of
Warrants or Registrable Securities of its intention to do so and of such
holders' rights under this Section 2.2. Upon the written request of any such
holder made within 30 days after the receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
holder and the intended method of disposition thereof), the Company will use its
best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the holders thereof, provided that if, at any time after giving written notice
of its intention to register any securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay registration
of such securities, the Company may, at its election, give written notice of
3
<PAGE>
such determination to each holder of Warrants or Registrable Securities and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), without prejudice, however, to the rights of any holder
or holders of Warrants or Registrable Securities entitled to do so to request
that such registration be effected as a registration under Section 2.1, and (ii)
in the case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities. No registration effected under this Section
2.2 shall be deemed to have been effected pursuant to Section 2.1 or shall
relieve the Company of its obligation to effect any registration upon request
under Section 2.1. The Company will pay all Registration Expenses in connection
with each registration of Registrable Securities requested pursuant to this
Section 2.2.
(b) Priority in Incidental Registrations. If (i) a registration
pursuant to this Section 2.2 involves an underwritten offering of the securities
so being registered, whether or not for sale for the account of the Company, to
be distributed (on a firm commitment basis) by or through one or more
underwriters of recognized standing under underwriting terms appropriate for
such a transaction, (ii) the Registrable Securities so requested to be
registered for sale are not also to be included in such underwritten offering
(because the Company has not been requested so to include such Registrable
Securities pursuant to Section 2.4 (b), or if so requested, is not obligated to
do so under Section 2.4 (b)), and (iii) the managing underwriter of such
underwritten offering shall inform the Company and the holders of Warrants or
Registrable Securities requesting such registration by letter of its belief that
the number of securities requested to be included in such registration exceeds
the number which can be sold in (or during the time of) such offering, then the
Company may include all securities proposed by the Company to be sold for its
own account and may decrease the number of Registrable Securities and other
securities of the Company so proposed to be sold and so requested to be included
in such registration (pro rata among the holders thereof on the basis of the
percentage of the securities of the Company held by such holders) to the extent
necessary to reduce the number of securities to be included in the registration
to the level recommended by the managing underwriter.
2.3. Registration Procedures. If and whenever the Company is required
to use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Sections 2.1 and 2.2, the Company will
as expeditiously as possible:
(i) prepare and (as soon thereafter as possible or in any event no
later than 60 days after the end of the period within which requests for
registration may be given to the Company) file with the Commission the
requisite registration statement to effect such registration and thereafter
use its best efforts to cause such registration statement to become
effective, provided that the Company may discontinue any registration of
its securities which are not Registrable Securities (and, under the
circumstances specified in Section 2.2(a), its securities which are
Registrable Securities) at any time prior to the effective date of the
registration statement relating thereto;
4
<PAGE>
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such
seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such jurisdictions as each
seller thereof shall reasonably request, to keep such registration or
qualification in effect for so long as such registration statement remains
in effect, and take any other action which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (iv) be obligated to be so
qualified or to consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(vi) furnish to each seller of Registrable Securities and each
Requesting Holder a signed counterpart, addressed to such seller and such
Requesting Holder (and underwriters, if any) of:
(x) an opinion of counsel for the Company, dated the effective date of
such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), reasonably satisfactory in form and substance
to such seller, and
5
<PAGE>
(y) a "cold comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case of the
accountants' letter, such other financial matters, and, in the case of the
legal opinion, such other legal matters, as such seller or such Requesting
Holder, if any, may reasonably request;
(vii) notify each seller of Registrable Securities covered by such
registration statement and each Requesting Holder, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event as
a result of which, the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of any such
seller or Requesting Holder promptly prepare and furnish to such seller or
Requesting Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they
were made;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act, and will furnish to each
such seller at least five business days prior to the filing thereof a copy
of any amendment or supplement to such registration statement or prospectus
and shall not file any thereof to which any such seller shall have
reasonably objected on the grounds that such amendment or supplement does
not comply in all material respects with the requirements of the Securities
Act or of the rules or regulations thereunder;
(ix) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities covered by such registration statement from
and after a date not later than the effective date of such registration
statement;
6
<PAGE>
(x) use its best efforts to cause all Registrable Securities covered
by such registration statement to be listed on any securities exchange on
which any of the Registrable Securities are then listed or to be quoted by
the Nasdaq National Market (or any successor thereto or any comparable
system) on which any of the Registrable Securities are then quoted; and
(xi) enter into such agreements and take such other actions as the
Requisite Holders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in the subdivision (vii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 2.3.
2.4 Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offering of Registrable Securities pursuant to
a registration requested under Section 2.1, the Company will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be satisfactory in substance and form to each holder of such Registrable
Securities (or Warrants therefor), the Company and the underwriters and to
contain such representations and warranties by the Company and such other terms
as are generally prevailing in agreements of this type, including, without
limitation, indemnities to the effect and to the extent provided in Section 2.7.
The holders of Registrable Securities to be distributed by such underwriters
shall be parties to such underwriting agreement and may, at their option,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any
such holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
holder, such holder's Registrable Securities and such holder's intended method
of distribution and any other representation required by law.
7
<PAGE>
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Warrants or Registrable Securities as provided in Section 2.2 and subject to
the provisions of Section 2.2(b), arrange for such underwriters to include all
the Registrable Securities to be offered and sold by such holder among the
securities to be distributed by such underwriters. The holders of Registrable
Securities to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
holder, such holder's Registrable Securities and such holder's intended method
of distribution and any other representation required by law.
2.5. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement (or the holders of
Warrants therefor), their underwriters, if any, and their respective counsel and
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such holders' and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
2.6. Rights of Requesting Holders. The Company will not file any
registration statement (other than on Form S-4 or S-8 or any successor or
similar form) under the Securities Act, unless it shall first have given to all
holders of Warrants or Registrable Securities at least 30 days prior written
notice thereof and, if so requested by the Requisite Holders in connection with
a registration of Registrable Securities under the Securities Act in a
transaction subject to Section 2.1 or 2.2, shall have consulted with such
holders concerning the selection of underwriters, counsel and independent
accountants for the Company for such offering and registration, provided, that
after such consultation, in the case of a transaction subject to Section 2.2,
the decision of the Company shall be conclusive. If a holder or holders of
Registrable Securities shall so request within 30 days after such notice, each
of them shall be a "REQUESTING HOLDER" hereunder and shall have, in addition to
all other rights it may have under this Agreement and otherwise under applicable
law, the rights of a Requesting Holder provided in this section 2.6 and in
sections 2.3, 2.5 and 2.7. The Company
8
<PAGE>
further covenants that a Requesting Holder shall have the right to participate
in the preparation of any such registration or comparable statement and to
request the insertion therein of material furnished to the Company in writing,
which in such Requesting Holder's judgment should be included. In addition, if
any such registration statement refers to any Requesting Holder by name or
otherwise as the holder of any securities of the Company, then such Requesting
Holder shall have the right to require (a) the insertion therein of language, in
form and substance satisfactory to such Requesting Holder, to the effect that
the holding by such Requesting Holder of such securities does not necessarily
make such Requesting Holder a "controlling person" of the Company within the
meaning of the Securities Act and is not to be construed as a recommendation by
such Requesting Holder of the investment quality of the Company's debt or equity
securities covered thereby and that such holding does not imply that such
Requesting Holder will assist in meeting any future financial requirements of
the Company, or (b) in the event that such reference to such Requesting Holder
by name or otherwise is not required by the Securities Act or any rules and
regulations promulgated thereunder, the deletion of the reference to such
Requesting Holder.
2.7. Indemnification.
(a) Indemnification by the Company. In the event of any registration
of any securities of the Company under the Securities Act, the Company will, and
hereby does, (i) in the case of any registration statement filed pursuant to
Section 2.1 or 2.2 indemnify and hold harmless the seller of any Registrable
Securities covered by such registration statement, its directors and officers,
each other Person who participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who controls such seller or any
such underwriter within the meaning of the Securities Act, and (ii) in the case
of any registration statement of the Company, indemnify and hold harmless any
Requesting Holder, its directors and officers and each other Person, if any, who
controls such Requesting Holder within the meaning of the Securities Act, in
each case against any losses, claims, damages or liabilities, joint or several,
to which such seller or Requesting Holder or any such director or officer or
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any other noncompliance or alleged noncompliance with
the Securities Act or the applicable underwriting agreement, and the Company
will reimburse such seller, such Requesting Holder and each such director,
officer, underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission
9
<PAGE>
or alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller or Requesting Holder,
as the case may be, specifically stating that it is for use in the preparation
thereof and, provided further that the Company shall not be liable to any Person
who participates as an underwriter, in the offering or sale of Registrable
Securities or any other Person, if any, who controls such underwriter within the
meaning of the Securities Act, in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of such Person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, to the Person
asserting an untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of Registrable
Securities to such Person if such statement or omission was corrected in such
final prospectus. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller or any such
director, officer, underwriter or controlling person and shall survive the
transfer of such securities by such seller.
(b) Indemnification by the Sellers. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to Section 2.3, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such securities,
to indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 2.7) the Company, each director of the
Company, each officer of the Company and each other Person, if any, who controls
the Company within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Company or any such director,
officer or controlling Person and shall survive the transfer of such securities
by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.7, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.7, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice.
In case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and
10
<PAGE>
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
(d) Other Indemnification. Indemnification similar to that specified
in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required by this
Section 2.7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense as and when bills are received or
expense, loss, damage or liability is incurred.
2.8. Adjustments Affecting Registrable Securities. The Company will
not effect or permit to occur any combination or subdivision of shares which
would adversely affect the ability of the holders of Registrable Securities or
Warrants therefor to include such Registrable Securities in any registration of
its securities contemplated by this Section 2 or the marketability of such
Registrable Securities under any such registration.
2.9. Delay in Effectiveness of Registration Statement.
Notwithstanding anything to the contrary contained in this Agreement, the
Company shall be permitted to delay the effectiveness of any registration
statement filed pursuant hereto for a period of 180 days after the effective
date of any registration statement filed by the Company in which Main Street
Merchant Partners II, L.P., or Geneva Associates, L.L.C., included shares of
Common Stock.
3. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
Commission: The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
Common Stock: As defined in Section 1.
Company: As defined in the introductory paragraph of this Agreement.
11
<PAGE>
Exchange Act: The Securities Exchange Act of 1934, or any similar
Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934 shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
Person: An individual, a partnership, an association, a joint
venture, a corporation, a trust, a limited liability company, an
unincorporated organization and a government or any department or agency
thereof.
Purchase Agreement: As defined in Section 1.
Purchaser: As defined in the introductory paragraph of this
Agreement.
Registrable Securities: (a) Any shares of Common Stock issued or
issuable upon exercise of any of the Warrants and (b) any securities issued
or issuable with respect to any such Common Stock by way of stock dividend
or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or
otherwise. As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall
have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (c) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting
further transfer shall have been delivered by the Company and subsequent
disposition of them shall not require registration or qualification of them
under the Securities Act or any similar state law then in force, or (d)
they shall have ceased to be outstanding.
Registration Expenses: All expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation,
all registration, filing and National Association of Securities Dealers
fees, all fees and expenses of complying with securities or blue sky laws,
all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company
and of its independent public accountants, including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance, the fees and disbursements incurred by the
holders of Registrable Securities to be registered and the holders of
Warrants therefor (including the fees and disbursements of any single firm
of legal counsel retained by the Requisite Holders), premiums and other
costs of policies of insurance (if any such insurance is required in the
underwriter of such offering) against liabilities arising out of the public
offering of the Registrable Securities being registered and any fees
12
<PAGE>
and disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions and
transfer taxes, if any.
Requesting Holder: As defined in Section 2.6.
Requisite Holders: Any holder or holders of at least 50.1% (by number
of shares) of all Registrable Securities or of Warrants for at least 50.1%
(by number of shares) of all Registrable Securities.
Securities Act: The Securities Act of 1933, or any similar Federal
statute, and the rules and regulations of the Commission thereunder, all as
of the same shall be in effect at the time. References to a particular
section of the Securities Act of 1933 shall include a reference to the
comparable section, if any, of any such similar Federal statute.
4. Rule 144: If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act, the Company will
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the Commission thereunder
(or, if the Company is not required to file such reports, will, upon the request
of any holder of Warrants or Registrable Securities, make publicly available
other information) and will take such further action as any holder of Warrants
or Registrable Securities may reasonably request, all to the extent required
from time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time or (b) any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any holder of Warrants or Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements.
5. Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited or omit to perform any act herein required
to be performed by it, only if the Company shall have obtained the written
consent to such amendment, action or omission to act, of the Requisite Holders.
Each holder of any Warrants or Registrable Securities at the time or thereafter
outstanding shall be bound by any consent authorized by this Section 5, whether
or not such Warrants or Registrable Securities shall have been marked to
indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of such
Warrants or Registrable Securities for purposes of any request or other action
by any holder or holders of Warrants or Registrable Securities pursuant to this
Agreement or any determination of any number or percentage of shares of Warrants
or Registrable Securities held by any holder or holders of Warrants or
Registrable Securities contemplated by this Agreement. No such election to be
treated as the holder of Warrants or Registrable Securities for
13
<PAGE>
any purpose shall be binding upon the Company until the Company has received
assurances reasonably satisfactory to it of such owner's beneficial ownership of
such Warrants or Registrable Securities.
7. Notices. All notices or other communications provided for hereunder
shall be in writing and sent by first class mail or nationwide overnight
delivery service (with charges prepaid) and (a) if addressed to a party other
than the Company, addressed to such party in the manner set forth in the
Purchase Agreement, or at such other address as such party shall have furnished
to the Company in writing, or (b) if addressed to the Company, at 5151 San
Felipe, Suite 450, Houston, Texas 77056, Attention: Chief Financial Officer, or
at such other address, or to the attention of such other officer, as the Company
shall have furnished to each holder of Warrants or Registrable Securities at the
time outstanding.
8. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit of
and enforceable by any subsequent holder of any Warrants or Registrable
Securities, subject to the provisions respecting the minimum numbers or
percentages of shares of Warrants or Registrable Securities required in order to
be entitled to certain rights, or take certain actions contained herein.
9. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. Specific Performance. The parties hereto recognize and agree that
money damages may be insufficient to compensate the holders of any Warrants or
Registrable Securities for breaches by the Company of the terms hereof and,
consequently, that the equitable remedy of specific performance of the terms
hereof will be available in the event of any such breach.
11. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York.
12. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
BOOTS & COOTS INTERNATIONAL WELL
CONTROL, INC.
By:
--------------------------------------
Name:
Title:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:
--------------------------------------
Title: Vice President
15
<PAGE>
EXHIBIT 10.23
PARTICIPATION RIGHTS AGREEMENT
PARTICIPATION RIGHTS AGREEMENT, dated as of July 23, 1998, by and
among BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC., a Delaware corporation
(the "COMPANY"), THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (the "PURCHASER")
and the holders of the Company's common stock, par value $0.00001 per share (the
"COMMON STOCK") listed in Schedule I attached hereto (each a "STOCKHOLDER" and
collectively the "STOCKHOLDERS").
1. Background; Term. The Company and the Purchaser have entered into a
Subordinated Note and Warrant Purchase Agreement (the "PURCHASE AGREEMENT"),
dated as of the date hereof, pursuant to which the Company has agreed, among
other things, to issue and sell its Common Stock Purchase Warrants (the
"WARRANTS"), evidencing rights to purchase an aggregate of [3,165,396] shares
(subject to adjustment as provided therein) of Common Stock. This Agreement
shall become effective upon the issuance of such Warrants and shall terminate
(i) with respect to shares of Common Stock issued upon the exercise of the
Warrants, three years after the issuance of such shares, and (ii) with respect
to any other shares of Common Stock or Common Stock Equivalents, three years
after the issuance thereof.
2. Transfers of Common Stock.
2.1 Rights of Participation.
(a) Participation Offer. Except as provided in Section 2.1(c), if
any Stockholder or any Affiliate thereof (other than the Company or a
Subsidiary), or if the Company, proposes to sell or otherwise transfer for value
shares of the Common Stock or Common Stock Equivalents (each such Stockholder,
each such Affiliate thereof and the Company being referred to herein as a
"TRANSFEROR"), which shares of the Common Stock or Common Stock Equivalents:
(i) in the case of any sale or other transfer for value by any
Transferor other than the Company, together with all shares of the Common
Stock or Common Stock Equivalents sold or otherwise transferred for value,
whether in one transaction or in a series of related transactions, by such
Transferor and all other Transferors (other than the Company), constitute
at least 10% of the Fully Diluted Common Stock, or
(ii) in the case of any sale or other transfer for value by any
Transferor (including the Company), together with all shares of the Common
Stock or Common Stock Equivalents sold or otherwise transferred for value,
whether in one transaction or in a series of related transactions, by such
Transferor and all other Transferors (including the Company), constitute at
least 30% of the Fully Diluted Common Stock,
<PAGE>
then such Transferor shall offer (the "PARTICIPATION OFFER") to include in
the proposed sale or other transfer a number of shares of Common Stock or
Common Stock Equivalents (regardless of whether such securities are of the
same class being sold or otherwise transferred by the Transferor)
designated by each Tagalong Holder, not to exceed, in respect of such
Tagalong Holder, the number of shares equal to the product of (y) the
aggregate number of shares of Common Stock or Common Stock Equivalents to
be sold or otherwise transferred by the Transferor to the proposed
transferee and (z) a fraction, the numerator of which shall be the number
of shares of Fully Diluted Common Stock held by such Tagalong Holder and
the denominator of which shall be the number of shares of Fully Diluted
Common Stock held by the Transferor and all Tagalong Holders. The
Transferor shall give written notice to each Tagalong Holder of the
Participation Offer (the "PARTICIPATION OFFER NOTICE") at least 30 days
prior to the proposed sale or other transfer. The Participation Offer
Notice shall specify the proposed transferee, the number of shares of
Common Stock or Common Stock Equivalents to be sold or otherwise
transferred to such transferee, the amount and type of consideration to be
received therefor, and the place and date on which the sale or other
transfer is to be consummated.
(b) Exercise. Each Tagalong Holder who wishes to include shares of
Common Stock or Common Stock Equivalents in the proposed sale or other transfer
in accordance with this Section 2.1 shall so notify the Transferor not more than
15 days after the date of receipt of the Participation Offer Notice. The
Participation Offer shall be conditioned upon the Transferor's sale or other
transfer of shares pursuant to the transactions contemplated in the
Participation Offer Notice with the transferee named therein. If any Tagalong
Holder or Holders have accepted the Participation Offer, the Transferor shall
reduce to the extent necessary the number of shares it otherwise would have sold
or transferred in the proposed sale or other transfer so as to permit such
Tagalong Holder or Holders to sell or otherwise transfer the number of shares
that it or they are entitled to sell or otherwise transfer under this Section
2.1, and the Transferor and such Tagalong Holder or Holders shall sell or
otherwise transfer the number of shares specified in the Participation Offer to
the proposed transferee in accordance with the terms of such sale or other
transfer set forth in the Participation Offer Notice.
(c) Excepted Transfers. Section 2.1(a) and Section 2.1(b) shall not
apply to any sale pursuant to a public offering registered pursuant to the
Securities Act, any sale pursuant to Rule 144 under the Securities Act (as such
rule may be amended from time to time) or to any sale or other transfer for
value by a Transferor (other than the Company or a Subsidiary) to an Affiliate
thereof (other than the Company or a Subsidiary) or to any sale or other
transfer for value by the Company as consideration for the acquisition of a
business or property.
2.2 Restrictive Legend. Contemporaneously with the execution and
delivery of this Agreement, each certificate representing shares of presently
outstanding Common Stock held by a Stockholder shall be stamped or otherwise
2
<PAGE>
imprinted with a legend (or shall be exchanged for certificates bearing a
legend) in substantially the following form:
"The shares represented by this certificate are subject to certain
restrictions set forth in a Participation Rights Agreement dated as of July
23, 1998 among the Corporation, The Prudential Insurance Company of America
and the holders of the Corporation's outstanding Common Stock parties
thereto, and such shares may not be transferred except in compliance with
such restrictions. Such Participation Rights Agreement is on file at the
office of the Corporation and a copy thereof will be furnished without
charge to the holder of the shares represented by this certificate upon
written request."
Each certificate issued upon the direct or indirect transfer of any such
outstanding Common Stock held by a Stockholder shall also be stamped or
otherwise imprinted with the foregoing legend.
2.3 Effect of Violation. Any purported transfer of Common Stock or
Common Stock Equivalents which is not permitted by this Agreement or which is in
violation of this Agreement shall be void and of no force and effect whatsoever.
3. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
Affiliate: (a) With respect to any Person, any other Person who,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person, and (b) with respect to any individual,
any other individual who is related by blood, adoption or marriage or any
trust of which such first-named individual is a settlor, trustee or
beneficiary. As used herein, the term "control" means possession, directly
or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
Agreement: This Participation Rights Agreement, as the same may be
amended from time to time.
Common Stock: As defined in the introductory paragraph of this
Agreement.
Common Stock Equivalents: All options, rights or warrants to
purchase shares of Common Stock, all securities convertible into or
exchangeable for shares of Common Stock, all shares of Common Stock into
which shares of Common Stock of another class have been converted and all
shares of stock or other securities of the Company into which Common Stock
(or Common Stock Equivalents) have been converted.
3
<PAGE>
Company: As defined in the introductory paragraph of this Agreement.
Fully Diluted Common Stock: At any time, the then outstanding Common
Stock plus (without duplication) all shares of Common Stock issuable,
whether at such time or upon the passage of time or the occurrence of
future events, upon the exercise, conversion or exchange of all then
outstanding options, rights or warrants (including, without limitation, the
Warrants) or securities convertible into or exchangeable for Common Stock.
Participation Offer: As defined in Section 2.1(a).
Participation Offer Notice: As defined in Section 2.1(a).
Person: A corporation, an association, a partnership, a limited
liability company, a business, an individual, a governmental or political
subdivision thereof or a governmental agency.
Purchase Agreement: As defined in Section 1.
Purchaser: As defined in the introductory paragraph of this
Agreement.
Required Holders: Any holder or holders of 66__% (by number of shares
of Common Stock issued or issuable) of the Warrants or of Common Stock
issued upon the exercise of Warrants.
Securities Act: The Securities Act of 1933, as amended, or any
successor statute thereto.
Stockholders: The parties to this Agreement who are record or
beneficial owners of any shares of Common Stock.
Subsidiary: As defined in the Purchase Agreement.
Tagalong Holder: Any holder of (i) Warrants or (ii) Common Stock
issued upon the exercise of Warrants.
Transferor: As defined in Section 2.1(a).
Warrants: As defined in Section 1.
4. Agreement. A copy of this Agreement shall be filed with the permanent
records of the Company and shall be kept at all times at the principal place of
business of the Company.
4
<PAGE>
5. Further Assurances. Each party agrees to do, or cause to be done,
such further acts and to execute and deliver, or to cause to be executed and
delivered, such further agreements, instruments, certificates and other
documents as may be necessary or appropriate to effectuate and carry out the
purposes of this Agreement.
6. Amendments and Waivers. This Agreement may be amended and the
Stockholders and the Company may take any action herein prohibited or omit to
perform any act herein required to be performed, only if the prior written
consent of the Required Holders to such amendment, action or omission to act
shall have been obtained.
7. Notices. All notices or other communications provided for hereunder
shall be in writing and sent by first class mail or nationwide overnight
delivery service (with charges prepaid) and (a) if addressed to a Tagalong
Holder, addressed to such Tagalong Holder in the manner set forth in the
Purchase Agreement, or at such other address as such Tagalong Holder shall have
furnished to the other parties hereto in writing, (b) if addressed to the
Company, addressed to it at 5151 San Felipe, Suite 450, Houston, Texas 77056,
Attention: Chief Financial Officer, or at such other address, or to the
attention of such other officer, as the Company shall have furnished to the
other parties hereto in writing, or (c) if to any Stockholder or any other
Transferor (other than the Company), addressed to such Stockholder at its
address set forth in Schedule I hereto, or at such other address as such party
shall have furnished to the other parties hereto in writing.
8. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and assigns. In
the event that a Stockholder transfers any Common Stock or Common Stock
Equivalents to an Affiliate (other than the Company), such Stockholder shall
cause such Affiliate to comply with the terms of this Agreement. In addition,
and whether or not any express assignment shall have been made, the provisions
of this Agreement which are for the benefit of the Purchaser shall also be for
the benefit of and enforceable by any subsequent Tagalong Holder.
9. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. Specific Performance. The parties hereto recognize and agree that
money damages may be insufficient to compensate the Tagalong Holders for
breaches by the Company or the Stockholders of the terms hereof and,
consequently, that the equitable remedy of specific performance of the terms
hereof will be available in the event of any such breach.
11. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York.
5
<PAGE>
12. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGES FOLLOW]
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, or
caused this Agreement to be executed and delivered by their respective officers
thereunto duly authorized, as of the date first above written.
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
By:
---------------------------------------
Name:
Title:
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By:
---------------------------------------
Name:
Title: Vice President
---------------------------------------
Larry H. Ramming
---------------------------------------
Raymond Henry
---------------------------------------
Brian Krause
---------------------------------------
Richard Hatteberg
<PAGE>
---------------------------------------
Danny Clayton
---------------------------------------
Thomas L. Easley
<PAGE>
SCHEDULE I
STOCKHOLDERS
Larry H. Ramming
Raymond Henry
Brian Krause
Richard Hatteberg
Danny Clayton
Thomas L. Easley
<PAGE>
Page 1
EXHIBIT 10.24
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SUCH ACT.
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
COMMON STOCK PURCHASE WARRANT
NO. WA-1 JULY 23, 1998
PPN 099469 2 * 8
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC. (the "COMPANY"), a
Delaware corporation, for value received, hereby certifies that THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA or its registered assigns is entitled to purchase
from the Company 3,165,396 duly authorized, validly issued, fully paid and
nonassessable shares of the Company's common stock, par value $0.00001 per share
(the "ORIGINAL COMMON STOCK"), at an initial exercise price per share of $6.70
(subject to adjustment at the option of the Purchaser as set forth in section
1G), at any time or from time to time after July 23, 2000 (subject to the
exceptions set forth in section 1H), and prior to 5:00 p.m., New York City time,
on the later of (i) July 23, 2008 and (ii) six months after the date the Notes
(as defined below) are fully retired, all subject to the terms, conditions and
adjustments set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants (the
"WARRANTS", such term to include all Warrants issued in substitution therefor)
originally issued in connection with the issue and sale by the Company of the
Company's 11.28% Senior Subordinated Notes due July 23, 2006, in the aggregate
principal amount of $30,000,000 (the "NOTES") pursuant to that certain
Subordinated Note and Warrant Purchase Agreement dated of even date herewith
(the "PURCHASE AGREEMENT") between the Company and The Prudential Insurance
Company of America (the "PURCHASER"). The Warrants originally so issued
evidence rights to purchase an aggregate of 3,165,396 shares of Original Common
Stock, subject to adjustment as provided herein. The term "NOTES" as used
herein shall include each Note delivered pursuant to any provision of the
Purchase Agreement and each Note delivered in substitution or exchange for any
such Note pursuant to any such provision. Certain capitalized terms used in
this Warrant are defined in section 13.
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1. Exercise of Warrant.
1A. Manner of Exercise. This Warrant may be exercised by the holder
hereof, in whole or in part, during normal business hours on any Business Day on
or after July 23, 2000 (subject to the exceptions set forth in section 1H), and
prior to 5:00 p.m., New York City time, on the later of (a) July 23, 2008 and
(b) six months after the date the Notes are fully retired, by surrender of this
Warrant, with the form of subscription at the end hereof (or a reasonable
facsimile thereof) duly executed by such holder, to the Company at its principal
office (or, if such exercise shall be in connection with an underwritten public
offering of shares of Common Stock (or Other Securities) subject to this
Warrant, at the location at which the underwriters shall have agreed to accept
delivery thereof), accompanied by payment, in cash or by certified or official
bank check payable to the order of the Company, in the amount obtained by
multiplying (a) the number of shares of Original Common Stock (without giving
effect to any adjustment therein) designated in such form of subscription by (b)
the Exercise Price. The number of duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock which the holder of this Warrant shall
be entitled to receive upon each exercise hereof shall be determined by
multiplying the number of shares of Common Stock which would otherwise (but for
the provisions of section 2) be issuable upon such exercise, as designated by
the holder hereof pursuant to this section 1A, by a fraction of which (a) the
numerator is the Initial Exercise Price and (b) the denominator is the Exercise
Price in effect on the date of such exercise. The "EXERCISE PRICE" shall
initially be the Initial Exercise Price per share, shall be adjusted and
readjusted from time to time as provided in section 2 (including, without
limitation, adjustments thereunder in the circumstances contemplated by the
final sentence of section 1G) and, as so adjusted and readjusted, shall remain
in effect until a further adjustment or readjustment thereof is required by
section 2.
1B. When Exercise Effective. Each exercise of this Warrant shall be
deemed to have been effected and the Exercise Price shall be determined
immediately prior to the close of business on the Business Day on which this
Warrant shall have been surrendered to the Company as provided in section 1A,
and at such time the person or persons in whose name or names any certificate or
certificates for shares of Original Common Stock (or Other Securities) shall be
issuable upon such exercise as provided in section 1C shall be deemed to have
become the holder or holders of record thereof.
1C. Delivery of Stock Certificates, etc. Promptly after the exercise
of this Warrant, in whole or in part, and in any event within five Business Days
thereafter (unless such exercise shall be in connection with an underwritten
public offering of shares of Common Stock (or Other Securities) subject to this
Warrant, in which event concurrently with such exercise), the Company at its
expense will cause to be issued in the name of and delivered to the holder
hereof or, subject to section 8, as such holder may direct,
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled upon
such exercise, and
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, specifying on the face or faces thereof the number
of shares of Common Stock
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equal to the number of such shares specified on the face of this Warrant
minus the number of such shares designated by the holder upon such exercise
as provided in section 1A.
1D. Company to Reaffirm Obligations. The Company will, at the time
of or at any time after each exercise of this Warrant, upon the request of the
holder hereof or of any shares of Common Stock (or Other Securities) issued upon
such exercise, acknowledge in writing its continuing obligation to afford to
such holder all rights to which such holder shall continue to be entitled after
such exercise in accordance with the terms of this Warrant, provided that if any
such holder shall fail to make any such request, the failure shall not affect
the continuing obligation of the Company to afford such rights to such holder.
1E. Fractional Shares. No fractional shares shall be issued upon
exercise of this Warrant and no payment or adjustment shall be made upon any
exercise on account of any cash dividends (except as provided in section 2B) on
the Common Stock or Other Securities issued upon such conversion. If any
fractional interest in a share of Common Stock would, except for the provisions
of the first sentence of this section 1E, be deliverable upon the exercise of
this Warrant, the Company shall, in lieu of delivering the fractional share
therefor, pay to the holder exercising this Warrant an amount in cash equal to
the Market Price of such fractional interest.
1F. Cashless Exercise. As an alternative to exercise of this
Warrant by payment in cash (or by certified or official bank check), as provided
above in section 1A, the holder of this Warrant may exercise its right to
purchase some or all of the shares of Common Stock pursuant to this Warrant, on
a net basis without the exchange of any funds (a "CASHLESS EXERCISE"), such that
the holder hereof receives the total number of shares of Common Stock subscribed
for pursuant to this Warrant reduced by that number of shares of Common Stock,
valued at Market Price, at the time of exercise equal to the aggregate Exercise
Price that would otherwise have been paid by the holder of this Warrant for such
total number of shares of Common Stock.
1G. Unilateral Change of Initial Exercise Price. The holder hereof
shall have the unilateral right, but not the obligation, exercisable by written
notice (the "CHANGE NOTICE") to the Company given at any time after July 23,
2000 and prior to September 22, 2000 to change the Initial Exercise Price to the
amount that equals the average Market Value of one share of Common Stock for
the thirty (30) trading days prior to July 23, 2000. The change in the Initial
Exercise Price shall be retroactive to the date of this Warrant. Upon the
change in the Initial Exercise Price, the Exercise Price at the time of the
Change Notice (but prior to giving effect thereto) shall be redetermined by
adjusting the Initial Exercise Price (as so changed) to take into account all
adjustments pursuant to section 2 hereof, other than adjustments for
transactions or events of the type addressed by sections 2B and 2F, that have
occurred after the date of this Warrant and prior to the Change Notice.
1H. Incidental Registrations; Participation Rights. Notwithstanding
anything to the contrary contained in this Warrant, this Warrant shall be
exercisable prior to July 23, 2000 in
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connection with the exercise by the holder hereof of its rights under Section
2.2 of the Registration Rights Agreement or its rights under the Participation
Rights Agreement.
2. Protection Against Dilution or Other Impairment of Rights; Adjustment
of Exercise Price.
2A. Issuance of Additional Shares of Common Stock. In case the
Company, at any time or from time to time after the date hereof (the "INITIAL
DATE"), shall issue or sell Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to section 2C or
2D but excluding Additional Shares of Common Stock issued upon the exercise of
Employee Options) without consideration or for a consideration per share
(determined pursuant to section 2E) less than the Market Price in effect on the
date of and immediately prior to such issue or sale, then, and in each such
case, subject to section 2H, the Exercise Price shall be reduced, concurrently
with such issue or sale, to a price (calculated to the nearest .001 of a cent)
determined by multiplying such Exercise Price by a fraction,
(a) the numerator of which shall be (i) the number of shares of Common
Stock outstanding immediately prior to such issue or sale plus (ii) the
number of shares of Common Stock which the aggregate consideration received
by the Company for the total number of such Additional Shares of Common
Stock so issued or sold would purchase at such Market Price, and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this section 2A, (x) immediately after any
Additional Shares of Common Stock are deemed to have been issued pursuant to
section 2C or 2D, such Additional Shares shall be deemed to be outstanding, and
(y) treasury shares shall not be deemed to be outstanding.
2B. Extraordinary Dividends and Distributions. In case the Company
at any time or from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution in respect of Common Stock or Other
Securities (including, without limitation, any distribution of other or
additional stock or other securities or property or Options by way of dividend
or spin-off, reclassification, recapitalization or similar corporate
rearrangement and any redemption or acquisition of any such stock or Options on
the Common Stock), other than (a) a dividend payable in Additional Shares of
Common Stock or in Options for Common Stock or (b) a regular periodic dividend
payable in cash then, and in each such case, the Company shall hold in trust,
for the benefit of the holder of this Warrant, commencing on the date such
dividend or other distribution is paid to the holders of Common Stock, the
securities and other property (including cash) which such holder would have
received if such holder had exercised this Warrant immediately prior to the
record date fixed in connection with such dividend or other distribution. The
Company will pay over to the holder of this Warrant, on any date this Warrant is
exercised, an amount of property held in such trust that is equal to the total
amount of property held in such trust on such
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date multiplied by a fraction, the numerator of which is the number of shares of
Common Stock issued pursuant to such exercise and the denominator of which is
the total number of shares of Common Stock the holder of this Warrant was
permitted to purchase upon the exercise hereof immediately prior to such
exercise. Upon the expiration of this Warrant (and compliance with the
immediately preceding sentence) such trust will be canceled and the property
held in such trust shall be returned to the Company.
2C. Treatment of Options and Convertible Securities. In case the
Company, at any time or from time to time after the date hereof, shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable, then, and
in each such case, the maximum number of Additional Shares of Common Stock (as
set forth in the instrument relating thereto, without regard to any provisions
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, issuable upon the conversion or exchange of such Convertible
Securities (or the exercise of such Options for Convertible Securities and
subsequent conversion or exchange of the Convertible Securities issued), shall
be deemed to be Additional Shares of Common Stock issued as of the time of such
issue, sale, grant or assumption or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided, that such
Additional Shares of Common Stock shall not be deemed to have been issued (i) if
such Options constitute Employee Options or (ii) unless the consideration per
share (determined pursuant to section 2E) of such shares would be less than the
Market Price in effect on the date of and immediately prior to such issue, sale,
grant or assumption or immediately prior to the close of business on such record
date or, if the Common Stock trades on an ex-dividend basis, on the date prior
to the commencement of ex-dividend trading, as the case may be, and provided,
further, that in any such case in which Additional Shares of Common Stock are
deemed to be issued,
(a) if an adjustment of the Exercise Price shall be made upon the
fixing of a record date as referred to in the first sentence of this
section 2C, no further adjustment of the Exercise Price shall be made as a
result of the subsequent issue or sale of any Options or Convertible
Securities for the purpose of which such record date was set;
(b) no further adjustment of the Exercise Price shall be made upon the
subsequent issue or sale of Additional Shares of Common Stock or
Convertible Securities upon the exercise of such Options or the conversion
or exchange of such Convertible Securities;
(c) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any change in the consideration
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Page 6
payable to the Company, or change in the number of Additional Shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof
(by change of rate or otherwise), the Exercise Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence
of the record date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such change becoming effective, be
recomputed to reflect such change insofar as it affects such Options, or
the rights of conversion or exchange under such Convertible Securities,
which are outstanding at such time;
(d) upon the expiration of any such Options or of the rights of
conversion or exchange under any such Convertible Securities which shall
not have been exercised (or upon purchase by the Company and cancellation
or retirement of any such Options which shall not have been exercised or of
any such Convertible Securities the rights of conversion or exchange under
which shall not have been exercised), the Exercise Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence
of the record date with respect thereto), and any subsequent adjustments
based thereon, shall, upon such expiration (or such cancellation or
retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or in the case of
Convertible Securities, the only Additional Shares of Common Stock
issued or sold (or deemed issued or sold) were the Additional Shares
of Common Stock, if any, actually issued or sold upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was (x) an amount
equal to (A) the consideration actually received by the Company for
the issue, sale, grant or assumption of all such Options, whether or
not exercised, plus (B) the consideration actually received by the
Company upon such exercise, minus (C) the consideration paid by the
Company for any purchase of such Options which were not exercised, or
(y) an amount equal to (A) the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Convertible Securities which were actually converted or exchanged,
plus (B) the additional consideration, if any, actually received by
the Company upon such conversion or exchange, minus (C) the excess, if
any, of the consideration paid by the Company for any purchase of such
Convertible Securities, the rights of conversion or exchange under
which were not exercised, over an amount that would be equal to the
Fair Value of the Convertible Securities so purchased if such
Convertible Securities were not convertible into or exchangeable for
Additional Shares of Common Stock, and
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the exercise
of
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Page 7
such Options were issued at the time of the issue, sale, grant or
assumption of such Options, and the consideration received by the Company
for the Additional Shares of Common Stock deemed to have then been issued
was an amount equal to (x) the consideration actually received by the
Company for the issue, sale, grant or assumption of all such Options,
whether or not exercised, plus (y) the consideration deemed to have been
received by the Company (pursuant to section 2E) upon the issue or sale of
the Convertible Securities with respect to which such Options were actually
exercised, minus (z) the consideration paid by the Company for any purchase
of such Options which were not exercised; and
(e) no recomputation pursuant to subsection (c) or (d) above shall
have the effect of increasing the Exercise Price then in effect by an
amount in excess of the amount of the adjustment thereof originally made in
respect of the issue, sale, grant or assumption of such Options or
Convertible Securities.
2D. Treatment of Stock Dividends, Stock Splits, Etc. In case the
Company, at any time or from time to time after the date hereof, shall declare
or pay any dividend or other distribution on any class of securities of the
Company payable in shares of Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in Common
Stock), then, and in each such case, Additional Shares of Common Stock shall be
deemed to have been issued (a) in the case of any such dividend or other
distribution, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend or other distribution, or (b) in the case of any such subdivision, at
the close of business on the day immediately prior to the day upon which such
corporate action becomes effective.
2E. Computation of Consideration. For the purposes of this Warrant:
(a) The consideration for the issue or sale of any Additional Shares
of Common Stock or for the issue, sale, grant or assumption of any Options
or Convertible Securities, irrespective of the accounting treatment of such
consideration,
(i) insofar as it consists of cash, shall be computed as the
amount of cash received by the Company, and insofar as it consists of
securities or other property, shall be computed as of the date
immediately preceding such issue, sale, grant or assumption as the
Fair Value of such consideration (or, if such consideration is
received for the issue or sale of Additional Shares of Common Stock
and the Market Price thereof is less than the Fair Value of such
consideration, then such consideration shall be computed as the Market
Price of such Additional Shares of Common
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Page 8
Stock), in each case without deducting any expenses paid or incurred
by the Company, any commissions or compensation paid or concessions or
discounts allowed to underwriters, dealers or other performing similar
services and any accrued interest or dividends in connection with such
issue or sale, and
(ii) in case Additional Shares of Common Stock are issued or sold
or Options or Convertible Securities are issued, sold, granted or
assumed together with other stock or securities or other assets of the
Company for a consideration which covers both, shall be the proportion
of such consideration so received, computed as provided in clause (i)
above, allocable to such Additional Shares of Common Stock or Options
or Convertible Securities, as the case may be, all as determined in
good faith by the Board of Directors or the Company.
(b) All Additional Shares of Common Stock, Options or Convertible
Securities issued in payment of any dividend or other distribution on any
class of stock of the Company and all Additional Shares of Common Stock
issued to effect a subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock) shall be deemed to
have been issued without consideration.
(c) Additional Shares of Common Stock deemed to have been issued for
consideration pursuant to section 2C, relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per
share determined by dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration)
payable to the Company upon the exercise in full of such Options or
the conversion or exchange of such Convertible Securities or, in the
case of Options for Convertible Securities, the exercise of such
Options for Convertible Securities and the conversion or exchange of
such Convertible Securities, in each case computing such consideration
as provided in the foregoing subsection (a),
by
(ii) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision
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contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
2F. Adjustments for Combinations, Etc. In case the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Exercise Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
2G. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in section 2I) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis to which the standards established in the other
provisions of this Warrant do not apply, the exercise rights granted by this
Warrant, then, and in each such case, the computations, adjustments and
readjustments provided for in this Warrant with respect to the Exercise Price
shall be made as nearly as possible in the manner so provided and applied to
determine the amount of Other Securities from time to time receivable upon the
exercise of this Warrant, so as to protect the holder of this Warrant against
the effect of such dilution.
2H. Minimum Adjustment of Exercise Price. If the amount of any
adjustment of the Exercise Price required hereunder would be less than one
percent of the Exercise Price in effect at the time such adjustment is otherwise
so required to be made, such amount shall be carried forward and adjustment with
respect thereto made at the time of and together with any subsequent adjustment
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate at least one percent of such Exercise Price; provided,
that upon the exercise of this Warrant, all adjustments carried forward and not
theretofore made up to and including the date of such exercise shall be made to
the nearest .001 of a cent.
2I. Changes in Common Stock. In case at any time the Company shall
be a party to any transaction (including, without limitation, a merger,
consolidation, sale of all or substantially all of the Company's assets,
liquidation or recapitalization of the Common Stock) in which the previously
outstanding Common Stock shall be changed into or exchanged for different
securities of the Company or common stock or other securities of another
corporation or interests in a noncorporate entity or other property (including
cash) or any combination of any of the foregoing or in which the Common Stock
ceases to be a publicly traded security either listed on the New York Stock
Exchange or the American Stock Exchange or quoted by the Nasdaq National Market
or any successor thereto or comparable system (each such transaction being
herein called the "TRANSACTION", the date on which the Transaction is first
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announced to the public being herein called the "ANNOUNCEMENT DATE", the date of
consummation of the Transaction being herein called the "CONSUMMATION DATE", the
Company (in the case of a recapitalization of the Common Stock or any other such
transaction in which the Company retains substantially all of its assets and
survives as a corporation) or such other corporation or entity (in each other
case) being herein called the "ACQUIRING COMPANY", and the common stock (or
equivalent equity interest) of the Acquiring Company being herein called the
"ACQUIRER'S COMMON STOCK", except that if the Acquiring Company shall not meet
the requirements set forth in subsections (d), (e) and (f) below and a
corporation which directly or indirectly controls the Acquiring Company (a
"PARENT") meets such requirements, "Acquiring Company" shall refer to such
Parent and "Acquirer's Common Stock" shall refer to such Parent's common stock
(or equivalent equity interests)) then, as a condition of the consummation of
the Transaction, lawful and adequate provisions (in form satisfactory to the
Required Holders) shall be made so that the holder of this Warrant, upon the
exercise thereof at any time on or after the Consummation Date (but subject, in
the case of an election pursuant to subsection (b) or (c) below, to the time
limitation hereinafter provided for such election) shall be entitled to receive,
and this Warrant shall thereafter represent the right to receive, in lieu of the
Common Stock issuable upon such exercise prior to the Consummation Date, either:
(a) shares of the Acquirer's Common Stock at an Exercise Price per
share equal to the Exercise Price in effect immediately prior to the
Consummation Date multiplied by a fraction the numerator of which is the
Market Price per share of the Acquirer's Common Stock determined as of the
Consummation Date and the denominator of which is the Market Price per
share of the Common Stock determined as of the Consummation Date (subject
to adjustments from and after the Consummation Date as nearly equivalent as
possible to the adjustments provided for in this Warrant); or,
(b) at the election of the holder of this Warrant pursuant to notice
given to the Company within six months after the Consummation Date, either
(i) the greatest amount of cash, securities or other property given to any
shareholder in consideration for any share of Common Stock at any time
during the period from and after the Announcement Date to and including the
Consummation Date by the Acquiring Company, the Company or any Affiliate of
either thereof, or (ii) an amount in cash equal to the product obtained by
multiplying (x) the number of shares of the Acquirer's Common Stock
purchasable upon the exercise or conversion of such Warrant as shall result
from adjustments thereto that would have been required pursuant to
subsection (a) above times (y) the Market Price per share for the
Acquirer's Common Stock, determined as of the day within the period from
and after the Announcement Date to and including the Consummation Date for
which the amount determined as provided in the definition of Market Price
shall have been the greatest, or,
(c) if neither the Acquiring Company nor the Parent meets the
requirements set forth in subsections (d), (e) and (f) below, at the
election of the holder of this Warrant
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pursuant to notice given to the Company within six months after the
Consummation Date, within 30 days after such election, in full satisfaction
of the exercise rights afforded under this Warrant to the holder thereof,
an amount equal to the Fair Value of such exercise rights, such Fair Value
to be determined with regard to all material relevant factors but without
regard to any negative effects on such value of the Transaction.
The Company agrees to obtain, and deliver to each holder of Warrants a copy of
the determination of an independent investment banker (selected by the Required
Holders with the approval of the Company) necessary to permit elections under
subsection (c) above within 15 days after the Consummation Date of any
Transaction to which subsection (c) is applicable.
The requirements referred to above in the case of the Acquiring
Company or its Parent are that immediately after the Consummation Date:
(d) it is a solvent corporation organized under the laws of any State
of the United States of America having its common stock listed on the New
York Stock Exchange or the American Stock Exchange or quoted by the Nasdaq
National Market or any successor thereto or comparable system, and such
common stock continues to meet such requirements for such listing or
quotation,
(e) it is required to file, and in each of its three fiscal years
immediately preceding the Consummation Date has filed, reports with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act, and
(f) in the case of the Parent, such Parent is required to include the
Acquiring Company in the consolidated financial statements contained in the
Parent's Annual Report on Form 10-K as filed with the Commission and is not
itself included in the consolidated financial statements of any other
Person (other than its consolidated subsidiaries).
Notwithstanding anything contained herein to the contrary, the Company shall not
effect any Transaction unless prior to the consummation thereof each corporation
or entity (other than the Company) which may be required to deliver any
securities or other property upon the exercise of Warrants shall assume, by
written instrument delivered to each holder of Warrants, the obligation to
deliver to such holder such securities or other property as to which, in
accordance with the foregoing provisions, such holder may be entitled, and such
corporation or entity shall have similarly delivered to each holder of Warrants
an opinion of counsel for such corporation or entity, satisfactory to each
holder of Warrants, which opinion shall state that all the outstanding Warrants
shall thereafter continue in full force and effect and shall be enforceable
against such corporation or entity in accordance with the terms hereof and
thereof, together with such other matters as such holders may reasonably
request.
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2J. Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of the
Exercise Price in the case of the issuance of the Warrants and the issuance of
shares of Common Stock issuable upon exercise of the Warrants.
2K. Notice of Adjustment. Upon the occurrence of any event requiring
an adjustment of the Exercise Price, then and in each such case the Company
shall promptly deliver to the holder of this Warrant an Officer's Certificate'
stating the Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares of Common Stock issuable upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Within 90 days
after each fiscal year in which any such adjustment shall have occurred, or
within 30 days after any request therefor by the holder of this Warrant stating
that such holder contemplates the exercise of such Warrant, the Company will
obtain and deliver to the holder of this Warrant the opinion of its regular
independent auditors or another firm of independent public accountants of
recognized national standing selected by the Company's Board of Directors, which
opinion shall confirm the statements in the most recent Officer's Certificate
delivered under this section 2K.
2L. Other Notices. In case at any time:
(a) the Company shall declare to the holders of Common Stock any
dividend other than a regular periodic cash dividend or any periodic cash
dividend in excess of 115% of the cash dividend for the comparable fiscal
period in the immediately preceding fiscal year;
(b) the Company shall declare or pay any dividend upon Common Stock
payable in stock or make any special dividend or other distribution (other
than regular cash dividends) to the holders of Common Stock;
(c) the Company shall offer for subscription pro rata to the holders
of Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another
corporation or other entity;
(e) there shall be a voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
(f) there shall be made any tender offer for any shares of capital
stock of the Company; or
<PAGE>
Page 13
(g) there shall be any other Transaction;
then, in any one or more of such cases, the Company shall give to the holder of
this Warrant (i) at least 15 days prior to any event referred to in subsection
(a) or (b) above, at least 30 days prior to any event referred to in subsection
(c), (d) or (e) above, and within five days after it has knowledge of any
pending tender offer or other Transaction, written notice of the date on which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, winding-up or Transaction or the date by which
shareholders must tender shares in any tender offer and (ii) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up or tender offer or Transaction known to the Company, at
least 30 days prior written notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take place.
Such notice in accordance with the foregoing clause (i) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, tender offer or Transaction, as the case may be. Such notice shall
also state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act or to a
favorable vote of security holders, if either is required.
2M. Certain Events. If any event occurs as to which, in the good
faith judgment of the Board of Directors of the Company, the other provisions of
this Warrant are not strictly applicable or if strictly applicable would not
fairly protect the exercise rights of the holders of the Warrants in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Company shall appoint its regular independent auditors or
another firm of independent public accountants of recognized national standing
which shall give their opinion upon the adjustment, if any, on a basis
consistent with such essential intent and principles, necessary to preserve,
without dilution, the rights of the holders of the Warrants. Upon receipt of
such opinion, the Board of Directors of the Company shall forthwith make the
adjustments described therein; provided, that no such adjustment shall have the
effect of increasing the Exercise Price as otherwise determined pursuant to this
Warrant. The Company may make such reductions in the Exercise Price as it deems
advisable, including any reductions necessary to ensure that any event treated
for Federal income tax purposes as a distribution of stock or stock rights not
be taxable to recipients.
2N. Prohibition of Certain Actions. The Company will not, by
amendment of its certificate or articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of
<PAGE>
Page 14
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be requested by
the holder of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against dilution or other impairment, consistent with the
tenor and purpose of this Warrant. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of all Warrants from
time to time outstanding, (c) will not take any action which results in any
adjustment of the Exercise Price if the total number of shares of Common Stock
or Other Securities issuable after the action upon the exercise of all of the
Warrants would exceed the total number of shares of Common Stock or Other
Securities then authorized by the Company's certificate or articles of
incorporation and available for the purpose of issue upon such conversion, and
(d) will not issue any capital stock of any class which has the right to more
than one vote per share or any capital stock of any class which is preferred as
to dividends or as to the distribution of assets upon voluntary or involuntary
dissolution, liquidation or winding-up, unless the rights of the holders thereof
shall be limited to a fixed sum or percentage (or floating rate related to
market yields) of par value or stated value in respect of participation in
dividends and a fixed sum or percentage of par value or stated value in any such
distribution of assets.
3. Stock to be Reserved. The Company will at all times reserve and keep
available out of the authorized Common Stock, solely for the purpose of issue
upon the exercise of the Warrants as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of all outstanding
Warrants and the Company will maintain at all times all other rights and
privileges sufficient to enable it to fulfill all its obligations hereunder.
The Company covenants that all shares of Common Stock which shall be so issuable
shall, upon issuance, be duly authorized, validly issued, fully paid and
nonassessable, free from preemptive or similar rights on the part of the holders
of any shares of capital stock or securities of the Company or any other Person,
and free from all taxes, liens and charges with respect to the issue thereof
(not including any income taxes payable by the holders of Warrants being
exercised in respect of gains thereon), and the Exercise Price will be credited
to the capital and surplus of the Company. The Company will take all such
action as may be necessary to assure that such shares of Common Stock may be so
issued without violation of any applicable law or regulation, or of any
applicable requirements of the National Association of Securities Dealers, Inc.
and of any domestic securities exchange upon which the Common Stock may be
listed.
4. Registration of Common Stock. If any shares of Common Stock required
to be reserved for purposes of the exercise of Warrants require registration
with or approval of any governmental authority under any Federal or State law
(other than the Securities Act, registration under which is governed by the
Registration Rights
<PAGE>
Page 15
Agreement), before such shares may be issued upon the exercise thereof, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered or approved, as the case may
be. Shares of Common Stock issuable upon exercise of the Warrants shall be
registered by the Company under the Securities Act or similar statute then in
force if required by the Registration Rights Agreement and subject to the
conditions stated in such agreement. At any such time as the Common Stock is
listed on any national securities exchange or quoted by the Nasdaq National
Market or any successor thereto or any comparable system, the Company will, at
its expense, obtain promptly and maintain the approval for listing on each such
exchange or quoting by the Nasdaq National Market or such successor thereto or
comparable system, upon official notice of issuance, the shares of Common Stock
issuable upon exercise of the then outstanding Warrants and maintain the listing
or quoting of such shares after their issuance so long as the Common Stock is so
listed or quoted; and the Company will also cause to be so listed or quoted,
will register under the Exchange Act and will maintain such listing or quoting
of, any Other Securities that at any time are issuable upon exercise of the
Warrants, if and at the time that any securities of the same class shall be
listed on such national securities exchange by the Company.
5. Issue Tax. The issuance of certificates for shares of Common Stock
upon exercise of this Warrant shall be made without charge to the holders hereof
for any issuance tax in respect thereto.
6. Closing of Books. The Company will at no time close its transfer
books against the transfer of any Warrant or of any share of Common Stock issued
or issuable upon the exercise of any Warrant in any manner which interferes with
the timely exercise of such Warrant.
7. No Rights or Liabilities as Stockholders. This Warrant shall not
entitle the holder thereof to any of the rights of a stockholder of the Company,
except as expressly contemplated herein. No provision of this Warrant, in the
absence of the actual exercise of such Warrant and receipt by the holder thereof
of Common Stock issuable upon such conversion, shall give rise to any liability
on the part of such holder as a stockholder of the Company, whether such
liability shall be asserted by the Company or by creditors of the Company.
8. Restrictive Legends. Except as otherwise permitted by this section 8,
each Warrant originally issued and each Warrant issued upon direct or indirect
transfer or in substitution for any Warrant pursuant to this section 8 shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"This Warrant and any shares acquired upon the exercise of this Warrant
have not been registered under the Securities Act of 1933 and may not be
transferred in the absence of such registration or an exemption therefrom
under such Act."
Except as otherwise permitted by this section 8, (a) each certificate for
Original Common Stock
<PAGE>
Page 16
(or Other Securities) issued upon the exercise of any Warrant, and (b) each
certificate issued upon the direct or indirect transfer of any such Original
Common Stock (or Other Securities) shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933 and may not be transferred in the absence of
such registration or an exemption therefrom under such Act."
The holder of any Restricted Securities shall be entitled to receive from the
Company, without expense, new securities of like tenor not bearing the
applicable legend set forth above in this section 8 when such securities shall
have been (a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering such Restricted Securities,
(b) sold pursuant to Rule 144 or any comparable rule under the Securities Act,
(c) transferred to a limited number of "qualified institutional buyers" (as such
term is defined in Rule 144A under the Securities Act), each of which shall have
represented in writing that it is acquiring such Restricted Securities for
investment and not with a view to the disposition thereof, or (d) when, in the
opinion (which opinion must be reasonably satisfactory to the Company and its
securities counsel) of independent counsel for the holder thereof experienced in
Securities Act matters, such restrictions are no longer required in order to
insure compliance with the Securities Act. The Company will pay the reasonable
fees and disbursements of counsel for any holder of Restricted Securities in
connection with all opinions rendered pursuant to this section 8.
9. Availability of Information. The Company will cooperate with each
holder of any Restricted Securities in supplying such information as may be
necessary for such holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities. The Company will furnish to each holder of any Warrants,
promptly upon their becoming available, copies of all financial statements,
reports, notices and proxy statements sent or made available generally by the
Company to its stockholders, and copies of all regular and periodic reports and
all registration statements and prospectuses filed by the Company with any
securities exchange or with the Commission.
10. Information Required By Rule 144A. The Company will, upon the request
of the holder of this Warrant, provide such holder, and any qualified
institutional buyer designated by such holder, such financial and other
information as such holder may reasonably determine to be necessary in order to
permit compliance with the information requirements of Rule 144A under the
Securities Act in connection with the resale of Warrants, except at such times
as the Company is subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act. For the purpose of this section 10, the term "qualified
institutional buyer" shall have the meaning specified in Rule 144A under the
Securities Act.
11. Registration Rights Agreement; Participation Rights Agreement. The
holder of this Warrant and the holders of any securities issued or issuable upon
the exercise hereof are each entitled to the benefits of the Registration Rights
Agreement and the Participation Rights Agreement.
<PAGE>
Page 17
12. Ownership, Transfer and Substitution of Warrants.
12A. Ownership of Warrants. Except as otherwise required by law, the
Company may treat the Person in whose name any Warrant is registered on the
register kept at the principal office of the Company as the owner and holder
thereof for all purposes, notwithstanding any notice to the contrary except
that, if and when any Warrant is properly assigned in blank, the Company, in its
discretion, may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes, notwithstanding any notice to the
Company to the contrary. Subject to section 8, a Warrant, if properly assigned,
may be exercised by a new holder without first having a new Warrant issued.
12B. Transfer and Exchange of Warrants. Upon the surrender of any
Warrant, properly endorsed, for registration of transfer or for exchange at the
principal office of the Company, the Company at its expense will (subject to
compliance with section 8, if applicable) execute and deliver to or upon the
order of the holder thereof a new Warrant or Warrants of like tenor, in the name
of such holder or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or faces
thereof for the number of shares of Original Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
12C. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than the Purchaser or any institutional investor
reasonably satisfactory to the Company, upon delivery of its unsecured indemnity
reasonably satisfactory to the Company in form and amount or, in the case of any
such mutilation, upon surrender of such Warrant for cancellation at the
principal office of the Company, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
13. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"ACQUIRER'S COMMON STOCK"shall have the meaning specified in Section
2I.
"ACQUIRING COMPANY"shall have the meaning specified in Section 2I.
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares (including
treasury shares) of Common Stock issued or sold (or, pursuant to section 2C or
2D deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than (i) shares of
Common Stock issued upon the exercise or partial exercise of the Warrants, and
(ii) shares of Common Stock issued upon the exercise or partial exercise of the
Existing Warrants and the Existing Options.
<PAGE>
Page 18
"ANNOUNCEMENT DATE" shall have the meaning specified in Section 2I.
"BUSINESS DAY" shall mean any day on which banks are open for business
in New York City (other than a Saturday, a Sunday or a legal holiday in the
States of New York or New Jersey), provided, that any reference to "days"
(unless Business Days are specified) shall mean calendar days.
"CASHLESS EXERCISE" shall have the meaning specified in section 1F.
"CHANGE NOTICE" shall have the meaning specified in section 1G.
"COMMISSION" shall mean the Securities and Exchange Commission or any
successor federal agency having similar powers.
"COMMON STOCK" shall mean the Original Common Stock, any stock into
which such stock shall have been converted or changed or any stock resulting
from any reclassification of such stock and all other stock of any class or
classes (however designated) of the Company the holders of which have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
"COMPANY" shall mean Boots & Coots International Well Control, Inc.
"CONSUMMATION DATE" shall have the meaning specified in section 2I.
"CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness,
shares of stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Additional Shares of Common
Stock.
"EMPLOYEE OPTIONS" shall mean Options that are granted after the date
hereof to employees of the Company and its Subsidiaries for not more than
2,000,000 shares of Common Stock in the aggregate (appropriately adjusted for
stock splits, reverse stock splits, reclassifications and the like and with
shares in respect of Options that have expired without having been exercised
being excluded from the calculation of such aggregate number of shares from and
after such expiration) and that have an exercise price that is not less than the
Market Price in effect on the date of and immediately prior to such grant.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" shall have the meaning specified in section 1A.
"EXISTING OPTIONS" shall mean the Common Stock purchase options
outstanding on the date hereof and described on Schedule 9I to the Purchase
Agreement.
"EXISTING WARRANTS" shall mean the Common Stock purchase warrants
outstanding on the date hereof and described on Schedule 9I to the Purchase
Agreement.
<PAGE>
Page 19
"FAIR VALUE" shall mean with respect to any securities or other
property, the fair value thereof as of a date which is within 15 days of the
date as of which the determination is to be made (a) determined by agreement
between the Company and the Required Holders, or (b) if the Company and the
Required Holders fail to agree, determined jointly by an independent investment
banking firm retained by the Company and by an independent investment banking
firm retained by the Required Holders, either of which firms may be an
independent investment banking firm regularly retained by the Company, or (c) if
the Company or the Required Holders shall fail so to retain an independent
investment banking firm within ten Business Days of the retention of such a firm
by the Required Holders or the Company, as the case may be, determined solely by
the firm so retained, or (d) if the firms so retained by the Company and by such
holders shall be unable to reach a joint determination within 15 Business Days
of the retention of the last firm so retained, determined by another independent
investment banking firm which is not a regular investment banking firm of the
Company chosen by the first two such firms.
"INITIAL DATE" shall have the meaning specified in section 2A.
"INITIAL EXERCISE PRICE" shall mean the $6.70 per share Exercise Price
specified in the introductory paragraph hereof, as the same may be unilaterally
changed pursuant to the provisions of section 1G hereof.
"MARKET PRICE" shall mean on any date specified herein, (a) with
respect to Common Stock or to common stock (or equivalent equity interests) of
an Acquiring Person or its Parent, the amount per share equal to (i) the last
sale price of shares of Common Stock, regular way, or of shares of such common
stock (or equivalent equity interests) on such date or, if no such sale takes
place on such date, the average of the closing bid and asked prices thereof on
such date, in each case as officially reported on the principal national
securities exchange on which the same are then listed or admitted to trading, or
(ii) if no shares of Common Stock or no shares of such common stock (or
equivalent equity interests), as the case may be, are then listed or admitted to
trading on any national securities exchange, the last sale price of shares of
Common Stock, regular way, or of shares of such common stock (or equivalent
equity interests) on such date, in each case or, if no such sale takes place on
such date, the average of the reported closing bid and asked prices thereof on
such date as quoted in the Nasdaq National Market or, if no shares of Common
Stock or no shares of such common stock (or equivalent equity interest), as the
case may be, are then quoted in the Nasdaq National Market, as published by the
National Quotation Bureau, Incorporated or any similar successor organization,
and in either case as reported by any member firm of the New York Stock Exchange
selected by the Company, or (iii) if no shares of Common Stock or no shares of
such common stock (or equivalent equity interests), as the case may be, are then
listed or admitted to trading on any national securities exchange or quoted or
published in the over-the-counter market, the higher of (x) the book value
thereof as determined by any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company, as of the
last day of any month ending within 60 days preceding the date as of which the
determination is to be made or (y) the Fair Value thereof; and (b) with respect
to any other securities, the Fair Value thereof.
<PAGE>
Page 20
"NOTES" shall have the meaning specified in the opening paragraphs of
this Warrant.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of
the Company by its President, one of its Vice Presidents or its Treasurer.
"OPTIONS" shall mean rights, options or warrants, other than Existing
Options and Existing Warrants, to subscribe for, purchase or otherwise acquire
either Additional Shares of Common Stock or Convertible Securities.
"ORIGINAL COMMON STOCK" shall have the meaning specified in the
opening paragraphs of this Warrant.
"OTHER SECURITIES" shall mean any stock (other than Common Stock) and
any other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to section 2I or otherwise.
"PARENT" shall have the meaning specified in section 2I.
"PARTICIPATION RIGHTS AGREEMENT" shall mean that certain Participation
Rights Agreement dated of even date herewith by and among the Purchaser, the
Company and certain holders of the Company's Common Stock who are parties
thereto.
"PERSON" shall mean and include an individual, a partnership, an
association, a joint venture, a corporation, a trust, a limited liability
company, an unincorporated organization and a government or any department or
agency thereof.
"PURCHASE AGREEMENT" shall have the meaning specified in the opening
paragraphs of this Warrant.
"PURCHASER" shall have the meaning specified in the opening paragraphs
of this Warrant.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement dated of even date herewith by and between the Company and the
Purchaser.
"REQUIRED HOLDERS" shall mean the holders of at least 66__% of all the
Warrants at the time outstanding, determined on the basis of the number of
shares of Common Stock then purchasable upon the exercise of all Warrants then
outstanding.
"RESTRICTED SECURITIES" shall mean (a) any Warrants bearing the
applicable legend set forth in section 8 and (b) any shares of Original Common
Stock (or Other Securities) which
<PAGE>
Page 21
have been issued upon the exercise of Warrants and which are evidenced by a
certificate or certificates bearing the applicable legend set forth in such
section, and (c) unless the context otherwise requires, any shares of Original
Common Stock (or other Securities) which are at the time issuable upon the
exercise of Warrants and which, when so issued, will be evidenced by a
certificate or certificates bearing the applicable legend set forth in such
section.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"TRANSACTION" shall have the meaning specified in section 2I.
"WARRANTS" shall have the meaning specified in the opening paragraphs
of this Warrant.
14. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
15. Notices. All notices or other communications provided for hereunder
shall be in writing and sent by first class mail or nationwide overnight
delivery service (with charges prepaid) and (a) if to any holder of any Warrant
or any holder of any Common Stock (or Other Securities), at the registered
address of such holder as set forth in the applicable register kept at the
principal office of the Company, or (b) if to the Company, at 5151 San Felipe,
Suite 450, Houston, Texas 77056, Attention: Chief Financial Officer, or at such
other address, or to the attention of such other officer, as the Company shall
have furnished to each holder of Warrants at the time outstanding; provided,
that the exercise of any Warrant shall be effected only in the manner provided
in section 1.
16. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. The agreements of the Company contained in this Warrant other than
those applicable solely to the Warrants and the holders thereof shall inure to
the benefit of and be enforceable by any holder or holders at the time of any
Common Stock (or Other Securities) issued upon the exercise of Warrants, whether
so expressed or not. This Warrant shall be construed and enforced in accordance
with and governed by the laws of the State of New York. The section headings in
this Warrant are for purposes of convenience only and shall not constitute a
part hereof.
BOOTS & COOTS INTERNATIONAL
WELL CONTROL, INC.
By:
----------------------------------------
Name:
Title:
<PAGE>
Page 22
FORM OF SUBSCRIPTION
(To be executed only upon exercise of Warrant)
To BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder, _____/1/
shares of Original Common Stock of BOOTS & COOTS INTERNATIONAL WELL CONTROL,
INC., [AND HEREWITH MAKES PAYMENT OF $_______________ THEREFOR]/2/ [IN A
CASHLESS EXERCISE PURSUANT TO SECTION 1F OF THE WITHIN WARRANT]/3/, and requests
that the certificates for such shares be issued in the name of, and delivered to
_________________________ whose address is.
/1/ Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which
this Warrant is being exercised), in either case without making any
adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment provisions
of this Warrant, may be delivered upon exercise. In the case of a partial
exercise, a new Warrant or Warrants will be issued and delivered,
representing the unexercised portion of this Warrant, to the holder
surrendering the same.
/2/ Use in connection with an exercise involving a delivery of funds to the
Company.
/3/ Use in connection with a Cashless Exercise.
Dated:
(Signature must conform in all respects to
name of holder as specified on the face of
this Warrant)
(Street Address)
(City) (State) (Zip Code)
<PAGE>
Page 23
FORM OF ASSIGNMENT
(To be executed only upon transfer of Warrant)
For value received, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto _________________________ the
right represented by such Warrant to purchase _________________________/1/
shares of Original Common Stock of BOOTS & COOTS INTERNATIONAL WELL CONTROL,
INC., to which such Warrant relates, and; appoints _________________________
Attorney to make such transfer on the books of BOOTS & COOTS INTERNATIONAL WELL
CONTROL, INC., maintained for such purpose, with full power of substitution in
the premises.
/1/ Insert here the number of shares called for on the face of the within
Warrant (or, in the case of a partial assignment, the portion thereof as to
which this Warrant is being assigned), in either case without making any
adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment provisions
of the within Warrant, may be delivered upon exercise. In the case of a
partial assignment, a new Warrant or Warrants will be issued and delivered,
representing the portion of the within Warrant not being assigned, to the
holder assigning the same.
Dated:
(Signature must conform in all respects to
name of holder as specified on the face of
this Warrant)
(Street Address)
(City) (State) (Zip Code)
Signed in the presence of:
<PAGE>
EXHIBIT 99.1
[BOOTS & COOTS INTERNATIONAL WELL CONTROL INC. LETTERHEAD APPEARS HERE]
For Immediate Release: Contact: Thomas L. Easley, Boots & Coots
July 27, 1998 713-621-7911
Ms. Grace Healy, Prudential Capital Group
312-540-4235
H.B. Payne, Jr., Baylor Company
281-240-6111
Richard Stern, Jeffrey Goldberger
Stern & Co. 212-888-0044
BOOTS & COOTS COMPLETES $45 MILLION CREDIT FINANCING
CLOSES ACQUISITION OF BAYLOR COMPANY
HOUSTON, JULY 27, 1998 -- Boots & Coots International Well Control, Inc.
(AMEX:WEL), the leading provider of global prevention and emergency response
well control services and well restoration to the oil and gas industry, said
today it has completed, with the assistance of Prudential Securities
Incorporated, a $45 million financing package with the Global Energy division of
Prudential Capital Group, consisting of a $15 million line of credit and $30
million in senior subordinated notes in the first phase of its planned capital
structure.
Chairman and Chief Executive Officer Larry Ramming, commented "We are pleased to
have Prudential as a long-term financial partner and appreciate the confidence
they have in our business plan. Prudential provides the strong foundation needed
to execute Boots & Coots' strategy of becoming the leading provider to oil and
gas companies of end-to-end solutions for emergencies--from prevention to
restoration of operations, anywhere in the world."
The Company also announced that it had completed the previously announced
acquisition of privately held Baylor Company (1997 revenues: $31 million and net
income: $3.5 million). Terms were not disclosed.
-more-
<PAGE>
The Company said that the proceeds from this financing will replace funds used
in the recent acquisition of Abasco, manufacturer and distributor of
environmental safety and spill remediation equipment; ITS, global supply and
logistics project management and outsource purchasing agent for the
petrochemical industry; and Code 3, a rapidly expanding emergency response,
hazardous materials and full environmental service provider. The proceeds were
also used to close the acquisition of Baylor and provide working capital and
funds for future acquisitions.
Chairman and Chief Executive Officer Larry Ramming said: "Houston-based Baylor
adds substantially to Boots & Coots' single-solution emergency response
capabilities, both as a revenue-producing, stand-alone entity and as a vital
contributor to its long-term strategic positioning. Baylor provides the
equipment necessary to take that critical last step in the process of resuming
normal operations after oil and gas well emergencies." Its heavy manufacturing
capability will help Boots & Coots' oil and gas customers avoid backlog delays
of many months or even years for the equipment they need, Ramming explained.
Time is a crucial factor in oil and gas production and emergency restoration
management, and "Baylor's products and demonstrated capabilities can make the
significant difference in restoring production expeditiously," he said.
Ramming noted that Baylor, founded in 1954, is a highly regarded manufacturer of
a varied line of industrial products, many of them proprietary. As a supplier to
the oil and gas services industry, Baylor provides both manufactured equipment
and custom solutions for the drilling, marine and power generation industries.
He added, "by incorporating Baylor's highly talented management team and
manufacturing capability in our restoration projects, we can add directly to
Baylor's revenue stream and serve our customers most critical needs."
Baylor's base line of products include Elmagco (R) Brakes, brake controls, brake
monitors, closed loop cooling systems, Thyrig (TH) Drive Systems, deepwater
thrusters and mooring systems as well as AC generators sold under the trade
names EMD, Delco and Baylor, worldwide.
On a pro forma basis, the Baylor acquisition and other recent acquisitions would
have increased Boots & Coots' calendar year 1997 Revenues and EBITDA to about
$95 million and $9 million, respectively, if all of the acquisitions had been
completed by the beginning of 1997.
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Boots & Coots, based in Houston, is a global emergency response company that
specializes, through its well control unit, in responding to and controlling oil
and gas emergencies, including oil and gas well blowouts and well fires, as well
as providing a complete menu of non-critical well control services through the
Well Control Alliance with Halliburton. Boots and Coots intends to continue to
expand its role as an integrated, full-service, emergency-response company with
the in-house ability to serve the global needs of the oil and gas and
petrochemical industries.
Prudential Capital Group's Global Energy and Southwest Corporate Finance office,
located in Dallas, Texas, specializes in energy and utility lending and manages
a $13 billion portfolio. In 1998 year-to-date, Prudential Capital Group's
private placement division has invested $3.5 billion in private fixed-income
securities, included $425 million of below-investment grade debt.
Forward-looking statements contained in this release are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties which may cause actual results to differ from anticipated results,
including risks associated with the timing and development of, and market
acceptance of, the Company's services and products as well as risks of downturns
in economic conditions generally, risks associated with competition and
competitive pricing pressures, and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission, including its
latest Form 10-KSB at December 31, 1997.
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