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)
JANUARY 23, 1998
BLACK WARRIOR WIRELINE CORP.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-18754 11-2904094
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
3748 HIGHWAY 45 NORTH, COLUMBUS, MISSISSIPPI 39701
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(Address of principal executive offices)
Registrant's telephone number, including area code: (601) 329-1047
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
Phoenix Acquisition - On January 23, 1998, the Company entered into an
agreement with Phoenix Drilling Services, Inc. ("Phoenix") to acquire the
domestic oil and gas well survey business and domestic directional drilling
business of Phoenix. The purchase price for the assets to be acquired is $19.0
million. The transaction is scheduled to be completed on or before March 16,
1998 with an effective date for the transaction of January 1, 1998. The
operations of the business to be acquired are conducted throughout the primary
oil and gas producing areas of the United States. The purchase price is intended
to be financed through secured borrowings and the private sale of securities.
St. James Transaction - On January 23, 1998, the Company entered into
an Agreement for Purchase and Sale (the "Note Purchase Agreement") with St.
James Capital Partners, L.P. ("St. James"), a Delaware limited partnership,
whereby St. James agreed to purchase and the Company agreed to sell up to $10.0
million principal amount of a convertible promissory note (the "Note") due on
July 23, 1999. On January 23, 1998, the Company borrowed $1.0 million under the
Note Purchase Agreement and the balance is intended to be borrowed primarily to
finance the payment of a portion of the purchase price for the assets to be
purchased from Phoenix described above and possibly to be used in connection
with other acquisitions. Payment of principal and interest on the Note is
collateralized by substantially all the assets of the Company. The Note is
convertible into shares of the Company's Common Stock at a conversion price of
$7.00 per share, subject to anti-dilution adjustment for certain issuances of
securities by the Company at prices per share of Common Stock less than the
conversion price then in effect. St. James has agreed to subordinate its
security interests and rights to the indebtedness and security interests of the
lenders providing up to $4.5 million pursuant to a term loan and $3.0 million
pursuant to a revolving credit facility, neither of which financings have yet
been arranged. Pursuant to the Note Purchase Agreement, the Company has agreed
to issue to St. James for nominal consideration warrants (the "Warrant") to
purchase shares of Common Stock exercisable at a price of $6.75 per share,
subject to anti-dilution adjustment for certain issuances of securities by the
Company at prices per share of Common Stock less than the exercise price then in
effect. St. James will be issued warrants to purchase 20,000 shares of Common
Stock for each $100,000 borrowed under the Note Purchase Agreement, or a maximum
aggregate of warrants to purchase 2,000,000 shares of which warrants to purchase
200,000 shares have been issued. The shares issuable on conversion of the Note
and exercise of the Warrant have demand and piggy-back registration rights under
the Securities Act of 1933. The Company agreed that one
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person designated by St. James will be nominated for election to the Company's
Board of Directors. Mr. John L. Thompson, currently a Director of the Company,
serves in this capacity. The Note Purchase Agreement grants St. James certain
preferential rights to provide future financings to the Company, subject to
certain exceptions. The Note contains various affirmative and negative
covenants, including a prohibition against the Company consolidating, merging or
entering into a share exchange with another person, with certain exceptions,
without the consent of St. James. Events of default under the Note include,
among other events, (i) a default in the payment of principal or interest on the
Note; (ii) a default under the 9% Convertible Promissory Note in the principal
amount of $2.0 million dated as of June 5, 1997 or on the 7% Convertible
Promissory Note in the principal amount of $2.9 million dated as of October 10,
1997 issued to St. James and the failure to cure such default for five days;
(iii) a breach of the Company's covenants, representations and warranties under
the Note Purchase Agreement or the Purchase and Sale Agreements entered into
with St. James dated June 7, 1997 and October 10, 1997; (iv) a breach under the
other agreements between the Company and St. James, subject to certain
exceptions; (v) any person or group of persons acquiring 40% or more of the
voting power of the Company's outstanding shares who was not the owner thereof
as of January 23, 1998, a merger of the Company with another person, its
dissolution or liquidation or a sale of all or substantially all its assets; and
(vi) certain events of bankruptcy. In the event of a default under the Note, St.
James could seek to foreclose against the collateral for the Note. In addition,
such default would be a default under the notes issued to St. James in the June
1997 and the October 1997 transactions. St. James received an origination fee of
$125,000 in connection with the transaction.
In the Agreement, St. James agreed to convert its $2.0 million
convertible note dated June 5, 1997 and its $2.9 million convertible note dated
October 10, 1997 into shares of the Company's Common Stock at such time as the
Company has filed a registration statement under the Securities Act of 1933
relating to the shares issuable on conversion of such notes, the Note, and on
exercise of the warrants issued in connection with the sale by the Company of
notes in the June 1997 and October 1997 transactions with St. James, and on
exercise of the Warrant and such registration statement has been declared
effective.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
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None required at this time.
(b) Pro forma financial information.
None required at this time.
(c) Exhibits
10.1 Asset Purchase Agreement dated as of January 1, 1998
between Black Warrior Wireline Corp. and Phoenix Drilling Services, Inc.
10.2 Agreement for Purchase and Sale dated January 23, 1998
between Black Warrior Wireline Corp. and St. James Capital Partners, L.P.
10.3 $10,000,000 Convertible Promissory Note dated January 23,
1998 issued to St. James Capital Partners, L.P.
10.4 Warrant dated January 23, 1998 to purchase 200,000 shares
of Common Stock issued to St. James Capital Partners, L.P.
10.5 Amendment No. 2 to Registration Rights Agreement between
Black Warrior Wireline Corp. and St. James Capital Partners, L.P. dated January
23, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
BLACK WARRIOR WIRELINE CORP.
Dated: February 6, 1997 By: /s/ William L. Jenkins
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William L. Jenkins, President
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ASSET PURCHASE AGREEMENT
Agreement made and entered effective the first day of January, 1998, at
12:01 a.m., (the "Effective Date") between BLACK WARRIOR WIRELINE CORP., a
Delaware corporation with its principal place of business at 3748 Highway 45,
North, Columbus, Mississippi (hereinafter referred to as "Purchaser") and
PHOENIX DRILLING SERVICES, INC., a Delaware corporation (hereinafter referred to
as "Seller").
WHEREAS, Purchaser and Seller are the parties to that certain Letter of
Intent dated November 21, 1997, relating to the acquisition by Purchaser of all
of Seller's domestic directional drilling business and survey business and
certain other drilling and related assets on the inventory supplied to Purchaser
by Seller, but excluding the Q 55 MWD Systems;
NOW, THEREFORE, the parties agree as follows:
I. Definitions
As used herein, the following terms shall have the meaning assigned
below.(1)
* "1995 and 1996 Financial Statements" shall have the meaning assigned in
Section 4.3.1 hereof.
* "1997 Audit" shall have the meaning assigned in Section 9.3.2 hereof.
* "1997 Financials" shall have the meaning assigned in Section 9.3.2
hereof.
* "Acquisitions" shall mean Seller's acquisition of Horizon, RLS,
Granstaff, BecField, Slimdrill and Multi-Shot.
* "Affiliate" shall have the meaning assigned in Section 10.2 hereof.
* "Assets" shall have the meaning assigned in Article II hereof.
* "Auditors" shall have the meaning assigned in Section 9.3.1 hereof.
* "BecField" shall mean, collectively, the businesses formerly known as
BecField Drilling Services, Ltd., a Canadian Corporation, which was acquired by
Seller pursuant to that certain Stock Purchase Agreement dated November 16,
1995, and BecField Drilling Services, a Texas partnership, which was acquired by
Seller pursuant to that certain Asset Purchase Agreement dated November 28,
1995.
* "Benefit Plans" shall have the meaning assigned in Section 4.14 hereof.
* "Business" shall mean the survey service business and domestic
directional drilling
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(1) Some, but not all, definitions found in later text are cross-referenced in
this Article.
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business of Seller, as restructured by Seller effective October 1, 1997.
* "Books" shall have the meaning assigned in Section 2.4 hereof.
* "Carve-Out Financial Statements" shall have the meaning assigned in
Section 4.3.4 hereof.
* "Direct Claim" shall have the meaning assigned in Section 9.6.2 hereof.
* "Effective Date" shall mean January 1, 1998, at 12:01 a.m.
* "Granstaff" shall mean, collectively, the businesses formerly known as
Granstaff Directional Drilling Company, Inc. and Granstaff Specialties, Inc.,
which were acquired by Seller pursuant to that certain Stock Purchase Agreement
dated April 15, 1996.
* "Hazardous Substances" shall have the meaning assigned in Section 4.16
hereof.
* "Horizon" shall mean, collectively, the businesses formerly known as
Horizon Directional Systems, Inc. and Horizon Steering Systems, Inc., which were
acquired by Seller pursuant to that certain Stock Purchase Agreement dated May
29, 1996.
* "Indemnitee" shall have the meaning assigned in Section 9.6.1.1 hereof.
* "Intellectual Property" shall have the meaning assigned in Section 2.3
hereof.
* "Interim Financial Statements" shall have the meaning assigned in
Section 4.3.1 hereof.
* "Jobs in Progress" shall have the meaning assigned in Section 5.3
hereof.
* "Lease Parcel" shall mean that portion of the facility located on West
Little York Road, as further described in the lease attached as Schedule 8.5
* "Liens" shall have the meaning assigned in Section 4.5.1.2 hereof.
* "Licensed Software" shall have the meaning assigned in Section 4.12.2
hereof.
* "Loss" shall have the meaning assigned in Section 9.7 hereof.
* "MWD System" shall mean the Measurement While Drilling system.
* "Material" describes a condition, covenant, representation or warranty,
the failure or breach of which would have a Material Adverse Effect.
* "Material Adverse Effect" means a cumulative net effect on the Business
or Assets which would result in a cost to Purchaser of greater than $500,000, a
loss of net revenue for the Business during 1998 or 1999 of greater than
$500,000, or a loss to the value of the Assets (based on the allocation values
set forth on Schedule 3.2) of greater than $500,000.
* "Multi-Shot" shall mean the business formerly known as Multi-Shot,
Inc., which was acquired by Seller pursuant to that certain Stock Purchase
Agreement dated February 28, 1996.
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* "Newco" shall mean the operating division of Seller created effective
October 1, 1997 as a result of the reorganization of Seller, and through which
Seller operates all of its domestic short radius drilling business..
* "Non-Compete Area" shall have the meaning assigned in Section 10.1
hereof.
* "Non-Compete Period" shall have the meaning assigned in Section 10.1
hereof.
* "Owned Software" shall have the meaning assigned in Section 4.12.2
hereof.
* "Old Business" shall mean the domestic drilling business and survey
services business of Seller as same existed prior to the restructuring by Seller
effective October 1, 1997.
* "Patents" shall mean all patents and patent applications owned by
Seller for use in the Business, including by not limited to those listed on
Schedule 2.3.
* "PEPI" means Phoenix Energy Products, Inc., and its subsidiaries,
Russell Subsurface Systems, Ltd;
* "Properties" shall have the meaning assigned in Section 4.16 hereof.
* "Q55 MWD System" shall have the meaning assigned in Section 2.1 hereof.
* "RLS" shall mean, collectively, the businesses formerly known as RLS,
Inc., and the business of Ronald L. Shaw, individually, which were acquired by
Seller pursuant to that certain Asset Purchase Agreement, and that certain Bill
of Sale, dated April 15, 1996.
* "Real Property" shall mean Seller's facilities located in Broussard
(LaFayette), Louisiana and Corpus Christi and Odessa, Texas, as more fully
described on Schedule 2.12.
* "Representation Obligation" shall have the meaning assigned in Section
9.3.2 hereof.
* "Slimdrill" shall mean the business formerly known as Slimdrill
International, Inc., which was acquired by Seller pursuant to that certain Stock
Purchase Agreement dated June 16, 1995.
* "Support Obligation" shall have the meaning assigned in Section 9.3.2
hereof.
* "Third Party Claim" shall have the meaning assigned in Section 9.6.1
hereof.
* "Trademarks" shall mean the trademarks and applications therefore used
by Seller in the Business and listed on Schedule 2.2.
II. Sale of Assets
Subject to the terms and conditions set forth below, and to the payment
of the Purchase Price set forth in Article III, the sufficiency of which is
hereby acknowledged, Purchaser agrees to buy and Seller agrees to sell and
convey to Purchaser the following assets of Seller (the "Assets"), free and
clear of all Liens except as listed in Schedule 4.5.1.2:
2.1 all of the tangible assets of Seller used or useful by Seller in the
Business, and
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located
(i) in the field, engaged in operations,
(ii) at Seller's facilities located in Corpus Christi, Texas,
Odessa, Texas and Broussard, Louisiana,
(iii) at repair or rebuilding contractors or suppliers and
(iv) at other locations or offsite storage of all kinds and
character, except for the facilities listed in Schedule 2.2(b)
(herein, "PEPI Facilities"),
including but not limited to the tangible assets listed on Schedule 2.1, the
inventory of spare parts and expendables used or useful in the maintenance and
operation of the Business, Less and Except the Q55 MWD systems and related
assets set forth on Schedule 2.1(b)(the "Q55MWD System");
2.2 all of the tangible assets of Seller used or useful by Seller in the
Business, as listed on Schedule 2.2, and located in PEPI Facilities, but
excluding the "Excepted Items" jointly used by Seller in the Business and in the
manufacturing business also located at the PEPI Facilities, as listed on
Schedule 2.2(b);
2.3 all of Seller's (which includes, for purposes of all references to
Intellectual Property herein, those rights acquired by Seller in the
Acquisitions, and title to which may be currently vested in such transferors)
patents, trademarks, service marks, trade names, licenses (other than software
licenses), trade secrets, technology, drawings, specifications, operational
procedures and manuals, and operating rights relating to the Business (the
"Intellectual Property"), including but not limited to the Intellectual Property
described in the "Owned Patents to be assigned to Buyer" section of Schedule
2.3, Part A, and the royalty free non-exclusive right to use the patents of
other listed in the "Non-Exclusive Right to Use" section of Schedule 2.3, Part
A, which shall be confirmed by appropriate instrument, and Seller's original
files relating thereto, BUT SUBJECT TO the specific prior rights described in
Schedule 2.3, Part B;
2.4 Seller's books and records relating to the Assets, including but not
limited to the original files relating to the Intellectual Property, technical
literature, well files of all kinds, customer relations files and materials,
quotations to customers and quotations from vendors/suppliers, warranties,
master service agreements, invoices to customers and invoices from vendors and
suppliers, expense records, inventories, asset lists, bills of sale,
vendor/supplier correspondence and literature, titles, together with any and all
materials and documents that relate to the Business, whether such books and
records are in a paper or electronic format (collectively, the "Books"), but
EXCLUDING the corporate-level accounting and bookkeeping records (the
"Accounting Records");
2.5 a legible copy of Seller's Accounting Books as they pertain to the
Business;
2.6 the Owned Software and the Licensed Software, together with all of
Seller's interest that can be conveyed to a third party in computer software
loaded on computer hardware included in the Assets, and used or useful in
connection with the Assets, including but not limited to the software described
on Schedule 2.6, but excluding the items listed on Schedule 2.6(b);
2.7 the telephone numbers listed on Schedule 2.7 to the extent that such
are assignable;
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2.8 all customer lists relating to the Business;
2.9 the leases listed on Schedule 4.5.1.3, which shall be assumed by
Purchaser pursuant to the form of Assignment and Assumption Agreement attached
hereto as Schedule 2.11;
2.10 the vehicles described on Schedule 2.1;
2.11 the contracts set forth on Schedule 4.10, which shall be assumed by
Purchaser pursuant to the form of Assignment and Assumption Agreement attached
hereto as Schedule 2.11;
2.12 the Real Property described on Schedule 2.12;
2.13 the credit in the amount of [$160,000] which Seller holds with
Wenzel Downhole Tools, Inc. (the "Credit"); and
2.14 unless excluded herein, the Assets shall further include all of the
assets owned by Seller, used exclusively by Seller and needed by the Purchaser
for the continued operation of the Business, utilizing the same means of
operation as employed by the Seller in the past; but
2.15 there is excluded from the Assets all items described on Schedule
2.15.
III. Purchase Price
3.1 The Purchase Price for the Assets shall be $19 Million, delivered by
wire transfer to the account of Seller at Closing.
3.2 The Purchase Price shall be allocated as set forth on a schedule to
be attached hereto at Closing as Schedule 3.2. Schedule 3.2 shall be proposed by
Purchaser, and shall be subject to Seller's reasonable consent. The allocations
on Schedule 3.2 shall be in accordance with the requirements of Section 1060 of
the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
IV. Warranties and Representations of Seller
The Seller hereby represents and warrants to, and for the benefit of,
Purchaser as follows:
4.1 Organization and Standing.The Seller is a corporation validly
existing, and in good standing under the laws of the State of Delaware, and has
the full power and authority (corporate and otherwise) to carry on the Business
in the places and as it is now being conducted and to own and lease the
properties and assets used in the Business which it now owns or leases. The
Seller is now, and will be at Closing, duly qualified and/or licensed to
transact business and in good standing as a foreign corporation in all
jurisdictions listed in Schedule 4.1 hereto, and neither the character of the
property owned or leased by the Seller and used in the Business nor the nature
of the Business requires such qualification and/or licensing in any other
jurisdiction.
4.2 Authority and Status. Subject to Section 4.6, Seller has the capacity
and authority to execute and deliver this Agreement, to perform hereunder, and
to consummate the transactions contemplated hereby without the necessity of any
act or consent of any other person whomsoever. The execution, delivery and
performance by the Seller of this Agreement and each
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and every agreement, document and instrument provided for herein have been duly
authorized and approved by all required corporate action with respect to Seller.
This Agreement and each and every agreement, document and instrument to be
executed, delivered and performed by the Seller in connection herewith,
constitute or will, when executed and delivered, constitute the valid and
legally binding obligations of the Seller and enforceable against Seller in
accordance with their respective terms, except as enforceability may be limited
by applicable equitable principles or by bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect affecting the enforcement
of creditors' rights generally. Attached hereto as Schedule 4.2 are true,
correct and complete copies of the Certificate of Incorporation and Bylaws of
the Seller.
4.3 Financial Statements of the Seller.
4.3.1 Attached hereto as Schedule 4.3.1 are true, correct and
complete copies of the Seller's audited financial statements as of December 31,
1995 and December 31, 1996, and the related statements of earnings and cash
flows for the period June 1, 1995 through December 31, 1995 and the year ended
December 31, 1996 (the "1995 and 1996 Financial Statements"). Also attached is
Schedule 4.3.1 is a true, correct and complete copy of the Seller's unaudited
balance sheet as of November 30, 1997, and the related income statement for the
period then ended (the "Interim Financial Statements"). Except as set forth on
Schedule 4.3.1, the 1995 and 1996 Financial Statements and Interim Financial
Statements have been prepared from and are in accordance with the books and
records of the Seller, have been prepared in accordance with generally accepted
accounting principles consistently applied ("GAAP"), fairly present the
financial position and results of operations of the Seller as of the respective
dates thereof, and, to the knowledge of Seller, disclose all liabilities of the
Seller relating to the Business, whether absolute, contingent, accrued or
otherwise, existing as of the respective dates thereof and required to be
disclosed therein under GAAP.
4.3.2 With respect to the Business, the Seller has no liability or
obligation (whether accrued, absolute, contingent or otherwise) which is of a
nature required to be reflected in financial statements prepared in accordance
with GAAP, consistently applied, including, without limitation, any liability
which might result from an audit of its tax returns by any appropriate
authority, except for (i) the liabilities and obligations of the Seller which
are disclosed and/or reserved against in the Interim Financial Statements or
Schedule 4.3.2 hereto, to the extent and in the amounts so disclosed and
reserved against, and (ii) liabilities incurred or accrued in the ordinary
course of business since November 30, 1997. To the knowledge of Seller, there is
no basis for any assertion against the Seller as of November 30, 1997 of any
liability of any nature or in any amount not fully accrued and appearing on the
balance sheet as of that date, other than liabilities not required to be
reflected therein under GAAP.
4.3.3 No Default. With respect to the Business, except as disclosed
in the Interim Financial Statements or Schedule 4.3.3, the Seller is not in
default with respect to any liabilities or obligations, and all such liabilities
or obligations shown and reflected in the Interim Financial Statements or
Schedule 4.3.3, and such liabilities incurred or accrued subsequent to November
30, 1997, have been, or are being, paid or discharged as they become due, and
all such liabilities and obligations were incurred in the ordinary course of
business, except as indicated in Schedule 4.3.3.
4.3.4 Certain Carve-Out Statements Relating to The Business. Attached
hereto as Schedule 4.3.4 are true, correct and complete copies of the Seller's
unaudited financial statements and the related statements of earnings for the
Old Business, for the period June 1, 1995 through December 31, 1995, the year
ended December 31, 1996, and for the nine months ended September 30, 1997 (the
"Carve-Out Financial Statements"). Except as set forth on Schedule
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4.3.4, the Carve Out Financial Statements have been prepared from and are in
accordance with the books and records of the Seller, have been, to the knowledge
of Seller, prepared in accordance with GAAP, fairly present the financial
position and results of operations of the Old Business as of the respective
dates thereof, and disclose all liabilities of the Old Business, whether
absolute, contingent, accrued or otherwise, existing as of the respective dates
thereof and required to be disclosed therein under GAAP.
4.3.5 Carve-Out Statements Relating to The Business, Fourth Quarter,
1997. Attached hereto as Schedule 4.3.5 are true, correct and complete copies of
the Seller's unaudited financial statements and the related statements of
earnings for the Business, for the period October 1, 1997 through December 31,
1997 (the "New Financial Statements"). Except as set forth on Schedule 4.3.5,
The New Financial Statements have been prepared from and are in accordance with
the books and records of the Business, have been, to the knowledge of Seller,
prepared in accordance with GAAP, fairly present the financial position and
results of operations of the Business as of the respective dates thereof, and
disclose all liabilities of the Business, whether absolute, contingent, accrued
or otherwise, existing as of the respective dates thereof and required to be
disclosed therein under GAAP.
4.4 Taxes. The Seller shall, following Closing, timely (including
extensions) and accurately file all federal, state, foreign and local tax
returns and reports required to be filed by it with respect to the Business for
the period ending on the Effective Date, and will timely pay all taxes shown on
such returns, including all withholding or other payroll related taxes shown on
such returns.
4.5 Assets.
4.5.1 With respect to the Assets, other than the Real Property:
4.5.1.1 Schedule 2.1 attached hereto contains a list of all
fixed assets owned by the Seller having a book value in excess of Five Hundred
Dollars ($500) and used in the Business, other than the assets listed on
Schedules 2.2(b) and 2.15, including, but not limited to, all machinery and
equipment, office furniture and equipment and all vehicles owned by the Seller.
4.5.1.2 The Seller has good title to all of the Assets,
subject to no mortgage, pledge, lien, security interest, conditional sale
agreement, encumbrance, charge or adverse claim whatsoever (collectively,
"Liens"), except as specifically shown on Schedule 4.5.1.2. All Liens, including
without limitation those listed on Schedule 4.5.1.2, shall be released at
Closing, except the "Permitted Liens" disclosed on Schedule 4.5.1.2.
4.5.1.3 Except as shown on Schedule 4.5.1.3, none of the
Assets are held under any lease, or as conditional vendee under any conditional
sale or other title retention agreement. Schedule 4.5.1.3 includes a list of all
leases of all leased machinery and equipment used by Seller in the Business,
including respective expiration dates and monthly rentals. Each of the leases
and agreements described in Schedule 4.5.1.3 is in full force and effect and
constitutes a legal, valid and binding obligation of the Seller and the other
respective parties thereto and is enforceable in accordance with its terms and
there is not under any of such leases or agreements existing any default of the
Seller or, to the knowledge of Seller, of any other parties thereto (or event or
condition which, with notice or lapse of time, or both, would constitute a
default). The Seller has not received any payment from a lessor in connection
with or as inducement for entering into any such lease except as set forth on
Schedule 4.5.1.3.
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4.5.1.4 None of the Assets are leased or loaned by the Seller
to any other person or entity.
4.5.1.5 There exists no condition affecting the title to or
use of any part of the Assets which would prevent Purchaser from using or
enforcing its rights with respect to any part of the Assets, after Closing, to
the same full extent that the Seller could continue to do so if the transactions
contemplated hereby did not take place.
4.5.1.6 Except as set forth on Schedule 4.5.1.6, there are no
items of machinery and equipment or vehicles employed or used by The Business
which are not described in Schedules 2.1. Except as set forth on Schedule
4.5.1.6, the Seller either owns or leases all assets which are necessary to
conduct the Business as it is presently conducted. All machinery and equipment
owned or leased by the Seller and used in the Business are useable and operable
in the Business and are, in all respects, in good operating condition and
reasonable state of repair, subject only to ordinary wear and tear.
4.5.1.7 At the Effective Date, The Business's inventory of
spare parts and expendables was, in all respects, the same, in kind, character
and total value, as the inventory maintained and used in the Business for the
period October 1, 1997 through October 31, 1997. Without limiting the generality
of the foregoing, as of the Effective Date, Seller (i) continued to maintain and
refurbish any and all Assets according to the same schedule as historically
followed, including relining stators and rechromning rotors, and (ii) continued
its historical program of third- party inspection services.
4.5.1.8 Except as set forth on Schedule 4.5.1.8, the Seller
is not a party to any contract or obligation whereby there has been granted to
anyone an absolute or contingent right to purchase, obtain or acquire any rights
in any of the Assets.
4.5.2 With respect to the Real Property:
4.5.2.1 The Seller owns the Real Property described on
Schedule 2.12 hereof, as well as the Lease Parcel to be covered by the lease
described on Schedules 8.5, and any improvements thereto.
4.5.2.2 None of the property shown on Schedule 2.12 is leased
or loaned by the Seller to any other person or entity.
4.5.2.3 Seller has maintained all water, sewer, gas, electric,
telephone and drainage facilities and all other utilities required by law or by
the normal use and operation of the Real Property and any improvements thereon.
4.5.2.4 The Real Property and any improvements thereon are
usable and operable in the Business and the improvements on the Real Property
are in good operating condition and reasonable state of repair, subject only to
ordinary wear and tear.
4.5.2.5 The Seller has obtained and maintained in full force
and effect to the date hereof all permits required for the current use and
operation of the Real Property and the improvements thereon as currently
operated ("Permits"). A complete and correct list of all such Permits is set
forth on Schedule 4.5.2.5. The Seller has delivered to Purchaser complete and
accurate photocopies of all Permits. The Seller has complied in all respects
with all such Permits and has not received any notice that any such Permits will
not be
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renewed upon expiration or of any conditions which will be imposed in order to
receive any such renewal.
4.5.2.6 The zoning classification of the various tracts
comprising the Real Property permits the use of all or any part of the Real
Property for the purposes and in the manner in which the Real Property is
currently used. The Seller has not received notice of any pending or
contemplated changes in the status of the zoning for the Real Property. There is
no agreement currently in effect between Seller and the county or township in
which a tract is located, or any other entity, public or private, which would be
binding and would prevent the use of the Real Property for any of the uses
allowed by the current zoning of the Real Property, and Seller does not have
knowledge of any such agreement between such county or township and any prior
owner of the Real Property.
4.6 Agreement Does Not Violate Other Instruments. Except as listed in
Schedule 4.6, the execution and delivery of this Agreement by the Seller does
not, and the consummation of the transaction contemplated hereby will not,
violate any provision of the Certificate of Incorporation, as amended, or
Bylaws, as amended, of the Seller or violate or constitute an occurrence of
default under any provision of, or conflict with, or result in acceleration of
any obligation under, or give rise to a right by any party to terminate its
obligations under, any mortgage, deed of trust, conveyance to secure debt, note,
loan, lien, lease, agreement, instrument, order, judgment, decree or other
arrangement to which the Seller is a party or is bound or by which the Assets
are affected. Except as listed or described on Schedule 4.6, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any governmental entity is required to be obtained or made by or with
respect to Seller or any of the Assets, properties or operations of the Seller,
in connection with the execution and delivery by Seller of this Agreement or any
of the agreements, certificates or other documents delivered or to be delivered
on or after the date hereof and at or prior to the Closing in connection with
the transactions contemplated hereby.
4.7 Absence of Changes. Since September 30, 1997, with respect to the
Business, the Seller has not, except as disclosed on Schedule 4.7 attached
hereto:
4.7.1 Transferred, assigned, conveyed or liquidated any of its assets
or business or entered into any transaction or incurred any liability or
obligation, other than in the ordinary course of its business;
4.7.2 Suffered any adverse change in its business, operations, or
financial condition and the Seller has not become aware of any event or state of
facts which may result in any such adverse change;
4.7.3 Suffered any destruction, damage or loss, not covered by
insurance;
4.7.4 Suffered, permitted or incurred the imposition of any Lien upon
any of the Assets, except for any current-year lien with respect to personal or
real property taxes not yet due and payable;
4.7.5 Committed, suffered, permitted or incurred any default in any
liability or obligation;
4.7.6 Made or agreed to any adverse change in the terms of any
contract or instrument to which it is a party;
<PAGE>
4.7.7 Paid, agreed to pay or incurred any increase in any obligation
for any payment of, any contribution or other amount to, or with respect to, any
employee benefit plan, or made any increase in the pension, retirement or other
benefits of the Seller's employees;
4.7.8 Received any notices indicating, and the Seller has no reason
to believe, that any supplier has taken or contemplates any steps which could
disrupt the business relationship of the Business with said supplier.
4.8 Litigation. Except as set forth in Schedule 4.8 hereto, there is no
suit, action, proceeding, claim or investigation pending or threatened against,
or affecting, the Seller (collectively, the "Litigation") and there exists no
basis or grounds for any such suit, action, proceedings, claim or investigation.
None of the items described in Schedule 4.8, singly or in the aggregate, if
pursued and/or resulting in a judgment would have an adverse effect on the
Assets or the Business. Without limiting the generality of any other provision
hereof, Purchaser does not assume responsibility for any matter of Litigation,
including but not limited to the matters disclosed on Schedule 4.8.
4.9 Licenses and Permits; Compliance with Law. The Seller holds all
licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the conduct of the
Business and the use of the Assets. All such licenses, certificates, permits,
franchises and rights are listed on Schedule 4.9. Except as noted in Schedule
4.9, the Seller is presently conducting the Business so as to comply in all
respects with all applicable statutes, ordinances, rules, regulations and orders
of any governmental authority. Further, with respect to the Business, the Seller
neither is presently charged with nor is under governmental investigation with
respect to any actual or alleged violation of any statute, ordinance, rule or
regulation, nor is presently the subject of any pending or, to the knowledge of
Seller, threatened adverse proceeding by any regulatory authority having
jurisdiction over its business, properties or operations.
4.10 Contracts, Etc.
4.10.1 Schedule 4.10 hereto consists of a true and complete list of
all contracts, agreements and other instruments relating to the Business, except
for those contracts, insurance policies and Benefit Plans listed in Schedules
4.14 and 4.17, respectively. Contemporaneously with the delivery of the
Schedules to this Agreement, the Seller has delivered a true and complete copy
of each contract, agreement or instrument to be assigned to Purchaser hereunder
(the "Contracts").
4.10.2 Except as provided in Schedule 4.10, The Business is not
party to any contracts calling for The Business to either provide or acquire
goods or services. Without limiting the generality of the foregoing, there has
been no contract or quotation, arrangement or understanding for the future sale
of services by The Business which extends beyond thirty (30) days, except for
the outstanding jobs, quotes and proposals scheduled on Schedule 4.10 hereto.
4.10.3 All of the Contracts are valid and binding upon the Seller
and the other parties thereto and are in full force and effect and enforceable
in accordance with their terms, and none of the Seller or, to Seller's
knowledge, any other party to any Contract has breached any provision of, or is
in default under, the terms thereof, and Seller has no knowledge of any existing
facts or circumstances which would prevent the work in process of the Seller
under the Contracts from maturing in due course into accounts receivable against
which such parties would have no defense of payment, subject to receipt of the
consents listed in Schedule 4.6. Except for items specifically described in
Schedule 4.10, the Seller has not received any payment from any contracting
party in connection with or as an inducement for entering into any
<PAGE>
Contract except for payment for actual services rendered or to be rendered by
the Seller consistent with amounts historically charged for such services.
4.11 [Intentionally Omitted]
4.12 Intellectual Property; Computer Software.
4.12.1 Intellectual Property.
4.12.1.1 Schedule 2.3 hereto sets forth a complete and
correct list and summary description of the following applicable to or used in
the Business: patents, trademarks, trade names, service marks, service names,
brand names, copyrights, licenses and patents, registrations thereof and
applications therefor.
4.12.1.2 All of the Intellectual Property shown as "Owned
Patents to be Assigned to Purchaser" in Schedule 2.3, as well as the trade name
"Multi-Shot" is owned by the Seller, free and clear of all liens, claims and
encumbrances of any nature whatsoever. The remaining Intellectual Property may
be used by Purchaser, after Closing, free and clear of any royalty.
4.12.1.3 Seller is not currently in receipt of any notice of
any violation of, and Seller is not aware of the infringement of the rights of
Seller in any Intellectual Property.
4.12.1.4 The Seller is the owner of Federal Registrations in
the U. S. Patent and Trademark Office relating to the Intellectual Property as
set forth on Schedule 2.3 for use in connection with the Business, and such
registrations are in full force and effect.
4.12.1.5 The Seller has the right to use and transfer the
Intellectual Property.
4.12.1.6 Except as set forth on Schedule 2.3, Part B, the
Seller has not granted any license, permits on or other authorization to any
other person or entity to use said Intellectual Property, or has made any
conveyance of any such rights.
4.12.1.7 There are no other agreements, contracts or licenses
granting, limiting, encumbering or otherwise directly or indirectly affecting
ownership or use or right to use or assign the Intellectual Property by the
Seller.
4.12.1.8 With respect to the Business, Seller is not
currently in receipt of any notice of, and the Seller is not aware of, any
violation by Seller of the rights of others in any trademark, trade name,
service mark, copyright, patent, trade secret, know-how or other intangible
asset.
4.12.2 The Seller has sole, full and clear title to that computer
software described as "Owned Software" on Schedule 2.6 hereto (the "Owned
Software"), free of all claims, including claims or rights of employees, agents,
consultants or other parties involved in the development or creation of such
computer software. Except as set forth on Schedule 2.6 hereto, the Seller has
the right and license to use that software described as "Licensed Software" on
Schedule 2.6 (the "Licensed Software") free and clear of any limitations or
encumbrances, except as may be set forth in any license agreements listed in
Schedule 2.6. Schedule 2.6 sets forth a list of all license fees, rents,
royalties or other charges that the Seller is required or
<PAGE>
obligated to pay with respect to Licensed Software. The Seller is in full
compliance with all provisions of any license, lease or other similar agreement
pursuant to which it has rights to use the Licensed Software, except where the
failure would not constitute a Material Adverse Effect. Except as disclosed on
Schedule 2.6, none of the Licensed Software has been incorporated into or made a
part of any Owned Software or any other Licensed Software and none of the Owned
Software is dependent on any Licensed Software in order to freely operate in the
manner in which it is intended. The Owned Software and Licensed Software
constitute all software used in the Business, with the exception of the software
listed on Schedule 2.6. The Seller is not infringing any intellectual property
rights of any other person or entity with respect to the Owned Software or the
Licensed Software, and, to Seller's knowledge, no other person or entity is
infringing any intellectual property rights of the Seller with respect to the
software which the Seller leases or licenses to such other person.
4.13 Employment Matters. Schedule 4.13 sets forth a list of all employees
and independent contractors of the Business, their current salaries or rate, all
other bonuses, allowances and reimbursements, along with the Seller's salary
increase guidelines. Except as set forth on Schedule 4.13, within the last three
(3) years the Seller has not been the subject of any union activity or labor
dispute, nor has there been any strike of any kind called or threatened to be
called against it; and, except as set forth on Schedule 4.13, the Seller has not
violated any federal, state or other governmental statutes, regulations or
ordinances relating to employment and labor matters, including, without
limitation, the provisions of Title VII of the Civil Rights Act of 1964 (race,
color, religion, sex and national origin discrimination), 42 U.S.C. ss. 1981
(discrimination), 42 U.S.C. ss.ss. 621-634 (the Age Discrimination in Employment
Act), 29 U.S.C. ss. 206 (equal pay), Executive Order 11246 (race, color,
religion, sex and national origin discrimination), Executive Order 11141 (age
discrimination), ss. 503 of the Rehabilitation Act of 1973 (handicap
discrimination), 42 U.S.C. ss.ss. 12101-12213 (Americans with Disabilities Act),
29 U.S.C. ss.ss. 2001-2654 (Family and Medical Leave Act), 29 U.S.C. ss.ss.
651-678 (occupational safety and health) and requirements relating to the
documentation of the nationality of employees. Seller has no knowledge that any
employee of the Business intends to resign as a result of the Transaction.
4.14 Benefit Plans. Except as set forth on Schedule 4.1.4, Purchaser is
not assuming responsibility under any pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, bonus or other incentive plan, or any other written or unwritten
employee program, arrangement, agreement or understanding (whether arrived at
through collective bargaining or otherwise), any medical, vision, dental or
other health plan, any life insurance plan or any other employee benefit plan or
fringe benefit plan, including, without limitation, any "employee benefit plan,"
as that term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 as amended ("ERISA"), and any multiemployer plan within the
meaning of Section 3(37) of ERISA, currently or previously adopted, maintained,
sponsored in whole or in part or contributed to by the Seller or any current or
former member of a commonly controlled group of trades or businesses (as defined
in Section 4001(b)(1) of ERISA), including the Seller for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors or
other beneficiaries of the Seller and under which employees, retirees,
dependents, spouses, directors, independent contractors or other beneficiaries
of the Seller are eligible to participate or under or in connection with which
the Seller has any contingent or noncontingent liability of any kind whether or
not probable of assertion (collectively, the "Benefit Plans"). No Benefit Plan
is or has been a multiemployer plan within the meaning of Section 3(37) of
ERISA. From and after Closing, Seller will continue to be responsible for the
administration of all such Benefit Plans, none of which are to be assumed or
continued by Purchaser.
<PAGE>
4.15 Customers and Brokers. Schedule 4.15 attached hereto consists of a
true and correct list of all brokers utilized by the Seller within the preceding
twelve months and the twenty (20) customers of the Seller that have accounted
for the greatest portion of revenue of the Seller within the preceding twelve
months, setting forth as to each customer and broker its name, address,
telephone number and principal person of contact where available, and total
payments by dollar amounts by each such customer and broker within the preceding
twelve months. Seller has not received any notice, or has any knowledge that any
such customer or broker of the Seller has taken or contemplates taking any steps
which could disrupt the business relationship of the Seller with such customer
or broker or could result in the diminution in the value of the business of the
Seller with such customer or broker or could result in the diminution in the
value of the business of The Business as a going concern.
4.16 Environmental Matters. Except as set forth in Schedule 4.16 (which
includes the Phase I environmental surveys made a part of Schedule 4.16 by
reference), neither the Real Property nor the Lease Parcel (collectively, the
"Properties") has been used by the Seller or any other party for the handling,
treatment, storage or disposal into the environment of any Hazardous Substance
(as hereinafter defined). Except as set forth in Schedule 4.16, no release,
discharge, spillage or disposal of any Hazardous Substance and no soil, water or
air contamination by any Hazardous Substance has occurred or is occurring in,
from or on the Properties. Except as set forth in Schedule 4.16, the Seller has
complied with all reporting requirements under any applicable federal, state or
local environmental laws and permits, and there are no existing violations by
the Seller of any such environmental laws or permits. Except as set forth in
Schedule 4.16, there are no claims, actions, suits, proceedings or
investigations related to the presence, release, production, handling,
discharge, spillage, transportation or disposal of any Hazardous Substance or
ambient air conditions or contamination of soil, water or air by any Hazardous
Substance pending or, to Seller's knowledge, threatened with respect to the
Properties in any court or before any state, federal or other governmental
agency or private arbitration tribunal and there is no basis for any such claim,
action, suit, proceeding or investigation. Except as set forth on Schedule 4.16,
Seller has not installed, maintained or used any underground storage tanks,
asbestos or asbestos-containing materials on the Properties. For the purposes of
this Agreement, "Hazardous Substance" shall mean any hazardous substance or
hazardous waste as those terms are defined by applicable federal, state or local
law, ordinance, regulation, policy, judgment, decision, order or decree
including, without limitation, the Comprehensive Environmental Recovery
Compensation and Liability Act, 42 U.S.C. 9601, et seq. ("CERCLA"), the
Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801, et seq., the
Resource Conservation Recovery Act, 42 U.S.C. 6901 et seq ("RCRA"), and
petroleum, petroleum products and oil.
4.17 Insurance. Set forth in Schedule 4.17 is a complete list of all
insurance policies which the Seller currently maintains with respect to the
Business, the Real Property and the Lease Parcel and employees of the Business.
Except as set forth in Schedule 4.17, such policies are in full force and effect
and no event has occurred which would give any insurance carrier a right to
terminate any such policy.
4.18 Related Party Relationships. Except as set forth in Schedule 4.18,
no Shareholder or officer or director of the Seller possesses, directly or
indirectly, any beneficial interest in, or is a director, officer or employee
of, any corporation, partnership, firm, association or business organization
which is a client, supplier, customer, lessor, lessee, lender, creditor,
borrower, debtor or contracting party with or of the Seller.
4.19 Antitrust Matters. The Seller has conducted and is conducting the
Business in compliance with all federal and state antitrust and trade regulation
laws, statutes, rules and
<PAGE>
regulations, including, without limitation, the Sherman Act, the Clayton Act,
the Robinson Patman Act, the Federal Trade Commission Act, state laws patterned
after any of the above, all laws forbidding price-fixing, collusion or
bid-rigging and rules or regulations issued pursuant to authority set forth in
any of the above. With respect to any of the foregoing, the Seller is not
presently directly or indirectly involved with, charged with, or under any
governmental investigation with respect to, and there is no basis or grounds
for, any charge, claim, investigation, suit, action, proceeding or any actual or
alleged violation of any such law, statute, rule or regulation.
4.20 Suppliers. Attached hereto as Schedule 4.20 is a complete and
correct list of all persons, partnerships, corporations or entities from which
the Seller has purchased any supplies relating to the Business within the last
six (6) months, along with their respective addresses and telephone numbers.
4.21 Schedules. All schedules attached hereto are true, correct and
complete as of the Effective date of this Agreement, and will be true, correct
and complete as of the Closing.
4.22 Disclosure. No representation or statement contained herein or in
any certificate, schedule, list, exhibit or other instrument furnished to
Purchaser pursuant to the provisions hereof contains or will contain any untrue
statement of any material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading.
4.23 No Known Breaches. Seller has no knowledge that any of the
representations or warranties of Purchaser are untrue. Seller shall not be
entitled to indemnification with respect to any matters constituting a breach of
this Section 4.23.
4.24 Validity and Amount of Credit with Wenzel Downhole Tools, Inc. The
Credit is valid and existing, and in the amount stated in Section 2.13. Seller
is free to convey the Credit to Purchaser. Seller has no knowledge of any matter
which would cause Wenzel Downhole Tools, Inc. to dishonor the Credit.
V. Income, Debts, Liabilities, Transitional Matters
5.1 Purchaser's Responsibilities. Purchaser shall be responsible for and
shall pay only the debts and liabilities incurred in the operation of the
Business subsequent to the Effective Date, except as specifically assumed
hereunder by Seller. Except as specifically assumed by Seller hereunder,
Purchaser hereby indemnifies the Seller from all liabilities and obligations to
third parties arising from operation of the Business subsequent to the Effective
Date including, without limitation, any of the following: any indebtedness for
borrowed money, any liability for taxes, any liability for goods or services
purchased, sold or rendered, or any suit or claim seeking recovery for injury to
persons or property resulting from any product or service sold or rendered by
Purchaser subsequent to the Effective Date, plus reasonable attorney fees.
5.2 Seller's Responsibilities. Except as specifically assumed hereunder,
Purchaser shall not assume or become liable to Seller, or to any other person,
firm, corporation or entity, for any other liabilities or obligations of Seller,
whether accrued, absolute, contingent or otherwise. Except as specifically
assumed by Purchaser hereunder, Seller hereby indemnifies the Purchaser from all
liabilities and obligations to third parties arising from operation of the
Business prior to the Effective Date including, without limitation, any of the
following: any indebtedness for borrowed money, any liability for taxes, any
liability for goods or services purchased, sold or
<PAGE>
rendered, or any suit or claim seeking recovery for injury to persons or
property resulting from any product or service sold or rendered by Seller prior
to the Effective Date, plus reasonable attorney fees. Nothing contained herein
shall be deemed a waiver or release by Purchaser of amounts due from Seller for
services rendered prior to the Effective Date. Unless specifically assumed
herein, the fact that a matter or contract is listed on a Schedule does not
imply or mean that Purchaser assumes responsibility therefore.
5.3 Transition Period Matters. Notwithstanding the foregoing Sections 5.1
and 5.2, the following govern the operation of and accounting for the Business
between the Effective Date and Closing (the "Transition Period").
5.3.1 Transitional Period Operations During the Transition Period,
Seller shall use its best efforts to operate the Business in the Ordinary Course
of Business, which shall be defined as operation of Seller's short radius
directional drilling business and survey business without extraordinary
occurrences or expenditures. By way of example, and not by way of limitation,
the following would be matters outside of the Ordinary Course of Business: an
accident involving personal injury, an accident involving property damage in
excess of $50,000, purchase of equipment having a purchase price in excess of
$25,000, and improper performance of services for a customer resulting in loss
to the customer of more than $50,000. Should there occur, during the Transition
Period, a matter outside the Ordinary Course of Business, Seller shall give
notice thereof to Purchaser prior to Closing. In an effort to reduce the impact
of any matter outside the Ordinary Course of Business, Seller hereby transfers
to Purchaser Seller's rights to proceeds from any claims paid by Seller's
insurers with respect to claims arising from occurrences during the Transition
Period.
5.3.2 Transition Period Accounting . At Closing, Seller shall deliver
to Purchaser a statement of income and expense for the Business for the
Transition Period, calculated in in the format and containing the specific line
items set forth in Schedule 5.3.2 (the "Transition Operating Statement"). Seller
shall pay to Purchaser at Closing the "Operating Profit" as set forth on the
Transition Operating Statement. In preparing the Transition Operating Statement,
the following principals shall apply:
5.3.2.1 Income shall be calculated by taking the sum of all
revenue billed by Seller during the Transition Period, less billings for
services rendered prior to the Effective Date;
5.3.2.2 which shall then be reduced by the following expenses
incurred and accrued on the books of Seller during the Transition Period: (i)
direct, out of pocket cash Expenses and (ii) the non-cash expenses listed on
Schedule 5.3.2.2,
5.3.2.3 which shall then be increased by a Motor Repair Charge
with respect to all motors engaged in jobs in progress on the Effective Date (a
"Job in Progress"), which Motor Repair Charge shall be, with respect to each
such motor, the number of hours such motor was run on a Job in Progress at $45
per hour prior to the Effective Date; and
5.3.2.4 Seller shall allocate common expenses in a manner
consistent with practices historically followed during the period October 1,
1997 through November 30, 1997, with the exception that Seller may charge an
expense interest allocation at the rate of 6% for one-half of the number of days
in the Transition Period on $19 Million, which interest charge shall .be in lieu
of any other interest charge, and Seller shall not charge depreciation.
<PAGE>
If Purchaser objects to Seller's calculation of the Operating Profit,
Purchaser and Seller shall submit the Transition Operating Statement to Coopers
& Lybrand, or such other mutually acceptable accounting firm, for a final
determination of the Operating Profit, following which determination any
difference shall be paid by the party owing same.
5.4 Certain Receivables. Receivables arising from revenue billed by
Seller during the Transition Period and listed on Schedule 5.3.2 shall belong to
Seller. Receivables arising from services performed from and after the Effective
Date but not billed by Seller during the Transition Period shall belong to
Purchaser. Each party shall retain possession of and be solely responsible for
collecting all accounts receivable attributable to invoices generated by such
party; provided, however, that the parties agree to reasonably cooperate with
one another in the collection of the accounts receivable.
VI. Representations and Warranties of Purchaser
6.1 Organization and Standing.The Purchaser is a corporation validly
existing, and in good standing under the laws of the State of Delaware, and has
the full power and authority (corporate and otherwise) to carry on its business
in the places and as it is now being conducted and to own and lease the
properties which it now owns or leases. The Purchaser is now, and will be at
Closing, duly qualified and/or licensed to transact business and in good
standing as a foreign corporation in all jurisdictions required for it to do
business, and neither the character of the property owned or leased by the
Purchaser requires such qualification and/or licensing in any other
jurisdiction.
6.2 Authority and Status. Purchaser has the capacity and authority to
execute and deliver this Agreement, to perform hereunder and to consummate the
transactions contemplated hereby without the necessity of any act or consent of
any other person whomsoever. The execution, delivery and performance by the
Purchaser of this Agreement and each and every agreement, document and
instrument provided for herein have been duly authorized and approved by all
required corporate action with respect to Purchaser. This Agreement and each and
every agreement, document and instrument to be executed, delivered and performed
by the Purchaser in connection herewith, constitute or will, when executed and
delivered, constitute the valid and legally binding obligations of the Purchaser
and enforceable against Purchaser in accordance with their respective terms,
except as enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting the enforcement of creditors' rights generally. Except
as listed or described on Schedule 6.2 attached hereto, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
governmental entity is required to be obtained or made by or with respect to
Purchaser or any of the Assets, properties or operations of the Purchaser, in
connection with the execution and delivery by Seller of this Agreement or any of
the agreements, certificates or other documents delivered or to be delivered on
or after the date hereof and at or prior to the Closing in connection with the
transactions contemplated hereby, except where such failure would not have a
Material Adverse Effect.
6.3 Agreement Does Not Violate Other Instruments. Except as listed in
Schedule 6.3, the execution and delivery of this Agreement by Purchaser does
not, and the consummation of the transaction contemplated hereby will not,
violate any provision of the Certificate of Incorporation, as amended, or
Bylaws, as amended, of Purchaser or violate or constitute an occurrence of
default under any provision of, or conflict with, or result in acceleration of
any obligation under, or give rise to a right by any party to terminate its
obligations under, any mortgage, deed of trust, conveyance to secure debt, note,
loan, lien, lease, agreement, instrument,
<PAGE>
or any order, judgment, decree or other arrangement to which Purchaser is a
party or is bound by or by which the Assets are affected. Except as listed or
described on Schedule 6.3, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity is required to
be obtained or made by or with respect to Purchaser or any of the Assets,
properties or operations of Purchaser, in connection with the execution and
delivery by Purchaser of this Agreement or any of the agreements, certificates
or other documents delivered or to be delivered on or after the date hereof and
at or prior to the Closing in connection with the transactions contemplated
hereby.
6.4 No Known Breaches. Purchaser has no knowledge that any of the
representations or warranties of Seller are untrue. Purchaser shall not be
entitled to indemnification with respect to any matters constituting a breach of
this Section 6.4.
VII. Closing
Subject to the satisfaction or waiver of the conditions set forth in
Article VIII, Closing shall occur on February 2, 1998, in Houston, Texas, or at
such other place reasonably selected by the parties. At Closing:
7.1 Seller shall deliver to Purchaser the following:
(i) a fully executed Transfer and Bill of Sale, in the form attached
hereto as Schedule 7.1(1)(i)
(ii) a fully executed Real Property Lease covering the Lease Parcel;
(iii) a deed and title insurance commitment (or, with respect to the
Broussard, Louisiana location, the title opinion) covering each parcel of Real
Property, as required by Section 8.2.3;
(iv) fully executed assignments, Patent Assignments and Patent
Application Assignments covering all Intellectual Property, in the form attached
hereto as Schedule 7.1(iv). (v) a resolution of the Board of Directors and
Shareholder of Seller, approving the execution and performance of this contract
by Seller;
(vi) the Books;
(vii) a copy of the Accounting Records (which may be delivered at a later
date as designated by Purchaser);
(viii) the Owned Software and the Licensed Software;
(ix) certificates of title to all vehicles listed in Schedule 2.1;
(x) a fully executed Assignment and Assumption Agreement, in the form
attached as Schedule 2.10
(xi) such other documents and agreements as are reasonably required to
complete the
<PAGE>
transaction contemplated hereby.
7.2 At Closing, Purchaser shall deliver to Seller the following:
(i) the Purchase Price, by wire transfer;
(ii) a resolution of Purchaser's Board of Directors, approving this
Agreement and the Closing thereof;
(iii) a fully executed Real Property Lease covering the Lease Parcel;
(iv) a fully executed Assignment and Assumption Agreement, in the form
attached as Schedule 2.11; and
(v) such other documents and agreements as are reasonably required to
complete the transaction contemplated hereby.
VIII. Conditions to Closing
8.1 Conditions to the Obligations of Both Purchaser and Seller
The respective obligations of Purchaser and Seller to effect the
transactions contemplated hereby (the "Transaction") are subject to fulfillment
at or prior to the date of the Closing of the following conditions:
8.1.1 No order, stay, decree or injunction prohibiting or restricting
or enjoining the Transaction shall have been entered, issued or promulgated by
any court or governmental agency having jurisdiction. Purchaser and Seller agree
to use their best efforts to avoid or terminate any of same.
8.1.2 Any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended, shall have expired by its terms,
or shall have been terminated by the Federal Trade Commission or Department of
Justice, as the case may be.
8.2 Additional Conditions to the Obligations of Purchaser
The obligations of Purchaser to effect the Transaction are also subject
to the fulfillment at or prior to Closing of the following conditions:
8.2.1 All representations and warranties made by the Seller in
Article IV shall be true and correct as of the Closing Date, except where the
failure of such representations and warranties would not result, considered
cumulatively, and not on an individual basis, in a Material Adverse Effect, and
Seller shall have complied with all covenants located elsewhere in this
Agreement and required to be performed by Seller prior to the Closing Date;
8.2.2 Seller shall furnish the complete results, including copies of
a UCC Search for financing statements relating to Seller and all of the Assets,
in the jurisdictions listed on Schedule 8.2.2, showing no Liens on the Assets,
other than those to be released at Closing and other than the Permitted Liens;
8.2.3 Seller shall furnish evidence of good and marketable title to
the Real Property and
<PAGE>
title to the Intellectual Property. Evidence of title to the Real Property shall
be a commitment for Owner's Title Insurance on the Corpus Christi and Odessa,
Texas locations and a title opinion from Liskow & Lewis on the Broussard,
Louisiana location.
8.2.4 Purchaser shall have received, at its expense, a Phase I
Environmental Report on the Real Property located at Odessa, Texas, showing same
to be free of all environmental hazards described in Section 4.16 (provided,
however, that if the Phase I Environmental Report discloses an environmental
hazard described in Section 4.16, then, if Seller does not remedy same prior to
Closing, Purchaser may exclude such location from this Agreement, in which event
the Purchase Price shall be reduced by $60,000) and Seller shall deliver to
Purchaser evidence of fulfillment of the obligations of Seller set forth in the
"Property Work Plan," attached as Schedule 8.2.4.
8.2.5 Purchaser shall have received the items referred to in Section
7.1.
8.2.6 Seller shall provide Purchaser with a written confirmation from
Wenzel Downhole Tools, Inc. confirming that the Credit is available, may be
transferred to Purchaser, and stating any conditions to the use thereof.
8.2.7 Seller shall satisfy the requirements set forth in the letter
from James Bradley, Patent Attorney for Purchaser, attached as Schedule 8.2.7,
with respect to assignment of one or more patents, and Purchaser shall have
received an appropriate confirmations or agreements confirming that, following
the transaction, Purchaser may use the patents listed in the "Non-Exclusive
Right to Use" section of Schedule 2.3, Part A, without payment of royalty.
8.2.8 Purchaser shall have entered into a Letter of Arrangement with
the Carve-Out Auditor which is, in the sole opinion of Purchaser, acceptable.
8.2.9 Purchaser shall have received notice from Seller stating any
matters occurring during the Transition Period that were outside the Ordinary
Course of Business, and the total potential loss or exposure to loss of
Purchaser arising from such matters would not have a Material Adverse Effect.
8.3 Additional Conditions to the Obligations of Seller
The obligations of Seller to effect the Transaction are also subject to
the fulfillment at or prior to Closing of the following conditions:
8.3.1 All representations and warranties made by the Purchaser in
Article VI shall be true and correct as of the Closing Date, and Purchaser shall
have complied with all covenants located elsewhere in this Agreement and
required to be performed by Purchaser prior to the Closing Date;
8.3.2 Purchaser shall have received the items referred to in Section
7.2.
8.4 Termination.
This Agreement may be terminated and the Transaction abandoned:
8.4.1 on or after 10 days after the scheduled Closing Date by either
Purchaser or Seller if the Closing will not occur for any reason other than a
breach of this Agreement by the terminating party;
<PAGE>
8.4.2 by Purchaser if there has been a breach by Seller of any
agreement, representation or warranty contained in this Agreement which has
rendered the satisfaction of any condition to the obligation of Purchaser set
forth in Section 8.1 or 8.2 impossible and incapable of cure, and such breach
has not been waived by Purchaser;
8.4.3 by Seller if there has been a breach by Purchaser of any
agreement, representation or warranty contained in this Agreement which has
rendered the satisfaction of any condition to the obligation of Seller set forth
in Section 8.1 or 8.3 impossible and incapable of cure, and such breach has not
been waived by Purchaser; or
8.4.4 by mutual consent of Purchaser and Seller.
IX. Post-Closing Matters
9.1 Continued Access to Books. From and after Closing, and for three
years thereafter, the Books and the Accounting Books relating to the Business,
for the periods prior to Closing, shall be available on three day's prior
written notice during normal business hours of 8:00 am to 5:00 pm for
inspection, use and copying by Seller or Purchaser, with extended hours to 8:00
pm to accommodate the needs of auditors and out-of-town representatives of
either party.
9.2 Continued Assurances. Purchaser and Seller will do, execute,
acknowledge and deliver, all and every such further acts, conveyances, transfer
orders, notices, releases and acquittances and such other instruments as may be
reasonably necessary or appropriate to assure to Purchaser and Seller, their
successors and assigns, more fully all of the respective properties, rights,
titles and interests, estates, remedies, powers and privileges by this Agreement
granted, bargained, sold, conveyed, assigned, transferred, set over and
delivered, or otherwise vested in Purchaser and/or Seller or intended to be so.
Without limiting the generality of the foregoing, Seller and Purchaser agree to
provide such reasonable statements and confirmations as are required from time
to time by their respective accountants in their continued work for the parties,
including without limitation, reasonable efforts to provide audit confirmations.
9.3 Accounting Commitments by Seller.
9.3.1. Seller shall provide to Purchaser or its representatives all
commercially reasonable support to facilitate the preparation by Price
Waterhouse, or another national accounting firm reasonably acceptable to
Purchaser and engaged by Seller(the "Carve-Out Auditor"), to deliver to
Purchaser, audited Carve-Out Financial Statements (the "Carve-Out Audit")
covering the Business, for the period June 1, 1995 through December 31, 1995 and
the year ended December 31, 1996. Purchaser shall pay the first $35,000 of the
Carve-Out Auditor's fees, and Seller shall pay any fees above that amount. As of
the date of execution of this Agreement, the parties anticipate that the
Carve-Out Audit will be performed by Price Waterhouse pursuant to the Letter of
Arrangement attached hereto as Schedule 9.3.1. Seller shall also comply with all
reasonable requests of the Carve-Out Auditor in connection with the delivery of
the consent from the Carve-Out Auditor to Coopers & Lybrand, or such other big
six accounting firm chosen by Purchaser (the "Auditors") for inclusion of the
Carve-Out Financial Statements in filings by Purchaser with the Securities and
Exchange Commission (the "SEC"). Seller's commitment to provide support is with
the understanding that the Carve-Out Audit is scheduled to be completed by
January 31, 1998, and Seller agrees to use its best efforts to cooperate with
such schedule. If the Auditors determine that Purchaser should include prior
<PAGE>
audits of the Acquisitions, previously performed for Seller by Price Waterhouse,
in any SEC filing by Purchaser, Seller will comply with all reasonable requests
of the Auditors relating to such consent, and will use commercially reasonable
efforts to obtain the consent of Price Waterhouse.
9.3.2. Seller acknowledges its understanding that Purchaser will
audit The Business for the year ended December 31, 1997 (the "1997 Audit").
Seller agrees to furnish, not later than January 5, 1998 with respect to the
period from January 1, 1997 through November 30, 1997, and not later than
January 26, 1998 with respect to the period December 1 through 31, 1997, the
following (the "1997 Financials") with respect to The Business: financial
statements and supporting data, a trial balance with supporting documentation
and a reconciliation of the financial statement accounts, together with access
to all books and records needed to complete an audit of The Business. Seller
also agrees to furnish full support and assistance from and by all personnel
reasonably requested by Purchaser to assist the Auditors in the process of the
audit, in order to complete same prior to March 1, 1998 (the "Support
Obligation"). During and after the audit process, Seller or Seller's officers
shall execute such management representation letters as may be reasonably
requested by the Auditors (the "Representation Obligation"). It is agreed that
the general representation letter in the form attached hereto as Schedule 9.3.2
is reasonable, and that such other representation letters as requested by the
Auditors in accord with Statement on Auditing Standards No. 85 of the American
Institute of Certified Public Accountants shall be deemed reasonable.
9.4 Gyro System. Russell Sub-Surface Systems, Ltd ("RSS"), which is not a
part of this sale, is in the final stages of developing a "North Seeking Rate
Gyro" for use initially in downhole orientation activities within the drilling
industry. Seller (on behalf of RSS) and Purchaser shall negotiate, prior to
Closing, a marketing agreement, which will provide that Purchaser's Multi-Shot
division shall be the sole user to test run the prototype or pre-commercial
pilot tools within North America, provided that Purchaser is able to secure such
testing facilities without undue delay or disruption to Seller's testing
schedule, until the system is deemed commercial by Seller. At an appropriate
time during the testing program, but not more than ninety days prior to first
commercial production, Seller shall furnish to Purchaser the number of units it
expects to produce during the first twelve months of commercial production, the
sales price, the anticipated production schedule and the financial terms of the
sale. The sales price shall be on a "Preferred Customer" basis, as defined
therein. Purchaser shall then have the option on a first delivery basis to place
an irrevocable purchase order to meet its needs, up to the full production
volume anticipated for the future twelve months.
9.5 Possession of Certain Records. Seller shall maintain possession of
the invoices to customers and invoices from vendors and suppliers until April
30, 1998, at which time same shall be turned over to Purchaser. Seller may, at
its expense, retain copies.
9.6 Claims Procedures.
9.6.1 Third Party Claims.
9.6.1.1 Notification and Defense Rights.
(i) If any person entitled to indemnification pursuant
to this Agreement (an "Indemnitee") receives written notice of the assertion of
any claim or of the commencement of any action or proceeding by any entity who
is not a party to this Agreement (a "Third Party Claim") against or affecting
such Indemnitee, and if such assertion were presumed
<PAGE>
to be true (regardless of the actual outcome), then the other party or parties
could be obligated to provide indemnification under this Agreement (an
"Indemnifying Party"), then such Indemnitee will give such Indemnifying Party
reasonably prompt written notice thereof, but in any event no later than thirty
(30) calendar days after receipt of such written notice of such Third Party
Claim. However, if it is reasonably determined by the Indemnitee that immediate
action is required to address a condition giving rise to a Third Party Claim,
the Indemnitee is authorized to take immediate action without prior notice, and
thereafter give notice to the Indemnifying Party as soon as practicable. In such
event the Indemnitee shall be entitled to recover from the Indemnifying Party to
the extent the Indemnifying Party is liable for indemnification hereunder.
(ii) Failure of the Indemnitee to give the notice
described in subsection (i) above shall not relieve the Indemnifying Party from
any liability which it may have on account of indemnification or otherwise,
except to the extent that the Indemnifying Party is prejudiced thereby.
(iii) If the Indemnifying Party admits in the Notice to
Defend (defined below) its obligation to indemnity the Indemnitee for the Third
Party Claim, and only in such event, the Indemnifying Party may elect to defend
the Third Party Claim at the Indemnifying Party's sole expense by Indemnifying
Party's own counsel (which counsel must be reasonably satisfactory to the
Indemnitee), by giving written notice to the Indemnitee (the "Notice to Defend")
no later than twenty (20) calendar days after receipt of the above-described
notice of such Third Party Claim. The Indemnitee also will have the right to
participate in the defense of any Third Party Claim assisted by counsel of this
own choosing;
(iv) In all circumstances other than that described in
subsection (iii) above, the Indemnifying Party may participate in (but not
control) the defense if it gives the notice to of its desire to do so within
such twenty-day period, provided, however, that the Indemnitee shall have the
sole right to make any significant decisions with respect to the defense of such
Third Party Claim except as to the settlement or compromise of such Third Party
Claim which shall be subject to the provisions of Section 9.6.1.2.
(v) During the period prior to receiving the Notice to
Defend, the Indemnitee can proceed to defend the claim, action or proceeding and
the Indemnitee shall be entitled to recover from the Indemnifying Party to the
extent the Indemnifying Party is liable for indemnification hereunder. (vi)
Notwithstanding anything in this Section 9.6.1.1 to the contrary, the
Indemnifying Party shall be entitled only to participate in, but the Indemnitee
shall be entitled to sole and absolute control over the defense, compromise or
settlement of, any claim to the extent that the claim seeks an injunction or
other similar equitable or nonmonetary relief against the Indemnitee.
(vii) If the Indemnitee does not receive a Notice to
Defend with respect to a Third Party Claim within the twenty day period
described in subsection (iii) above, the Indemnitee may, at its option, solely
defend the Third Party Claim assisted by counsel of its own choosing, and the
Indemnifying Party will be liable for all reasonable costs and expenses, and all
settlement amounts (subject to and in accordance with Sections 9.6.1.2), but
only to the extent the Indemnifying Party is liable for indemnification
hereunder.
(viii) Notwithstanding the foregoing, in the event that
an insurer has assumed the defense of any Third Party Claim pursuant to the
terms of an insurance policy, then the parties agree, subject to the terms of
such policy, to let the counsel of such insurance company conduct the defense of
such Third Party Claim and both the Indemnifying Party and the
<PAGE>
Indemnitee shall have the right to participate in the defense and (subject to
Section 9.6.1.2(vi)) hereof settlement of such Third Party Claim.
9.6.1.2 Settlement.
(i) In the circumstances described in Section
9.6.1.1(iii) where the Indemnifying Party has the sole right to control the
defense of the Third Party Claim, the Indemnifying Party shall have the sole
right to settle such claim. Furthermore, in the circumstances described in
Section 9.6.1.1(vi), the Indemnitee shall have the sole right to settle a Third
Party Claim to the extent provided in such Section.
(ii) In all other circumstances, if there is a dispute
between the Indemnifying Party and Indemnitee concerning whether a Third Party
Claim, should be contested, settled or compromised, it shall be settled,
compromised or contested, in accordance with the next succeeding subsections of
this Section 9.6.1.2; provided, however, that the Indemnitee, or its respective
successors or assigns, shall neither be required to refrain from paying or
satisfying any claim which the Indemnifying Party has not acknowledged in
writing its obligations to indemnify the Indemnitee, or which has matured by
court judgment or decree, unless appeal is taken thereafter and proper appeal
bond posted by the Indemnifying Party, nor shall the Indemnitee be required to
refrain from paying or satisfying any Third Party Claim after and to the extent
that such Third Party Claim has resulted in an unstayed injunction or other
similar equitable relief against the Indemnitee or its respective successors and
assigns (unless such claim shall have been discharged or enforcement thereof
stayed by the filing of a legally permitted bond by the Indemnifying Party or
otherwise, at its sole expense), or resulted in a breach or default in a
license, lease or other contract by which any of them is bound, or would
materially adversely affect their respective assets, businesses or financial
condition.
(iii) Subject to subsection (ii) of this Section, in
the event that the Indemnifying Party, on the one hand, or the Indemnitee, on
the other hand, has reached a good faith, bona fide settlement agreement or
compromise, subject only to approval hereunder, with any claimant regarding a
matter which may be the subject of indemnification hereunder and desires to
settle on the basis of such agreement or compromise, such party who desires to
settle or compromise shall notify the other party in writing of its desire
setting forth the terms of such settlement or compromise (the "Notice of
Settlement").
(iv) The Third Party Claim may be settled or
compromised on the basis set forth in the Notice of Settlement unless within
twenty (20) days of the receipt of the Notice of Settlement the party who issued
the Notice of Settlement receives a notice from the other party of its desire to
continue to contest the matter (the "Notice of Contest") and, in such case:
(a) Should the Indemnitee deliver a Notice of
Contest, the claim shall be so contested and the liability of the Indemnifying
Party shall be limited as provided in subsection (c) below.
(b) If the settlement or compromise could result
in a claim for indemnification being made against the Indemnifying Party and if
the Indemnifying Party delivers the Notice to Contest, the claim shall be so
contested and the liability of the Indemnitee shall be limited as provided in
subsection (c) below.
(c) If a matter is contested as provided in
subsections (a) or (b) above and is later adjudicated, settled, compromised or
otherwise disposed of and such
<PAGE>
adjudication, compromise, settlement or disposition results in a liability loss,
damage or injury in excess of the amount for which one party desired previously
to settle the matter as set forth in the Notice of Settlement, then the
liability of such party shall be limited to such lesser proposed settlement
amount and the party contesting the matter shall be solely responsible for the
amount in excess of such lessor proposed settlement amount and without regard to
any minimum or maximum restriction on liability described in the Agreement.
(v) For an Indemnifying Party's Notice of Contest to be
effective, it must also state that the Indemnifying Party acknowledges and
agrees that it shall be obligated to indemnify the Indemnitee for any amount in
excess of the lesser proposed settlement amount as described in subsection
(iv)(c) above.
(vi) The Indemnifying Party hereby expressly waives and
renounces any and all rights to make a claim against the Indemnitee or its
respective directors, officer, agents and employees based upon a right or claim
of any third party to which it may become subrogated as a result of making any
payment for indemnification hereunder, except to the extent that such waiver
adversely affects any rights of subrogation of an insurer under an applicable
insurance policy; provided, however, nothing herein is intended to constitute a
waiver by the Indemnifying Party of any rights of subrogation to which it may be
entitled against persons other than those described herein.
9.6.2 Direct Claims. Any claim by an Indemnitee for indemnification
other than indemnification against a Third Party Claim (a "Direct Claim") will
be asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, and the Indemnifying Party will have a period of thirty (30) calendar
days within which to respond in writing to such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnitee will be free to pursue such remedies as are set forth
in Section 9.6.3 hereof.
9.6.3 Direct Claim Procedures.
(a) Any Direct Claim which the parties are unable to resolve
through negotiation within sixty (60) day's notice to the Indemnifying Party of
such Direct Claim (a "Dispute") shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(the "Association"), as the same are to be supplemented hereunder, by a sole
arbitrator. The decision of the arbitrator shall be final, binding and
conclusive and judgment upon the award rendered by the arbitrator may be entered
in any court or appropriate jurisdiction. With respect to such arbitration:
(i) the arbitration proceeding shall be held in the Association's
office in Houston, Texas, or in such other location as is mutually agreeable to
the parties and the arbitrator.
(ii) the parties agree to use their best efforts, in good faith, to
select a sole arbitrator qualified to act as an arbitrator based on the
underlying nature of the Dispute. Such arbitrator shall be selected within
twenty (20) business days after either party requests arbitration. Upon
selection, the arbitrator's name, address and telephone number shall be
forwarded to the Association's office in Houston, Texas, as part of the
arbitration process.
(iii) the arbitrator is specifically instructed to allow the parties
reasonable discovery and to be guided therein by the Federal Rules of Civil
Procedure. If the arbitrator is not an attorney, or is an attorney not familiar
with the Federal Rules of Civil
<PAGE>
Procedure, and the parties cannot agree among themselves with respect to
discovery, the arbitrator may consult an attorney and the cost of such
consultation to the arbitrator shall be an additional cost of the arbitration.
(iv) once an arbitrator has been selected, each party shall submit a
statement of the case detailing the nature of the Dispute, the basis for the
position taken by the party, that party's understanding of the basis for the
position taken by the other party, legal authority believed to govern the
Dispute, a list of the exhibits and witnesses known to the party at that point
in time, and a request for discovery.
(v) after the date of selection of an arbitrator, the parties shall
have a period not to exceed sixty (60) days to conduct discovery as each deems
appropriate. Once the discovery period has closed, either by expiration of the
time limit or by mutual agreement of the parties, the arbitrator and the parties
shall mutually agree upon a date to hold the arbitration proceeding, said date
not to be more than thirty (30) days after the close of the discovery period.
Prior to commencement of the arbitration proceeding, each party shall serve an
amended statement of the case, updating the material set forth in the party's
original statement of the case, and including the list of witnesses who will
testify, with a brief summation of the testimony of such witnesses; which
amended brief shall not exceed ten double spaced pages of text without written
waiver first being received from the arbitrator.
(vi) each party shall equally pay the fees charged by the Association
including any fee to be paid to the arbitrator, and any cost incurred by the
arbitrator as allowed by the Rules of the American Arbitration Association, or
this Section 9.6.3. In addition, in the award the arbitrator shall specify which
of the parties is the prevailing party, and the prevailing party shall receive,
as an additional part of the award, his/their/its reasonable attorneys fees,
costs and expenses incurred in connection with the arbitration proceeding in an
amount deemed appropriate by the arbitrator based on the comparative fault of
the parties. The amount of fees and costs shall be based upon an affidavit from
legal counsel of each party, submitted as part of the arbitration proceeding,
setting forth in chronological order the dates legal services were rendered, the
amount of time within each day devoted to this proceeding, the name of the
individual attorney, paralegal and other assistants and his or her billing rate,
and a list of out-of-pocket costs or expenses incurred. The arbitrator shall
take into account the additional time involved in the arbitration hearing itself
when considering an award of reasonable attorneys fees.
9.7 Indemnification by Seller
9.7.1 Indemnification by Seller Regarding Representations and
Warranties, Survival of Same.
All representations and warranties made or undertaken by the Seller in
this Agreement or any document or instrument executed and delivered pursuant
hereto are material and have been relied upon by Purchaser.
The representations and warranties set forth in the following sections
shall expire at Closing:
. 4.3.1
. 4.3.2
. 4.3.3
. 4.3.4
. 4.3.5, with respect to the balance sheet warranty
<PAGE>
. 4.7
. 4.15
. 4.17
. 4.20
. 4.21.
The representations and warranties set forth in the following sections
shall survive Closing hereunder for two years, and shall not merge in the
performance of any obligation by any party hereto:
. 4.1
. 4.2
. 4.3.5, except with respect to the balance sheet warranty
. 4.4
. 4.5
. 4.6
. 4.8
. 4.9
. 4.10
. 4.12
. 4.13
. 4.14
. 4.16
. 4.18
. 4.19
. 4.22
. 4.23
. 4.24
Subject to the foregoing, and to Section 9.9, Seller hereby agrees to indemnify
and hold Purchaser and its officers, directors, employees, attorneys, agents and
other representatives harmless from and against and in respect of any liability,
claim, deficiency, loss, damages, or injury and all reasonable costs and
expenses (including reasonable attorneys fees and cost of any suit related
thereto) suffered or incurred by such person (collectively, a "Loss") arising
from any breach of any representation or warranty of the Seller which survives
Closing, or any exhibit, certificate or other instrument furnished or to be
furnished by the Seller pursuant to such representation or warranty, or any
Third Party Claim (regardless of whether the claimant is ultimately successful)
which if true would be such a misrepresentation or breach. Notwithstanding the
foregoing, the Seller shall not be required to indemnify Purchaser for any
liability, loss, damage or injury to the extent Purchaser receives proceeds from
any insurance policies purchased by Seller or Purchaser; provided, however, that
if an insurer denies payment of a claim under such an insurance policy,
Purchaser shall be entitled to indemnification from the Seller and shall be
under no obligation to pursue any action against such insurer.
9.7.2 Survival of Covenants and Agreements.
All covenants and agreements undertaken by the Seller in Articles II, V,
VII, IX and X of this Agreement or in any in any document or instrument executed
and delivered pursuant thereto ("Seller's Covenants"), are continuing
obligations of Seller, which survive Closing, and are not subject to the
limitations of Section 9.9.
9.8 Indemnification by Purchaser
<PAGE>
9.8.1 Indemnification by Purchaser Regarding Representations and
Warranties, Survival of Same.
All representations and warranties made or undertaken by the Purchaser in
this Agreement or in any document or instrument executed and delivered pursuant
hereto are material and have been relied upon by Seller. The representations and
warranties of Purchaser set forth in Sections 6.1 through 6.5 shall survive
Closing hereunder for two years, and shall not merge in the performance of any
obligation by any party hereto. Subject to the foregoing, and to Section 9.9,
Purchaser hereby agrees to indemnify and hold Seller and its officers,
directors, employees, attorneys, agents and other representatives harmless from
and against and in respect of any liability, claim, deficiency, loss, damage, or
injury and all reasonable costs and expenses (including reasonable attorneys
fees and cost of any suit related thereto) suffered or incurred by such person
(collectively, a "Loss") arising from any breach of any representation or
warranty of the Purchaser which survives Closing, or any exhibit, certificate or
other instrument furnished or to be furnished by the Purchaser pursuant to such
representation or warranty, or any Third Party Claim (regardless of whether the
claimant is ultimately successful) which if true would be such a
misrepresentation or breach. Notwithstanding the foregoing, the Purchaser shall
not be required to indemnify Seller for any liability, loss, damage or injury to
the extent Seller receives proceeds from any insurance policies purchased by
Seller or Purchaser; provided, however, that if an insurer denies payment of a
claim under such an insurance policy, Seller shall be entitled to
indemnification from the Purchaser and shall be under no obligation to pursue
any action against such insurer.
9.8.2 Survival of Covenants and Agreements.
All covenants and agreements undertaken by the Purchaser in Articles II,
V, VII and IX of this Agreement or in any in any document or instrument executed
and delivered pursuant thereto ("Purchaser's Covenants"), are continuing
obligations of Purchaser, which survive Closing, and are not subject to the
limitations of Section 9.9.
9.9 Calculation of and Limitation on Indemnification.
9.9.1 Calculation. Subject to the limitations imposed by Section
9.9.2 below, for purposes of this Article IX only, in determining whether a
representation or warranty of a party has been violated or breached, and in
calculating the amount of claims relating to such violation or breach, the
standards of Materiality and Material Adverse Effect shall be disregarded.
9.9.2 Limitation. Notwithstanding any other provisions contained in
this Article IX, with the exception of Sections 9.7.2 and 9.8.2, (i) neither
Purchaser nor Seller shall be entitled to receive any amount under this Article
IX which exceeds the Purchase Price; (ii) Purchaser shall not be entitled to
payment under this Article IX except for the amount by which the aggregate of
all claims for Losses hereunder, which have not theretofore been reimbursed to
Purchaser, exceeds the sum of $500,000 (provided, however, that any claim with
respect to the Credit shall not be subject to this limitation); and (iii) Seller
shall not be entitled to payment under this Article IX except for the amount by
which the aggregate of all claims for Losses hereunder which have not
theretofore been reimbursed to Seller exceeds the sum of $500,000.
9.9.3 Example. By way of example and not by limitation, if it is
determined that Seller did not have clear title to a portion of the Assets
resulting in a Loss of $250,000, that the Business is subject to a claim for
patent infringement resulting in a Loss of $270,000, then Purchaser would have a
claim under this Article IX of $20,000, notwithstanding the fact that,
<PAGE>
considered separately, neither item reaches the economic standard for
Materiality.
9.10 Sole Basis For Recovery. Unless specifically provided for elsewhere
in this Agreement, the parties intend this Article IX to be the exclusive method
for compensating each other for, or indemnifying each other against, claims
relating to the Transactions.
9.11 West Little York Lease. Seller and Purchaser shall, at Closing,
execute a lease on the West Little York Lease Parcel, through the earlier of
September 1, 1998 or the date of completion of the Purchaser's new facility in
Conroe, Texas, in the form attached as Schedule 8.5.
9.12 Cooperation Regarding Collection of Receivables. Each party shall
retain possession of and be solely responsible for collecting all accounts
receivable attributable to invoices generated by such party; provided, however,
that the parties agree to reasonably cooperate with one another in the
collection of the accounts receivable.
X. Non-Competition Agreement
10.1 For a period of five years following Closing (the "Non-Compete
Period"), neither Seller nor any Affiliate (as defined in Section 10.2, below)
shall directly or indirectly own, operate, manage, or engage in the directional
drilling services business or the survey services business in North and South
America, and the surrounding offshore waters (the "Non-Compete Area"), which
area is deemed reasonable by the parties considering the present and former
areas where Seller and its predecessors by acquisition or merger have done
business. The foregoing sentence shall not be deemed to have been violated by
the manufacturing and sales business of PEPI (including RSS), nor by the leasing
business of PEPI (including RSS), providing that said leasing business is not
the equivalent of engaging in the directional drilling services or survey
services business. The parties desire to comply with the Texas Covenant Not to
Compete Act. Should the Non-Compete Area or the Non-Compete Period be deemed
overly broad, then the parties hereby agree that same shall be reduced, by an
appropriate authority, to a period or area deemed reasonable.
10.2 As used herein, "Affiliate" shall mean Seller, together with
Seller's ultimate parent, Phoenix Energy Services, L.L.C. ("Energy"), or any
direct or indirect subsidiary of Seller or Energy, whether or not wholly owned.
10.3 It is agreed by the parties hereto that, in the event of any breach
of the non-competition provisions of this Agreement, legal remedies available to
the Purchaser would be inadequate. Therefore, in the event of such breach,
notwithstanding the Arbitration provisions hereof, the Purchaser is specifically
authorized to apply to a court of competent jurisdiction to enjoin any violation
of such provision.
XI. Miscellaneous
11.1 No Assignment. Neither this Agreement, nor any right, interest or
obligation hereunder, may be assigned by either of the parties hereto without
the prior written consent of the other party(s), except that Purchaser may
assign this Agreement, in whole or in part, to its subsidiary Boone Wireline
Co., Inc., provided that no such assignment shall relieve Purchaser of any
obligations created hereunder.
11.2 Multiple Counterparts. Any number of counterparts of this Agreement
may be executed, and each such counterpart shall be deemed to be an original
instrument, but all such
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counterparts together shall constitute but one and the same agreement, binding
on both the parties notwithstanding that both parties have not signed the same
counterpart.
11.3 Modifications. There shall be no waiver, modification or change of
the terms of this Agreement without the written approval of the parties hereto.
11.4 Captions. The titles of the Articles and Paragraphs and the captions
of this Agreement have been assigned thereto for convenience and reference only
and in no way define, describe, extend or limit, nor be construed as limiting,
defining or affecting the substantive terms, scope or intent of this Agreement.
11.5 Entire Agreement, Integration. This Agreement, together with the
accompanying schedules which are attached hereto and incorporated herein by
reference, constitutes the entire agreement among the parties hereto, as a
complete and final integration thereof. All understandings and agreement
heretofore had between and among the parties with respect to the subject matter
of this Agreement are merged into this Agreement, which alone fully and
completely expresses their understandings, and this Agreement supersedes all
prior memoranda, correspondence, conversations and negotiations.
There have been and are no agreements, representations or warranties
between the parties other than those set forth or provided herein.
No representation or warranty made by any party which is not contained in
this Agreement or expressly referred to herein has been relied on by any party
in entering into this Agreement.
11.6 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given and
delivered upon personal delivery or, if mailed, upon depositing such notice in
the United States mail, with first class postage prepaid, and
(i) If to the Purchaser, to:
Black Warrior Wireline Corp
3748 Highway 45, N
Post Office Box 9188
Columbus, Mississippi 39705
Attn: William L. Jenkins
(ii) If to the Seller, to:
Phoenix Drilling Services, Inc.
1400 Broadfield, Suite 207
Houston, Texas 77084
Any party may change the address to which notices are to be delivered to such
party, by notice given in accordance with this subparagraph to the other party.
11.7 Governing Law. The laws of the State of Delaware shall govern the
validity, construction and interpretation of this Agreement, except with respect
to the non-competition provisions hereof, which shall be governed by the laws of
the State of Texas.
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11.8 Gender, Number. All personal pronouns used in this Agreement shall
include all genders, whether used in the masculine, feminine or neuter gender.
Singular nouns and pronouns shall include the plural, as may be appropriate, and
vice versa.
11.9 Severability. All of the terms, provisions and conditions of this
Agreement shall be deemed to be severable in nature. If, for any reason, the
provisions hereof are held to be invalid or unenforceable to any extent, to the
extent that such provisions are valid and enforceable, a court of competent
jurisdiction shall construe and interpret this Agreement to provide for maximum
validity and enforceability of this Agreement.
11.10 Successors. This Agreement shall bind the parties and their heirs,
successors, assigns, next of kin and personal representatives.
11.11 Construction. This Agreement shall be construed in its entirety
according to its plain meaning and shall not be construed against the party who
provided or drafted it.
11.12 Party. The terms party and parties refer to the parties to this
Agreement, unless otherwise stated.
11.13 Subdivision. References to paragraphs, subparagraphs, and like
subdivisions are references to such subdivisions of this Agreement, unless
otherwise stated.
11.14 Hereof. Terms such as "hereof," "hereto," "hereunder," "herein" and
the like refer to the entire Agreement and not only to the subdivision in which
such terms appear.
11.15 Fees and Expenses. Except as otherwise specifically provided in
this Agreement, each party shall bear its own fees, costs and expenses
associated with the Transactions.
11.16 Knowledge. As used herein, the term "knowledge" shall mean, with
respect to Seller, the knowledge of the following: Gerald Hage, Keith Morley
and/or Mike Mayer. As used herein, the term "knowledge" shall mean, with respect
to Purchaser, the knowledge of the following: Bill Jenkins and/or Allen Neel.
Knowledge of a matter shall be deemed to be knowledge as of the date of
execution of this Agreement, and shall also mean knowledge as of the Closing
Date.
11.17 No Third Party Beneficiaries. With the exception of those persons
mentioned in Sections 9.7 and 9.8, there are no third party beneficiaries to
this Agreement.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
effective on the day and date first above written.
PURCHASER:
WITNESS: BLACK WARRIOR WIRELINE CORP.
BY:
William L. Jenkins, President
SELLER:
WITNESS: PHOENIX DRILLING SERVICES, INC.
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BY:
Gerald Hage, C.E.O
Phoenix Energy Products, Inc., a wholly owned subsidiary of the ultimate
parent of Seller, guarantees performance by Seller under the indemnification
obligations of the foregoing Agreement.
WITNESS: PHOENIX ENERGY SERVICES, LLC
BY:
Gerald Hage, C.E.O.
AGREEMENT FOR PURCHASE AND SALE
This Agreement for Purchase and Sale (the "Agreement"), is made and
entered as of January 23, 1998, by and between Black Warrior Wireline Corp., a
Delaware corporation ("Black Warrior"), and St. James Capital Partners, L.P., a
Delaware limited partnership, and its assigns or transferees pursuant to Section
5.5 ("Purchaser"), and sets forth the terms and conditions of the sale and
purchase of an 8% Convertible Promissory Note in the original principal amount
of up to $10,000,000, substantially in the form attached hereto as Exhibit A
(the "Note"). For purposes of this Agreement, the term "Seller" is defined to
mean Black Warrior and the Active Subsidiary (defined in Section 2.8 below).
WHEREAS, Seller desires to issue and sell to Purchaser, and Purchaser
desires to purchase and accept from Seller, the Note in the form of Exhibit A,
on the terms and subject to the conditions set forth herein.
WHEREAS, the obligations of Seller under the Note are secured by (i) that
certain Borrower Security Agreement dated as of June 5, 1997, between Seller and
Purchaser, as amended on October 10, 1997, and which is amended and modified
pursuant to that certain Second Amendment and Ratification of Borrower Security
Agreement substantially in the form attached hereto as Exhibit B-1 (the "Second
Amendment of Borrower Security Agreement"), and (ii) that certain Subsidiary
Security Agreement (herein so called) dated as of June 5, 1997, between the
subsidiaries of Black Warrior and Purchaser, as amended on October 10, 1997, and
which is hereby amended and modified pursuant to that certain Second Amendment
and Ratification of Subsidiary Security Agreement, substantially in the form
attached hereto as Exhibit B-2 (the "Second Amendment of Subsidiary Security
Agreement"), and are guaranteed by that certain Subsidiary Guaranty dated as of
June 5, 1997, by the subsidiaries of Black Warrior in favor of Purchaser, as
amended on October 10, 1997, and which is amended and modified pursuant to that
certain Second Amendment and Ratification of Subsidiary Guaranty substantially
in the form attached hereto as Exhibit B-3 (the "Second Amendment of Subsidiary
Guaranty").
WHEREAS, Seller and Purchaser desire to make certain representations,
warranties and agreements in connection with the purchase and sale of the Note
contemplated hereby.
WHEREAS, Seller desires to sell to Purchaser warrants ("Warrants") to
purchase 20,000 shares of Seller's common stock, par value $0.0005 per share
(the "Common Stock"), for each $100,000 advanced by Purchaser to Black Warrior
pursuant to the Note, which Warrants shall have the terms and be subject to the
conditions set forth in the form of Warrants attached hereto as Exhibit C.
WHEREAS, Seller desires to grant to Purchaser certain registration rights
in respect of the Common Stock that may be acquired on conversion of the Note
and on the exercise of the Warrants, which registration rights shall have the
terms and be subject to the conditions set forth in the Registration Rights
Agreement dated as of June 5, 1997, as amended on October 10, 1997, and as
amended and modified by that certain Amendment No. 2 to Registration Rights
Agreement substantially in the form attached hereto as Exhibit D (the "Amendment
No. 2 to Registration Rights Agreement").
WHEREAS, this Agreement, the Note, the Second Amendment to Security
Agreement, the Second Amendment to Subsidiary Security Agreement, the Second
Amendment to Subsidiary Guaranty, the Warrants, and the Amendment No. 2 to
Registration Rights Agreement are collectively referred to herein as the
"Transaction Documents".
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NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase and Sale of the Note and the Warrants. Subject to the terms
of this Agreement, Seller agrees to and does hereby issue, sell and deliver the
Note and the Warrants to Purchaser at the Closing (as defined herein), and
Purchaser agrees to and does hereby purchase and accept the Note and the
Warrants from Seller.
1.2 Consideration for Purchase of the Note. Subject to the terms of this
Agreement, Purchaser hereby agrees to pay to Seller, by check or wire transfer
to the account of Black Warrior, $10,000,000, as the consideration for the
purchase of the Note (the "Note Consideration"). It is the intention of the
parties that the Note Consideration shall be advanced in multiple advances, with
$1,000,000 being paid at the time of the execution of the Asset Purchase
Agreement (the "Phoenix Agreement") between Seller and Phoenix Drilling
Services, Inc., and an additional $1,000,000 being paid on March 1, 1998 if the
acquisition made the subject of the Phoenix Agreement has not been closed by
such date. Interest under the Note shall accrue on amounts actually advanced.
1.3 Consideration for Purchase of the Warrants. Subject to the terms of
this Agreement, Purchaser hereby agrees to pay to Seller, by check or wire
transfer to the account of Black Warrior, $100,000 (or $0.05 per share subject
to the Warrants) as the consideration for the purchase of the Warrants (the
"Warrant Consideration"; the Note Consideration and the Warrant Consideration
are collectively referred to herein as the "Consideration"). It is the intention
of the parties that the Warrant Consideration shall be paid in multiple payments
with $10,000 being paid at Closing, and with $1,000 being paid for each
additional $100,000 advanced by Purchaser to Seller hereunder.
1.4 Origination Fee. Seller agrees to pay Purchaser at Closing a one-time
origination fee in the amount of $125,000 (the "Origination Fee") for the
payment of the Note Consideration.
1.5 Subordination to Future Financing. Purchaser agrees to enter into
subordination agreements with senior secured lenders that provide financing to
Seller in an amount not to exceed $4,500,000 with respect to a term loan and
$3,000,000 with respect to a revolving credit facility (in this section, the
"Senior Lenders"), pursuant to which Purchaser would subordinate its security
interests and rights to the security interests of the Senior Lenders. Such
subordination agreements shall be on terms and conditions acceptable to all
parties (including Purchaser, which agrees to negotiate in good faith with
respect to the subordination agreement) at the time they are entered into. Such
subordination agreements shall not obligate Purchaser to "stand still" for a
period of time longer than 60 days after a default by Seller in its obligations
to the Senior Lender(s).
1.6 Future Financings. If Seller, at any time so long as the Note is
outstanding, intends to issue or sell any shares of capital stock, debt
securities or securities convertible into, exchangeable for or exercisable for
shares of capital stock or debt securities (a "Financing"), Seller shall give
Purchaser written notice (the "Offer") of its intent to engage in a Financing,
specifying its basic terms and conditions. If Purchaser gives notice to Seller,
specifying Purchaser's basic terms and conditions, of its intent to provide
Financing on a basis materially similar to the proposal set forth in the Offer
within five (5) business days after receipt of the Offer (a "Financing Notice"),
then Seller shall be obligated to
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consummate the Financing only with Purchaser and Purchaser shall be obligated to
provide the financing at the time committed by the third party whose commitment
gave rise to the Offer. If Purchaser does not within five (5) business days
after receipt of the Offer give to Seller a Financing Notice, Purchaser shall be
deemed to have waived its rights to provide the Financing under this Section,
and Seller may thereafter obtain such Financing from a third party or parties if
such third party Financing is on the same basic terms and conditions as those
set forth in the Offer. Any proposed Financing on terms materially different
from those basic terms and conditions in the Offer deemed waived by Purchaser
shall require a new Offer and compliance by Seller with the provisions of this
Section. Notwithstanding the foregoing, Seller shall not be required to comply
with this Section in connection with: (i) the issuance and sale of Common Stock
or convertible securities in connection with any employee stock option plan,
arrangement or agreement now or hereafter in effect; (ii) the issuance of
capital stock of Seller upon exercise of the Warrants or otherwise issued to
Purchaser or its assigns; (iii) the issuance of capital stock upon exercise of
any stock purchase warrant or option (other than the options referred to in
clause (i) above) or other convertible security outstanding on the date hereof
or hereafter issued; (iv) a public offering of securities; (v) any loan from a
regular commercial lending source; or (vi) any securities issued with the
favorable vote of Purchaser's designee as a director of the Seller.
1.7 Other Permitted Debt. Seller shall be permitted to incur indebtedness
for borrowed money for the purchase or financing of equipment in the ordinary
course of business, in an amount not to exceed $7,500,000.
1.8 Future Advances. The Purchaser shall make additional advances of the
Note Consideration and Warrant Consideration upon delivery by the Seller of the
following:
(a) a written request for such advance at the address for the
Purchaser in Section 5.2 hereof, setting forth (i) the amount requested,
(ii) the account to which such advance is to be funded, (iii) the date
for which such advance is requested and (iv) the proposed use of the
proceeds of such advance, which shall be satisfactory to Purchaser in its
reasonable discretion;
(b) a certificate of an officer of Seller certifying that, as of
the date the advance is requested, no Event of Default hereunder has
occurred, that Seller is in compliance with all covenants herein and that
all of the representations and warranties set forth herein are true and
correct as of such date;
(c) a Warrant in favor of Seller, executed by Purchaser, for a
number of shares equal of Common Stock equal to 20,000 shares times the
multiple of $100,000 represented by the requested advance;
(d) such security documents respecting the assets of the Seller or
its Active Subsidiary as may be reasonably requested by Purchaser;
(e) such other documents, certificates, agreements or instruments
as may be reasonably requested by Purchaser in connection with any or all
of the foregoing; and
(f) payment by Seller of any and all expenses or other amount due
and owing to Purchaser.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
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Seller represents and warrants to Purchaser that each of the following
statements (i) are true and correct on the date hereof and (ii) will be true and
correct in all material respects on the date each advance of the Note
Consideration is made:
2.1 Organization, Standing and Qualification. Each of Black Warrior and
the Active Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted. Each of Black Warrior
and the Active Subsidiary is licensed and qualified to do business as a foreign
corporation in each jurisdiction in which the character of its properties, owned
or leased, or the nature of its activities makes such qualification or license
necessary.
2.2 Authority; No Defaults. Each of Black Warrior and the Active
Subsidiary has all requisite corporate power and authority to enter into the
Transaction Documents and to consummate the transactions contemplated thereby.
The execution and delivery of the Transaction Documents and the consummation of
the transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of Seller. The Transaction Documents have been
executed and delivered by Seller and constitute the valid and binding obligation
of Seller, enforceable in accordance with their terms, subject to bankruptcy,
insolvency, moratorium and other similar laws affecting creditors' rights
generally and general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The execution
and delivery of the Transaction Documents do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with or result
in a breach of or the acceleration of any obligation under, or constitute a
default or event of default (or event which, with notice or lapse of time or
both, would constitute a default or event of default) under, any provision of
any charter, bylaw, indenture, mortgage, lien, lease, agreement, contract,
instrument, order, judgment, decree, ordinance or regulation, or any restriction
to which any property of Seller is subject or by which Seller is bound, the
effect of which would be materially adverse to Seller. Seller is not, nor does
Seller have knowledge that it is alleged to be, in material violation or default
of any applicable law, statute, order, rule or regulation promulgated or
judgment entered by any court, administrative agency or commission or other
governmental agency or instrumentality, domestic or foreign (a "Governmental
Entity"), relating to or affecting the operation, conduct or ownership of the
property or business of Seller.
2.3 Approvals. There is no legal impediment to the execution and delivery
of the Transaction Documents by Seller or to the consummation of the
transactions contemplated thereby, and no filing or registration with, or
authorization, consent or approval of, a Governmental Entity, shareholders or
any other third party is necessary for the consummation by Seller of the
transactions contemplated thereby.
2.4 Charter and Bylaws. Seller has furnished to Purchaser true and
complete copies of its charter and bylaws, each as amended to date and as
presently in effect.
2.5 SEC Documents.
(a) Seller has made all filings with the Securities and Exchange
Commission ("SEC") that it has been required to make under the Securities
Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") since December 31,
1994. Seller has provided to Purchaser true, complete and correct copies
of Seller's annual report on Form 10-K ("Seller's Form 10-K") for the
fiscal year ended
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December 31, 1996, together with all amendments thereto, Seller's
quarterly report on Form 10-Q for the fiscal quarters ended June 30, 1997
and September 30, 1997, together with all amendments thereto, and any and
all filings with the SEC made by Seller (including all requested exhibits
to such filings) since the filing of said Form 10-K (all such documents
that have been filed with the SEC, as amended, are referred to as the
"Seller SEC Documents"). As of their respective dates, and except as
amended, Seller SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may
be, and none of Seller SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The financial statements of Seller included in the Seller SEC
Documents comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted
by Form 10-Q) and fairly present (subject, in the case of the unaudited
statements, to normal recurring audit adjustments) the consolidated
financial position of Seller as of the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended.
Since September 30, 1997, (i) there have been no material adverse changes
in Seller's business, operations or financial condition and (ii) Seller's
operations have been conducted in the ordinary course of business except
as disclosed in writing to Purchaser.
2.6 Litigation. Except as set forth on Schedule 2.6, as of the date of
this Agreement, there is no suit, action, proceeding or investigation pending
or, to the best knowledge of Seller, threatened against or affecting Seller, nor
is there any outstanding judgment, order, writ, injunction or decree against
Seller, which judgment would have a material adverse effect on Seller. Seller is
not subject to any court order, writ, injunction, decree, settlement agreement
or judgment that contains or orders any on-going obligations, whether
prohibitory or mandatory in nature, the performance of which would have a
material adverse effect on Seller.
2.7 Capitalization. Black Warrior has authorized capital stock of (a)
12,500,000 shares of Common Stock of which, as of the date hereof, there are
2,964,785 shares issued and outstanding, and (b) 2,500,000 shares of preferred
stock of which, as of the date hereof, there are no shares issued and
outstanding . All of the issued and outstanding shares of Common Stock were duly
and validly issued and are fully paid and non-assessable. None of the
outstanding shares of Common Stock has been issued in violation of any
preemptive rights of the current or past stockholders of Seller. As of the date
hereof, Black Warrior has reserved for issuance (i) an aggregate of 760,000
shares of Common Stock issuable on issuance of stock options to employees,
officers, directors and other persons, and the Board of Directors of Black
Warrior has approved amendments to the plans in respect of such options to
increase the shares available thereunder to an aggregate of 1,260,000 shares of
Common Stock, subject to the approval of the shareholders of Black Warrior, and
(ii) an aggregate of 1,707,250 shares of Common Stock issuable on the exercise
of outstanding warrants, options, or of convertible securities other than those
listed in (i) above. Except as set forth on Schedule 2.7 or described above in
(i) and (ii), there are no outstanding options, warrants or rights to subscribe
for, or commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of
Black Warrior or contracts, commitments, understandings or arrangements by which
Black Warrior is or may be obligated to issue additional shares of its capital
stock or options, warrants, or rights to purchase or acquire any additional
shares of its capital stock. All of the Common Stock issued on the exercise of
the Warrants will be fully paid, non-assessable and free and clear of any
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Encumbrances. As used in this Agreement, the term "Encumbrance" means and
includes (i) any security interest, mortgage, deed of trust, lien, charge,
pledge, proxy, adverse claim, equity, power of attorney, or restriction of any
kind, including but not limited to, any restriction or servitude on the use,
transfer, receipt of income, or other exercise of any attributes of ownership,
and (ii) any Uniform Commercial Code financing statement or other public filing,
notice or record that by its terms purports to evidence or notify interested
parties of any of the matters referred to in clause (i) that has not been
terminated or released by another proper public filing, notice or record.
2.8 Subsidiaries. Schedule 2.8 sets forth the only active subsidiary of
Seller, including state or country of organization and address of its principal
executive offices ("Active Subsidiary"). For purposes of this Agreement and the
other agreements contemplated hereby, the Active Subsidiary is the only
"subsidiary" of Seller. Schedule 2.8 also discloses four inactive corporations
and/or limited partnerships owned by Seller (the "Inactive Organizations"), all
four of which are at this time inactive, defunct, and have no value. No
representation, warranty, financial standard or other provision of this
Agreement, or any agreement contemplated hereby, shall be deemed violated by
virtue of the fact that any of the Inactive Organizations do not meet said
representation, warranty, financial standard or other provision. However, if any
Inactive Organization begins to conduct any business (other than activities to
"wind down" such organization) such Inactive Organization shall be considered an
Active Subsidiary (and cease to be an Inactive Organization) from that point
forward. The Active Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, has
all requisite corporate power and authority to own, to lease or to operate its
properties and to carry on its business as it is now being conducted and is duly
qualified or licensed to do business in each jurisdiction in which the character
of its properties, owned or leased, or the nature of its activities makes such
qualification or license necessary, unless the failure to be so licensed or
qualified would not have a material, adverse effect on Seller. Except as set
forth in Schedule 2.8, all outstanding shares of capital stock of the Active
Subsidiary were duly and validly issued and are fully paid, nonassessable and
owned by Seller or a subsidiary of Seller, free and clear of all Encumbrances.
There are no options, warrants or other rights, agreements or commitments
(including preemptive rights) obligating Seller or the Active Subsidiary to
issue, to sell or to transfer any shares of capital stock or other securities of
the Active Subsidiary. There are 151 shares of capital stock of Active
Subsidiary issued and outstanding, all of which has been pledged to Purchaser.
2.9 Liabilities. Except as set forth in Schedule 2.9, Seller has no
liabilities or obligations, either accrued, absolute, contingent, or otherwise
that have a material adverse effect on the value or business of Seller, and
Seller has no knowledge of any potential liability that it reasonably believes
would likely result in a material adverse effect on the value or business of
Seller, other than those (a) reflected or reserved against in the balance sheets
reported on Seller's Form 10-Q for the fiscal quarter ended September 30, 1997,
or (b) incurred in the ordinary course of business since September 30, 1997.
2.10 Licenses, Permits, Authorizations, Etc. Seller holds all approvals,
authorizations, consents, licenses, orders, franchises, rights, registrations
and permits of any type required to operate its business as presently conducted.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in any revocation,
cancellation, suspension or modification of any such approval, authorization,
consent license, order, franchise, right, registration or permit.
2.11 Title to Assets; Encumbrances. Except as set forth in Schedule 2.11:
(a) Seller has good and indefeasible title to its assets, whether
real, personal or
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intangible, free and clear of all Encumbrances except (i) liens for
current taxes and assessments not yet due or being contested in good
faith by appropriate proceedings, (ii) mechanic's liens arising under the
operation of law for actions contested in good faith or for which payment
arrangements have been made, (iii) liens granted or incurred by Seller in
the ordinary course of its business or financing of equipment, office
space, furniture and computers in the ordinary course of its business,
and (iv) easements, rights of way, encroachments or other restrictions or
matters affecting title which do not prevent the assets from being used
for the purpose for which they are currently being used;
(b) There are no parties in possession of any of the assets of
Seller other than personal property held by third parties in the
reasonable and ordinary course of business. Seller enjoys full, free and
exclusive use and quiet enjoyment of its assets and its rights pertaining
thereto. Seller enjoys peaceful and undisturbed possession under all
leases under which it is a lessee, and all such leases are legal, valid
and binding obligations of Seller, enforceable against Seller in
accordance with its terms.
2.12 Taxes and Returns. Seller has filed all required tax returns and
reports. Seller has paid all taxes, assessments and governmental charges and
penalties which it has incurred, except such as are being or may be contested in
good faith by appropriate proceedings. Seller is not delinquent in the payment
of any tax, assessment or governmental charge. No deficiencies for any taxes
have been proposed, asserted, or assessed against Seller, and no requests for
waivers of the time to assess any such tax are pending. For the purposes of this
Agreement, the term "tax" (including, with correlative meaning, the terms
"taxes" and "taxable") shall include all federal, state, local and foreign
income, profits, franchise, gross receipts, payroll, sales, employment, use,
property, withholding, excise and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts.
2.13 Insurance. Each policy of property, fire and casualty, product
liability, worker's compensation, professional liability and title insurance and
other forms of insurance (except group, health and life policies) and each bond
issued or posted by any person with respect to any operations or other
activities of Seller is, to the knowledge of Seller, the legal, valid and
binding obligation of the insurer or bond issuer, enforceable in accordance with
its terms, and is in an amount and provides for coverage as is customary in the
ordinary business practices of Seller's industry.
2.14 Patents, Trademarks, Etc. Seller has no patents, trademarks, service
marks, works of authorship, tradenames, brandnames or copyrights. Seller is not
using, and does not have any plan to manufacture, use or sell anything which
would violate or infringe on any patent or proprietary right (of which Seller is
aware) of any other person, firm or corporation or which would require a license
under any such patent or proprietary right. Seller has not received any
communications alleging that Seller has violated or, by conducting its business
as proposed, would violate any of the patents, trademarks, service marks,
tradenames, copyrights, works of authorship or trade secrets or other
proprietary rights in processes of any other person or entity.
2.15 Material Contracts and Obligations. Attached hereto as Schedule 2.15
is a list of all material agreements of any nature to which Seller is a party or
by which it or any of its properties is bound, including without limitation, the
Master Service Agreement with the ten top customers (based on dollar volume) of
Seller, all employment and consulting agreements, loan agreements, leases,
purchase contracts, employee benefit, bonus, pension, stock option, stock
purchase and similar plans and arrangements, and distributor and sales
representative agreements. True and complete copies of such written agreements
have been provided to Purchaser. All such agreements and contracts are
7
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valid, binding and in full force and effect. Seller is not in default on any of
the agreements listed on Schedule 2.15.
2.16 Compliance. Except as set forth on Schedule 2.16, Seller has
complied in all material respects with all laws, and is not in violation of any
charter or other corporate restrictions or any law, ordinance, requirement,
regulation, judgment, injunction, award, decree, or other order applicable to
its business. There is no term or provision of any mortgage, indenture,
contract, agreement or instrument to which Seller is a party or by which it is
bound, any provision of any state or federal judgment, decree, order,
injunction, writ, statute, rule or regulation applicable to or binding upon
Seller, which materially adversely affects or, in the future is reasonably
likely to affect materially and adversely the business, prospects, condition,
affairs or operations of Seller or any of its properties or assets. To the
knowledge of Seller, no employee of Seller is in violation of any term of any
employment contract, patent or other proprietary information disclosure
agreement or any other contract or agreement relating to the employment of such
employee with Seller.
2.17 Employees. Seller has obtained employment agreements, some of which
contain nondisclosure and assignment of invention provisions and non-competition
provisions, with Seller from some employees and consultants of Seller whose
employment responsibility requires access to confidential and proprietary
information of Seller, in a form satisfactory to Purchaser. Seller has complied
in all material respects with all applicable and material state and federal laws
respecting employment and employment practices, terms and conditions of
employment, wages and hours and other laws related to employment, and there are
no arrears in the payment of wages, or social security taxes.
2.18 Transactions with Affiliates and Stockholders. Except as set forth
on Schedule 2.18, no stockholder, officer, director or employee of Seller, nor
any "affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act), is presently a
party to any transaction with Seller, including without limitation, any
contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or otherwise
requiring payments to, any such person or entity.
2.19 Use of Proceeds. Seller will not use the Consideration, except (a)
to fund acquisitions (all subject to the Purchaser's prior review and approval)
related to (i) the Phoenix Agreement and (ii) the proposed acquisition of, or of
assets from, Performance Drilling Specialists, Inc., a Colorado corporation,
Petro Wireline Services, a division of Nygren Investment Company, a New Mexico
limited partnership, and Tiger Cased Hole Services, Inc., a California
corporation, (b) to fund the 1998 company capital expenditure program and (c) to
pay attorneys' fees and transactional costs in connection with this Agreement
and all agreements contemplated hereby, as well as pursuant to that certain
Agreement for Purchase and Sale dated June 5, 1997 and that certain Agreement
for Purchase and Sale dated October 10, 1997. Seller shall not use the
Consideration for any other purpose without the prior consent of Purchaser.
2.20 Books and Records. The minute books of Seller furnished to counsel
to Purchaser for review contain complete and accurate records of all meetings
and other corporate actions of its stockholders and its Board of Directors and
committees thereof. The stock ledger and stock transfer records of Seller
furnished by Liberty Transfer Company to counsel to Purchaser for review is
complete and reflects all issuances, transfers of which Seller is aware,
repurchases and cancellations of shares of capital stock of Seller.
2.21 Stockholder Agreements. Except as set forth in Schedule 2.21 or as
contemplated by
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this Agreement, there are no agreements, written or oral, which are (i) between
Seller and any holder of its capital stock, or (ii) to the knowledge of Seller,
among any persons holding five percent (5%) or more of Seller's capital stock,
relating to the acquisition, disposition or voting of the capital stock of
Seller.
2.22 ERISA. Except as disclosed on Schedule 2.22, Seller has no employee
benefit plans subject to the Employment Retirement Income Security Act of 1974.
2.23 Accounts Receivable. All accounts receivable of Seller (including
those reflected on the Balance Sheet or acquired on or prior to the Closing
Date) arose in the ordinary and usual course of business of Seller, represent
valid obligations due to Seller and have been collected or are, to Seller's best
knowledge, collectible in the ordinary and usual course of business of Seller in
the aggregate recorded amounts thereof in accordance with their terms less in
the case of accounts receivable reflected in the Financial Statements, all
allowance for doubtful accounts marked therein, and in the case of accounts
receivable thereafter, all allowances for doubtful accounts consistent with past
practices of Seller.
2.24 Hazardous Wastes and Substances. Neither the operations of Seller
nor the use of its assets violates any applicable federal, state or local law,
statute, ordinance, rule, regulation, memorandum of understanding, order or
notice requirement pertaining to the collection, transportation, storage,
treatment, discharge, release or disposal of hazardous or non-hazardous waste or
substances, including without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C, ss.ss. 9601 et
seq.), as amended from time to time on or before the Closing Date ("CERCLA")
(including, without limitation, as amended pursuant to the Superfund Amendments
and Reauthorization Act of 1986), and such regulations promulgated under CERCLA
on or before the Closing Date, (ii) the Resources Conservation and Recovery Act
of 1976 (42 U.S.C. ss.ss. 6901 et seq.), as amended from time to time ("RCRA")
on or before the Closing Date, and such regulations promulgated under RCRA,
(iii) any applicable federal, state or local laws or regulations relating to the
environment in effect on the Closing Date (collectively, the "Applicable
Environmental Laws"). Except as disclosed on Schedule 2.24, none of the
operations of Seller has ever been conducted nor have any of its assets been
used in such a manner as to constitute a violation of any of the Applicable
Environmental Laws. No notice has been served on Seller by any person or
Governmental Entity regarding any existing, pending or threatened investigation
or inquiry related to violations under any Applicable Environmental Law, or
regarding any claims for corrective action, remedial obligations or contribution
for removal costs or damages under any Applicable Environmental Law, or
regarding the designation of Seller or any of its affiliates as a potentially
responsible party for any facility under the Applicable Environmental Laws, nor
does any fact or circumstance exist which, if disclosed publicly, would be
reasonably likely to result in the service on Seller of any such notice. There
has been no action taken, or omitted to be taken by Seller which has caused, or
would be reasonably likely to cause, a "release" of any "hazardous substance" at
any "facility," without limitation, within the meaning of such terms as defined
in the Applicable Environmental Laws.
2.25 Disclosures. Neither this Agreement nor any Exhibit or Schedule
hereto, nor any certificate or other instrument furnished to Purchaser or its
counsel by Seller in connection with the transactions contemplated hereby,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which they were made, not misleading.
ARTICLE III
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COVENANTS
3.1 New Subsidiaries. Seller agrees that (i) any Inactive Organization
which becomes an Active Subsidiary after the execution of this Agreement and
(ii) any other entity of which Seller obtains control (directly or indirectly)
of more than 50% of the outstanding voting stock or equity interests shall
execute a written agreement to be bound by that certain Subsidiary Security
Agreement dated as of June 5, 1997, as amended on October 10, 1997, and on the
date hereof, before the events set forth in (i) or (ii) above have occurred.
3.2 Additional Security Interests. Seller agrees that if any Inactive
Organization begins to conduct any business Seller shall pledge all of its
interest in such Inactive Organization to secure the Notes by (i) executing a
security agreement substantially in the form of that certain Borrower Security
Agreement dated as of June 5, 1997, as amended on October 10, 1997, and on the
date hereof and (ii) delivering all certificates representing the shares of
stock being pledged, before such Inactive Organization commences doing business.
3.3 Conversion of Note; Registration of Securities. The parties hereto
recognize and acknowledge that Purchaser previously purchased from Seller that
certain $2,000,000 9% Convertible Promissory Note dated June 5, 1997 and that
certain $2,900,000 7% Convertible Promissory Note dated October 10, 1997
(together, the "Original Convertible Notes"). Purchaser hereby covenants and
agrees to promptly convert the Original Convertible Notes pursuant to its terms,
but only if and when (i) Seller has filed, no later than April 15, 1998, a
registration statement covering the shares of Common Stock issuable upon (a)
conversion of the Original Convertible Notes, (b) exercise of the Warrants dated
as of June 5, 1997, to purchase 546,000 and 120,000 shares of Common stock,
respectively, and the Warrants dated October 10, 1997, to purchase 725,000
Shares of Common Stock, (c) conversion of the Note and (d) exercise of the
Warrants and (ii) such registration statement has been declared effective by the
SEC.
ARTICLE IV
THE CLOSING
4.1 Time and Place. Subject to the provisions of Section 1.2 herein, the
closing of the purchase and sale of the Note and the Warrants (the "Closing")
will take place on a date agreed to by the parties (the "Closing Date"), at the
offices of Gardere Wynne Sewell & Riggs, L.L.P., unless another time and place
are agreed to by the parties.
4.2 Conditions to the Obligation of Seller. The obligation of Seller to
effect the Closing is subject to Purchaser delivering, or causing to be
delivered, to Seller at the Closing the Consideration.
4.3 Conditions to the Obligation of Purchaser. The obligation of
Purchaser to effect the Closing is subject to satisfactory completion of the
Acquisition and payment by Seller of the Origination Fee. The obligation of
Purchaser is further subject to Seller delivering, or causing to be delivered,
to Purchaser at the Closing the following documents:
4.3.1 copies, certified by the Secretary of State of Delaware as of a
recent date, of the charter of Black Warrior and all amendments thereto and a
certificate of an Officer of Black Warrior certifying that there have been no
amendments to such charter since such date, and copies, certified by the
Secretary of Active Subsidiary as of the Closing Date, of the charter of Active
Subsidiary and all amendments thereto;
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4.3.2 copies, certified by the Secretary of each of Black Warrior and
Active Subsidiary as of the Closing Date, of the bylaws of each of Black Warrior
and Active Subsidiary, respectively, and all amendments thereto;
4.3.3 copies, certified by a certificate of the Secretary of each of
Black Warrior and Active Subsidiary as of the Closing Date, of resolutions duly
adopted by the board of directors of each of Black Warrior and Active
Subsidiary, respectively, authorizing the execution and delivery by each of
Black Warrior and Active Subsidiary, respectively, of the Transaction Documents
and all other agreements attached hereto as Exhibits or contemplated herein, the
completion of the sale of the Note and Warrants and the taking of all such other
corporate action as shall have been required as a condition to, or in connection
with, the sale of the Note and Warrants;
4.3.4 the Agreement;
4.3.5 the Note;
4.3.6 the Warrants;
4.3.7 the Amendment No. 2 to Registration Rights Agreement;
4.3.8 the Second Amendment of Security Agreement;
4.3.9 the Second Amendment of Subsidiary Security Agreement;
4.3.10 the Second Amendment of Subsidiary Guaranty;
4.3.11 an opinion of William S. Clarke, P.A., counsel to Seller, in
form and substance acceptable to Purchaser and addressing the matters set forth
in Sections 2.1, 2.2, 2.3, 2.7 and 2.8;
4.3.12 a certificate of an Officer of each of Black Warrior and
Active Subsidiary to the effect that the representations and warranties of each
of Black Warrior and Active Subsidiary, respectively, herein contained shall be
true as of and at the Closing Date with the same effect as though made at such
date, except as affected by transactions permitted or contemplated by this
Agreement; and further to the effect that each of Black Warrior and Active
Subsidiary shall have performed and complied with all covenants required by this
Agreement to be performed or complied with by each before the Closing Date; and
4.3.13 a letter in favor of Purchaser's lender, in the form of that
attached hereto as Exhibit F.
ARTICLE V
GENERAL PROVISIONS
5.1 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements contained in this Agreement shall
survive the Closing.
5.2 Notices. All notices or other communications which are required or
may be given under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered
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in person, transmitted by telecopier (with receipt confirmed) or mailed by
registered or certified first class mail, postage prepaid, return receipt
requested to the parties hereto at the address set forth below (as the same may
be changed from time to time by notice similarly given) or the last known
business or residence address of such other person as may be designated by
either party hereto in writing.
(a) If to Seller: Black Warrior Wireline Corp.
3748 Highway #45 North
Columbus, Mississippi 39701
Attn: William L. Jenkins
(b) If to Purchaser: St. James Capital Partners, L.P.
c/o St. James Capital Corp.
1980 Post Oak Boulevard, Suite 2030
Houston, Texas 77056
Attn: John L. Thompson
5.3 Miscellaneous. This Agreement (i) constitutes the entire agreement
and supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof, provided, however, this Section 5.3 is not intended to supersede or
replace that certain Agreement for Purchase and Sale dated June 5, 1997 or that
certain Agreement for Purchase and Sale dated October 10, 1997 (ii) shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns and is not intended to confer upon any other person any
rights or remedies hereunder, (iii) shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Delaware and
(iv) may be executed in two or more counterparts which together shall constitute
a single agreement.
5.4 Publicity. Seller and Purchaser promptly shall advise and cooperate
with the other prior to issuing, or permitting any of its directors, officers,
employees or agents to issue, any press release with respect to this Agreement
or the transactions contemplated hereby. Notwithstanding the foregoing, without
the prior consent of Purchaser, neither Seller nor any of its directors,
officers, employees or agents shall issue any press release which includes the
name of Purchaser or any of Purchaser's affiliates.
5.5 Assignment.
(a) Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by Seller (whether by operation of law
or otherwise) without the prior written consent of the Purchaser.
(b) Purchaser may assign its rights and obligations hereunder, under
the Note, the Warrants or any other Transaction Document, to any other entity
that is an affiliate of either Purchaser or the general partner of Purchaser,
subject to the terms hereof and upon prior written notice to Seller. Each such
assignee (an "Assignee") shall execute an Assignment and Acceptance
substantially in the form of Exhibit E. Upon the execution of such Assignment
and Acceptance by such Assignee, (i) the Assignee shall be a "Purchaser"
hereunder and, to the extent provided in the Assignment and Acceptance, shall
have the rights and obligations of a Purchaser hereunder, and (ii) the assigning
Purchaser (an "Assignor") shall, to the extent provided in the Assignment and
Acceptance, be released from its obligations hereunder.
(c) An Assignor hereunder shall, if requested by the Assignee,
deliver the Note
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and Warrants in favor of such Assignor to the Seller, and the Seller shall issue
replacement Notes and Warrants in favor of the Assignor and the Assignee in the
amounts and for such shares as are indicated in the Assignment and Acceptance.
The replacement Warrants shall be issued for an exercise price per share equal
to the exercise price set forth in the Warrants to be delivered to Seller under
this Section 5.5(c).
5.6 Schedules. All statements contained in any exhibit, schedule,
appendix, certificate or other instrument delivered by or on behalf of the
parties hereto, or in connection with the transactions contemplated hereby, are
an integral part of this Agreement and shall be deemed representations and
warranties hereunder.
5.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which constitutes an original execution and, in the
aggregate, constitute a single document.
5.8 Expense Reimbursement. Seller will reimburse to Purchaser, within 10
days after Purchaser's presentation of an invoice therefor, all of Purchaser's
direct costs relating to the negotiation, documentation and closing of the
transactions contemplated by this Agreement, including without limitation the
direct fees and expenses of counsel for Purchaser.
5.9 Restrictions on Transfer.
(a) Purchaser shall not transfer the Note except by the grant of a
security interest to its lender or lenders, or as provided by Section 5.5
hereof. As between Purchaser and its lender or lenders, the Note is
transferrable in the same manner and with the same effect as in the case of a
negotiable instrument payable to a specified person. Any lender to which Holder
grants a security interest in the Note shall be entitled to exercise all
remedies to which it is entitled by contract or by law, including (without
limitation) transferring the Note into its own name or into the name of any
purchaser at any sale undertaken in connection with enforcement by such lender
of its remedies.
(b) Purchaser shall not transfer the Warrants or any new warrants
described in Section 1.4 of this Agreement except to the partners of Purchaser.
5.10 Expenses of Dispute Resolution. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or any of the
other Transaction Documents, the prevailing party shall be entitled to
reasonable attorneys' fees, costs, and necessary disbursements in addition to
any other relief to which it may be entitled.
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SELLER'S SIGNATURE PAGE
IN WITNESS WHEREOF, Seller has signed this Agreement as of the date first
written above.
BLACK WARRIOR WIRELINE CORP.
By:
-----------------------------------
William L. Jenkins, President
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PURCHASER'S SIGNATURE PAGE
IN WITNESS WHEREOF, Purchaser has signed this Agreement as of the date
first written above.
ST. JAMES CAPITAL PARTNERS, L.P.
By: St. James Capital Corp., its
General Partner
By:
-----------------------------------
John Thompson, President
15
THE SECURITIES REPRESENTED BY THIS NOTE AND THE COMMON STOCK ISSUABLE THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS.
THIS NOTE MAY BE SUBORDINATE TO CERTAIN INDEBTEDNESS OF BLACK WARRIOR WIRELINE
CORP. AS AND TO THE EXTENT SET FORTH IN THAT CERTAIN AGREEMENT FOR PURCHASE AND
SALE DATED AS OF THE DATE HEREOF BETWEEN BLACK WARRIOR WIRELINE CORP. AND ST.
JAMES CAPITAL PARTNERS, L.P.
BLACK WARRIOR WIRELINE CORP.
$10,000,000 CONVERTIBLE PROMISSORY NOTE
$10,000,000 Houston, Texas January 23, 1998
BLACK WARRIOR WIRELINE CORP., a Delaware corporation (hereinafter called
the "Company," which term includes any directly or indirectly controlled
subsidiaries or successor entities), for value received, hereby promises to pay
to St. James Capital Partners, L.P., a Delaware limited partnership (hereinafter
called "Holder"), or its registered assigns, the principal sum of up to Ten
Million Dollars ($10,000,000), together with interest on the amount of such
principal sum from time to time outstanding, payable in accordance with the
terms set forth below. It is the intention of the parties that the principal
sums of this Note shall be advanced in multiple Advances (as defined below),
subject to the satisfaction of the conditions precedent set forth in Section 1.8
of the Agreement of Purchase and Sale between the Company and Holder dated as of
the date hereof. No Advance shall be made under this Note if an Event of Default
(as defined below) exists or would exist but for the passage of time. Interest
under this Note shall accrue on amounts actually advanced.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SECURED BY A
BORROWER SECURITY AGREEMENT BETWEEN THE COMPANY AND THE HOLDER DATED AS OF JUNE
5, 1997, AS MAY BE AMENDED OR MODIFIED (THE "SECURITY AGREEMENT"). THE
OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE FURTHER SUBJECT TO THE
TERMS OF A SUBSIDIARY SECURITY AGREEMENT BETWEEN THE SUBSIDIARIES OF THE COMPANY
AND THE HOLDER DATED AS OF JUNE 5, 1997, AS MAY
<PAGE>
BE AMENDED OR MODIFIED (THE "SUBSIDIARY SECURITY AGREEMENT"), AND A SUBSIDIARY
GUARANTY BY EACH OF THE SUBSIDIARIES OF THE COMPANY IN FAVOR OF THE HOLDER DATED
AS OF JUNE 5, 1997, AS MAY BE AMENDED OR MODIFIED (THE "SUBSIDIARY GUARANTY").
ARTICLE I
DEFINITIONS
1.1 Definitions. For all purposes of this Note, except as otherwise
expressly provided or unless the context otherwise requires: (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular; (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as promulgated from time to time by the
Association of Independent Certified Public Accountants; and (c) the words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Note as a whole and not to any particular Article, Section or other
subdivision.
"Advance" means a disbursement of proceeds of this Note.
"Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
"Bridge Loan Note" means the $3,000,000 10% Bridge Loan Promissory Note
of the Company to Holder dated as of June 5, 1997, as may be amended, modified,
substituted or replaced.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
"Common Stock" means shares of common stock, par value $0.0005 per share,
of the Company.
"Conversion Price" means the price per share determined in accordance
with Articles IV and V (as adjusted in accordance with the terms of this Note)
at which shares of Common Stock shall be delivered to Holder upon conversion of
this Note.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Event of Default" has the meaning specified in Section 3.1.
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"Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (a) for the principal of and premium, if any, and
interest on all debts of the Person whether outstanding on the date of this Note
or thereafter created (i) for money borrowed by such Person (including
capitalized lease obligations), (ii) for money borrowed by others (including
capitalized lease obligations) and guaranteed, directly or indirectly, by such
Person, or (iii) constituting purchase money indebtedness, or indebtedness
secured by property at the time of the acquisition of such property by such
Person, for the payment of which the Person is directly or contingently liable;
(b) for all accrued obligations of the Person in respect of any contract,
agreement or instrument imposing an obligation upon the Person to pay over
funds; (c) for all trade debt of the Person; and (d) for all deferrals,
renewals, extensions and refundings of, and amendments, modifications and
supplements to, any of the indebtedness referred to in (a), (b) or (c) above.
"Maturity Date", when used with respect to this Note, means July 23, 1999
(or such earlier date upon which this Note becomes due and payable under Section
3.2).
"Note" means this $10,000,000 8% Convertible Promissory Note, as
hereafter amended, modified, substituted or replaced.
"Original Convertible Notes" means the $2,000,000 9% Convertible
Promissory Note of the Company in favor of the Holder dated as of June 5, 1997,
as may be amended, modified, substituted or replaced and the $2,900,000 7%
Convertible Promissory Note of the Company in favor of the Holder dated as of
October 10, 1997, as may be amended, modified, substituted or replaced.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, estate,
other entity, unincorporated organization or government or any agency or
political subdivision thereof.
"Subsidiary" means a corporation or other entity more than 50% of the
outstanding voting stock of which, or more than 50% of the equity interest in
which, is owned, directly or indirectly, by the Company or by one or more other
Subsidiaries of the Company, or by any combination of the Company and one or
more other Subsidiaries, provided, however, that the following shall not be
deemed Subsidiaries for purposes of this Note: Black Warrior International,
Inc.; Black Warrior International (Bermuda), Ltd.; Black Warrior Oil and Gas,
Inc.; and Black Warrior Syria, Ltd. (collectively, the "Inactive
Organizations"). However, if any Inactive Organization begins to conduct any
business (other than activities to "wind down" such organization), such Inactive
Organization shall be considered a Subsidiary under this Agreement from that
point forward. For purposes of this definition, "voting stock" means stock which
ordinarily has voting power for the election of directors, whether at all times
or only so long as no senior class of stock has such voting power by reason of
any contingency.
ARTICLE II
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PAYMENTS
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate equal to eight percent (8%) per annum calculated on the basis of
a 360-day year. All past due amounts of principal and interest shall bear
interest at fifteen percent (15%) per annum calculated on the basis of a 360-day
year until paid.
2.2 Payment of Principal and Interest. Accrued and unpaid interest under
this Note shall be due and payable on January 23, 1999. The principal and all
remaining accrued and unpaid interest under this Note shall be due and payable
in full on the Maturity Date. At any time, the Holder may, at its option and in
lieu of cash, elect to be paid all accrued and unpaid interest owed to Holder by
the Company in the form of Common Stock, based on a price per share equal to the
Conversion Price (the "Price Per Share"). The amount of all accrued and unpaid
interest on the Maturity Date shall be divided by the Price Per Share into a
whole number of shares of Common Stock, with the remainder, if any, being paid
in cash.
2.3 Prepayments. Subject to Holder's right to convert, at any time before
the Maturity Date, the Company may prepay this Note, in whole or in part,
without penalty or discount, upon five days' prior written notice given to
Holder pursuant to Section 7.5. All payments made under this Note shall be
applied first to accrued interest, and the balance, if any, to principal;
provided, however, that interest shall accrue on any remaining principal balance
and shall be payable at the rate provided above.
2.4 Manner of Payment. Cash payments of principal and interest on this
Note will be made by delivery of checks to Holder at its address as set forth in
this Note or wire transfers pursuant to instructions from Holder. If the date
upon which the payment of principal and interest is required to be made pursuant
to this Note occurs other than on a Business Day, then such payment of principal
and interest shall be made on the next occurring Business Day following said
payment date and shall include interest through said next occurring Business
Day.
2.5 Security; Guaranty. This Note is secured by the collateral defined in
the Security Agreement and by the collateral defined in the Subsidiary Security
Agreement. This Note and the obligations hereunder and under the Security
Agreement and the Subsidiary Security Agreement are guaranteed by the
Subsidiaries of the Company pursuant to the Subsidiary Guaranty.
ARTICLE III
REMEDIES
3.1 Events of Default. An "Event of Default" occurs if:
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(a) the Company defaults in the payment or mandatory prepayment of
the principal or interest on this Note, or in the payment or a mandatory
prepayment of the principal or interest on the Original Convertible Note
or the Bridge Loan Note, when such principal or interest becomes due and
payable and such default remains uncured for a period of five days; or
(b) the Company or any Subsidiary defaults in the performance of
any covenant made by the Company, and such default remains uncured for a
period of 45 days in any of (i) those certain Agreements for Purchase and
Sale dated of even date herewith, as of October 10, 1997, and as of June
5, 1997, respectively, by and between the Company and Holder (the
"Purchase Agreements"), (ii) the Common Stock Purchase Warrants issued by
the Company to Holder as of the date hereof, as of October 10, 1997, and
as of June 5, 1997, respectively (the "Warrants"); (iii) that certain
Registration Rights Agreement dated as of June 5, 1997, as may be
thereafter amended or modified, by and between the Company and the
Holder, pursuant to which the Company grants to the Holder certain
registration rights in respect of the shares of Common Stock that may be
issued under the Original Convertible Notes, this Note and upon exercise
of the Warrants (the "Registration Rights Agreement"); (iv) the Security
Agreement; (v) the Original Convertible Notes or the Bridge Loan Note;
(vi) the Subsidiary Security Agreement; (vii) the Subsidiary Guaranty; or
(viii) this Note (other than a default in the performance of a covenant
specifically addressed elsewhere in this Section 3.1); provided that a
default in the performance of any covenant in Sections 8(a), 8(b), 8(c),
8(d), 8(e), 8(f), 8(h), 8(i), 8(j), 8(k), 8(l), 8(m) or 8(n) of the
Security Agreement or Section 6.1 of this Note shall be an Event of
Default immediately upon occurrence; or
(c) any representation or warranty made by the Company or any
Subsidiary in the Purchase Agreements, the Warrants, the Registration
Rights Agreement, the Original Convertible Notes, the Bridge Loan Note,
the Security Agreement, the Subsidiary Security Agreement, the Subsidiary
Guaranty, or this Note or in any certificate furnished by the Company in
connection with the consummation of the transaction contemplated thereby
or hereby, is untrue in any material respect as of the date of making
thereof and such default remains uncured for a period of 45 days; or
(d) the Company or any Subsidiary defaults in the payment when due
(whether by lapse of time, by declaration, by call for redemption or
otherwise) of the principal of or interest on any Indebtedness of the
Company or such Subsidiary (other than the Indebtedness evidenced by this
Note) having an aggregate principal amount in excess of $100,000 or on
any Indebtedness of the Company to any of its stockholders and such
default remains uncured for a period of 45 days; or
(e) a court of competent jurisdiction enters a judgment or
judgments against the Company or any Subsidiary, or any property or
assets of the Company or any Subsidiary, for the payment of money
aggregating $100,000 or more in excess of
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applicable insurance coverage (other than the judgment disclosed on
Schedule 3.1(e) hereto) and such default remains uncured for a period of
45 days; or
(f) a court of competent jurisdiction enters (i) a decree or order
for relief in respect of the Company or any Subsidiary in an involuntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or (ii) a decree or order
adjudging the Company or any Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or
any Subsidiary under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Subsidiary or of any substantial
part of the property of the Company or any Subsidiary or ordering the
winding up or liquidation of the affairs of the Company or any Subsidiary
and any such decree or order of relief or any such other decree or order
remains unstayed for a period of 90 days from its date of entry; or
(g) the Company or any Subsidiary commences a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the Company or any Subsidiary
files a petition, answer or consent seeking reorganization or relief
under any applicable federal or state law, or the Company or any
Subsidiary makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts generally as they become due; or
(h) any person or group (within the meaning of Section 13(d) of
the Securities Exchange Act of 1934) becomes the beneficial owner of 40%
or more of the total voting power of the Company and was not the
beneficial owner of 40% or more of the total voting power of the Company
as of the date hereof; provided that the foregoing shall not include any
person or group who or which acquires the Warrants or shares of the
Company's Common Stock issuable upon exercise of the Warrants or upon
conversion of the Original Convertible Notes or this Note; and further
provided that such default has not been cured or waived within ninety
(90) days following such change of beneficial ownership.
(i) the Company or any Subsidiary (1) merges or consolidates with
or into any other Person (unless the Company or any of its Subsidiaries
is the surviving or acquiring party); (2) dissolves or liquidates; or (3)
sells all or any substantial portion of its assets (unless the purchaser
is a Subsidiary of the Company).
3.2 Acceleration of Maturity. This Note and all accrued interest shall
automatically become immediately due and payable if an Event of Default
described in Sections 3.1(f), 3.1(g) or 3.1(i) occurs and, this Note shall, at
the option of the Holder in its sole discretion, become immediately due and
payable if any other Event of Default occurs, and in every such case the
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Holder of the Note may declare the principal and interest on the Note to be due
and payable immediately.
ARTICLE IV
CONVERSION OF NOTE
Subject to and upon compliance with the provisions of this Article, at
the option of Holder, all or any part of this Note may be converted at any time,
at the principal amount hereof together with accrued and unpaid interest
thereon, into fully paid and nonassessable shares (calculated as to each
conversion to the nearest 1/100 of a share) of Common Stock. The Conversion
Price shall initially be $7.00 per share. Notwithstanding anything else to the
contrary set forth herein, the Holder shall have the right to convert this Note
pursuant to the terms set forth herein at any time, including the 30 Business
Days following (i) the Maturity Date or (ii) any prepayment pursuant to Section
2.3 hereof. If Holder elects to convert this Note after a prepayment has been
made pursuant to Section 2.3, then Holder shall return all or such portion of
the funds paid to Holder as to which Holder has elected to convert.
ARTICLE V
ADJUSTMENT OF CONVERSION PRICE
5.1 Anti-Dilution Provisions. The Conversion Price shall be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the Conversion Price, the holder of this Note shall thereafter be entitled to
purchase, at the Conversion Price resulting from such adjustment, the number of
shares of Common Stock obtained by multiplying the Conversion Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Conversion Price resulting from such adjustment.
5.2 Adjustment of Conversion Price Upon Issuance of Common Stock.
5.2.1 (A) If and whenever after the date hereof the Company shall
issue or sell any Common Stock for no consideration or for a
consideration per share less than the Conversion Price then, forthwith,
upon such issue or sale, the Conversion Price shall be reduced (but not
increased, except as otherwise specifically provided in Section 5.2.2),
to the price (calculated to the nearest one-ten thousandth of a cent)
determined by dividing (x) an amount equal to the sum of (i) the
aggregate number of shares of Common Stock outstanding immediately prior
to such issue or sale multiplied by the then existing Conversion Price
plus (ii) the consideration received by the Company upon such issue or
sale by (y) the aggregate number of shares of Common Stock outstanding
immediately after such issue or sale.
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(B) Notwithstanding the provisions of this Section 5.2, no
adjustment shall be made in the Conversion Price in the event that the
Company issues, in one or more transactions, (i) Common Stock upon
exercise of any options issued to officers, directors or employees of the
Company pursuant to a stock option plan or an employment, severance or
consulting agreement as now or hereafter in effect, in each case approved
by the Board of Directors (provided that the aggregate number of shares
of Common Stock which may be issuable, including options issued prior to
the date hereof, under all such employee plans and agreements shall at no
time exceed the number of such shares of Common Stock outstanding on the
date hereof on a fully diluted basis that are issuable under currently
effective employee plans and agreements); (ii) Common Stock upon exercise
of the Original Convertible Notes or this Note or any other warrant
issued pursuant to the terms of the Purchase Agreements; (iii) Common
Stock upon exercise of any stock purchase warrant or option (other than
the options referred to in clause (i) above) or other convertible
security outstanding on the date hereof; or (iv) Common Stock issued as
consideration in acquisitions. In addition, for purposes of calculating
any adjustment of the Conversion Price as provided in this Section 5.2,
all of the shares of Common Stock issuable pursuant to any of the
foregoing shall be assumed to be outstanding prior to the event causing
such adjustment to be made.
5.2.2 For purposes of this Section 5.2, the following shall be
applicable:
(A) Issuance of Rights or Options. In case at any time after the
date hereof the Company shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock
or securities convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock or securities being herein called
"Convertible Securities") (other than warrants, options or convertible
securities issued as consideration for or assumed in conjunction with an
acquisition or to officers, directors, or employees of the acquired
entity in conjunction therewith), whether or not such rights or options
or the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which shares of
Common Stock are issuable upon the exercise of such rights or options or
upon conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options, plus
the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of such rights or options, or plus, in
the case of such rights or options that relate to Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights or options) shall be
less than the Conversion Price in effect as of the date of granting such
rights or options, then the total maximum number of shares of Common
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Stock issuable upon the exercise of such rights or options or upon
conversion or exchange of all such Convertible Securities issuable upon
the exercise of such rights or options shall be deemed to be outstanding
as of the date of the granting of such rights or options and to have been
issued for such price per share, with the effect on the Conversion Price
specified in Section 5.2.1 hereof. Except as provided in Section 5.2.2
hereof, no further adjustment of the Conversion Price shall be made upon
the actual issuance of such Common Stock or of such Convertible
Securities upon exercise of such rights or options or upon the actual
issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) Change in Option Price or Conversion Rate. Upon the happening
of any of the following events, namely, if the purchase price provided
for in any right or option referred to in Section 5.2.2 above, the
additional consideration, if any, payable upon the conversion or exchange
of any Convertible Securities referred to in Section 5.2.2(A) hereof, or
the rate at which any Convertible Securities referred to in Section
5.2.2(A) hereof, are convertible into or exchangeable for Common Stock
shall change (other than under or by reason of provisions designed to
protect against dilution), the Conversion Price then in effect hereunder
shall forthwith be readjusted (increased or decreased, as the case may
be) to the Conversion Price that would have been in effect at such time
had such rights, options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted,
issued or sold. On the expiration of any such option or right referred to
in Section 5.2.2(A) hereof, or on the termination of any such right to
convert or exchange any such Convertible Securities referred to in
Section 5.2.2(A) hereof, the Conversion Price then in effect hereunder
shall forthwith be readjusted (increased or decreased, as the case may
be) to the Conversion Price that would have been in effect at the time of
such expiration or termination had such right, option or Convertible
Securities, to the extent outstanding immediately prior to such
expiration or termination, never been granted, issued or sold, and the
Common Stock issuable thereunder shall no longer be deemed to be
outstanding. If the purchase price provided for in Section 5.2.2(A)
hereof or the rate at which any Convertible Securities referred to in
Section 5.2.2(A) hereof are convertible into or exchangeable for Common
Stock shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of the
delivery of Common Stock upon the exercise of any such right or option or
upon conversion or exchange of any such Convertible Securities, the
Conversion Price then in effect hereunder shall, if not already adjusted,
forthwith be adjusted to such amount as would have obtained had such
right, option or Convertible Securities never been issued as to such
Common Stock and had adjustments been made upon the issuance of the
Common Stock delivered as aforesaid, but only if as a result of such
adjustment the Conversion Price then in effect hereunder is thereby
reduced.
(C) Consideration for Stock. In case at any time Common Stock or
Convertible Securities or any rights or options to purchase any such
Common Stock or
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Convertible Securities shall be issued or sold for cash, the
consideration therefor shall be deemed to be the amount received by the
Company therefor. In case at any time any Common Stock, Convertible
Securities or any rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for consideration other
than cash, the amount of the consideration other than cash received by
the Company shall be deemed to be the fair value of such consideration,
as determined reasonably and in good faith by the Board of Directors of
the Company. In case at any time any Common Stock, Convertible Securities
or any rights or options to purchase any Common Stock or Convertible
Securities shall be issued in connection with any merger or consolidation
in which the Company is the surviving corporation, the amount of
consideration received therefor shall be deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the nonsurviving
corporation as such Board of Directors may determine to be attributable
to such Common Stock, Convertible Securities, rights or options as the
case may be. In case at any time any rights or options to purchase any
shares of Common Stock or Convertible Securities shall be issued in
connection with the issuance and sale of other securities of the Company,
together consisting of one integral transaction in which no consideration
is allocated to such rights or options by the parties, such rights or
options shall be deemed to have been issued without consideration.
(D) Record Date. In the case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock or
Convertible Securities, or (ii) to subscribe for or purchase Common Stock
or Convertible Securities, then such record date shall be deemed to be
the date of the issuance or sale of the Common Stock or Convertible
Securities deemed to have been issued or sold as a result of the
declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as
the case may be.
(E) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned directly by
the Company in treasury, and the disposition of any such shares shall be
considered an issuance or sale of Common Stock for the purpose of this
Section 5.2.
5.3 Stock Dividends. In case the Company shall declare a dividend or make
any other distribution upon any shares of the Company, payable in Common Stock
or Convertible Securities, any Common Stock or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
5.4 Stock Splits and Reverse Splits. In the event that the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision shall be proportionately
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reduced and the number of Shares into which this Note may be converted
immediately prior to such subdivision shall be proportionately increased, and
conversely, in the event that the outstanding shares of Common Stock shall at
any time be combined into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination shall be proportionately increased
and the number of Shares into which this Note may be converted immediately prior
to such combination shall be proportionately reduced. Except as provided in this
Section 5.4 no adjustment in the Conversion Price and no change in the number of
Shares shall be made under this Article V as a result of or by reason of any
such subdivision or combination.
5.5 Reorganizations and Asset Sales. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that holders of Common Stock
shall be entitled to receive capital stock, securities or assets with respect to
or in exchange for their shares, then the following provisions shall apply:
5.5.1 As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other
disposition (except as otherwise provided below in Section 5.5.3), lawful
and adequate provisions shall be made whereby the holder of this Note
shall thereafter have the right to purchase and receive upon the terms
and conditions specified in this Note and in lieu of the shares
immediately theretofore receivable upon the exercise of the rights
represented hereby, such shares of capital stock, securities or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares
immediately theretofore so receivable had such reorganization,
reclassification, consolidation, merger, share exchange or sale not taken
place, and in any such case appropriate provision reasonably satisfactory
to such holder shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Conversion Price and of the
number of shares receivable upon the exercise) shall thereafter be
applicable, as nearly as possible, in relation to any shares of capital
stock, securities or assets thereafter deliverable upon the exercise of
this Note.
5.5.2 In the event of a merger, share exchange or consolidation of
the Company with or into another Person as a result of which a number of
shares of common stock or its equivalent of the successor Person greater
or lesser than the number of shares of Common Stock outstanding
immediately prior to such merger, share exchange or consolidation are
issuable to holders of Common Stock, then the Conversion Price in effect
immediately prior to such merger, share exchange or consolidation shall
be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock.
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5.5.3 The Company shall not effect any such consolidation, merger,
share exchange, sale, transfer or other disposition unless prior to or
simultaneously with the consummation thereof the successor Person (if
other than the Company) resulting from such consolidation, share exchange
or merger or the Person purchasing or otherwise acquiring such assets
shall have assumed by written instrument executed and mailed or delivered
to the Holder hereof at the last address of such Holder appearing on the
books of the Company the obligation to deliver to such Holder such shares
of capital stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to receive, and all
other liabilities and obligations of the Company hereunder. Upon written
request by the Holder hereof, such Successor Person will issue a new Note
revised to reflect the modifications in this Note effected pursuant to
this Section 5.5.
5.5.4 If a purchase, tender or exchange offer is made to and
accepted by the holders of 50% or more of the outstanding shares of
Common Stock, the Company shall not effect any consolidation, merger,
share exchange or sale, transfer or other disposition of all or
substantially all of the Company's assets with the Person having made
such offer or with any affiliate of such Person, unless prior to the
consummation of such consolidation, merger, share exchange, sale,
transfer or other disposition the holder hereof shall have been given a
reasonable opportunity to then elect to receive upon the conversion of
this Note either the capital stock, securities or assets then issuable
with respect to the Common Stock or the capital stock, securities or
assets, or the equivalent, issued to previous holders of the Common Stock
in accordance with such offer.
5.6 Adjustment for Asset Distribution. If the Company declares a dividend
or other distribution payable to all holders of shares of Common Stock in
evidences of indebtedness of the Company or other assets of the Company
(including, cash (other than regular cash dividends declared by the Board of
Directors), capital stock (other than Common Stock, Convertible Securities or
options or rights thereto) or other property), the Conversion Price in effect
immediately prior to such declaration of such dividend or other distribution
shall be reduced by an amount equal to the amount of such dividend or
distribution payable per share of Common Stock, in the case of a cash dividend
or distribution, or by the fair value of such dividend or distribution per share
of Common Stock (as reasonably determined in good faith by the Board of
Directors of the Company), in the case of any other dividend or distribution.
Such reduction shall be made whenever any such dividend or distribution is made
and shall be effective as of the date as of which a record is taken for purpose
of such dividend or distribution or, if a record is not taken, the date as of
which holders of record of Common Stock entitled to such dividend or
distribution are determined.
5.7 De Minimis Adjustments. No adjustment in the number of shares of
Common Stock purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one share of Common Stock
purchasable upon conversion of the Note and no adjustment in the Conversion
Price shall be required unless such adjustment would require an increase or
decrease of at least $.01 in the Conversion Price; provided, however, that any
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adjustments which by reason of this Section 5.7 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest full share or nearest one
hundredth of a dollar, as applicable.
5.8 Notice of Adjustment. Whenever the Conversion Price or the number of
Shares issuable upon the conversion of the Note shall be adjusted as herein
provided, or the rights of the holder hereof shall change by reason of other
events specified herein, the Company shall compute the adjusted Conversion Price
and the adjusted number of Shares in accordance with the provisions hereof and
shall prepare an Officer's Certificate setting forth the adjusted Conversion
Price and the adjusted number of Shares issuable upon the conversion of this
Note or specifying the other shares of stock, securities or assets receivable as
a result of such change in rights, and showing in reasonable detail the facts
and calculations upon which such adjustments or other changes are based. The
Company shall cause to be mailed to the Holder hereof copies of such Officer's
Certificate together with a notice stating that the Conversion Price and the
number of Shares purchasable upon conversion of this Note have been adjusted and
setting forth the adjusted Conversion Price and the adjusted number of Shares
purchasable upon conversion of this Note.
5.9 Notifications to Holders. In case at any time the Company proposes:
(i) to declare any dividend upon its Common Stock payable in
capital stock or make any special dividend or other distribution (other
than cash dividends) to the holders of its Common Stock;
(ii) to offer for subscription pro rata to all of the holders of
its Common Stock any additional shares of capital stock of any class or
other rights;
(iii) to effect any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation, merger or share
exchange of the Company with another Person, or sale, transfer or other
disposition of all or substantially all of its assets; or
(iv) to effect a voluntary or involuntary dissolution, liquidation
or winding up of the Company,
then, in any one or more of such cases, the Company shall give the holder hereof
(a) at least 10 days (but not more than 90 days) prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining rights
to vote in respect of any such issuance, reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, disposition, dissolution,
liquidation or winding up, and (b) in the case of any such issuance,
reorganization, reclassification, consolidation, merger, share exchange, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 10 days
(but not more than 90 days) prior written notice of the
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date when the same shall take place. Such notice in accordance with the
foregoing clause (a) 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 (b) shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock, as the case may be, for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, share exchange, sale, transfer,
disposition, dissolution, liquidation or winding up, as the case may be.
5.10 Company to Prevent Dilution. If any event or condition occurs as to
which other provisions of this Article are not strictly applicable or if
strictly applicable would not fairly protect the exercise or purchase rights of
this Note evidenced hereby in accordance with the essential intent and
principles of such provisions, or that might materially and adversely affect the
exercise or purchase rights of the holder hereof under any provisions of this
Note, then the Company shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such exercise and purchase rights as aforesaid, and any adjustments
necessary with respect to the Conversion Price and the number of shares
purchasable hereunder so as to preserve the rights of the holder hereunder. In
no event shall any such adjustment have the effect of increasing the Conversion
Price as otherwise determined pursuant to this Article except in the event of a
combination of shares of the type contemplated in Section 5.4 hereof, and then
in no event to an amount greater than the Conversion Price as adjusted pursuant
to Section 5.4 hereof.
ARTICLE VI
COVENANTS
The Company covenants and agrees that, so long as this Note is
outstanding:
6.1 Payment of Principal and Accrued Interest. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof.
6.2 Corporate Existence. The Company will, and will cause each Subsidiary
to, do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, rights (charter and statutory) and
franchises; provided, however, that the Company or a Subsidiary shall not be
required to preserve any such right or franchise if it shall reasonably
determine that the preservation thereof is no longer desirable in the conduct of
its business.
6.3 Taxes; Claims; etc. The Company will, and will cause each Subsidiary
to, promptly pay and discharge all lawful taxes, assessments, and governmental
charges or levies imposed upon it or upon its income or profits, or upon any of
its properties, real, personal, or mixed, before the same shall become in
default, as well as all lawful claims for labor, materials, and supplies or
otherwise which, if unpaid, might become a lien or charge upon such properties
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or any part thereof, and which lien or charge will have a material adverse
effect on the business of the Company; provided, however, that neither the
Company nor any Subsidiary shall be required to pay or cause to be paid any such
tax, assessment, charge, levy, or claim prior to institution of foreclosure
proceedings if the validity thereof shall concurrently be contested in good
faith by appropriate proceedings and if the Company shall have established
reserves deemed by the Company adequate with respect to such tax, assessment,
charge, levy, or claim.
6.4 Maintenance of Existence and Properties. The Company will, and will
cause each Subsidiary to, keep its material properties in good repair, working
order, and condition, ordinary wear and tear excepted, so that the business
carried on may be properly conducted at all times in accordance with prudent
business management.
6.5 SEC Reports. The Company will deliver to the Holder within 20 days
after it files them with the SEC, copies of its annual and quarterly reports and
of the information, documents, and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe) which
the Company is required or elects to file with the SEC pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934. The Company will timely comply
with its reporting and filing obligations under the applicable federal
securities laws.
6.6 Notice of Defaults. The Company will promptly notify the Holder in
writing of the occurrence of (i) any Event of Default under this Note, and (ii)
any event of default (or if any event of default would result upon any payment
with respect to this Note) with respect to any Indebtedness as such event of
default is defined therein or in the instrument under which it is outstanding,
permitting holders to accelerate the maturity of such Indebtedness.
6.7 Compliance with Laws. The Company will promptly comply with all laws,
ordinances and governmental rules and regulations to which it is subject, the
violation of which would materially and adversely affect the Company.
6.8 Amendments to Charter. The Company will not amend or modify its
charter without the prior written consent of Holder.
6.9 Mergers and Acquisitions. Without the consent of the Holder, the
Company or any Subsidiary will not dissolve, liquidate, consolidate, merge or
enter into a share exchange with or sell or transfer all or a substantial
portion of its assets to any Person.
6.10 Election of Director. The Company will use its best efforts to
cause the election, at all shareholders' meetings called for the purpose of
electing directors of the Company or in any other action taken to elect such
directors, of one person designated by Holder as a nominee (the "Designated
Director"). If a vacant directorship arises due to the resignation or disability
of the Designated Director, or if the Designated Director is removed for any
reason, the Company will use its best efforts to cause the appointment of
another person designated by Holder to replace the Designated Director.
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ARTICLE VII
MISCELLANEOUS
7.1 Consent to Amendments. This Note 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 and only if the Company shall obtain the written consent
to such amendment, action or omission to act from the holders of a majority of
the aggregate principal amount of this Note.
7.2 Benefits of Note; No Impairment of Rights of Holder of Senior
Indebtedness. Nothing in this Note, express or implied, shall give to any
Person, other than the Company, Holder, and their successors any benefit or any
legal or equitable right, remedy or claim under or in respect of this Note.
7.3 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
7.4 Restrictions on Transfer. Holder shall not transfer this Note except
(by the grant of a security interest) to its lender or lenders. As between
Holder and its lender or lenders, this Note is transferable in the same manner
and with the same effect as in the case of a negotiable instrument payable to a
specified person. Any lender to which Holder grants a security interest in this
Note shall be entitled to exercise all remedies to which it is entitled by
contract or by law, including (without limitation) transferring this Note into
its own name or into the name of any purchaser at any sale undertaken in
connection with enforcement by such lender of its remedies.
7.5 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the third business day after being sent as certified or registered
mail, postage and charges prepaid, to the following addresses: if to the
Company: Black Warrior Wireline Corp., 3748 Highway #45 North, Columbus,
Mississippi 39701, or at any other address designated by the Company in writing
to Holder; if to Holder: St. James Capital Partners, L.P., _ St. James Capital
Corp., 1980 Post Oak Boulevard, Suite 2030, Houston, Texas 77056, Attn: John L.
Thompson, or at any other address designated by Holder to the Company in
writing.
7.6 Separability Clause. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
7.7 Governing Law. This Note shall be governed by, and construed in
accordance
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<PAGE>
with, the internal laws of the State of Delaware (without regard to principles
of choice of law).
7.8 Usury. It is the intention of the parties hereto to conform strictly
to the applicable laws of the State of Delaware and the United States of
America, and judicial or administrative interpretations or determinations
thereof regarding the contracting for, charging and receiving of interest for
the use, forbearance, and detention of money (hereinafter referred to in this
Section 7.8 as "Applicable Law"). The Holder shall have no right to claim, to
charge or to receive any interest in excess of the maximum rate of interest, if
any, permitted to be charged on that portion of the amount representing
principal which is outstanding and unpaid from time to time by Applicable Law.
Determination of the rate of interest for the purpose of determining whether
this Note is usurious under Applicable Law shall be made by amortizing,
prorating, allocating and spreading in equal parts during the period of the
actual time of this Note, all interest or other sums deemed to be interest
(hereinafter referred to in this Section 7.8 as "Interest") at any time
contracted for, charged or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by Applicable Law shall be deemed a result of a mathematical error
and a mistake. If this Note is paid in part prior to the end of the full stated
term of this Note and the Interest received for the actual period of existence
of this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or in the event that it has been accelerated
prior to maturity, Holder shall refund to the Company the amount of such excess,
and shall not be subject to any of the penalties provided by Applicable Law for
contracting for, charging or receiving Interest in excess of the maximum rate
allowed by Applicable Law. Any such excess which is unpaid shall be canceled.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
BLACK WARRIOR WIRELINE CORP.
By:
William L. Jenkins, President
[Signature Page -- Convertible Note]
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THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS WARRANT MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN
ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS.
WARRANTS
to Purchase Common Stock of
BLACK WARRIOR WIRELINE CORP.
Expiring on January 23, 2003
This Warrant to Purchase Common Stock (the "Warrant") certifies that for
value received, St. James Capital Partners, L.P., a Delaware limited partnership
(the "Holder"), or its assigns, is entitled to subscribe for and purchase from
the Company (as hereinafter defined), in whole or in part, 200,000 shares of
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock (as hereinafter defined) at an initial Exercise Price (as hereinafter
defined), subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. The number of Warrants (as hereinafter defined), the
number of shares of Common Stock purchasable hereunder, and the Exercise Price
therefor are subject to adjustment as hereinafter set forth. This Warrant and
all rights hereunder shall expire at 5:00 p.m., Houston, Texas time, on January
23, 2003.
As used herein, the following terms shall have the meanings set forth
below:
"Company" shall mean Black Warrior Wireline Corp., a Delaware
corporation, and shall also include any successor thereto with respect to the
obligations hereunder, by merger, consolidation or otherwise.
"Common Stock" shall mean and include the Company's Common Stock, par
value $.0005 per share, authorized on the date of the original issue of this
Warrant and shall also include (i) in case of any reorganization,
reclassification, consolidation, merger, share exchange or sale, transfer or
other disposition of assets of the character referred to in Section 3.5 hereof,
the stock, securities provided for in such Section 3.5, and (ii) any other
shares of common stock of the Company into which such shares of Common Stock may
be converted.
"Exercise Price" shall mean the initial purchase price of $6.75 per share
of Common Stock payable upon exercise of the Warrants. The Exercise Price shall
be adjusted from time to time
<PAGE>
pursuant to the provisions hereof.
"Market Price" for any day, when used with reference to Common Stock,
shall mean the price of said Common Stock determined as follows: (i) the last
reported sale price for the Common Stock on such day on the principal securities
exchange on which the Common Stock is listed or admitted to trading or if no
such sale takes place on such date, the average of the closing bid and asked
prices thereof as officially reported, or, if not so listed or admitted to
trading on any securities exchange, the last sale price for the Common Stock on
the National Association of Securities Dealers National Market System or
SmallCap Market on such date, or, if there shall have been no trading on such
date or if the Common Stock shall not be listed on such system, the average of
the closing bid and asked prices in the over-the-counter market as furnished by
any NASD member firm selected from time to time by the Company for such purpose,
in each such case, unless otherwise provided herein, averaged over a period of
ten (10) consecutive Trading Days prior to the date as of which the
determination is to be made; or (ii) if the Common Stock shall not be listed or
admitted to trading or the closing bid and asked prices are unable to be
furnished by an NASD member firm, as provided in clause (i) above, the fair
market value of the Common Stock as determined in good faith by the Board of
Directors of the Company.
"Note" shall mean the 8% Convertible Promissory Note of the Company
issued to St. James Capital Partners, L.P. as of the date hereof in the original
principal amount of up to $10,000,000, as may be amended, modified, substituted
or replaced.
"Outstanding," when used with reference to Common Stock, shall mean
(except as otherwise expressly provided herein) at any date as of which the
number of shares thereof is to be determined, all issued shares of Common Stock,
except shares then owned or held by or for the account of the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading Days" shall mean any days during the course of which the
principal securities exchange on which the Common Stock is listed or admitted to
trading is open for the exchange of securities.
"Warrant" shall mean the right upon exercise to purchase one Warrant
Share.
"Warrant Shares" shall mean the shares of Common Stock purchased or
purchasable by the holder hereof upon the exercise of the Warrants.
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<PAGE>
ARTICLE I
EXERCISE OF WARRANTS
I.1 Method of Exercise. The Warrants represented hereby may be exercised
by the holder hereof, in whole or in part, at any time and from time to time on
or after the date hereof until 5:00 p.m., Houston, Texas time, on January 23,
2003. To exercise the Warrants, the holder hereof shall deliver to the Company,
at the Warrant Office designated in Section 2.1 hereof, (i) a written notice in
the form of the Subscription Notice attached as an exhibit hereto, stating
therein the election of such holder to exercise the Warrants in the manner
provided in the Subscription Notice; (ii) payment in full of the Exercise Price
(A) in cash or by bank check for all Warrant Shares purchased hereunder, or (B)
through a "cashless" or "net-issue" exercise of each such Warrant ("Cashless
Exercise"); the holder shall exchange each Warrant subject to a Cashless
Exercise for that number of Warrant Shares determined by multiplying the number
of Warrant Shares issuable hereunder by a fraction, the numerator of which shall
be the difference between (x) the Market Price and (y) the Exercise Price for
each such Warrant, and the denominator of which shall be the Market Price; the
Subscription Notice shall set forth the calculation upon which the Cashless
Exercise is based, or (C) a combination of (A) and (B) above; and (iii) this
Warrant. The Warrants shall be deemed to be exercised on the date of receipt by
the Company of the Subscription Notice, accompanied by payment for the Warrant
Shares and surrender of this Warrant, as aforesaid, and such date is referred to
herein as the "Exercise Date". Upon such exercise, the Company shall, as
promptly as practicable and in any event within ten (10) business days, issue
and deliver to such holder a certificate or certificates for the full number of
the Warrant Shares purchased by such holder hereunder, and shall, unless the
Warrants have expired, deliver to the holder hereof a new Warrant representing
the number of Warrants, if any, that shall not have been exercised, in all other
respects identical to this Warrant. As permitted by applicable law, the Person
in whose name the certificates for Common Stock are to be issued shall be deemed
to have become a holder of record of such Common Stock on the Exercise Date and
shall be entitled to all of the benefits of such holder on the Exercise Date,
including without limitation, the right to receive dividends and other
distributions for which the record date falls on or after the Exercise Date and
the right to exercise voting rights.
I.2 Expenses and Taxes. The Company shall pay all expenses and taxes
(including, without limitation, all documentary, stamp, transfer or other
transactional taxes) other than income taxes attributable to the preparation,
issuance or delivery of the Warrants and of the shares of Common Stock issuable
upon exercise of the Warrants.
I.3 Reservation of Shares. The Company shall reserve at all times so long
as the Warrants remain outstanding, free from preemptive rights, out of its
treasury Common Stock or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the exercise of the Warrants, a
sufficient number of shares of Common Stock to provide for the exercise of the
Warrants.
I.4 Valid Issuance. All shares of Common Stock that may be issued upon
exercise of the Warrants will, upon issuance by the Company, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof and, without limiting the generality of the
foregoing, the Company shall take no action or fail to take any action which
will cause a contrary result (including, without limitation, any action that
would cause the Exercise Price to be less than the par value, if any, of the
Common Stock).
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<PAGE>
I.5 Purchase Agreement. The Warrants represented hereby are part of a
duly authorized issuance and sale of warrants to purchase Common Stock issued
and sold pursuant to that certain Agreement of Purchase and Sale dated as of the
date hereof (the "Agreement"), between the Company and the Holder. The holder
hereof shall be entitled to registration under the Securities Act and any
applicable state securities or blue sky laws to the extent set forth in the
Registration Rights Agreement, as hereafter amended. The terms of the Agreement
are hereby incorporated herein for all purposes and shall be considered a part
of this Warrant as if they had been fully set forth herein. Notwithstanding the
previous sentence, in the event of any conflict between the provisions of the
Agreement and of this Warrant, the provisions of this Warrant shall control.
I.6 Acknowledgment of Rights. At the time of the exercise of the Warrants
in accordance with the terms hereof and upon the written request of the holder
hereof, the Company will acknowledge in writing its continuing obligation to
afford to such holder any rights (including, without limitation, any right to
registration of the Warrant Shares) to which such holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant;
provided, however, that if the holder hereof shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
I.7 No Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If more than
one Warrant shall be presented for exercise at the same time by the same holder,
the number of full shares of Common Stock which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of whole shares
of Common Stock purchasable on exercise of the Warrants so presented. If any
fraction of a share of Common Stock would, except for the provisions of this
Section 1.7, be issuable on the exercise of this Warrant, the Company shall pay
an amount in cash calculated by it to be equal to the Market Price of one share
of Common Stock at the time of such exercise multiplied by such fraction
computed to the nearest whole cent.
ARTICLE II
TRANSFER
II.1 Warrant Office. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's offices at 3748 Highway #45 North, Columbus, Mississippi 39701
and may subsequently be such other office of the Company or of any transfer
agent of the Common Stock in the continental United States as to which written
notice has previously been given to the holder hereof. The Company shall
maintain, at the Warrant Office, a register for the Warrants in which the
Company shall record the name and address of the Person in whose name this
Warrant has been issued, as well as the name and address of each permitted
assignee of the rights of the registered owner hereof.
II.2 Ownership of Warrants. The Company may deem and treat the Person in
whose name the Warrants are registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Article II. Notwithstanding the foregoing, the Warrants
represented hereby, if properly assigned
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<PAGE>
in compliance with this Article II, may be exercised by an assignee for the
purchase of Warrant Shares without having a new Warrant issued.
II.3 Restrictions on Transfer of Warrants. The Company agrees to maintain
at the Warrant Office books for the registration and transfer of the Warrants.
Subject to the restrictions on transfer of the Warrants in this Section 2.3, the
Company, from time to time, shall register the transfer of the Warrants in such
books upon surrender of this Warrant at the Warrant Office properly endorsed or
accompanied by appropriate instruments of transfer and written instructions for
transfer satisfactory to the Company. Upon any such transfer and upon payment by
the holder or its transferee of any applicable transfer taxes, new Warrants
shall be issued to the transferee and the transferor (as their respective
interests may appear) and the surrendered Warrants shall be canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes
or income taxes) and all other expenses and charges payable in connection with
the transfer of the Warrants pursuant to this Section 2.3.
II.3.1 Restrictions in General. The holder of the Warrants agrees
that it will not transfer the Warrants unless registration of such
Warrant Shares under the Securities Act and any applicable state
securities or blue sky laws has become effective or the holder has
provided to the Company an opinion of counsel acceptable to the Company
that such registration is not required. Notwithstanding the preceding
sentence, however, St. James Capital Partners, L.P., as the initial
Holder of the Warrants, may transfer Warrants to its partners of record
on December 31, 1997 at any time and may at any time grant a security
interest in the Warrants to its lender or lenders. Prior to any transfer
(other than the grant of a security interest) as provided herein, the
transferor shall provide written notice to the Company and an opinion of
counsel to the effect that the proposed transfer is exempt from
registration under all applicable securities laws, all in form and
substance reasonably satisfactory to the Company. Any lender or lenders
to which the Holder grants a security interest in the Warrants shall be
entitled to exercise all remedies to which it is entitled by contract or
by law, including (without limitation) transferring the Warrants into its
own name or into the name of any purchaser at any sale undertaken in
connection with enforcement by such lender of its remedies. The partners
of St. James Capital Partners, L.P. shall not be entitled to transfer
Warrants prior to completion of a registered public offering of the
Company's Common Stock.
II.4 Compliance with Securities Laws. Subject to the terms of the
Registration Rights Agreement between the Holder and the Company dated as of
June 5, 1997, as amended or modified (the "Registration Rights Agreement"), and
notwithstanding any other provisions contained in this Warrant except Section
2.3.1, the holder hereof understands and agrees that the following restrictions
and limitations shall be applicable to all Warrant Shares and to all resales or
other transfers thereof pursuant to the Securities Act:
II.4.1 The holder hereof agrees that the Warrant Shares shall not
be sold or otherwise transferred unless the Warrant Shares are registered
under the Securities Act and applicable state securities or blue sky laws
or are exempt therefrom.
II.4.2 A legend in substantially the following form will be placed
on the certificate(s) evidencing the Warrant Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
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<PAGE>
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE
SECURITIES LAW AND, ACCORDINGLY, THE SECURITIES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS."
II.4.3 Stop transfer instructions will be imposed with respect to
the Warrant Shares so as to restrict resale or other transfer thereof,
subject to this Section 2.4.
ARTICLE III
ANTI-DILUTION
III.1 Anti-Dilution Provisions. The Exercise Price shall be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the Exercise Price, the holder of this Warrant shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Common Stock obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
III.2 Adjustment of Exercise Price Upon Issuance of Common Stock.
III.2.1 (A) If and whenever after the date hereof the Company
shall issue or sell any Common Stock for no consideration or for a
consideration per share less than the Exercise Price, then, forthwith
upon such issue or sale, the Exercise Price shall be reduced (but not
increased, except as otherwise specifically provided in Section 3.2.2(C)
hereof), to the price (calculated to the nearest one-ten thousandth of a
cent) determined by dividing (x) an amount equal to the sum of (i) the
aggregate number of shares of Common Stock outstanding immediately prior
to such issue or sale multiplied by then existing Exercise Price plus
(ii) the consideration received by the Company upon such issue or sale by
(y) the aggregate number of shares of Common Stock outstanding
immediately after such issue or sale.
(B) Notwithstanding the provisions of this Section 3.2, no
adjustment shall be made in the Exercise Price in the event that the
Company issues, in one or more transactions, (i) Common Stock or
convertible securities upon exercise of any options issued to officers,
directors or employees of the Company pursuant to a stock option plan or
an employment, severance or consulting agreement as now or hereafter in
effect, in each case approved by the Board of Directors (provided that
the aggregate number of shares of Common Stock which may be issuable,
including options issued prior to the date hereof, under all such
employee plans and agreements shall at no time exceed the number of such
shares of Common Stock that are issuable under currently effective
employee plans and agreements); (ii) Common Stock upon exercise of the
Warrants or any other warrant issued pursuant to the terms of the
Agreement or otherwise issued to the Holder; (iii) Common Stock upon
exercise of any stock
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<PAGE>
purchase warrant or option (other than the options referred to in clause
(i) above) or other convertible security outstanding on the date hereof;
(iv) Common Stock upon conversion of the Note; or (v) Common Stock issued
as consideration in acquisitions (including warrants, options or
convertible securities issued as consideration for an acquisition or to
officers, directors or employees of the acquired entity in conjunction
therewith). In addition, for purposes of calculating any adjustment of
the Exercise Price as provided in this Section 3.2, all of the shares of
Common Stock issuable pursuant to any of the foregoing shall be assumed
to be outstanding prior to the event causing such adjustment to be made.
III.2.2 For purposes of this Section 3.2, the following Sections
3.2.2(A) to 3.2.2(E) inclusive, shall be applicable:
(A) Issuance of Rights or Options. In case at any time
after the date hereof the Company shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of, Common
Stock or any stock or securities convertible into or exchangeable for
Common Stock (such convertible or exchangeable stock or securities being
herein called "Convertible Securities") (other than warrants, options or
convertible securities issued as consideration for or assumed in
conjunction with an acquisition or to officers, directors or employees of
the acquired entity in conjunction therewith), whether or not such rights
or options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
shares of Common Stock are issuable upon the exercise of such rights or
options or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the granting of such
rights or options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of such
rights or options, or plus, in the case of such rights or options that
relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon the
exercise of such rights or options or upon the conversion or exchange of
all such Convertible Securities issuable upon the exercise of such rights
or options) shall be less than the Exercise Price in effect as of the
date of granting such rights or options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such rights or
options or upon conversion or exchange of all such Convertible Securities
issuable upon the exercise of such rights or options shall be deemed to
be outstanding as of the date of the granting of such rights or options
and to have been issued for such price per share, with the effect on the
Exercise Price specified in Section 3.2.1 hereof. Except as provided in
Section 3.2.2 hereof, no further adjustment of the Exercise Price shall
be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon exercise of such rights or options or upon
the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.
(B) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price
provided for in any right or option referred to in Section 3.2.2, the
additional consideration, if any, payable upon the conversion or exchange
of any Convertible Securities referred to in Section 3.2.2, or the rate
at which any Convertible Securities referred to in Section 3.2.2, are
convertible into or exchangeable for
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Common Stock shall change (other than under or by reason of provisions
designed to protect against dilution), the Exercise Price then in effect
hereunder shall forthwith be readjusted (increased or decreased, as the
case may be) to the Exercise Price that would have been in effect at such
time had such rights, options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted,
issued or sold. On the expiration of any such option or right referred to
in Section 3.2.2, or on the termination of any such right to convert or
exchange any such Convertible Securities referred to in Section 3.2.2,
the Exercise Price then in effect hereunder shall forthwith be readjusted
(increased or decreased, as the case may be) to the Exercise Price that
would have been in effect at the time of such expiration or termination
had such right, option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination, never
been granted, issued or sold, and the Common Stock issuable thereunder
shall no longer be deemed to be outstanding. If the purchase price
provided for in Section 3.2.2 or the rate at which any Convertible
Securities referred to in Section 3.2.2 are convertible is reduced at any
time under or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of Common Stock
upon the exercise of any such right or option or upon conversion or
exchange of any such Convertible Securities, the Exercise Price then in
effect hereunder shall, if not already adjusted, forthwith be adjusted to
such amount as would have obtained had such right, option or Convertible
Securities never been issued as to such Common Stock and had adjustments
been made upon the issuance of the Common Stock delivered as aforesaid,
but only if as a result of such adjustment the Exercise Price then in
effect hereunder is thereby reduced.
(C) Consideration for Stock. In case at any time
Common Stock or Convertible Securities or any rights or options to
purchase any such Common Stock or Convertible Securities shall be issued
or sold for cash, the consideration therefor shall be deemed to be the
amount received by the Company therefor. In case at any time any Common
Stock, Convertible Securities or any rights or options to purchase any
such Common Stock or Convertible Securities shall be issued or sold for
consideration other than cash, the amount of the consideration other than
cash received by the Company shall be deemed to be the fair value of such
consideration, as determined reasonably and in good faith by the Board of
Directors of the Company. In case at any time any Common Stock,
Convertible Securities or any rights or options to purchase any Common
Stock or Convertible Securities shall be issued in connection with any
merger or consolidation in which the Company is the surviving
corporation, the amount of consideration received therefor shall be
deemed to be the fair value, as determined reasonably and in good faith
by the Board of Directors of the Company, of such portion of the assets
and business of the nonsurviving corporation as such Board of Directors
may determine to be attributable to such Common Stock, Convertible
Securities, rights or options as the case may be. In case at any time any
rights or options to purchase any shares of Common Stock or Convertible
Securities shall be issued in connection with the issuance and sale of
other securities of the Company, together consisting of one integral
transaction in which no consideration is allocated to such rights or
options by the parties, such rights or options shall be deemed to have
been issued with consideration.
(D) Record Date. In the case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them (i) to receive a dividend or other distribution payable in Common
Stock or Convertible Securities, or (ii) to subscribe for or
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<PAGE>
purchase Common Stock or Convertible Securities, then such record date
shall be deemed to be the date of the issuance or sale of the Common
Stock or Convertible Securities deemed to have been issued or sold as a
result of the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(E) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned
directly by the Company in treasury, and the disposition of any such
shares shall be considered an issuance or sale of Common Stock for the
purpose of this Section 3.2.
III.3 Stock Dividends. In case the Company shall declare a dividend or
make any other distribution upon any shares of the Company, payable in Common
Stock or Convertible Securities, any Common Stock or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
III.4 Stock Splits and Reverse Splits. In the event that the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant immediately prior to such subdivision shall
be proportionately increased, and conversely, in the event that the outstanding
shares of Common Stock shall at any time be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased and the number of Warrant Shares purchasable upon
the exercise of this Warrant immediately prior to such combination shall be
proportionately reduced. Except as provided in this Section 3.4, no adjustment
in the Exercise Price and no change in the number of Warrant Shares purchasable
shall be made under this Article III as a result of, or by reason of, any such
subdivision or combination.
III.5 Reorganizations and Asset Sales. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that a holder of Common Stock of
the Company shall be entitled to receive capital stock, securities or assets
with respect to or in exchange for their shares, then the following provisions
shall apply:
III.5.1 As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other
disposition (except as otherwise provided below in this Section 3.5),
lawful and adequate provisions shall be made whereby the holder of
Warrants shall thereafter have the right to purchase and receive upon the
terms and conditions specified in this Warrant and in lieu of the Warrant
Shares immediately theretofore receivable upon the exercise of the rights
represented hereby, such shares of capital stock, securities or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of Warrant
Shares immediately theretofore so receivable had such reorganization,
reclassification, consolidation, merger, share exchange or sale not taken
place, and in any such case appropriate provision reasonably satisfactory
to such holder shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise
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Price and of the number of Warrant Shares receivable upon the exercise)
shall thereafter be applicable, as nearly as possible, in relation to any
shares of capital stock, securities or assets thereafter deliverable upon
the exercise of Warrants.
III.5.2 In the event of a merger, share exchange or consolidation
of the Company with or into another Person as a result of which a number
of shares of Common Stock or its equivalent of the successor Person
greater or lesser than the number of shares of Common Stock outstanding
immediately prior to such merger, share exchange or consolidation are
issuable to holders of Common Stock, then the Exercise Price in effect
immediately prior to such merger, share exchange or consolidation shall
be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock.
III.5.3 The Company shall not effect any such consolidation,
merger, share exchange, sale, transfer or other disposition unless prior
to or simultaneously with the consummation thereof the successor Person
(if other than the Company) resulting from such consolidation, share
exchange or merger of the Person purchasing or otherwise acquiring such
assets shall have assumed by written instrument executed and mailed or
delivered to the holder hereof at the last address of such holder
appearing on the books of the Company the obligation to deliver to such
holder such shares of capital stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
receive, and all other liabilities and obligations of the Company
hereunder. Upon written request by the holder hereof, such successor
Person will issue a new warrant revised to reflect the modifications in
this Warrant effected pursuant to this Section 3.5.
III.5.4 If a purchase, tender or exchange offer is made to and
accepted by the holders of 50% or more of the outstanding shares of
Common Stock, the Company shall not effect any consolidation, merger,
share exchange or sale, transfer or other disposition of all or
substantially all of the Company's assets with the Person having made
such offer or with any affiliate of such Person, unless prior to the
consummation of such consolidation, merger, share exchange, sale,
transfer or other disposition the holder hereof shall have been given a
reasonable opportunity to then elect to receive upon the exercise of the
Warrants either the capital stock, securities or assets then issuable
with respect to the Common Stock or the capital stock, securities or
assets, or the equivalent, issued to previous holders of the Common Stock
in accordance with such offer.
III.6 Adjustment for Asset Distribution. If the Company declares a
dividend or other distribution payable to all holders of shares of Common Stock
in evidences of indebtedness of the Company or other assets of the Company
(including, cash (other than regular cash dividends declared by the Board of
Directors), capital stock (other than Common Stock, Convertible Securities or
options or rights thereto) or other property), the Exercise Price in effect
immediately prior to such declaration of such dividend or other distribution
shall be reduced by an amount equal to the amount of such dividend or
distribution payable per share of Common Stock, in the case of a cash dividend
or distribution, or by the fair value of such dividend or distribution per share
of Common Stock (as reasonably determined in good faith by the Board of
Directors of the Company), in the case of any other dividend or distribution.
Such reduction shall be made whenever any such dividend or distribution is made
and shall be effective as of the date as of which a record is taken for the
purpose of such dividend or distribution or, if a record is not taken, the date
as of which holders of record of
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Common Stock entitled to such dividend or distribution are determined.
III.7 De Minimis Adjustments. No adjustment in the number of shares of
Common Stock purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one share of Common Stock
purchasable upon an exercise of each Warrant and no adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.01 in the Exercise Price; provided, however, that any
adjustments which by reason of this Section 3.7 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest full share or nearest one
hundredth of a dollar, as applicable.
III.8 Notice of Adjustment. Whenever the Exercise Price or the number of
Warrant Shares issuable upon the exercise of the Warrants shall be adjusted as
herein provided, or the rights of the holder hereof shall change by reason of
other events specified herein, the Company shall compute the adjusted Exercise
Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare an Officer's Certificate setting forth the
adjusted Exercise Price and the adjusted number of Warrant Shares issuable upon
the exercise of the Warrants or specifying the other shares of stock, securities
or assets receivable as a result of such change in rights, and showing in
reasonable detail the facts and calculations upon which such adjustments or
other changes are based. The Company shall cause to be mailed to the holder
hereof copies of such Officer's Certificate together with a notice stating that
the Exercise Price and the number of Warrant Shares purchasable upon exercise of
the Warrants have been adjusted and setting forth the adjusted Exercise Price
and the adjusted number of Warrant Shares purchasable upon the exercise of the
Warrants.
III.9 Notifications to Holders. In case at any time the Company proposes:
(i) to declare any dividend upon its Common Stock payable in
capital stock or make any special dividend or other distribution (other
than cash dividends) to the holders of its Common Stock;
(ii) to offer for subscription pro rata to all of the holders of
its Common Stock any additional shares of capital stock of any class or
other rights;
(iii) to effect any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation, merger or share
exchange of the Company with another Person, or sale, transfer or other
disposition of all or substantially all of its assets; or
(iv) to effect a voluntary or involuntary dissolution, liquidation
or winding up of the Company,
then, in any one or more of such cases, the Company shall give the holder hereof
(a) at least 10 days' (but not more than 90 days') prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining rights
to vote in respect of such issuance, reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, disposition, dissolution,
liquidation or winding up, and (b) in the case of any such issuance,
reorganization, reclassification, consolidation, merger, share exchange, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 10 days'
(but not more than 90 days') prior
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written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause (a) 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 (b) shall also specify the date on which the holders
of Common Stock shall be entitled to exchange their Common Stock, as the case
may be, for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, share exchange, sale, transfer,
disposition, dissolution, liquidation or winding up, as the case may be.
III.10 Company to Prevent Dilution. If any event or condition occurs as
to which other provisions of this Article III are not strictly applicable or if
strictly applicable would not fairly protect the exercise or purchase rights of
the Warrants evidenced hereby in accordance with the essential intent and
principles of such provisions, or that might materially and adversely affect the
exercise or purchase rights of the holder hereof under any provisions of this
Warrant, then the Company shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such exercise and purchase rights as aforesaid, and any adjustments
necessary with respect to the Exercise Price and the number of Warrant Shares
purchasable hereunder so as to preserve the rights of the holder hereunder. In
no event shall any such adjustment have the effect of increasing the Exercise
Price as otherwise determined pursuant to this Article III except in the event
of a combination of shares of the type contemplated in Section 3.4 hereof, and
then in no event to an amount greater than the Exercise Price as adjusted
pursuant to Section 3.4 hereof.
ARTICLE IV
MISCELLANEOUS
IV.1 Entire Agreement. This Warrant, together with the Agreement,
contains the entire agreement between the holder hereof and the Company with
respect to the Warrant Shares purchasable upon exercise hereof and the related
transactions and supersedes all prior arrangements or understandings with
respect thereto.
IV.2 Governing Law. This warrant shall be governed by and construed in
accordance with the laws of the State of Delaware.
IV.3 Waiver and Amendment. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.
IV.4 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
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IV.5 Copy of Warrant. A copy of this Warrant shall be filed among the
records of the Company.
IV.6 Notice. Any notice or other document required or permitted to be
given or delivered to the holder hereof shall be in writing and delivered at, or
sent by certified or registered mail to such holder at, the last address shown
on the books of the Company maintained at the Warrant Office for the
registration of this Warrant or at any more recent address of which the holder
hereof shall have notified the Company in writing. Any notice or other document
required or permitted to be given or delivered to the Company, other than such
notice or documents required to be delivered to the Warrant Office, shall be
delivered at, or sent by certified or registered mail to, the offices of the
Company at 3748 Highway #45 North, Columbus, Mississippi 39701 or such other
address within the continental United States of America as shall have been
furnished by the Company to the holder of this Warrant.
IV.7 Limitation of Liability; Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the holder hereof the right to
vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such holder for the purchase price of any shares of Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
IV.8 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of this Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity or such other security in such
form and amount as shall be reasonably satisfactory to the Company, or in the
event of such mutilation upon surrender and cancellation of this Warrant, the
Company will make and deliver a new warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any warrant issued under the provisions
of this Section 4.8 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or in lieu of any mutilated Warrant, shall constitute an original
contractual obligation on the part of the Company. This Warrant shall be
promptly canceled by the Company upon the surrender hereof in connection with
any exchange or replacement. The Company shall pay all taxes (other than
securities transfer taxes or income taxes) and all other expenses and charges
payable in connection with the preparation, execution and delivery of warrants
pursuant to this Section 4.8.
IV.9 Registration Rights. The Warrant Shares shall be entitled to such
registration rights under the Securities Act and under applicable state
securities laws as are specified in the Registration Rights Agreement and the
Agreement.
IV.10 Headings. The Article and Section and other headings herein are for
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name.
Dated: January 23, 1998
BLACK WARRIOR WIRELINE CORP.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
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SUBSCRIPTION NOTICE
The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby and to purchase thereunder,
________ shares of the Common Stock covered by such Warrant, and herewith makes
payment in full for such shares pursuant to Section 1.1 of such Warrant, and
requests (a) that certificates for such shares (and any other securities or
other property issuable upon such exercise) be issued in the name of, and
delivered to _____________________________________ and (b) if such shares shall
not include all of the shares issuable as provided in such Warrant, that a new
warrant of like tenor and date for the balance of the shares issuable thereunder
be delivered to the undersigned.
---------------------------------------
Date:
----------------------------------
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ASSIGNMENT
For value received, _______________________, hereby sells, assigns, and
transfers unto _________________________ the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ________________________ attorney, to transfer such Warrant on the books
of the Company, with full power of substitution.
---------------------------------------
Date:
----------------------------------
16
AMENDMENT NO. 2
TO
REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 2 TO REGISTRATION RIGHTS AGREEMENT (this "Amendment")
is made as of January 23, 1998, by and between Black Warrior Wireline Corp., a
Delaware corporation (the "Company"), and St. James Capital Partners, L.P., a
Delaware limited partnership (the "Purchaser").
WHEREAS, on June 5, 1997, the Company and the Purchaser entered into a
Registration Rights Agreement (the "Original Registration Rights Agreement"),
pursuant to which the Company granted the Purchaser certain registration rights
in respect of the Shares (as such term is defined in the Original Registration
Rights Agreement);
WHEREAS, on June 5, 1997, the Purchaser acquired from the Company a
Convertible Promissory Note (the "Original Convertible Note") in the original
principal amount of $2,000,000, which is convertible into the number of shares
as set forth in the Original Convertible Note (the "Original Convertible Note
Shares") of the Company's common stock, par value $.0005 per share (the "Common
Stock");
WHEREAS, on June 5, 1997, the Company issued Warrants to Purchase Common
Stock of the Company (the "Original Warrants") to Purchaser in respect of an
aggregate of 666,000 shares of Common Stock (the "Original Warrant Shares");
WHEREAS, pursuant to the terms of the Agreement for Purchase and Sale
dated as of October 10, 1997 between the Company and the Purchaser, the
Purchaser agreed to purchase a 7% Convertible Promissory Note from the Company
to Purchaser dated as of the date hereof, in the original principal amount of
$2,900,000 (the "Second Note"), which is convertible into shares of Common Stock
(the "Second Note Shares");
WHEREAS, as of October 10, 1997, the Company issued Warrants (the "Second
Warrants") to the Purchaser in respect of an aggregate of 725,000 shares of
Common Stock (the "Second Warrant Shares");
WHEREAS, pursuant to Amendment No. 1 to Registration Rights Agreement
dated as of October 10, 1997 between the Company and Purchaser ("Amendment
One"), the Company the Purchaser amended the Original Registration Rights
Agreement to, among other matters, grant the Purchaser certain registration
rights in respect of the Original Convertible Note Shares, the Second Warrant
Shares and the Second Note Shares, as set forth therein;
WHEREAS, pursuant to the terms of the Agreement for Purchase and Sale
dated as of the date hereof between the Company and the Purchaser, the Purchaser
has agreed to purchase an 8% Convertible Promissory Note from the Company to the
Purchaser dated as of the date hereof, in the original principal amount of up to
$10,000,000 (the "Third Note"), which is convertible into shares of Common Stock
(the "Third Note Shares");
<PAGE>
WHEREAS, as of the date hereof, the Company issued Warrants (the "Third
Warrants") to the Purchaser, which may be exercised to purchase shares of Common
Stock at $6.75 per share, subject to adjustment (the "Third Warrant Shares");
WHEREAS, the Company wishes to grant the Purchaser certain registration
rights in respect of the Third Warrant Shares and the Third Note Shares, as set
forth herein;
WHEREAS, the Company wishes to amend the Original Registration Rights
Agreement as amended by Amendment One, as set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
1. Each reference in the body of the Original Registration Rights
Agreement to the Shares shall hereafter refer to, collectively, the Original
Warrant Shares, the Original Convertible Note Shares, the Second Note Shares,
the Second Warrant Shares, the Third Note Shares and the Third Warrant Shares.
2. Each reference in the body of the Original Registration Rights
Agreement to Warrants shall hereafter refer to, collectively, the Original
Warrants, the Second Warrants and the Third Warrants.
3. Section 1.3 of the Original Registration Rights Agreement shall be
revised to read in its entirety as follows:
"1.3 "Registrable Securities" shall mean (i) the Shares; and (ii)
any Common Stock issued or issuable at any time or from time to time in
respect of the Shares upon a stock split, stock dividend,
recapitalization or other similar event involving the Company until such
Shares are registered pursuant to a Registration Statement or the
exemption from registration under Rule 144(k) (or successor Rule) under
the Securities Act is available with respect to the Shares."
4. By their execution of this Amendment, both the Company and the
Purchaser agree to be a party to, and bound by, the terms of the Original
Registration Rights Agreement, as amended by Amendment One and this Amendment.
5. This Amendment shall be governed in all respects by the laws of the
State of Delaware.
6. All other terms and conditions of the Original Registration Rights
Agreement shall be and remain the same and in full force and effect.
7. Capitalized terms used but not otherwise defined herein shall have the
meaning given them in the Original Registration Rights Agreement.
8. This Amendment may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
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THE COMPANY'S SIGNATURE PAGE
IN WITNESS WHEREOF, the Company has executed this Amendment effective
upon the date first set forth above.
BLACK WARRIOR WIRELINE CORP.
By:
William L. Jenkins, President
3
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THE PURCHASER'S SIGNATURE PAGE
IN WITNESS WHEREOF, the Purchaser has signed this Amendment as of the
date first written above.
ST. JAMES CAPITAL PARTNERS, L.P.
By: St. James Capital Corp., its General Partner
By:
----------------------------------------------
John Thompson, President
4
