<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MAY 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _________________.
COMMISSION FILE NUMBER 0-18656
PONDER INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2268672
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
5005 RIVERWAY DRIVE, SUITE 550, HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
(713)965-0653
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes XX No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Issued at July 11, 1996
----- -----------------------
Common Stock, $.01 par value 11,677,007
Page 1 of 12
<PAGE> 2
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Condensed Consolidated Statements of Operations for the three
and nine months periods ended May 31, 1996 and 1995 Page 3
Condensed Consolidated Balance Sheets as of
May 31, 1996 and August 31, 1995 Page 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended May 31, 1996 and 1995 Page 5
Condensed Consolidated Statements of Stockholders' Equity
for the nine months ended May 31, 1996 Page 6
Notes to Condensed Consolidated Financial Statements Page 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 9
PART II - OTHER INFORMATION:
Legal proceedings Page 10
Changes in Securities Page 10
Defaults upon Senior Securities Page 10
Submission of Matters to a Vote of Security Holders Page 10
Other Information Page 10
Exhibits and Reports - Form 8-K Page 10
</TABLE>
-2-
<PAGE> 3
PONDER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
May 31, May 31,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Tool rentals and sales $ 7,184,421 5,176,972 3,002,564 1,331,963
Costs of service and sales 3,120,126 2,603,316 1,187,209 715,018
------------ ------------ ------------ ------------
Gross profit $ 4,064,295 2,573,656 1,815,355 616,945
Operating expenses 2,008,037 1,016,295 957,351 341,541
General and administrative 2,636,660 1,215,804 1,047,029 410,595
Other (income) expense (206,275) (116,509) (17,497) (36,569)
------------ ------------ ------------ ------------
$ (374,127) 458,066 (171,528) (98,622)
------------ ------------ ------------ ------------
Interest 444,251 391,069 230,068 137,752
Depreciation 520,329 633,098 227,647 201,965
(Gain) loss on sale of ass 6,576 (1,342,064) 5,322 (1,343,238)
------------ ------------ ------------ ------------
Income (loss) from continuing
operations $ (1,345,283) 775,963 (634,565) 904,899
Discontinued operations 1,400,000 (286,984) -- (286,984)
------------ ------------ ------------ ------------
Net income (loss) $ 54,717 488,979 (634,565) 617,915
============ ============ ============ ============
Earnings (loss) per share:
Continuing operation $ (0.16) 0.12 (0.07) 0.13
============ ============ ============ ============
Discontinued operations $ 0.17 (0.04) -- (0.04)
============ ============ ============ ============
Net income (loss) $ 0.01 0.08 (0.07) 0.09
============ ============ ============ ============
Weighted average shares outstanding 8,250,998 6,667,437 9,350,018 6,667,437
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
PONDER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets
May 31, 1996 August 31, 1995
------------ ---------------
<S> <C> <C>
(Unaudited)
Current Assets
Cash - unrestricted $ 5,332,721 180,445
Cash - restricted -- 169,988
Receivables 3,691,986 1,277,110
Inventories 869,492 596,641
Prepaid expenses and other 728,170 341,468
------------ ------------
Total current assets $ 10,622,369 2,565,652
------------ ------------
Property and Equipment 25,705,069 14,310,745
Less accumulated depreciation (13,326,344) (11,548,868)
------------ ------------
$ 12,378,725 2,761,877
------------ ------------
Parts and supplies 808,257 804,212
Investment 900,000 --
Deferred cost and other assets 398,846 108,076
Goodwill - net 813,823 575,360
------------ ------------
$ 2,920,926 1,487,648
------------ ------------
$ 25,922,020 6,815,177
============ ============
Liabilities and Stockholder's Equity
Current liabilities
Note payable $ -- 200,000
Current installments of long-term debt 1,216,109 356,522
Accounts payable 2,595,952 666,570
Accrued liabilities 309,799 426,755
Estimated accrued costs-discontinued operations -- 510,390
------------ ------------
Total current liabilities $ 4,121,860 2,160,237
------------ ------------
Deferred tax liability 168,904 --
------------ ------------
Long-term debt 2,818,689 2,343,012
------------ ------------
8% convertible debentures, net of discount 9,885,417 --
------------ ------------
Stockholder's equity:
Common stock-$.01 par value; 112,665 66,674
authorized 50,000,000
shares, issued 11,266,558
shares of which 289,873
are held as treasury shares
Additional paid in capital 19,731,087 13,216,573
Accumulated deficit (9,828,398) (9,883,115)
------------ ------------
$ 10,015,354 3,400,132
Less: Note receivable for stock (60,466) (60,466)
Treasury stock (1,027,738) (1,027,738)
------------ ------------
Total stockholder's equity $ 8,927,150 2,311,928
------------ ------------
$ 25,922,020 6,815,177
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
PONDER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended May 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows from operating activities:
Net income $ 54,717 488,979
Depreciation 520,329 952,709
Sale of assets 6,576 (1,342,064)
Gain from discontinued operations (1,400,000) --
Net change in assets and liabilities:
Receivables (1,351,150) (1,011,977)
Inventories (272,851) 9,961
Prepaid expenses 113,298 225,797
Payables 611,075 (455,804)
Accrued liabilities 116,956 (260,105)
------------ ------------
Cash flow - continuing operating activities $ (1,601,050) (1,392,504)
------------ ------------
Cash flow - discontinued activities (510,390) --
------------ ------------
Cash flow - operating activities $ (2,111,440) (1,392,504)
Cash Flows from investing activities:
Property and equipment additions (3,893,001) (185,493)
Acquisition of business (1,600,000) --
Proceeds from sales of assets -- 2,729,631
------------ ------------
Cash flow - investing activities $ (5,493,001) 2,544,138
Cash Flows from financing activities:
Principal payments (4,472,777) (6,057,917)
Collection of notes receivable -- 6,732
Bank overdraft -- 2,889
Reduction of restricted cash - debt collateral (169,988) --
Issuance of stock 2,412,000 --
Issuance of 8% Debentures, net of discount 9,885,000 --
Debt issuance proceeds 5,102,482 4,896,662
------------ ------------
Cash flow - financing activities $ 12,756,717 (1,151,634)
Cash increase (decrease) 5,152,276 --
Cash and cash equivalents beginning 180,445 --
------------ ------------
Cash and cash equivalents ending $ 5,332,721 --
============ ============
Supplemental Disclosure:
Cash paid for interest $ 255,874 294,548
============ ============
Cash paid for taxes $ -- 15,045
</TABLE> ============ ============
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
Ponder Industries, Inc.
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-in Accumulated Note Treasury
Balance: Shares Par Value Capital (Deficit) Receivable Stock Total
------ --------- ---------- ----------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
September 1, 1995 6,667,437 $ 66,674 13,216,573 (9,883,115) (60,466) (1,027,738) $ 2,311,928
Shares issued 4,599,121 $ 45,991 6,514,514 ---- ---- ---- $ 6,560,505
Net income ---- ---- ---- 54,717 ---- ---- $ 54,717
---------- -------- ---------- ---------- ------- ---------- -----------
Balance:
May 31, 1996 11,266,558 $112,665 19,731,087 (9,828,398) (60,466) (1,027,738) $ 8,927,150
========== ======== ========== ========== ======= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and in the opinion of
management, reflect all adjustments which are of a normal recurring nature
necessary for a fair presentation of financial position, results of operations
and of cash flow. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
latest annual report on Form 10-K.
2. EARNINGS PER SHARE
Net income (loss) per share is computed using the weighted average number of
common stock and common stock outstanding for the periods reported.
3. RESTATEMENT OF PRIOR PERIODS
In February of 1996 the Company disposed of its operations in Azerbaijan. Such
operations were sold to Titan Resources Inc. (Titan) for $500,000 and 1,500,000
shares of Titan stock valued at $900,000. This resulted in a gain of $1,400,000
on the discontinued operations as the Company had previously written off all
assets associated with this operation. Operating results applicable to
Azerbaijan for the nine and three months ended May 31, 1995 are classified as
discontinued operations in the accompanying financial statements.
Depreciation expense for the nine months and the three months ended May 31,
1995, in the amounts of $633,098 and $201,965, respectively, were previously
included in operating and general and administrative expense in the
accompanying statements of operations.
4. ACQUISITIONS
During the second quarter, the Company acquired Runyon Oil Tools, Inc. (Olney,
Illinois), DiKor, Inc. (Carni, Illinois) and C & F Fishing Tools, Inc.
(Maysville, Oklahoma) in separate transactions in consideration for an
aggregate of $354,001 and 330,915 shares of the Company's restricted common
stock.
Effective April 1, 1996, the Company completed the acquisition of Panther Oil
Tools, (UK) Ltd (a Jersey company) and the assets of Villain Ltd. (a Guernsey
company) for $1,250,000 and 1,200,000 shares of the Company's restricted common
stock. The following table sets forth the proforma effect of the acquisitions.
-7-
<PAGE> 8
<TABLE>
<CAPTION>
For the Nine Months Ended
-----------------------------------------------------
May 31, 1996 May 31, 1995
-------------------------- ------------------------
As Reported Proforma As Reported Proforma
-------------------------- ------------------------
<S> <C> <C> <C> <C>
Tool Rental and Sales $7,184,421 $8,782,521 $5,176,972 $6,694,242
Income from Continuing Operations $54,717 $319,317 $488,979 $654,704
Earnings per share from Continuing $ 0.01 $ 0.03 $ 0.06 $ 0.08
Operations
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------------------------------
May 31, 1996 May 31, 1995
-------------------------- ------------------------
As Reported Proforma As Reported Proforma
-------------------------- ------------------------
<S> <C> <C> <C> <C>
Tool Rental and Sales $3,002,564 $3,230,864 $1,331,963 $1,548,723
Income (loss) from Continuing ($634,565) ($596,765) $617,915 $641,590
Operations
Earnings (loss) per share from ($ 0.06) ($ 0.06) $ 0.08 $ 0.08
Continuing Operations
</TABLE>
5. DEBENTURE OFFERING
Effective April 26, 1996, the Company completed a $10,950,000 placement of
eight percent Convertible Debentures. The debenture issue resulted in net
proceeds of $9,855,000. The debentures may be converted into common stock of
the Company as of specified dates, and will be automatically converted into
common stock on April 26, 1999. The debentures generally convert at a defined
conversion price formula, based on $5.0625 per share or at a variable
conversion rate relative to the market price at date of conversion.
As of July 12, 1996, debentures in the aggregate principal amount of
$1,100,000 had been converted into 357,256 shares of common stock. Bond
discount amortization in the amount of $30,417 and interest in the amount of
$84,000 are included in interest expense for the nine months and three months
ended May 31, 1996.
6. SUBSEQUENT EVENTS
In May, 1996, the Company signed a Letter of Intent to acquire Abilene, Texas
based G&L Fishing Tool Company (G&L)) for $4,000,000 and a $5,000,000 short
term note. The Company anticipates the acquisition to be completed in August,
1996.
-8-
<PAGE> 9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $6,500,509 on May 31, 1996 as compared to
$405,415 on August 31, 1995. The major source of the increase was the April
26, 1996 issuance of the eight percent (8%) Convertible Debenture which
provided $9,855,000 as discussed in Note 4 to the accompanying financial
statements. Additionally, in December 1995, 1,500,000 shares of restricted
common stock with warrants were sold, with resulting net proceeds of $912,000.
During the second quarter of 1996, warrants to purchase 500,000 shares at
$1.00 per share and 500,000 shares at $2.00 per share were exercised for a
total consideration of $1,500,000.
During the period, the Company completed the acquisitions discussed in Note 3,
which utilized cash of $1,600,000 and purchased property and equipment in
consideration for cash of $3,800,000.
The Company's ability to satisfy its cash requirements is evaluated by
analyzing key measures of liquidity applicable to the Company. The following
table is a summary of the measures which are significant to management.
<TABLE>
<CAPTION>
May 31, 1996 August 31, 1995
------------ ---------------
<S> <C> <C>
Working Capital $6,500,509 $405,415
Current Ratio 2.58 to 1 1.19 to 1
Debt to Capitalization .61 to 1 .54 to 1
(Debt/Debt + Equity)
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 1996 VS MAY 31, 1995
Revenues increased $2,007,449 or 39%, cost of sales increased $516,810 or 20%
and operating expenses increased $991,742 or 98% when compared to the same
period of the prior year. The increases are attributable to increased
marketing efforts and the addition of new locations in Louisiana, Arkansas and
Oklahoma. Operating expenses increased disproportionately to revenue due to
increased new location start-up costs and the addition of operating personnel.
General and administrative expense increased substantially due to additional
management personnel and expenses relating to acquisitions.
During May of 1995 the Company conducted an auction of its excess rental tools
and certain equipment. Such sale resulted in $2,657,656 proceeds and
$1,357,887 gain from disposal of assets.
THREE MONTHS ENDED MAY 31, 1996 VS MAY 31, 1995
Revenues increased $1,670,601 or 125%, cost of sales increased $472,191 or 66%
and operating expenses increased $615,810 or 180%, all increases due to
management's efforts to increase operating locations and marketing efforts.
General and administrative expenses increased 155% due to the addition of
management personnel and expenses relating to acquisitions.
During May of 1995 the Company conducted an auction of its excess rental tools
and certain equipment. Such sale resulted in $2,657,656 proceeds and
$1,357,887 gain from disposal of assets.
-9-
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 1 . LEGAL PROCEEDINGS
For a description of legal proceedings against the Company see Item 1 of the
Company's Quarterly Report on Form 10-Q dated February 29, 1996.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<S> <C>
*2.1 Agreement for Sale and Purchase of Stock of Runyon Oil Tools,
Inc. dated April 26, 1996, among Ponder Industries, Inc.,
Runyon Oil Tools, Inc., Steven E. Runyon, Freda M. Runyon, as
Custodian for Stephanie Runyon under the Illinois Uniform
Transfers to Minors Act, Freda M. Runyon, as Custodian for
Amanda Runyon under the Illinois Uniform Transfers to Minors
Act, Freda M. Runyon, as Custodian for Lucas Runyon under the
Illinois Uniform Transfers to Minors Act, and Freda M. Runyon,
as Custodian for Blake Runyon under the Illinois Uniform
Transfers to Minors Act.
2.2 Stock Purchase Agreement dated May 23, 1996, among Ponder
Energy Services, Inc., Panther Oil Tools (UK) Ltd. and Panther
Oil Tools Ltd. (incorporated by reference to Exhibit 2.1 of
the Company's Current Report on Form 8-K filed June 7, 1996).
2.3 Asset Purchase Agreement dated May 23, 1996, among Ponder
Energy Services, Inc., Villain Ltd., John Le Seelleur, Mel
Maitland and Wayne Tynon (incorporated by reference to Exhibit
2.1 of the Company's Current Report on Form 8-K filed June 7,
1996).
*2.4 Stock Purchase Agreement dated May 17, 1996, between Ponder
Industries, Inc. and LJH Corporation.
*4.1 Form of 8% Convertible Debenture of Ponder Industries, Inc.
dated April 26, 1996.
*10.1 Regulation S Securities Subscription Agreement dated April 26,
1996, among each Subscriber for 8% Convertible Debentures of
Ponder Industries, Inc. and Ponder Industries, Inc.
*10.2 Offshore Securities Subscription Agreement dated December 22,
1995, between Eagle Management Services Limited and Ponder
Industries, Inc.
*10.3 Offshore Securities Subscription Agreement dated December 22,
1995, between Atlantic Holdings Limited and Ponder
Industries, Inc.
</TABLE>
-10-
<PAGE> 11
<TABLE>
<S> <C>
*10.4 Warrant to Purchase Common Stock, $.01 par value, of Ponder
Industries, Inc. between Eagle Management Services Limited and
Ponder Industries, Inc.
*10.5 Warrant to Purchase Common Stock, $.01 par value, of Ponder
Industries, Inc. between Atlantic Holdings Limited and Ponder
Industries, Inc.
27 Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith
(b) Reports on Form 8-K
(1) A Form 8-K (Item 2. Acquisition or Disposition of
Assets) was filed on June 7, 1996 reporting the
acquisition of all of the issued and outstanding
capital stock of Panther Oil Tools (UK) Ltd. and
substantially all of the assets of Villain Ltd.
*****************
-11-
<PAGE> 12
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PONDER INDUSTRIES, INC.
By: /s/ Larry Armstrong
-----------------------------------
Larry Armstrong
President and Chief Executive
Officer
/s/ Eugene L. Butler July 12, 1996
- -----------------------------------
Eugene L. Butler
Executive Vice President and
Chief Financial Officer
-12-
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
*2.1 Agreement for Sale and Purchase of Stock of Runyon Oil Tools,
Inc. dated April 26, 1996, among Ponder Industries, Inc.,
Runyon Oil Tools, Inc., Steven E. Runyon, Freda M. Runyon, as
Custodian for Stephanie Runyon under the Illinois Uniform
Transfers to Minors Act, Freda M. Runyon, as Custodian for
Amanda Runyon under the Illinois Uniform Transfers to Minors
Act, Freda M. Runyon, as Custodian for Lucas Runyon under the
Illinois Uniform Transfers to Minors Act, and Freda M. Runyon,
as Custodian for Blake Runyon under the Illinois Uniform
Transfers to Minors Act.
2.2 Stock Purchase Agreement dated May 23, 1996, among Ponder
Energy Services, Inc., Panther Oil Tools (UK) Ltd. and Panther
Oil Tools Ltd. (incorporated by reference to Exhibit 2.1 of
the Company's Current Report on Form 8-K filed June 7, 1996).
2.3 Asset Purchase Agreement dated May 23, 1996, among Ponder
Energy Services, Inc., Villain Ltd., John Le Seelleur, Mel
Maitland and Wayne Tynon (incorporated by reference to Exhibit
2.1 of the Company's Current Report on Form 8-K filed June 7,
1996).
*2.4 Stock Purchase Agreement dated May 17, 1996, between Ponder
Industries, Inc. and LJH Corporation.
*4.1 Form of 8% Convertible Debenture of Ponder Industries, Inc.
dated April 26, 1996.
*10.1 Regulation S Securities Subscription Agreement dated April 26,
1996, among each Subscriber for 8% Convertible Debentures of
Ponder Industries, Inc. and Ponder Industries, Inc.
*10.2 Offshore Securities Subscription Agreement dated December 22,
1995, between Eagle Management Services Limited and Ponder
Industries, Inc.
*10.3 Offshore Securities Subscription Agreement dated December 22,
1995, between Atlantic Holdings Limited and Ponder
Industries, Inc.
*10.4 Warrant to Purchase Common Stock, $.01 par value, of Ponder
Industries, Inc. between Eagle Management Services Limited and
Ponder Industries, Inc.
*10.5 Warrant to Purchase Common Stock, $.01 par value, of Ponder
Industries, Inc. between Atlantic Holdings Limited and Ponder
Industries, Inc.
27 Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 2.1
AGREEMENT FOR SALE AND PURCHASE OF STOCK OF RUNYON OIL TOOLS, INC.
THIS AGREEMENT FOR SALE AND PURCHASE OF STOCK OF RUNYON OIL TOOLS,
INC. (the "Agreement") is made on this 26th day of April, 1996, by and between
RUNYON OIL TOOLS, INC., an Illinois corporation ("Company"); Steven E. Runyon,
a shareholder in Runyon Oil Tools, Inc. ("Seller"); and Freda M. Runyon, as
Custodian for Stephanie Runyon under the Illinois Uniform Transfers to Minors
Act; Freda M. Runyon, as Custodian for Amanda Runyon under the Illinois Uniform
Transfers to Minors Act; Freda M. Runyon, as Custodian for Lucas Runyon under
the Illinois Uniform Transfers to Minors Act; Freda M. Runyon, as Custodian for
Blake Runyon under the Illinois Uniform Transfers to Minors Act ("Other
Shareholders"), each of whose address is RR5, Box 266, Olney, Illinois 62450;
and PONDER INDUSTRIES, INC., a Delaware corporation whose address is P.O. Box
2229, Alice, Texas 78333 ("Buyer").
Seller and Other Shareholders desire to sell and Buyer desires to
purchase from Seller and Other Shareholders all of the issued and outstanding
capital stock of Runyon Oil Tools, Inc., on the terms and conditions set forth
in this Agreement. Therefore, in consideration of the mutual promises of the
parties; in reliance upon the representations, warranties, covenants and
conditions contained in this Agreement; and for other good and valuable
consideration, the parties agree as follows:
1. PROMISE TO BUY AND SELL. Seller and Other Shareholders hereby
agree to sell to Buyer and Buyer agrees to purchase from Seller and Other
Shareholders, upon the terms and conditions set forth in this Agreement, all of
the issued and outstanding capital stock of Company.
2. CONSIDERATION. The total purchase price, herein called
"purchase price", to be paid by Buyer to Seller and Other Shareholders for all
the shares of capital stock of Company shall be $1,108,001.00 The purchase
price shall be paid at Closing, as follows:
a. $158,521.00 in cash, to be paid by cashier's or certified check
payable to the order of Seller and Other Shareholders;
b. 271,280 shares of Section 144 stock of Ponder Industries, Inc.
(the "Purchase Shares") (with an agreed value of $949,480.000 for
purposes of this Agreement);
3. CLOSING. The parties agree to use their best efforts to
consummate this transaction ("Closing"). The Closing shall take place at the
offices of Rosenblum, Goldenhersh, Silverstein & Zafft, P.C. on May 1, 1996
(the "Closing Date") or at such other time and
1
<PAGE> 2
place as may be mutually agreed upon by Seller and Buyer. In any event, all of
the terms and conditions to the Closing shall have been met prior to Closing.
At Closing, Seller and Other Shareholders shall execute and deliver to
Buyer instruments of assignment and transfer of all of the issued and
outstanding capital stock of Company, free and clear of all liens, claims and
encumbrances in form and substance satisfactory to Buyer's counsel. Seller and
Other Shareholders shall also then deliver to Buyer a Uniform Commercial Code
Article 9 Financing Statement Search Report issued by the Secretary of State in
each state where Company owns personal property and dated as of a date not more
than fifteen (15) days before the Closing Date, which report must indicate that
there are no Financing Statements on file under Article 9 of the UCC on file
with the Secretary of State that name Company as debtor or otherwise indicate
any lien on the assets and properties of Company, except for the liens
otherwise disclosed in this Agreement. Simultaneously with the consummation of
the transfer, Seller and Other Shareholders shall put Buyer in full possession
and enjoyment of all properties and assets of Company. Seller and Other
Shareholders and Company and Buyer shall also, at Closing, execute, acknowledge
and deliver to the other parties any further documents or instruments of
transfer reasonably requested by the other parties. Seller and Other
Shareholders and Company and Buyer shall also take any other action consistent
with the terms of this Agreement that may reasonably be requested by the other
parties for the purpose of consummating the transaction contemplated by this
Agreement. Buyer shall then execute and deliver to Seller and Other
Shareholders all appropriate and necessary documents, and shall then deliver
the cash payment and the shares of stock in Ponder Industries, Inc.
4. COMPANY'S AND SELLER'S AND OTHER SHAREHOLDERS' REPRESENTATIONS
AND WARRANTIES. Company and Seller and Other Shareholders hereby warrant and
represent to Buyer, which warranties will continue after closing, that:
a. That Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Illinois, and is qualified to do business in the jurisdictions
in which it is currently doing business. Company and Seller
and Other Shareholders have the full power and authority to
execute and carry out the terms of this Agreement; that if the
consent of any person or persons, acting individually, in any
fiduciary capacity or as a board of directors is required by
law or otherwise to grant or extend such authority, that the
same has been heretofore obtained.
b. Company's certificate of incorporation, articles of
incorporation, and bylaws as currently in effect are contained
in Exhibit 1 attached to this Agreement.
2
<PAGE> 3
c. The authorized capital stock and the number of shares issued
and outstanding of Company is set forth in Exhibit 2 attached
to this Agreement. The issued and outstanding shares of
capital stock of Company have been validly issued, are fully
paid and nonassessable, and were issued in compliance with
applicable state and federal laws regulating the offer and
sale of securities. There are no outstanding options,
warrants, or similar rights to purchase or convert any
obligation into the capital stock or other securities of
Company. The capital stock of Company is owned, of record and
beneficially, by those shareholders set forth in Exhibit 2
free and clear of all liens, claims and encumbrances.
d. Exhibit 3 attached to this Agreement contains a true and
correct list of all officers and directors of Company.
e. Exhibit 4 attached to this Agreement contains the financial
statements of Company, together with notes related to the
financial statements. The financial statements consist of
balance sheets and statements of income and retained earnings
for the year ended December 31, 1995. Except as to disclosed
on Exhibit 4, the Financial Statements present fairly and
accurately the financial position, results of operation, and
changes in financial position of Company at the dates and for
the periods covered, in each case in conformity with generally
accepted and consistently applied accounting principles. There
are no material liabilities or obligations of Company,
accrued, absolute, contingent, or otherwise that arose out of
or relate to any matter, act or omission occurring from
December 31, 1995 to the date of this Agreement, other than
liabilities or obligations incurred in the normal course of
business. Since December 31, 1995, there have not been any
material adverse change in financial condition, operations,
sales or net income of Company, except as described on Exhibit
4, any loss, damage, or destruction to properties or assets,
tangible or intangible; any claim, litigation, event, or
condition of any character, that materially adversely affects
the business or future prospects of Company; any issuance,
purchase of, or agreement to issue or purchase shares of
capital stock or other securities of Company; any mortgage,
pledge, lien or encumbrance made or agreed to be made on any
of Company's assets or properties; any sale, transfer, other
disposition of, or agreement to sell, transfer or dispose of
Company's properties or assets, except as contemplated in this
Agreement and except in the normal course of business and then
only
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<PAGE> 4
for full and fair value received; any borrowings or agreements
to borrow by or from Company; any loans, advances, or
agreements with respect to any loans or advances, other than
to customers in the normal course of business and that have
been properly reflected as "accounts receivable" on Company's
books; any transaction outside the ordinary course of
business; any dividends or distributions paid or declared, or
any repayment of loans or other obligations to the
shareholders of Company; any capital expenditure made by
Company in excess of $10,000.00, except as set forth in
Exhibit 4; or any agreement by Seller or Other Shareholders or
Company to do any of the items described above.
f. That, to the best of Company's and Seller's and Other
Shareholders' knowledge and belief, and other than has been
previously disclosed by Seller and Other Shareholders, as of
closing: (I) all federal, state, local, and foreign income, ad
valorem, excise, sales, use, payroll, unemployment, and other
taxes and assessment ("Taxes") that are due and payable by the
Company have been properly computed, duly reported, fully
paid, and discharged; (ii) there are no unpaid Taxes that are
or could become a lien on any property or assets of the
Company or require payment by the Company, except for current
Taxes not yet due and payable by the Company; (iii) all
current Taxes not yet due and payable by the Company have been
properly accrued on the balance sheets of the Company; (iv)
the Company has not incurred any liability for penalties,
assessments, or interest under the Internal Revenue Code; and
(v) no unexpired waiver executed by or on behalf of the
Company with respect to any Taxes is in effect.
g. That, to the best of Company's and Seller's and Other
Shareholders' knowledge and belief, the Company is not in
default or in violation of any law, regulation, court order,
or order of any federal, state, municipal, foreign or other
government department, board, bureau, agency, or
instrumentality, wherever located, that would materially
adversely affect its business or future prospects.
h. That, to the best of Company's and Seller's and Other
Shareholders' knowledge and belief, there are no pending,
outstanding, or threatened claims, legal, administrative, or
other proceedings, or suits, investigations, inquires,
complaints, notices of violation, judgments, injunctions,
orders, directives, or restrictions against or involving the
Company or any
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<PAGE> 5
of its assets, properties or business of the Company, or any
of the Company's officers, directors, employees, or
stockholders that will materially adversely affect the
Company, its assets, properties or business, or have a
material impact on the transactions contemplated hereby.
i. That, to the best of Company's and Seller's and Other
Shareholders' knowledge and belief, the business of Company,
as heretofore conducted by Company, complies in all material
respects with all applicable rules and regulations, ordinances
and statutes of all governments or government of bodies or
agencies having jurisdiction having a material impact over the
conduct of such business, and that Company has not received
any notice that it is or has been in violation of or in
default under any federal or state law applicable to its
business, assets or properties, which would have a material
impact on the business of Company; and that there are no
agreements, judgments, injunctions, or liens, decrees or other
instruments binding the Company which have the effect of
prohibiting the conduct of the Company's business as such
business is presently conducted; and that Company has all
material governmental licenses, authorizations, consents and
approvals required to own and operate its business.
j. That all inventory of Company, regardless of whether goods
held for sale, work in process or raw materials, is current
inventory, currently usable or saleable in the ordinary course
of business;
k. Exhibit 5 which is attached to this Agreement contains a
complete and accurate description of each parcel of real
property leased to or leased by Company. Exhibit 5 indicates
that the Company does not own any real property. The real
property on which the Company presently does business is owned
by Seller, and is not included in the assets that are part of
the transaction evidenced by this Agreement. That real
property, along with all buildings, fixtures, and other
improvements located on the real property, will be leased by
Seller to Buyer, as is further detailed in Paragraph 14 of
this Agreement. All the buildings, fixtures, and leasehold
improvements used by Company in its business are located on
the real property owned by Seller. To the best of Company's
and Seller's and Other Shareholders' knowledge and belief, the
zoning of that parcel of real property permits the presently
existing improvements and a continuation of Company's business
presently being conducted on such parcel. Neither Company nor
Seller nor Other Shareholders are aware of
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<PAGE> 6
any enacted or proposed changes to such zoning.
l. The equipment, furniture, fixtures, and other personal
property described in Exhibit 6 attached to this Agreement
constitute substantially all of the items of tangible personal
property owned by, in the possession of, or used by Company in
connection with Company's business except Inventories. Except
as stated in Exhibit 6, no personal property used by Company
in connection with its business is held under any lease,
security agreement, conditional sales contract, or other title
retention or security agreement or is located in any other
place other than in the possession of Company.
m. Exhibit 7 attached to this Agreement is a true and complete
list of all intangible assets, other than those specifically
referred to elsewhere in this Agreement, and the location of
evidences of title to such intangible assets.
n. Company has good and marketable title to all of its assets and
properties, tangible and intangible, that are material to
Company's business and future prospects. These assets and
properties constitute all of the assets and interests in
assets that are used in Company's business. All of these
assets are free and clear of mortgages, liens, pledges,
charges, encumbrances, equities, claims, easements,
rights-of-way, covenants, conditions, and restrictions, except
for those disclosed in Company's balance sheet or Financial
Statements.
o. Exhibit 8 attached to this Agreement is a correct and current
list of all customers of Company, together with summaries of
sales made to each customer since January 1, 1995. Except as
indicated in Exhibit 8, neither Company nor Seller nor Other
Shareholders have information or is aware of any facts
indicating that any of these customers intend to cease doing
business with Company or to materially alter the amount of the
business that they are presently doing with Company.
p. Exhibit 9 attached to this Agreement is a list and description
of all insurance policies concerning the assets and properties
and all officers, directors, and employees of Company. Company
has maintained and now maintains insurance on all of the
assets and properties of the type customarily insured.
q. Exhibit 10 attached to this Agreement contains true and
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<PAGE> 7
correct lists, with copies when available, of all material
oral and written contracts or arrangements obligating Company.
Exhibit 10 also sets forth a list of all persons or entities
whose consents are required to be obtained under any contract
with respect to the consummation of this transaction by Seller
and Other Shareholders and Company. Except as is set forth in
Exhibit 10, Company is not a party to, nor are Company's
assets and properties bound by, any other agreement. There is
no default or event that with notice, lapse of time, or both
will constitute a default by any party to any of the material
contracts listed in Exhibit 10.
r. Exhibit 11 attached to this Agreement contains a complete
description and copies of all employment agreements in effect
with Company and a complete description of all fringe benefits
available to Company's officers, directors and employees.
s. Exhibit 12 attached to this Agreement contains a true and
correct list of all accounts receivable and notes receivable
of Company, as of March 29, 1996, to be updated at Closing.
All listed accounts and notes receivable of Company are
bonafide receivables, arose in the ordinary course of business
by Company, and require no further performance by Company,
except as required by the terms of the notes and receivables.
t. No representation, warranty or covenant made to Buyer by
Company or Seller or Other Shareholders in the Agreement nor
any document, certificate or exhibit given or delivered to
Buyer pursuant to this Agreement contains or will contain any
untrue statement of a material fact, or omits or will omit a
material fact necessary to make the statements contained in
this Agreement or the matters disclosed in the related
documents, certificates, information, or exhibits not
materially misleading.
u. Company and Seller and Other Shareholders have been furnished
and has carefully read the financial information of the Buyer
for all periods deemed relevant by Company or Seller or Other
Shareholders. Company and Seller and Other Shareholders have
been furnished with and reviewed all materials relating to the
Buyer's operations and have been afforded the opportunity to
obtain any additional information necessary to verify the
accuracy of any representations of Buyer or information about
Buyer set forth in this Agreement or in Buyer's financial
information.
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<PAGE> 8
5. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer hereby warrants
and represents to Company and Seller and Other Shareholders, which warranties
will continue after Closing, that:
a. Buyer is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware, with
corporate power to own property and carry on its business as
it is now being conducted;
b. No litigation, actions, or proceedings, legal, equitable,
administrative, through arbitration, or otherwise, are pending
or threatened which might affect said business or the
consummation of the purchase and sale described in this
Agreement;
c. The shares of Buyer's Common Stock to be acquired by Seller
and Other Shareholders are unrestricted, fully paid and
nonassessable, except for the restrictions on resale contained
in Rule 144, and are free and clear of any liens, charges,
pledges, security interests, restrictions or other
encumbrances, except for the restrictions on resale contained
in Rule 144. The authorized capital of Buyer is sufficient to
provide for the issuance and exchange of the Buyer's Common
Stock.
d. That, to the best of Buyer's knowledge and belief, there is no
action, suit or proceeding pending against, or threatened
against or affecting Buyer or any of its officers, directors
or wholly-owned subsidiaries before any court or arbitrator or
any governmental body, agency or official, which would have a
material impact on the transactions contemplated hereby or on
the business of Buyer.
e. That, to the best of Buyer's knowledge and belief, Buyer has
not received any notice that it is or has been in violation of
or in default under any federal or state law applicable to its
business, assets or properties, which would have a material
impact on the Business of Buyer.
f. That, to the best of Buyer's knowledge and belief, there are
no agreements, judgments, injunctions, or liens, decrees or
other instruments binding the Buyer which have the effect of
prohibiting the conduct of the Company's business as such
business is presently conducted.
g. That, to the best of Buyer's knowledge and belief, Buyer has
all material governmental licenses, authorizations, consents
and approvals required to own
8
<PAGE> 9
and operate its business, and the Company's business.
h. Buyer has not employed any investment banker, broker, finder
or other intermediary in connection with the transactions
contemplated hereby, who might be entitled to any fee or
commission from Seller or Other Shareholders upon consummation
of the transactions contemplated hereby.
i. That, to the best of Buyer's knowledge and belief, no
representation or warranty of Buyer contained in this
Agreement or in any other document delivered to Seller in
connection with this Agreement contains any untrue statement
of a material fact or omits to state a material fact necessary
in order to make the statements herein in light of the
circumstances in which they were made, not materially
misleading.
j. Buyer understands and acknowledges that the certificates
representing the Seller's and Other Shareholders' Shares bear
the Blue Sky Legend which states that the shares are not
registered pursuant to the 1933 Act. Buyer is acquiring
Seller's and Other Shareholders' Shares for its own account
and for investment and not with a view to resell or distribute
any or all of such Shares.
k. Buyer has been furnished and has carefully read the financial
information of the Company for all periods deemed relevant by
Buyer. Buyer has been furnished with and reviewed all
materials relating to the Company's operations and its
purchase of the Company's Shares and has been afforded the
opportunity to obtain any additional information necessary to
verify the accuracy of any representations of Seller or Other
Shareholders or Company or information about the Company set
forth in this Agreement or in the Company's financial
information.
6. CONDUCT OF BUSINESS PENDING CLOSING; RIGHT OF INSPECTION.
Pending consummation of the sale and purchase described in this Agreement,
Seller and Other Shareholders and Company shall continue to operate the Company
in the same manner as it has been operated in the past, and will maintain the
assets of the Company. Buyer shall have a reasonable opportunity to inspect the
Company's inventory and books and records, including business and financial
records and tax returns, at a mutually agreeable time, prior to Closing.
If the transaction contemplated by this Agreement is not closed, all
information that the Company or Seller or Other
9
<PAGE> 10
Shareholders furnish to Buyer or its representatives, counsel, directors,
officers, employees or agents ("Representatives") pursuant to Buyer's request
shall not be used by Buyer or Buyer's Representatives in any way adverse to the
Company and such information at all times will be strictly confidential and
shall be returned to Company upon request by Seller or Company.
7. CONDITIONS TO OBLIGATIONS TO CLOSE. The obligation of Buyer to
Close under this Agreement is subject to each of the following conditions
existing on the Closing Date:
a. each of the representations and warranties of Seller and Other
Shareholders and Company in this Agreement shall be true in
all material respects at and as of the Closing Date;
b. All necessary government approvals and filing regarding this
transaction shall be received or made prior to the Closing in
substantially the form applied for to the reasonable
satisfaction of Buyer and its counsel;
c. All corporate and stockholder action necessary to consummate
the transactions contemplated in this Agreement shall be
properly taken by Seller and Other Shareholders and Company.
Buyer shall receive copies of all appropriate resolutions of
Company's board of directors and shareholders relating to this
Agreement. The resolution shall be certified by their
respective corporate secretaries;
d. On or before Closing, Seller and Other Shareholders shall
secure the resignations of all officers and directors
currently serving on the Board of Directors of Company; and
e. Buyer shall be satisfied after conducting a review or
inspection of Company's books and records and inventory.
The obligation of Seller and Other Shareholders to Close under this Agreement
is subject to each of the following conditions existing on the Closing Date:
a. each of the representations and warranties of Buyer in this
Agreement shall be true in all material respects at and as of
the Closing Date.
b. All necessary government approvals and filing regarding this
transaction shall be received or made prior to the Closing in
substantially the form applied for to the reasonable
satisfaction of Company and its counsel;
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<PAGE> 11
c. All corporate and stockholder action necessary to consummate
the transactions contemplated in this Agreement shall be
properly taken by Buyer. Seller shall receive copies of all
appropriate resolutions of Buyer's board of directors and
shareholders relating to this Agreement. The resolution shall
be certified by their respective corporate secretaries;
d. Seller and Buyer shall have entered into an employment
agreement as more fully described in Paragraph 14 and upon
terms and conditions satisfactory to Seller.
e. Seller and Buyer shall have entered a lease for the premises
owned by Seller as more fully described in Paragraph 14 and
upon terms and conditions satisfactory to Seller.
8. RISK OF LOSS PENDING CLOSING. Pending consummation of the sale
and purchase described in this Agreement, Company shall bear all risk of loss,
damage, or destruction to the Company and the assets of the business subject to
this Agreement.
Buyer may terminate this Agreement and cancel the purchase and
sale described in this Agreement should the replacement cost of any such loss,
damage or destruction not be paid into escrow as of the time set for
consummation of the purchase and sale described in this Agreement. Should the
cost of repairing or restoring any assets of the business subject to this
Agreement that may suffer any such loss, damage or destruction between the date
of this Agreement and consummation of the sale and purchase described herein be
greater than one-half ( 1/2) of the total purchase price to be paid by Buyer to
Seller and Other Shareholders, Seller and Other Shareholders may terminate this
Agreement and cancel the purchase and sale described in this Agreement.
9. PRORATIONS. There shall be prorated between Seller and Other
Shareholders and Buyer:
a. All personal property taxes levied or assessed against any of
the assets of said business subject to this Agreement for the
current tax year based on the amount shown on the latest
available tax bill for the asset, whether the bill be for the
current year or the preceding tax year.
10. COSTS AND EXPENSES. All costs and expenses incurred in
conducting the purchase and sale described in this Agreement in the manner
prescribed by this Agreement shall be borne by Buyer and Seller and Other
Shareholders in the following manner:
a. Each party shall be responsible for payment of that party's
respective fees that have been incurred,
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<PAGE> 12
including but not limited to legal fees and accounting fees;
b. Any sales taxes arising because of the sale pursuant to this
Agreement shall be paid by Buyer.
11. INDEMNIFICATION. Seller and Other Shareholders covenant and
agree to indemnify and hold harmless Buyer from and against any and all claims,
suites, losses, judgments, damages and liabilities including any investigation,
legal and other expenses incurred in connection with and any amount paid in
settlement of any claim, action, suit, or proceeding (collectively called
"Losses"), for which the Buyer may become subject, if such Losses arise out of
or are based upon any facts and circumstances that result in or give rise to
misrepresentation, negligent act or otherwise, breach of warranty, or breach of
covenant by Seller or Other Shareholders to the Buyer, and for any Losses for
which Buyer may become subject, if such Losses arise out of facts and
circumstances or transactions that occurred prior to Closing. This right to
indemnification is in addition to any other right available to the Buyer,
including the right to sue Seller and/or Other Shareholders for
misrepresentation, negligent act or otherwise, breach of warranty, or breach of
covenant under this Agreement.
Buyer covenants and agrees to indemnify and hold harmless Seller and
Other Shareholders from and against any and all claims, suits, losses,
judgments, damages and liabilities including any investigation, legal and other
expenses incurred in connection with and any amount paid in settlement of any
claim, action, suit, or proceeding (collectively called "Losses), for which the
Seller and Other Shareholders may become subject, if such Losses arise out of
or are based upon any facts or circumstances (or alleged facts and
circumstance) occurring after the closing of this Agreement and that could
result in or give rise to misrepresentation, negligent act or otherwise, breach
of warranty, or breach of covenant by the Buyer to the Seller or Other
Shareholders. This right to indemnification is in addition to any other right
available to the Seller or Other Shareholders, including the right to sue the
Buyer for misrepresentation, negligent act or otherwise, breach of warranty, or
breach of covenant under this Agreement.
Buyer shall indemnify and hold Seller and Other Shareholders and the
property of Seller and Other Shareholders free and harmless from any and all
claims, losses, damages, injuries, and liabilities arising from or in
connection with the operation of the Company after Closing.
Seller and Other Shareholders shall indemnify and hold Buyer and the
property of Buyer, including said business and the assets of said business,
free and harmless from any and all claims, losses, damages, injuries, and
liabilities arising from or on account of
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<PAGE> 13
Company's or Seller's and Other Shareholders' operation of the Company prior to
Closing.
Without limiting the provisions of this Paragraph, Seller and Other
Shareholders shall indemnify Buyer and Company from and against any losses from
and against any losses to which Company or Buyer may become subject insofar as
such losses arise out of or are based on any tax on or measured by the net
income of Company in any period on or before Closing. The indemnifications
provided in this subparagraph are cumulative and shall not limit or in any
other way affect the rights of Buyer and Company under any other provision.
In the event any amount to be indemnified by Seller or Other
Shareholders is covered by insurance payable to Buyer, Seller and Other
Shareholders shall not be liable for the indemnification amounts so covered.
Likewise, in the event any amount to be indemnified by Buyer is covered by
insurance payable to Seller or Other Shareholders, Buyer shall not be liable
for the indemnification amounts so covered. Notwithstanding the foregoing, the
amount either party shall be required to indemnify shall be the other party's
after tax loss, taking into consideration any deduction that the losing party
is entitled to take with respect to such loss. Under no circumstances shall the
liability of Seller or Other Shareholders under this Agreement, in the
aggregate, exceed the purchase price being paid to Seller and Other
Shareholders.
12. EXEMPTION FROM REGISTRATION. Seller and Other Shareholders
(collectively, the "Holders") recognize that the Purchase Shares are not being
registered under the Securities Act of 1933, as amended (the "Securities Act")
in reliance upon an exemption from the Securities Act which is predicated, in
part, on the representations and agreements of the Holders set forth in this
Agreement. The Holders represent and warrant to Buyer that there are no more
than 35 purchasers who are not "accredited investors" as that term is defined
in Rule 501(a) of the Securities Act and that each purchaser who is not an
accredited investor has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of acquiring the
Purchase Shares. The Holders represent and warrant that the Purchase Shares are
being acquired solely for their own account for investment and not with a view
to, or for offer or resale in connection with, a distribution thereof within
the meaning of the Securities Act. The Holders understand that the effect of
such representation and warranty is that the Purchase Shares must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available at the time for any proposed sale
or other transfer thereof. The Holders also understand that Buyer is under no
obligation to file a registration statement under the Securities Act covering
the Purchase Shares or to take any other action to enable the Holders to
transfer or otherwise dispose of the Purchase Shares, except as provided in
Paragraphs 15 or 16 below. The Holders represent that they have consulted with
counsel in regard
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<PAGE> 14
to the Securities Act and that they are fully familiar with the circumstances
under which they are required to hold the Purchase Shares and the limitations
upon the transfer or other disposition thereof. The Holders acknowledge that
Buyer is relying upon the truth and accuracy of the foregoing representations
and warranties in issuing the Purchase Shares under the Securities Act. The
Holders agree to indemnify and hold Buyer harmless against all liabilities,
costs and expenses, including reasonable attorneys' fees, incurred by Buyer as
a result of any sale, transfer or other disposition by the Holders of all or
any part of the Purchase Shares in violation of the Securities Act.
13. LEGEND. The Purchase Shares shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AS AMENDED. THESE SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT."
14. SEC DOCUMENTS. The Holders acknowledge that they have been
furnished by Buyer with (a) a copy of the Annual Report on Form 10-K of Buyer
for the fiscal year ended August 31, 1995, in the form filed with the
Securities and Exchange Commission ("SEC"), (b) definitive proxy statement
relating to the most recent meeting of shareholders, (c) copies of all filings
since August 31, 1995, by Buyer with the SEC in compliance with Section 13 or
14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
(d) any other relevant financial, business or operational information
reasonably requested by the Holders. The Holders represent that they have
reviewed the foregoing documents and acknowledge that they have been afforded
the opportunity to obtain any additional information necessary to verify the
accuracy of the information contained in the foregoing documents, including the
opportunity to ask questions of, and receive answers from, officers and
representatives of Buyer concerning Buyer and the terms and conditions of the
transactions contemplated by this Agreement. The Holders acknowledge that the
Holders have been advised by counsel during the course of the negotiation of
this Agreement, with respect to the transactions contemplated by this
Agreement.
15. INCIDENTAL REGISTRATION. If, at any time after the Closing
Date, Buyer proposes to register any of its common stock, $.01 par value
("Buyer Stock") (whether unissued, yet to be authorized or held by any person)
under the Securities Act, it shall, at least 30 days prior to the filing under
the Securities Act of the registration statement relating thereto, give written
notice to the Holders of their intention to do so, and, upon the written
request of the Holders given within 20 days after the giving of any such notice
(which request shall state the proposed method of
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<PAGE> 15
distribution), Buyer shall include or cause to be included in any such
registration statement the Purchase Shares; provided, however, that Buyer may
at any time withdraw or cease proceeding with any such registration if it shall
at the time withdraw or cease proceeding with the registration of such Buyer
Stock originally proposed to be registered; and provided further, that if the
registration proposed by Buyer relates to an underwritten offering, the Holders
shall not have any right to sell the Purchase Shares in any manner or through
any underwriter other than in the manner and through the managing underwriter
or underwriters being used by Buyer, provided further, if any Holder
disapproves of any such underwriting, then he may elect to withdraw his
Purchase Shares therefrom by written notice to Buyer; provided further, if any
Holder disapproves of the terms of any such underwriting, then he may elect to
withdraw his Purchase Shares therefrom by written notice to the Buyer.
a. Notwithstanding any other provision of this Paragraph 15, if a
registration pursuant to this Paragraph 15 involves a firm commitment,
underwritten offering of the securities so being registered and if the managing
underwriter of such offering informs Buyer and the Holders by letter of its
belief that marketing factors require a limitation of the number of shares to
be underwritten, Buyer may limit the amount of Purchase Shares to be included
in the registration and underwriting; provided that no such reduction shall
reduce the securities being offered by Buyer for its own account; and provided
that those shares which are excluded from the underwritten offering shall be
withheld from the market by the holders thereof for a period, not to exceed 180
days, which the managing underwriter reasonably determines as necessary in
order to effect the underwritten offering.
b. REGISTRATION PROCEDURES AND EXPENSES. If and whenever Buyer is
required to include the Purchase Shares in a registration statement under the
Securities Act, as provided in Paragraph 15 hereof, Buyer shall, as
expeditiously as is reasonably practicable, do each of the following:
(i) prepare and file with the SEC a registration
statement with respect to the Purchase Shares and all amendments and
supplements thereto and, subject to the limitations under Paragraph 15
hereof, use its best efforts to cause such registration statement to
become effective;
(ii) cooperate with the Holders and any underwriter who
shall sell the Purchase Shares in connection with their review of
Buyer made in connection with such registration;
(iii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for 120 days from the date of its effectiveness,
and to comply with the
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<PAGE> 16
provisions of the Securities Act and the Exchange Act with respect to
the disposition of all the Purchase Shares covered by such
registration statement for such period;
(iv) furnish to the Holders such number of copies of the
prospectus forming a part of such registration statement (including
each preliminary prospectus), in conformity with the requirements of
the Securities Act, and such other documents as the Holders may
reasonably request in order to facilitate the disposition of the
Purchase Shares; and
(v) Buyer shall (a) notify the Holders at any time when a
prospectus relating to the Purchase Shares is required to be delivered
under the Securities Act, of the happening of any event as a result of
which the prospectus forming a part of such registration statement, as
then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be state therein or
necessary to make the statements therein not misleading in the light
of the circumstances then existing, and (b) at the request of the
Holders, prepare and furnish to the Holders a reasonable number of
copies of any supplement to or any amendment of such prospectus that
may be necessary so that, as thereafter delivered to the purchasers of
the Purchase Shares such prospectus shall not include any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
c. AGREEMENT BY THE HOLDERS. In the event that the Holders
participate, pursuant to this Paragraph 15, in the offering of the Purchase
Share the Holders shall;
(i) furnish Buyer all material information reasonably
requested by Buyer concerning the Holders and the proposed method of
sale or other disposition of the Purchase Shares and such other
information and undertakings as shall be reasonably required in
connection with the preparation and filing of the registration
statement covering the Purchase Shares in order to ensure full
compliance with the Securities Act and the rules and regulations of
the SEC thereunder;
(ii) cooperate in good faith with Buyer and its
underwriters, if any, in connection with such registration, including
placing the Purchase Shares in escrow or custody to facilitate the
sale and distribution thereof provided that such escrow or custody
arrangement shall be no more restrictive upon the Holders than upon
any other holder of Buyer Stock for the benefit of whom such
registration is undertaken; and
16
<PAGE> 17
(iii) make no further sales or other dispositions, or offers
therefor, of the Purchase Shares under such registration statement if,
during the effectiveness of such registration statement, an
intervening event should occur which, in the opinion of counsel to
Buyer, makes the prospectus included in such registration statement no
longer comply with the Securities Act, so long as written notice
containing the facts and legal conclusions relied upon by Buyer in
this regard has been received by the Holders from Buyer, until such
time as the Holders have received from Buyer copies of a new, amended
or supplemented prospectus complying with the Securities Act, which
prospectus shall be delivered to the Holders by Buyer as soon as
practicable after such notice.
d. ALLOCATION OF EXPENSES. If and whenever Buyer is required by
the provisions of this Paragraph 15 to use its best efforts to effect the
registration of the Purchase Shares under the Securities Act, Buyer shall pay
the costs and expenses in connection therewith; provided, however, that the
Holders shall pay all underwriting discounts, selling commissions and stock
transfer taxes attributable to the Purchase Shares under such registration
statement.
e. Indemnification by Holders. In the event of any registration
of any of the Purchase Shares under the Securities Act pursuant to this
Paragraph 15, the Holders shall indemnify and hold harmless, Buyer, each
director of Buyer, each officer of Buyer who shall sign such registration
statement, each underwriter and any person who controls Buyer or such
underwriter within the meaning of the Securities Act, with respect to any
statement in or omission from such registration statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto, if such statement or omission was made in reliance upon and
in conformity with written information furnished to Buyer or its underwriter
through an instrument duly executed by any of the Holders specifically for use
in the preparation of such registration statement, preliminary prospectus,
final prospectus or amendment or supplement.
f. INDEMNIFICATION BY BUYER. In the event any Purchase Shares are
included in a registration statement under this paragraph, to the extent
permitted by law, the Buyer will indemnify and hold harmless each Holder
joining in a registration, any underwriter (as defined in the Securities Act)
for its, and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act, against any losses, claims, damages
or liabilities, joint or several, to which they may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based on any
untrue or alleged untrue statement of any material fact contained in such
registration statement, including any preliminary
17
<PAGE> 18
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading or arise out of any
violation by the Buyer of any rule or regulation promulgated under the
Securities Act applicable to the Buyer and relating to action or inaction
required of the Buyer in connection with any such registration.
16. EXCHANGE ACT REPORTING. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Buyer to the public without registration, the Buyer
agrees to use its best efforts to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144, at all times subsequent
to ninety (90) days after the effective date of the first registration
statement covering an underwritten public offering filed by the Buyer;
(b) file with the SEC in a timely manner all reports and
other documents required of the Buyer under the Securities Act and the
Exchange Act; and
(c) furnish to any Holder so long as such Holder owns any
of the Stock or Registrable Securities forthwith upon request of a
written statement by the Buyer that it has complied with the reporting
requirements of Rule 144 (at any time after ninety (90) days after the
effective date of said first registration statement filed by the
Buyer), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Buyer and such other
reports and documents so filed by the Buyer as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC
permitting the selling of any such securities without registration.
(d) Take such further action as Seller and Other
Shareholder may reasonably request, all to the extent required from
time to time to enable Seller and Other Shareholders to sell the
Purchased Shares without registration, under the Securities Act within
the limitations of the exemptions provided by Rule 144, under the
Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
18
<PAGE> 19
17. BROKERS. Company and Seller and Other Shareholders have
authorized International Business Exchange Corporation to act as their broker.
Buyer agrees to pay to that broker the sum of $41,480.00, and to issue to that
broker 14,434 shares of Section 144 stock of Ponder Industries, Inc. (with an
agreed value of $50,519.00, for purposes of this Agreement). Company agrees to
be responsible for payment of any other fees or commissions to be paid to that
broker, if any.
18. NOTICES. Any and all notices or other communications required
or permitted by this Agreement or by law to be served on or given to either
party hereto, Buyer or Seller or Other Shareholders, by the other party to this
Agreement shall be in writing and shall be deemed duly served on the date
personally served as follows:
a. On Buyer:
Ponder Industries, Inc.
Attn: Larry D. Armstrong
P.O. Box 2229
Alice, Texas 78333
b. On Company, Seller or Other Shareholders:
Steven E. Runyon
RR5, Box 266
Olney, Illinois 62450
with copy to:
Rosenblum, Goldenhersh, Silverstein & Zafft, P.C.
7733 Forsyth Boulevard, Fourth Floor
St. Louis, Missouri 63105-1812
Attn: Mr. Carl C. Lang
Either party may change the party's address for the purposes
of this Paragraph by giving the other party written notice of the new address
in the manner set forth above.
19. EMPLOYMENT OF STEVEN E. RUNYON, AND LEASE AGREEMENT. At
Closing, Buyer will enter into an Employment Agreement with Mr. Steven E.
Runyon, in the form that is attached hereto as Exhibit 13.
Also at Closing, Buyer and Seller will also enter into a Lease
Agreement, in the form that is attached hereto as Exhibit 14.
20. NO ASSIGNMENT. Neither this Agreement nor any interest therein
shall be assigned by Buyer or Company Seller or Other Shareholders without the
written consent of the other parties.
21. ATTORNEY'S FEES. Should any litigation be commenced between
the parties to this Agreement concerning said business, this Agreement, or the
rights and duties of either in relation thereto, the party, Buyer or Seller or
Other Shareholders, prevailing in such
19
<PAGE> 20
litigation shall be entitled, in addition to such other relief as may be
granted, to a reasonable sum as and for attorney's fees in such litigation
which shall be determined by the court in such litigation or in separate action
brought for that purpose.
22. TIME. Time is of the essence in this Agreement.
23. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties and covenants of the parties contained in this
Agreement shall survive until the second anniversary of the Closing.
24. MISCELLANEOUS. This Agreement constitutes the sole and only
Agreement between the parties respecting the sale and purchase described in
this Agreement, and correctly sets forth the obligations of each party. Any
Agreements or representations respecting this sale of stock not expressly set
forth in this agreement are null and void.
This Agreement may not be modified or terminated orally and no
modification, termination, or attempted waiver shall be valid unless in writing
signed by the party against whom the same is sought to be enforced.
In case any one or more of the provisions contained in this Agreement
shall for any reason be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality or unenforceablity shall not affect any
other provisions hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
This Agreement shall be binding upon and shall inure to the benefit of
the heirs, executors, administrators, successors, and assigns of the parties
hereto, where permitted.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas, and shall be performable in Jim Wells County,
Texas.
25. MULTIPLE COUNTERPARTS. This Agreement shall be executed in two
(2) original counterparts.
COMPANY:
RUNYON OIL TOOLS, INC.
__________________________________
By: Steven E. Runyon
President
20
<PAGE> 21
SELLER:
__________________________________
Steven E. Runyon, individually
OTHER SHAREHOLDERS:
____________________________________
Freda M. Runyon, Custodian for
Stephanie Runyon Under the Illinois
Uniform Transfers to Minors Act
____________________________________
Freda M. Runyon, Custodian for
Amanda Runyon Under the Illinois
Uniform Transfers to Minors Act
____________________________________
Freda M. Runyon, Custodian for
Lucas Runyon Under the Illinois
Uniform Transfers to Minors Act
____________________________________
Freda M. Runyon, Custodian for
Blake Runyon Under the Illinois
Uniform Transfers to Minors Act
BUYER:
PONDER INDUSTRIES, INC.
___________________________________
By: Larry D. Armstrong
President
21
<PAGE> 22
EXHIBIT 1
CERTIFICATE OF INCORPORATION,
ARTICLES OF INCORPORATION, AND
BYLAWS
22
<PAGE> 23
EXHIBIT 2
AUTHORIZED CAPITAL STOCK AND
NUMBER OF SHARES ISSUED AND OUTSTANDING SHARES
23
<PAGE> 24
EXHIBIT 3
OFFICERS AND DIRECTORS
24
<PAGE> 25
EXHIBIT 4
FINANCIAL STATEMENTS
25
<PAGE> 26
EXHIBIT 5
REAL PROPERTY OWNED BY OR LEASED
TO OR LEASED BY RUNYON OIL TOOLS, INC.
26
<PAGE> 27
EXHIBIT 6
EQUIPMENT, FURNITURE, FIXTURES, PERSONAL PROPERTY
27
<PAGE> 28
EXHIBIT 7
INTANGIBLE ASSETS
28
<PAGE> 29
EXHIBIT 8
CUSTOMERS
29
<PAGE> 30
EXHIBIT 9
INSURANCE POLICIES
30
<PAGE> 31
EXHIBIT 10
CONTRACTS
31
<PAGE> 32
EXHIBIT 11
EMPLOYMENT AGREEMENTS
32
<PAGE> 33
EXHIBIT 12
ACCOUNTS NOTES RECEIVABLE
33
<PAGE> 34
EXHIBIT 13
EMPLOYMENT AGREEMENT
34
<PAGE> 35
EXHIBIT 14
LEASE
35
<PAGE> 1
EXHIBIT 2.4
STOCK PURCHASE AGREEMENT
DATED MAY 17, 1996
BY AND AMONG
PONDER INDUSTRIES, INC.
AND
LJH CORPORATION
COVERING THE PURCHASE
OF ALL OF THE ISSUED AND OUTSTANDING COMMON STOCK OF
G&L TOOL COMPANY
<PAGE> 2
SCHEDULES
Description
ANNEX A CONVERTIBLE PROMISSORY NOTE
ANNEX B STOCK PLEDGE AND ESCROW AGREEMENT
ANNEX C ESCROW AGREEMENT
SCHEDULE 4.1 ARTICLES OF INCORPORATION AND BYLAWS
SCHEDULE 4.4 FINANCIAL STATEMENTS
SCHEDULE 4.7 DIRECTORS, OFFICERS AND EMPLOYEES
SCHEDULE 4.10 EMPLOYEE BENEFIT PLANS
SCHEDULE 4.11 CONTRACTS AND AGREEMENTS
SCHEDULE 4.13 PROPERTIES, ASSETS AND LEASEHOLD ESTATES
SCHEDULE 4.14 INTANGIBLE PROPERTY
SCHEDULE 4.15 SUITS, ACTIONS AND CLAIMS
SCHEDULE 4.16 INSURANCE POLICIES
SCHEDULE 4.17 LICENSES AND PERMITS
SCHEDULE 4.21 TRANSFER, STORAGE AND DISPOSAL FACILITIES
SCHEDULE 4.22 ACCOUNTS RECEIVABLE
SCHEDULE 4.28 CUSTOMER LIST
SCHEDULE 4.30 BANK ACCOUNTS
SCHEDULE 9.2 OPINION OF COUNSEL
SCHEDULE 9.13 STOCKHOLDERS RELEASE
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<PAGE> 3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into this 17th day of May, 1996, by and between LJH Corporation, a Texas
corporation ("Seller") and Ponder Industries, Inc., a Delaware corporation
("Purchaser").
W I T N E S S E T H :
WHEREAS, Seller owns all of the outstanding shares of capital stock of
G&L Tool Company, a Texas corporation ("Target"), being 1,000 shares of common
stock, no par value (the "Stock"), and desires to sell the Stock to Purchaser
pursuant to this Agreement as hereinafter provided;
WHEREAS, Purchaser desires to acquire the Stock from Seller pursuant
to this Agreement as hereinafter provided; and
WHEREAS, the parties hereto desire to set forth certain
representations, warranties and covenants made by each to the other as an
inducement to the execution and delivery of this Agreement, and to set forth
certain additional agreements related to the transactions contemplated hereby;
NOW, THEREFORE, for and in consideration of the premises, the mutual
representations, warranties and covenants herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. GENERAL DEFINITIONS. For purposes of this Agreement, the
following terms shall have the respective meanings set forth below:
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<PAGE> 4
1.1 Affiliate. "Affiliate" of any Person shall mean any Person
Controlling, Controlled by or under common Control with such Person.
1.2 Best Knowledge "Best Knowledge" shall mean both what a Person knew
as well as what the Person should have known had the person exercised
reasonable diligence. When used with respect to a Person other than a natural
person, the term "Best Knowledge" shall include matters that are reasonably
known to the directors, officers, partners, trustees, administrators,
executors, managers, employees, consultants and agents of the Person.
1.3 Control. "Control" and all derivations thereof shall mean the
ability to either (i) vote (or direct the vote of) 50% or more of the voting
interests in any Person or (ii) direct the affairs of another, whether through
voting power, contract or otherwise.
1.4 Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
1.5 Governmental Authority. "Governmental Authority" shall mean any
and all foreign, federal, state or local governments, governmental
institutions, public authorities and governmental entities of any nature
whatsoever, and any subdivisions or instrumentalities thereof, including, but
not limited to, departments, boards, bureaus, commissions, agencies, courts,
administrations and panels, and any divisions or instrumentalities thereof,
whether permanent or ad hoc and whether now or hereafter constituted or
existing.
1.6 Governmental Requirement. "Governmental Requirement" shall
mean any and all laws (including, but not limited to, applicable common law
principles), statutes, ordinances, codes, rules, regulations, interpretations,
guidelines, directions, orders,
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<PAGE> 5
judgments, writs, injunctions, decrees, decisions or similar items or
pronouncements, promulgated, issued, passed or set forth by any Governmental
Authority.
1.7 Person. "Person" shall mean any natural person, any Governmental
Authority and any entity the separate existence of which is recognized by any
Governmental Authority or Governmental Requirement, including, but not limited
to, corporations, partnerships, joint ventures, joint stock companies, trusts,
estates, companies and associations, whether organized for profit or otherwise.
1.8 Schedule. "Schedule" shall mean the Schedules to this
Agreement, unless otherwise stated. The Schedules to this Agreement may be
attached to this Agreement or may be set forth in a separate document denoted
as the Schedules to this Agreement, or both.
1.9 SEC. "SEC" shall mean the Securities and Exchange Commission.
1.10 Section. "Section" shall mean the Section of this Agreement,
unless otherwise stated.
1.11 Securities Act. "Securities Act" shall mean the Securities
and Exchange Act of 1933, as amended.
1.12 Taxes. "Tax" and "Taxes" shall mean any and all income, excise,
franchise or other taxes and all other charges or fees imposed or collected by
any Governmental Authority or pursuant to any Governmental Requirement, and
shall also include any and all penalties, interest, deficiencies, assessments
and other charges with respect thereto.
2. PURCHASE AND SALE OF THE STOCK; CLOSING DATE.
2.1 Purchase and Sale. Subject to the terms and conditions herein
contained, Seller agrees to sell, assign, transfer and deliver to Purchaser at
the Closing (as
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<PAGE> 6
hereinafter defined) all right, title and interest in and to the Stock, the
Stock being all of the issued and outstanding capital stock of Target. Subject
to the terms and conditions herein contained, Purchaser agrees to purchase from
Seller the Stock and to pay at the Closing the Purchase Price (as hereinafter
defined) pursuant to the provisions of Section 3 below.
2.2 Delivery and Endorsement of Certificates. At the Closing, Seller
shall deliver to Purchaser certificates representing the Stock, duly endorsed
in blank by Seller, or accompanied by stock powers duly executed in blank by
Seller. Seller agrees to cure any deficiencies with respect to the endorsements
of the certificates representing the Stock or with respect to the stock powers
accompanying any such certificates.
2.3 Closing Date. Subject to the terms and conditions contained in
Section 23.4 below, the consummation of transactions referred to above shall
take place (the "Closing") on or before five (5) days following completion of
an audit of Target to be performed by the auditors of Purchaser, the results of
which are satisfactory to Purchaser, at the offices of Target in Abilene,
Texas, or at such other time, date and place as Purchaser and Seller shall in
writing designate (the "Closing Date").
3. PURCHASE PRICE.
3.1 Price and Payment. The aggregate consideration for the Stock is
NINE MILLION AND NO/100 DOLLARS, ($9,000,000.00)(the "Purchase Price"), payable
by Purchaser to Seller as follows:
(a) $4,000,000.00 by delivery at the Closing of a bank
certified or cashiers check or by wire transfer; and
(b) $5,000,000.00 by delivery of a non-interest bearing
Convertible Promissory Note in the form of the
Convertible Promissory Note
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<PAGE> 7
included in Annex A hereto (the "Convertible Note"),
maturing six months following May 17, 1996, payable
at such time in cash or delivery to Seller of
1,000,000 shares of common stock, $.01 par value
("Common Stock"), of Purchaser (the "Conversion
Shares").
The Convertible Note shall be secured by the Stock pursuant to a Stock Pledge
and Escrow Agreement in the form of the Stock Pledge and Escrow Agreement
included in Annex B hereto (the "Pledge Agreement").
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller
represents and warrants to Purchaser as follows:
4.1 Incorporation. Each of Seller and Target is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas, and is duly authorized, qualified and licensed under all applicable
Governmental Requirements to carry on its business in the places and in the
manner as now conducted. Schedule 4.1 sets forth a true and complete list of
all jurisdictions in which Target owns or leases properties, has employees or
conducts business, and a complete list of all jurisdictions in which Target is
qualified as a foreign corporation. Target is in good standing in each of such
jurisdictions. Target has full corporate power and lawful authority to carry on
its business as it is now being conducted and to own and operate its assets,
properties and business. The copies of the Articles of Incorporation of Target
and all amendments thereto to date (certified by the Secretary of the State of
Texas) and of the bylaws of Target as amended to date (certified by its
Secretary), each of which are included in Schedule 4.1, are true, complete and
correct.
4.2 Share Capital. The authorized share capital of Target
consists of one million shares of common stock, no par value, of which 1,000
shares are issued and 1,000 shares are outstanding. All of such issued and
outstanding shares are validly
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<PAGE> 8
issued and outstanding, fully paid and nonassessable. There are no outstanding
subscriptions, options, warrants, calls, commitments, obligations or agreements
relating to any of the authorized or outstanding capital stock of Target.
Seller owns all of the issued and outstanding shares of the Stock free and
clear of all liabilities, liens, encumbrances, pledges, trusts, voting trusts
or stockholders' agreements, equities, charges, options, conditional sale or
title retention agreements, covenants, restrictions, reservations, commitments,
obligations or other burdens or encumbrances of any nature whatsoever, and the
consummation of the purchase and sale contemplated by this Agreement will
transfer to Purchaser good and marketable title to the Stock free and clear of
any such items.
4.3 Subsidiaries. Target does not, directly or indirectly, own or
control any capital stock, bonds or other securities of, or have any
proprietary interest in, any corporation, association, partnership, firm or
business organization or enterprise, nor does it directly or indirectly control
the management of any such entities, nor does it have any obligation to acquire
any such interest in the future.
4.4 Financial Statements. Seller has delivered to Purchaser
copies of the following financial statements for Target, all of which financial
statements are included in Schedule 4.4:
(a) Unaudited Balance Sheet (the "Reference Balance
Sheet") as of March 31, 1996 (the "Balance Sheet Date") and
Unaudited Income Statement for the three (3)-month period
ended on the Balance Sheet Date; and
(b) Unaudited Balance Sheets and Income Statements
for each of Seller's three (3) most recent fiscal years.
All financial statements supplied to Purchaser by Seller, whether or not
included in Schedule 4.4, are true and accurate in all material respects, have
been prepared in
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<PAGE> 9
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated, and present fairly the
financial condition and results of operations of Target as of the dates and for
the periods indicated thereon. The Reference Balance Sheet reflects, as of the
Balance Sheet Date, all liabilities, debts and obligations of any nature of
Target, whether accrued, absolute, contingent or otherwise, and whether due, or
to become due, including, but not limited to, liabilities, debts or obligations
on account of Taxes to the extent such items are required to be reflected on
such balance sheet under generally acceptable accounting principles
consistently applied.
4.5 Liabilities, Debts and Obligations. Except as otherwise provided
in the Schedules provided with this Agreement, Target has no liabilities, debts
or obligations of any nature whatsoever, whether due or to become due, and
whether accrued, absolute, contingent or otherwise, that are not disclosed on
the Reference Balance Sheet or in this Agreement and the Schedules hereto,
normal operational expenses excluded. There are no outstanding claims against
Target by any person who is now or has been an officer or employee of Target
nor any dispute between Target and a material number or class of its employees.
4.6 Events Since the Balance Sheet Date. Since the Balance Sheet
Date, there has not been:
(a) any change in the condition (financial or
otherwise) or in the properties, assets, liabilities,
business or prospects of Target, except normal and usual
changes in the ordinary course of business, none of which has
been adverse and all of which in the aggregate have not been
adverse;
(b) any declaration, setting aside, or payment of
any dividend or other distribution on or in respect of the
capital stock of Target, or any direct or indirect
redemption, purchase or other acquisition of any of such
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<PAGE> 10
stock or any issuance of any shares of such stock or any
granting or entering into of any option or commitment relating
to any of such stock;
(c) any increase in the compensation or rate of
compensation or commissions payable or to become payable by
Target to any of its directors, officers, employees or
consultants, or any hiring of any employee by Target who is
entitled to compensation in excess of $25,000.00 per annum,
or any payment or accrual of any bonus, profit-sharing or
other extraordinary compensation to any director, officer,
employee or consultant, or any change in any then existing
bonus, profit-sharing, pension, retirement or other similar
plan, agreement or arrangement or any adoption of or entering
into of any new bonus, profit-sharing, pension, stock option,
retirement, group life or health insurance or other similar
plan, agreement or arrangement, without the written consent
of Purchaser;
(d) any change in the accounting methods or
practices followed by Target or any change in depreciation or
amortization policies or rates heretofore adopted by it;
(e) any sale, lease, abandonment or other
disposition by Target of any interest in real property or,
other than in the ordinary course of business, of any
machinery, equipment or other asset;
(f) any labor trouble, strike or any other
occurrence, event or condition affecting the employees of
Target that adversely affects the condition (financial or
otherwise) or the properties, assets, liabilities, business
or prospects of Target;
(g) any breach or default by Target or, to the Best
Knowledge of Seller, by any other party, under any agreement
or obligation to which Target is a party or by which any of
its assets are bound;
(h) any damage, destruction or loss (whether or
not covered by insurance) adversely affecting the assets or
the business of Target;
(i) any transaction entered into or engaged in
by Target other than transactions in the ordinary course of
business; or
(j) to the Best Knowledge of Seller, any other
occurrence, event or condition that has adversely affected
(or can reasonably be expected to adversely affect) the
properties, assets, business or prospects of Target.
4.7 Directors, Officers and Employees. Schedule 4.7 sets forth a
rue and complete list of the names of and current annual compensation paid by
Target to each
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<PAGE> 11
director, officer and employee of Target. With respect to each employee of
Target hired after November 6, 1986, a copy of the Form I-9 completed pursuant
to the Immigration Reform and Control Act of 1986, and the rules and
regulations promulgated thereunder, has been attached to Schedule 4.7. Neither
Seller nor, to the Best Knowledge of Seller, any director or officer of, or
consultant to, Target, and no Associate (as hereinafter defined) of any of
them:
(a) owns, directly or indirectly, 5% or more of the
outstanding equity interests in, or is a director, officer or
employee of, or consultant to, any entity which is a
competitor, potential competitor, supplier or customer of
Target, or, to the Best Knowledge of Seller, a competitor,
supplier or customer of Purchaser or an Associate of
Purchaser (except for ownership, if any, of less than one
percent (1%) by value of the outstanding capital stock of any
corporation, the capital stock of which is traded on a
nationally recognized securities exchange);
(b) owns, directly or indirectly, in whole or in
part, any property, asset or right (i) which is associated
with any property, asset or right owned by Target or (ii)
which Target is presently operating or using or the use of
which is necessary for or material to any of its business; or
(c) has, directly or indirectly, engaged in any
transaction with Target except transactions inherent in the
capacities of director, officer, employee, consultant or
stockholder.
For purposes of this Agreement, the term "Associate" shall mean:
(x) with respect to an individual:
(i) the spouse of the individual and all
ancestors and lineal descendants of the individual and the
spouse,
(ii) any trust in which the individual or any
person described in (i) above has an interest or any trustee
of such a trust, and
(iii) any business entity which is directly or
indirectly Controlled by any of the foregoing; and
(y) with respect to a corporation, any Person Controlling,
Controlled by or under common Control with such corporation, and any
director or officer of such corporation and any Associate of any such
Person.
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<PAGE> 12
4.8 Inventories. To the Best Knowledge of Seller, the inventories of
Target reflected on the Reference Balance Sheet consist of items of a quality
and quantity usable and saleable in the normal course of business of Target at
an aggregate value at least equal to the value at which such inventories are
reflected on the Reference Balance Sheet. The method of valuing such
inventories as of the Balance Sheet Date is consistent with that used in
respect of the beginning and end of each of the two (2) most recent fiscal
years of Target. The value of obsolete materials and materials below standard
quality has been written down on the books of account of Target to realizable
market value, or adequate reserves have been provided therefor. The inventories
of Target are not excessive in kind or amount in light of the business done or
reasonably expected to be done by it. The values at which such inventories are
carried reflect the inventory valuation policy applied by Target of stating
inventory at the lower of actual cost or average actual cost in accordance with
generally accepted accounting principles.
4.9 Taxes and Governmental Returns. To the Best Knowledge of Seller,
of the date hereof, all Tax returns, information returns and governmental
reports of every nature required by any Governmental Authority or Governmental
Requirement to be filed by Target or which include or should include Target,
including, but not limited to, those relating to Taxes of any nature to which
Target or any of its business is subject ("Governmental Returns"), have been
filed for all periods ending on or before the date hereof, and all Taxes shown
to be due and payable on such Governmental Returns or on any assessments
related to such Governmental Returns have been paid. All such Governmental
Returns and reports and the information and data contained therein have been
properly and accurately compiled and completed, fairly present the information
purported to be shown therein, and reflect all Tax liabilities of Target for
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the periods covered by such Governmental Returns. Except as specifically
disclosed in this Agreement or the Schedules hereto, Target has no unpaid
liability for any Taxes of any nature whatsoever for any period prior to the
date hereof. The Governmental Returns of Target or that include Target have not
been audited, and are not now under audit, by any Governmental Authority. There
are no agreements, waivers or other arrangements providing for an extension of
time with respect to the assessment of any Taxes of any nature against Seller
or with respect to any Governmental Return filed by Seller or that include
Seller, or any suits or other actions, proceedings, investigations or claims
now pending or threatened against Target with respect to any Taxes or any
matters under discussion with any Governmental Authority relating to any Taxes,
or any claims for additional Taxes asserted by any Governmental Authority. The
charges, accruals and reserves on the Reference Balance Sheet in respect of all
accrued Taxes are adequate to provide fully for all Taxes, if any, payable by
Target with respect to periods ended on or before the date of this Agreement.
4.10 Employee Benefit Plans. Except as set forth on Schedule 4.10,
Target has no employee benefit plans (including, but not limited to, pension
plans and health or welfare plans), arrangements or understandings, whether
formal or informal. Target does not now and has never contributed to a
"multiemployer plan" as defined in section 4001(a)(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Target has
complied with all applicable provisions of ERISA and all rules and regulations
promulgated thereunder and neither Target nor any trustee, administrator,
fiduciary, agent or employee thereof has at any time been involved in a
transaction that would constitute a "prohibited transaction" within the meaning
of Section 406 of ERISA. Target is not a party to any collective bargaining or
other union
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agreements. Target has not, within the last five years, had or been threatened
with any union activities, work stoppages or other labor trouble with respect
to its employees which had or might have had a material adverse effect on the
business of Target. To the Best Knowledge of Seller, no union activities, work
stoppages or other labor trouble with respect to the employees of any of the
customers or suppliers of the business of Target are pending or threatened
which might have an adverse effect on the business of Target. Other than wage
increases in the ordinary course of business, since the Balance Sheet Date
Target has not made any commitment or agreement to increase the wages or modify
the conditions or terms of employment of any of the employees of Target used in
connection with its business.
4.11 Contracts and Agreements. Schedule 4.11 sets forth a true and
complete list of and briefly describes (including termination date) all of the
following contracts, agreements, leases, licenses, plans, arrangements or
commitments, written or oral, to which Target is a party or by which Target or
any of its assets or properties is in any way bound or obligated (including all
amendments, supplements and modifications thereto);
(a) all contracts, agreements or commitments in
respect of the sale of products or services or the purchase
of raw materials, supplies or other products or utilities,
except those entered into in the ordinary course of business
involving payments or receipts by Target of less than
$5,000.00;
(b) all offers, tenders or the like outstanding and
capable of being converted into an obligation of Target by
the passage of time or by an acceptance or other act of some
other person or entity or both;
(c) all sales, agency or distributorship
agreements or franchises or legally enforceable commitments or
obligations with respect thereto;
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(d) all collective bargaining agreements, union
agreements, employment agreements, consulting agreements or
agreements providing for the services of an independent
contractor;
(e) all profit-sharing, pension, stock option,
severance pay, retirement, bonus, deferred compensation,
group life and health insurance or other employee benefit
plans, agreements, arrangements or commitments of any nature
whatsoever, whether or not legally binding, and all
agreements with any present or former officer, director or
shareholder of Target;
(f) all loan or credit agreements, indentures,
guarantees (other than endorsements made for collection),
mortgages, pledges, conditional sales or other title
retention agreements, and all equipment financing
obligations, lease and lease-purchase agreements;
(g) all leases and all other contracts,
agreements or legally enforceable commitments relating to or
affecting real property or any interest therein;
(h) all contracts, agreements, arrangements or
legally enforceable commitments relating to the issuance of
capital stock, bonds or other securities of Target;
(i) all contracts, agreements, arrangements or
legally enforceable commitments relating to the acquisition by
Target of any substantial part of its business or assets;
(j) all performance bonds, bid bonds, surety
bonds and the like, all contracts and bids covered by such
bonds, and all letters of credit and guaranties;
(k) all consent decrees and other judgments,
decrees or orders, settlement agreements and agreements
relating to competitive activities, requiring or prohibiting
any future action;
(l) all accounts, notes and other receivables,
and all security therefor, and all documents and agreements
related thereto; and
(m) all contracts, agreements, arrangements or
legally enforceable commitments that are material to Target
or the operation of any of its businesses.
All of such contracts, agreements, leases, licenses, plans, arrangements, and
commitments and all other such items not specifically described above
(collectively, the
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"Contracts") are valid, binding and in full force and effect in accordance with
their terms and conditions and there is no existing default thereunder or
breach thereof by Target or, to the Best Knowledge of Seller, by any other
party to the Contracts, or any conditions which, with the passage of time or
the giving of notice or both, might constitute such a default by Target, or, to
the Best Knowledge of Seller, by any other party to the Contracts, and the
Contracts will not be breached by or give any other party a right of
termination as a result of the transactions contemplated by this Agreement. To
the Best Knowledge of Seller there is no reason why any of the Contracts (i)
will result in a loss to Target on completion by performance or (ii) cannot
readily be fulfilled or performed by Target on time without undue or unusual
expenditure of money or effort. Copies of all of the documents (or in the case
of oral commitments, descriptions of the material terms thereof) relevant to
the Contracts listed in Schedule 4.11 shall be delivered to Purchaser within
ten (10) days of the date of this agreement, and such copies and/or
descriptions shall be true, complete and accurate and include all amendments,
supplements or modifications thereto.
4.12 Effect of Agreement. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not (i)
result in any breach of any of the terms or conditions of, or constitute a
default under, the Articles of Incorporation or other charter documents or
bylaws of Target or Seller, or any commitment, mortgage, note, bond, debenture,
deed of trust, contract, agreement, license or other instrument or obligation
to which Target or Seller is now a party or by which Target or Seller or any of
its properties or assets may be bound or affected; (ii) result in any violation
of any Governmental Requirement; (iii) cause Target to lose the benefit of any
right or privilege it presently enjoys or, to the Best Knowledge of
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Seller, cause any Person who normally does business with Target not to continue
to do so on the same basis as before; (iv) relieve any Person of any obligation
to Target (whether contractual or otherwise) or enable any Person to terminate
any such obligation or any right or benefit enjoyed by Target or to exercise
any right under any agreement in respect of Target or the assets or business of
Target or (v) require notice to or the consent, authorization, approval or
order of any Person. To the Best Knowledge of Seller, the business
relationships of clients, customers and suppliers of Target will not be
adversely affected by the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
4.13 Properties, Assets and Leasehold Estates. Target owns or has the
right to use (pursuant to a valid lease or license disclosed on Schedule 4.11)
all property, real or personal, tangible or intangible, (i) reflected on the
Reference Balance Sheet (other than items sold by Target since the Balance
Sheet Date in the ordinary course of its business) or (ii) utilized in or
necessary for the operation of its business. Schedule 4.13 sets forth a true
and complete list of all such property as of the date hereof (with all property
that is leased or licensed being designated as such). Target has good and
marketable title to all the properties, interests in properties, assets and
leasehold estates, real and personal, set forth in Schedule 4.13, free and
clear of all mortgages, liens, pledges, conditional sales agreements, charges,
easements, covenants, assessments, restrictions and encumbrances of any nature
whatsoever. All leases of property under which Target purports to be a lessee
are valid, binding and in full force and effect. The plants, structures,
equipment and other properties owned or used by Target are in good operating
condition and repair, normal wear and tear excepted, and are capable of being
used for their intended purpose in the business of Target as now conducted. All
such
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plants, structures, equipment and other properties of Target and the present
use of such items conform to all Governmental Requirements, and no notice of
any violation of any such Governmental Requirements relating to such assets or
their use has been received by Target. Target has all easements, rights of
ingress and egress, and utilities and services necessary for all operations
conducted by it. Neither the whole nor any portion of any real property owned
or occupied by Target has been condemned or otherwise taken by any public
authority, nor, to the Best Knowledge of Seller, is any such condemnation or
taking threatened or planned.
4.14 Intangible Property. Except as set forth on Schedule 4.14, Target
does not own, and its business does not require the use of, any rights under
any patents, inventions, trademarks, trade names, brand names or copyrights,
and the operation of its business as presently conducted does not violate or
infringe upon any such items owned by any Person. Neither Seller nor any
officer, director, employee, consultant or agent of Target has entered into any
agreement regarding know-how, trade secrets, assignment of rights in
inventions, or prohibition or restriction of competition or solicitation of
customers, or any other similar restrictive agreement or covenant, whether
written or oral, with any Person other than Target. Target owns and has the
full and exclusive right to use in connection with its business all of the
items listed on Schedule 4.14, which items are in full force and effect. Target
has not transferred, encumbered or licensed to any Person any rights to own or
use any portion of the items listed on Schedule 4.14 or any other intangible
property included in the assets of Target. To the Best Knowledge of Seller,
none of the items listed on Schedule 4.14 or any other intangible property
included in the assets of Target is being infringed upon by any Person.
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4.15 Suits, Actions and Claims. Except as set forth in Schedule 4.15,
(i) there are no suits, actions, claims, inquiries or investigations by any
Person, or any legal, administrative or arbitration proceedings in which Seller
is engaged or which are pending or, to the Best Knowledge of Seller, threatened
against or affecting Target or any of its properties, assets or business, or to
which Target is or might become a party, or which question the validity or
legality of the transactions contemplated hereby, (ii) no basis or grounds for
any such suit, action, claim, inquiry, investigation or proceeding exists, and
(iii) there is no outstanding order, writ, injunction or decree of any
Governmental Authority against or affecting Target or any of its properties,
assets or business. Without limiting the foregoing, Seller does not have any
Best Knowledge of any state of facts or the occurrence of any event forming the
basis of any present or potential claim against Target.
4.16 Insurance Policies. Schedule 4.16 contains a list of all
insurance policies (specifying the insurer, the amount of coverage, the type of
insurance and the policy number) maintained by Target on its properties,
assets, business and personnel. Such policies afford Target coverage in such
amounts and against such risks as is customary for companies engaged in the
same type and scope of business as Target. There are no special circumstances
with respect to such policies or the business or operations of Target that lead
to any liability under such insurance policies being avoided by the insurers
issuing such policies or, to the Best Knowledge of Seller, the premiums
thereunder being increased. Except as set forth on Schedule 4.16, there is no
claim outstanding under any such insurance policy nor, to the Best Knowledge of
Seller, any circumstances that are likely to give rise to such a claim. Target
is not in default with respect to any provision contained in such insurance
policies, nor has it failed to give
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any notice or present any claim thereunder in a timely fashion. All such
policies are in full force and effect, with all premiums due thereon to date
fully paid.
4.17 Licenses and Permits; Compliance With Governmental Requirements.
Schedule 4.17 sets forth a true and complete list of all licenses and permits
necessary for the conduct of Target's business. Target has all such licenses
and permits validly issued to it and in its name, and all such licenses and
permits are in full force and effect. True and correct copies of all such
licenses and permits are included in Schedule 4.17. No violations are or have
been recorded in respect of such licenses or permits and no proceeding is
pending or, to the Best Knowledge of Seller, threatened seeking the revocation
or limitation of any of such licenses or permits. To the Best Knowledge of
Seller, Target has complied with all Governmental Requirements applicable to
its business, and all Governmental Requirements with respect to the
distribution and sale of products and services by it.
4.18 Authorization. Target has full legal right, power and authority
to enter into and deliver this Agreement and to consummate the transactions set
forth herein and to perform all the terms and conditions hereof to be performed
by it. The execution and delivery of this Agreement by Seller and the
performance of the transactions contemplated herein have been duly and validly
authorized by all requisite corporate action of Seller, and this Agreement has
been duly and validly executed and delivered by Seller and is the legal, valid
and binding obligation of Seller, enforceable against Seller in accordance with
its terms, except as limited by applicable bankruptcy, moratorium, insolvency
or other similar laws affecting generally the rights of creditors or by
principles of equity.
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4.19 Records. To the Best Knowledge of Seller, the books, records and
minutes kept by Target with respect to the assets and the business of Target,
including, but not limited to, all customer files, service agreements,
quotations, correspondence, route sheets and historic revenue data of Target,
have been kept properly and contain records of all matters required to be
included therein by any Governmental Requirement or by generally accepted
accounting principles, and such books, records and minutes are true, accurate
and complete.
4.20 No Dissolution or Judgment. No order has been entered or petition
presented or resolution passed for the dissolution or winding up of Target nor
has any distress, execution or other process been levied in respect of Target
or any of its assets nor is there any unfulfilled or unsatisfied judgment or
order outstanding against Target.
4.21 Environmental Protection Laws.
(a) For purposes of this Section 4.21, unless the context otherwise
specifies or requires, the following terms shall have the meaning herein
defined:
(i) "Waste Materials" shall mean
(A) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of
1976, 42. U.S.C. ss.ss. 6901 et seq., as
amended from time to time, and regulations
promulgated thereunder;
(B) any "hazardous substance" as defined by 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;
(C) asbestos;
(D) polychlorinated biphenyls;
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(E) underground storage tanks, whether empty,
filled or partially filled with any
substance;
(F) any other substance the presence of which is
prohibited by any Governmental Requirement;
and
(G) any other substance which by any
Governmental Requirement requires special
handling or notification of any federal,
state or local governmental entity in its
collection, storage, treatment, recycling
or disposal.
(ii) "Waste Materials Contamination" shall mean the
presence of Waste Materials on, in or under any
property whatsoever which is associated with or is
in any way related to the business of Target,
including the improvements, facilities, soil,
ground, water or air.
(b) To the Best Knowledge of Seller all business conducted by Target
has been and is being operated, and the assets of Target have been and are
being used and were obtained, in all respects in compliance with all
Governmental Requirements.
(c) To the Best Knowledge of Seller, Target is not now, and has not
been, in violation of any Governmental Requirement and the assets, business and
operations of Target are in full compliance with all Governmental Requirements
relating to Waste Materials. There are no judicial or administrative actions,
including non-compliance orders or demand letters, are pending that relate to
such Governmental Requirements. Without in any way limiting the foregoing,
Seller hereby specifically represents and warrants that:
(i) Target has complied with all applicable Governmental
Requirements relating to pollution and environmental control;
(ii) Target is not in violation of any of the permits
described in or required to be described on Schedule 4.17 or any
Governmental Requirement regulating emissions, discharges or releases
(including solids, liquids and gases) into the environment or the
proper transportation, handling, storage, treatment or disposal of
materials;
(iii) Target has received all permits and approvals with
respect to emissions, discharges or releases (including solids,
liquids and gases) into the
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environment and the proper transportation, handling, storage,
treatment and disposal of materials required for the operation of the
businesses of Seller as presently conducted;
(iv) Target has kept all records and made all filings
required by applicable Governmental Requirements with respect to
emissions, discharges or releases (including solids, liquids and
gases) into the environment and the proper transportation, handling,
storage, treatment and disposal of materials;
(v) To the Best Knowledge of Seller, all hazardous waste,
hazardous materials and hazardous substances on, in or under any real
property owned or leased by Target have been removed and no past or
present disposal, spill or other release of hazardous waste, hazardous
materials or hazardous substances on, in, under or adjacent to any
real property owned or leased by Seller will subject Purchaser to
corrective or response action or any other liability under any
Governmental Requirement or the common law;
(vi) No investigation, administrative order, consent order or
agreement, litigation or settlement with respect to Waste Materials or
Waste Materials Contamination is proposed, threatened, anticipated or
in existence with respect to the assets or the business of Target.
None of such assets are currently on, and to the Best Knowledge of
Seller, have ever been on, any federal or state "Superfund" or
"Superlien" list.
(vii) To the Best Knowledge of Seller, Target does not have
any contingent liabilities under any Governmental Requirement to any
Person and whether or not such contingent liability is required
pursuant to generally accepted accounting principles to be reflected
on the financial statements of Target, in connection with any
emission, discharge or release of any hazardous or toxic waste,
substance or constituent or any other substance into the environment;
and
(viii) Target has not handled, treated, stored, generated,
transported or disposed of any Waste Material in contravention of any
Governmental Requirement, and there have been no acts or omissions of
Target or any of its agents or employees that would result in
liability under any Governmental Requirement.
(d) Schedule 4.21 contains a true, correct, accurate and complete list
of all transfer, storage or disposal facilities used at any time by Target in
any businesses or operations conducted by or on behalf of Target. To the Best
Knowledge of Seller, none of the transfer, storage or disposal facilities used
by Target in connection with any businesses or operations conducted by or on
behalf of Target are the subject of, or have
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conducted their businesses or operations in a manner which may give rise to,
litigation, investigation, inquiry or other proceeding, ruling, order or
citation relation to emissions or potential emissions, discharges or potential
discharges or releases or potential releases (including solids, liquids and
gases) into the environment or relating to the transportation, handling,
storage, treatment or disposal of materials, or any other liability under any
Governmental Requirement or the common law.
(e) Target has, and has listed on Schedule 4.17, all necessary
environmental and operations permits for operations relating to the business or
assets of Target.
4.22 Accounts Receivable. All notes and accounts receivable of Target
that are reflected on the Reference Balance Sheet or that have arisen since the
Balance Sheet Date ("Accounts Receivable") have arisen in the ordinary course
of business. All Accounts Receivable either (i) have been collected or (ii) are
collectible on the respective due dates thereof, or, if no due date is stated
with respect thereto, within ninety (90) days of their creation in the ordinary
course of business, in each case in the aggregate recorded amounts thereof,
less the applicable reserves with respect thereto reflected on the Reference
Balance Sheet. Target has not factored or discounted or agreed to factor or
discount any Account Receivable. The values at which the Accounts Receivable
are carried reflect the accounts receivable valuation policy of Target which is
consistent with Target's past practice and in accordance with generally
accepted accounting principles consistently applied. Schedule 4.22 sets forth a
true, correct and complete list of all Accounts Receivable written off by
Target, in whole or in part, as uncollectible during the two (2) years
preceding the date hereof. Schedule 4.22 also sets forth a true, correct and
complete aging of the Accounts Receivable of Target as of the most recent
practicable date.
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4.23 Brokers and Finders. No broker or finder has acted for Target or
Seller in connection with this Agreement or the transactions contemplated by
this Agreement and no broker or finder is entitled to any brokerage or finder's
fee or to any commission in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of Seller or Target.
4.24 Estimates in Financial Statements. The amounts included in the
Reference Balance Sheet for costs incurred, estimated profit and progress
billings in respect of uncompleted Contracts are reasonable, billable and
collectible, except to the extent of the reserves related thereto reflected in
the Reference Balance Sheet. The Reference Balance Sheet includes adequate
provisions for any liability, contingent or otherwise (including without
limitation the cost of any work or material for which payment has been received
or credit taken and of any profit incentives for employees), and any loss which
may arise hereafter in connection with any Contract entered into by Target
prior to the date hereof. The methods of valuing such costs incurred and
estimated profits and determining such provisions as of the Balance Sheet Date
are consistent with those used in respect of the beginning and end of each of
the three (3) most recent fiscal years of Target.
4.25 Payment of Creditors. Target has paid its creditors within the
times agreed with such creditors, and there are no debts outstanding against
Target (other than those being disputed in good faith by Target and those that
are by their terms not yet due and payable) that have been outstanding for more
than ninety (90) days.
4.26 Deferred Purchase Agreements. Target has not acquired or
agreed to acquire any material asset on terms that provide that title thereto
does not pass until full payment is made.
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4.27 Telephone Numbers. All telephone numbers used by Target in
connection with the business of Target are included in the assets of Target and
are fully transferable to Purchaser.
4.28 Customer List. Schedule 4.28 sets forth a true, correct and
complete list of all customers of Target to which Target has sold or provided
products or services during the two (2) years immediately preceding the date
hereof. This list provides an accurate statement of the gross revenues received
from each such customer by Target during the twelve-month period ended April
30, 1996. Each list also indicates by special designation all customers on the
list with respect to which Target has not sold or provided products or services
during the six (6)-month period immediately preceding the date hereof. Two (2)
days prior to the Closing Date, Seller shall cause Target to deliver to
Purchaser a true, correct and complete update of this list as of the three (3)
days prior to the Closing Date, and immediately prior to the Closing, Seller
shall cause Target to deliver to Purchaser a true, correct and complete update
of this list as of the Closing Date, in each case noting all deletions
therefrom and additions thereto and updating all information contained thereon,
and conspicuously marking all changes from the previous list or update, as the
case may be.
4.29 No Royalties. No royalty or similar item or amount is being
paid or is owing by Target, nor is any such item accruing, with respect to the
operation, ownership or use of the business or the assets of Target.
4.30 Bank Accounts. Schedule 4.30 sets forth a true and complete list
of all bank or financial accounts and safe deposit boxes of Target and of the
credit and debit balances of such bank and financial accounts as of the most
recent practicable date. Since the date of the balances set forth on such list,
there have been no payments out
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of or drafts against any of the accounts included therein other than routine
payments and drafts in the ordinary course of business, and the balances in
such accounts as of the date hereof are not materially different from those
reflected in such list. Schedule 4.30 also lists all persons having signatory
authority over or access to such bank and financial accounts and safe deposit
boxes.
4.31 Net Worth of Target. The net worth of Target as of the
Closing Date is in excess of $5,000,000.00.
4.32 Adverse Facts. Seller is not aware of any fact or matter not
disclosed in this Agreement or in the Schedules which might reasonably affect
the willingness of a purchaser to acquire the Stock on the terms (including
price) contained herein or that might be expected to adversely affect the
assets or the business of Target after Closing.
4.33 No Untrue Statements. The statements, representations and
warranties of Seller set forth in this Agreement and the Schedules and in all
other documents and information furnished to Purchaser and its representatives
in connection herewith do not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements,
representations and warranties made not misleading. To the Best Knowledge of
Seller, there is no fact or matter that is not disclosed to Purchaser in this
Agreement or the Schedules that materially and adversely affects or, so far as
Seller or Target can now reasonably foresee, could materially and adversely
affect the condition (financial or otherwise) of any of the assets or the
business of Target or the ability of Seller or Target to perform their
respective obligations under this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to Seller as follows:
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5.1 Incorporation. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
5.2 Authorization. Purchaser has full legal right and corporate power
to enter into and deliver this Agreement and to consummate the transactions set
forth herein and to perform all the terms and conditions hereof to be performed
by it. This Agreement has been duly executed and delivered by Purchaser and is
a legal, valid and binding obligation of Purchaser enforceable in accordance
with its terms, except as limited by applicable bankruptcy, moratorium,
insolvency or other laws affecting generally the rights of creditors or by
principles of equity; provided that as specifically set forth herein the
obligation of Purchaser to consummate the transactions contemplated hereby is
(among other conditions) subject to approval of this Agreement and the
transactions contemplated hereby by Purchaser's board of directors.
5.3 Brokers and Finders. No broker or finder has acted for Purchaser
in connection with this Agreement or the transactions contemplated by this
Agreement and no broker or finder is entitled to any brokerage or finder's fee
or to any commission in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of Purchaser.
6. NATURE OF STATEMENTS AND SURVIVAL OF
INDEMNIFICATIONS, GUARANTEES, REPRESENTATIONS AND WARRANTIES
OF SELLER. All statements of fact contained in this Agreement or in any written
statement (including financial statements), certificate, schedule or other
document delivered by or on behalf of Seller pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed
representations and warranties of Seller hereunder. All indemnifications,
guarantees, covenants, agreements,
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representations and warranties made by Seller hereunder or pursuant hereto or
in connection with the transactions contemplated hereby shall survive the
Closing regardless of any investigation at any time made by or on behalf of
Purchaser.
7. COVENANTS OF SELLER PRIOR TO CLOSING DATE. Seller hereby
covenants and agrees that between the date of this Agreement and the Closing
Date:
7.1 Access to Information. Seller shall, and shall cause Target to,
afford to the officers and authorized representatives of Purchaser access to
the plants, properties, books and records of Target and shall furnish Purchaser
with such financial and operating data and other information regarding the
assets, properties and business of Target as Purchaser may from time to time
reasonably request, including, but not limited to, true and correct unaudited
monthly financial statements for all months ending after the Balance Sheet Date
and prior to the Closing Date.
7.2 General Affirmative Covenants. Seller shall cause Target to:
(a) conduct the business of Target only in the ordinary
course;
(b) maintain its properties and facilities in good
working order and condition, ordinary wear and tear excepted;
(c) perform all its obligations under agreements relating
to or affecting its assets, business, properties and rights;
(d) keep in full force and effect present insurance
coverage or comparable insurance coverage acceptable and approved in
writing by Purchaser;
(e) use its best efforts to maintain and preserve its
business organization, and to retain its present employees, customers,
suppliers and others having business relations with it;
(f) duly and timely file all reports or returns required to
be filed with any Governmental Authority, and promptly pay all Taxes
levied or assessed upon it or its properties or upon any part thereof;
(g) duly observe and conform to all Governmental
Requirements relating to its assets or properties or to the operation
and conduct of its business
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and all covenants, terms and conditions upon or under which any of its
properties are held;
(h) duly and timely take all actions necessary to carry
out the transactions contemplated hereby;
(i) deliver to Purchaser on or before the 15th day of each
month true and correct unaudited monthly balance sheets and statements
of income Target for the immediately preceding month; and
(j) preserve and maintain the goodwill of Target.
7.3 General Negative Covenants. Seller shall prohibit and prevent
Target from taking any of the following actions without the prior written
consent of Purchaser:
(a) making or approving any changes in Target's Articles
of Incorporation or other charter documents or by-laws;
(b) issuing any shares of stock or securities or any
rights with respect thereto;
(c) declaring or paying any dividend or making any
distribution in respect of Target's capital stock, whether now or
hereafter outstanding, or purchasing, redeeming or otherwise acquiring
or retiring, directly or indirectly, for value any shares of stock or
securities of Target;
(d) entering into or amending any employment or retirement
agreement with any present or former employee or increasing the
compensation or rate of compensation or commissions payable or to
become payable by Target to any director, officer or shareholder (or
any Affiliate thereof);
(e) hiring any employee or independent contractor at
compensation in excess of $25,000.00 per annum, or declaring or paying
any bonus, profit-sharing or other extraordinary compensation, or
entering into, adopting, amending, changing or modifying any bonus,
profit-sharing, retirement, pension or similar plan, agreement or
arrangement without the written consent of Purchaser;
(f) entering into or assuming any contract, agreement,
obligation, lease, license or commitment related to the business,
assets or properties of Target other than in the ordinary course of
business;
(g) entering into or assuming (whether or not in the ordinary
court of business) any contract, agreement, obligation, lease, license
or commitment related to the business or assets of Target that can be
expected to (i) have a term
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of more than six (6) months or (ii) generate gross revenues or expenses
in excess of $20,000.00;
(h) entering into or assuming any mortgage, pledge,
conditional sale or other title retention agreement, lien, encumbrance
or charge of any kind upon any of the properties or assets of Target,
whether now owned or hereafter acquired, or creating or assuming any
obligation for borrowed money, or making any loans or advances to or
assuming, guaranteeing, endorsing or otherwise becoming liable with
respect to the obligations, capital stock or dividends or any person,
firm, association or corporation, or purchasing or otherwise acquiring
any stocks, bonds or other securities or any person, firm, association
or corporation, or selling, leasing, abandoning or otherwise disposing
of any of the assets of Target, including, but not limited to, real
property, machinery, equipment or other operating properties;
(i) intentionally engaging in any activities or
transactions that might adversely affect the assets, properties or
business of Target;
(j) making any change affecting the present banking or
safe deposit or credit arrangements of Target;
(k) merging or consolidating with any other corporation
or acquiring all or substantially all of the business or assets of any
other person, firm, association or corporation; or
(l) introducing any new method of accounting, operation
or management.
7.4 No Transfer of the Stock. Seller shall not sell, transfer, assign,
pledge or otherwise dispose of or encumber any right, title or interest in or
to any of the Stock or enter into any agreement, trust or commitment relating
to any of the Stock.
7.5 Disclosure of Misrepresentations and Breaches. If any of the
representations or warranties of Seller hereunder are determined by Seller to
have been incorrect when made, or are determined by Seller to be incorrect as
of any date subsequent to the date hereof, or if any of the covenants of Seller
contained in this Agreement have not been complied with timely, then Seller
shall immediately notify Purchaser to such effect.
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7.6 Approvals and Consents. Seller shall, and shall cause Target to,
obtain, in writing and without penalty to Purchaser, all necessary approvals
and consents required in order to authorize, approve and consummate this
Agreement.
7.7 Government Filings. Seller shall, and shall cause Target to,
cooperate with Purchaser and its representatives in the preparation of any
documents or other material that may be required by any Governmental Authority
in connection with this Agreement or the consummation of the transactions
contemplated hereby.
7.8 Access to and Inspection of Premises, Facilities and Equipment.
Seller shall and shall cause Target to, afford to the officers and authorized
representatives of Purchaser access to the premises, facilities and tangible
assets of Target for the purpose of inspecting such premises, facilities and
equipment in such manner as Purchaser shall deem appropriate, including, but
not limited to, an environmental inspection and audit. If upon completion of
such inspection Purchaser finds any conditions which Purchaser, in its sole
discretion, considers to be unacceptable, Purchaser may call upon Seller to
cause Target to remedy any such condition at Target's cost. In event Seller
deems any such condition to be unfeasible to remedy, Seller may terminate this
Agreement. Purchaser may, in addition to its rights to terminate this Agreement
pursuant to Sections 9 and 23 below, delay the Closing under Section 2 hereof
up to and including the earlier of (i) ten (10) days after remedy of the
condition to Purchaser's satisfaction, or (ii) on the Termination Date (as
defined in Section 23.4 below).
7.9 Inspection of Underground Storage Tanks. Within five (5) days
prior to the Closing, Seller shall (i) cause all underground storage tanks
located on the premises owned or leased by Target to be inspected for leakage
and operating condition by independent third party inspectors acceptable to
Purchaser and (ii) deliver to Purchaser
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a written report of the inspection as prepared by such inspectors. A copy of
such report shall be furnished to Seller. Under no circumstances shall
Purchaser reveal the contents of any such report to any third party or to any
local, state, or federal agency official before Seller has opportunity to cause
any objectionable item to be remedied. If Purchaser, in its sole discretion,
considers any items in the inspection report to be unacceptable, then Purchaser
may call upon Seller to cause Target to remedy such unacceptable item or items.
In vent Seller deems any unacceptable item to be unfeasible to remedy, Seller
may terminate this Agreement. Purchaser may, in addition to its rights to
terminate this Agreement pursuant to Sections 9 and 23 below, delay the Closing
Date under Section 2 hereof up to and including the earlier of (i) ten (10)
days after remedy of the condition to Purchaser's satisfaction, or (ii) on the
Termination Date (as defined in Section 23.4 below).
8. COVENANTS REGARDING THE CLOSING.
8.1 Covenants of Seller. Seller hereby covenants and agrees that it
will (i) use commercially reasonable efforts on the part of Seller or Target to
cause all of its representations and warranties set forth in this Agreement to
be true on and as of the Closing Date, (ii) use commercially reasonable efforts
to cause all of its obligations that are to be fulfilled on or prior to the
Closing Date to be so fulfilled, (iii) use commercially reasonable efforts to
cause all conditions to the Closing set forth in this Agreement to be satisfied
on or prior to the Closing Date, and (iv) deliver to Purchaser at the Closing
the certificates, updated lists, opinion of counsel, notices, consents,
authorizations, approvals, agreements, leases, transfer documents, receipts and
amendments contemplated by Section 9 hereof (with such additions or exceptions
to such items as are necessary to make the statements set forth in such items
accurate, provided that
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<PAGE> 34
if any of such additions or exceptions cause any of the conditions to
Purchaser's obligations hereunder as set forth in Section 9 below not to be
fulfilled, such additions and exceptions shall in no way limit the rights of
Purchaser under Sections 9 and 23 hereof to terminate this Agreement or refuse
to consummate the transactions contemplated hereby). In event Seller is unable
to comply with the requirements of this section, or in event it is deemed by
Seller, in its sole discretion, that compliance with this section is not
feasible, Seller may terminate this Agreement.
8.2 Covenants of Purchaser. Purchaser hereby covenants and agrees that
it will (i) use commercially reasonable efforts to cause all of its
representations and warranties set forth in this Agreement to be true on and as
of the Closing Date, (ii) use commercially reasonable efforts to cause all of
its obligations that are to be fulfilled on or prior to the Closing Date to be
so fulfilled, (iii) use commercially reasonable efforts to cause all conditions
to the Closing set forth in this Agreement to be satisfied on or prior to the
Closing Date, and (iv) deliver to Seller at the Closing the certificate
contemplated by Section 10 hereof (with such additions or exceptions to such
certificate as are necessary to make the statements set forth in such
certificate accurate, provided that if any of such additions or exceptions
cause any of the conditions to Seller's obligations hereunder as set forth in
Section 10 below not to be fulfilled, such additions and exceptions shall in no
way limit the rights of Seller under Sections 10 and 23 hereof to terminate
this Agreement or refuse to consummate the transactions contemplated hereby).
9. CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations
of Purchaser hereunder are, at the option of Purchaser, subject to the
satisfaction, on
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or prior to the Closing Date, of the following conditions (any of which may be
waived by Purchaser in its sole discretion):
9.1 Accuracy of Representations and Warranties and Fulfillment of
Covenants. The representations and warranties of Seller contained in this
Agreement shall be true and correct on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date. Each and all of the agreements and covenants of Seller to be
performed on or before the Closing Date pursuant to the terms hereof shall have
been performed. Seller shall have delivered to Purchaser a certificate dated
the Closing Date and executed by Seller to all such effects.
9.2 Opinion of Counsel. Purchaser shall have received an opinion from
David L. Hooper, counsel to Seller, dated the Closing Date, in form and
substance satisfactory to Purchaser, covering the matters set forth in Schedule
9.2 hereto and such other matters as Purchaser shall reasonably request.
9.3 Satisfactory Audit. Purchaser's auditors will have performed an
audit with respect to the financial statements of Target for the last three (3)
fiscal years, and the results of such audit shall be acceptable to Purchaser in
all respects.
9.4 Execution of Non-competition Agreement. Seller shall have
agreed to the non-competition provisions described in Section 15 herein.
9.5 Termination of Employment Agreement of Kenneth C. Boothe. Target
shall have terminated the Employment Agreement dated December 13, 1995 between
Small Fishing & Rental, Inc., a Texas corporation and Kenneth C. Boothe, with
the consideration for such termination paid by Target not to exceed
$100,000.00.
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<PAGE> 36
9.6 Phase I Environmental Audit. Purchaser shall, at Purchaser's own
expense, have completed a Phase I Environmental Audit on the properties of
Target located in Pearsall, San Angelo, Big Spring, Andrews and Odessa, Texas
and Artesia, New Mexico, the results of which shall be satisfactory to
Purchaser and Purchaser, or its agents, shall not disclose such results to any
Person other than Seller or as required by a court order.
9.7 No Governmental Actions. No action or proceeding before a
Governmental Authority shall have been instituted or threatened to restrain or
prohibit the transactions contemplated by this Agreement, and Seller shall have
delivered to Purchaser a certificate dated the Closing Date and executed by
Seller stating it has no Best Knowledge of any such matters. No Governmental
Authority shall have taken any other action as a result of which the management
of Purchaser reasonably deems it inadvisable to proceed with the transactions
contemplated by this Agreement.
9.8 No Adverse Change. No adverse change in the results of operations,
financial condition, net worth or business of Target that exceeds, in the
aggregate, $50,000.00 shall have occurred, and no loss or damage to any of the
properties or assets of Target, whether or not covered by insurance, shall have
occurred since the Balance Sheet Date, and Seller shall have delivered to
Purchaser a certificate dated the Closing Date and executed by Seller to all
such effects.
9.9 Update of Liabilities. Seller shall have delivered to Purchaser an
accurate list, as of the Closing Date, showing all liabilities and obligations
of Target that have arisen since the date of this Agreement, except those
arising in the ordinary course of business that do not individually exceed
$5,000.00.
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9.10 Update of Contracts. Seller shall have delivered to Purchaser an
accurate list, as of the Closing Date, showing (i) all agreements, contracts
and commitments of the type listed on Schedule 4.11 hereto entered into since
the date of this Agreement, and (ii) all other contracts, agreements and
commitments related to the business or assets of Target entered into by Target
since the date of this Agreement.
9.11 Update of Customer List. Seller shall have caused Target to
deliver to Purchaser the updated customer list as required by Section 4.28
hereof, and such lists shall not reflect any adverse information regarding
customers of Target that Purchaser, in its sole discretion, considers
unacceptable.
9.12 Stockholder's Release. Seller shall have delivered to Target,
with a copy to Purchaser, a Stockholder's Release duly executed by Seller in
the form of and containing the same terms and provisions as the Stockholder's
Release provided herewith as Schedule 9.12.
9.13 Related Party Loans. All loans or advances outstanding as of the
Closing Date owed to Target by Seller or any Affiliates of Seller shall have
been paid in full.
9.14 Approval of Counsel. All actions, proceedings, instruments and
documents required or incidental to carrying out this Agreement and all other
related legal matters shall have been approved by Fulbright & Jaworski L.L.P.,
counsel to Purchaser.
9.15 No Adverse Information. The investigations with respect to Target
and its assets, properties and business performed by Purchaser's professional
advisors and other representatives shall not have revealed any adverse
information concerning Target that has not been made known to Purchaser in
writing prior to the date of this Agreement.
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9.16 Notices and Consents. No notice to or consent, authorization,
approval or order of any Person shall be required for the consummation of the
transactions contemplated by this Agreement (except for notices that have been
duly and timely given and consents, authorizations and approvals that have been
obtained), and Seller shall have delivered to Purchaser a certificate dated the
Closing Date and executed by Seller to such effect.
9.17 Corporate Approval. Seller shall have taken or caused to be taken
all necessary or desirable actions, steps and corporate proceedings (whether by
directors and/or shareholders) to approve and authorize the transfer of the
Stock by Seller to Purchaser, and to approve and authorize the acceptance of
this Agreement by Seller, and Seller shall have delivered to Purchaser a
certificate dated the Closing Date to all such effects.
9.18 Transfer and Assignment Documents. Seller shall have delivered to
Purchaser all documents reasonably necessary or required to effectively
transfer and assign the Stock to Purchaser (including, without limitation, all
required consents), such transfers and assignments to convey good and
marketable title to the Stock to Purchaser, free and clear of all liens and
encumbrances whatsoever, and to be in form and substance reasonably
satisfactory to Purchaser and its counsel.
9.19 Ordinary Course of Business. During the period from the date of
this Agreement until Closing, Target shall have carried on its business in the
ordinary and usual course and the Seller shall have delivered to Purchaser a
certificate dated the Closing Date to that effect.
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<PAGE> 39
9.20 Other Documents. Seller and Target shall have delivered or
caused to be delivered all other documents, agreements, resolutions,
certificates or declarations as Purchaser or its attorneys may have reasonably
requested.
9.21 Board of Directors Approval. The board of directors of Purchaser,
in its sole discretion, shall have approved this Agreement and the consummation
by Purchaser of the transactions contemplated hereby.
9.22 Payment of Taxes. All unpaid Taxes of Target shall have been paid
prior to the Closing Date, and Seller shall have furnished Purchaser with
evidence of such payment, in form and substance satisfactory to Purchaser.
9.23 Right of Termination. In event that Seller shall fail to furnish
and/or deliver to Purchaser the documents required under Sections 9.1 - 9.22
above, Purchaser shall have the right to terminate this Agreement at or before
Closing Date. In event that Seller shall be unable for any reason to furnish
and/or deliver to Purchaser the documents required under Sections 9.1 - 9.22
above, Seller shall have the right to terminate this Agreement at or before
Closing Date.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.
The obligations of Seller hereunder are, at its option, subject to the
satisfaction, on or prior to the Closing Date, of the following conditions (any
of which may be waived by Seller, in its sole discretion):
10.1 Accuracy of Representations and Warranties and Fulfillment of
Covenants. The representations and warranties of Purchaser contained in this
Agreement shall be true and correct on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date. Each of the agreements and covenants of Purchaser to be performed on
or before the Closing Date
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shall have been performed. Purchaser shall have delivered to Seller a
certificate dated the Closing Date and executed by Purchaser to all such
effects.
10.2 Delivery of Purchase Price. Purchaser shall have paid to Seller
the Purchase Price as required by this Agreement.
10.3 Approval of Counsel. All actions, proceedings, instruments and
documents required or incidental to carrying out this Agreement and all other
related legal matters shall have been approved by David Hooper, counsel to
Seller.
10.4 Phase I Environmental Audit. Purchaser shall, at Purchaser's own
expense, have completed a Phase I Environmental Audit on the properties of
Target located in Pearsall, San Angelo, Big Spring, Andrews and Odessa, Texas
and Artesia, New Mexico, the results of which shall be satisfactory to
Purchaser and Seller shall not disclose such results to any Person except as
required by court order.
11. SPECIAL CLOSING AND POST-CLOSING COVENANTS.
11.1 Continuation of Existence of Target After the Closing. Purchaser
agrees to maintain the business and operations of Target at its current
locations and under its current corporate name for a period of six months
following the Closing Date or until such time as Purchaser has no further
payment obligation to Seller under the Convertible Note.
11.2 Escrow Agreement. In order to secure the obligations of Purchaser
under this Agreement pursuant to Section 3.1(a) pertaining to payment at
Closing of the cash portion of the Purchase Price, Purchaser will execute and
deliver to the Seller an Escrow Agreement, in the form attached hereto as Annex
C at the time of execution of this Agreement.
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11.3 Release of Seller's Promissory Note Guarantee. Purchaser shall
use commercially reasonable efforts to (a) obtain from Durant Bank & Trust Co.
a release of the guarantee of Lacy J. Harber pursuant to that certain
promissory note dated in the stated principal amount of $1,400,000.00 between
Target and Bank & Trust Co. (the "Durant Note"), (b) during the period Lacy J.
Harber remains a Guarantor of the Durant Note, make timely principal and
interest payments thereon, which commercially reasonable efforts shall not
include exoneration of the Durant Note prior to maturity.
12. INDEMNITY BY SELLER.
12.1 INDEMNITY. SELLER COVENANTS AND AGREES THAT IT WILL INDEMNIFY,
HOLD HARMLESS AND DEFEND PURCHASER AND TARGET AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES AND AFFILIATES
(COLLECTIVELY, THE "INDEMNIFIED PARTIES"), AT ALL TIMES FROM AND AFTER THE DATE
OF THIS AGREEMENT, FROM AND AGAINST ANY AND ALL PENALTIES, DEMANDS, DAMAGES,
PUNITIVE DAMAGES, LOSSES, LOSS OF PROFITS, LIABILITIES, SUITS, COSTS, COSTS OF
ANY SETTLEMENT OR JUDGMENT, CLAIMS OF ANY AND EVERY KIND WHATSOEVER, REFUND
OBLIGATIONS (INCLUDING, WITHOUT LIMITATION, INTEREST AND PENALTIES THEREON),
REMEDIATION COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS' FEES) OF OR TO ANY OF THE INDEMNIFIED PARTIES ("DAMAGES"), WHICH MAY
NOW OR IN THE FUTURE BE PAID, INCURRED OR SUFFERED BY OR ASSERTED AGAINST THE
INDEMNIFIED PARTIES BY ANY PERSON RESULTING OR ARISING FROM OR INCURRED IN
CONNECTION WITH ANY ONE OR MORE OF THE FOLLOWING:
(A) ANY MISREPRESENTATION, BREACH OF WARRANTY OR
NONFULFILLMENT OF ANY COVENANT OR AGREEMENT ON THE PART OF SELLER
UNDER THIS AGREEMENT OR FROM ANY MISREPRESENTATION IN OR OMISSION FROM
ANY LIST, SCHEDULE, CERTIFICATE OR OTHER INSTRUMENT FURNISHED OR TO BE
FURNISHED TO PURCHASER PURSUANT TO THE TERMS OF THIS AGREEMENT;
(B) ALL ACTIONS, SUITS, PROCEEDINGS, DEMANDS,
ASSESSMENTS, ADJUSTMENTS, COSTS AND EXPENSES (INCLUDING
COSTS OF COURT AND ATTORNEYS' FEES) INCIDENT TO ANY OF THE
FOREGOING.
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12.2 Notice of Claim. Purchaser agrees that upon its discovery of
facts giving rise to a claim for indemnity under the provisions of this
Agreement, including receipt by it or any Indemnified Party of notice of any
demand, assertion, claim, action or proceeding, judicial or otherwise, by any
Person with respect to any matter as to which any of the Indemnified Parties
are entitled to indemnity under the provisions of this Agreement (such actions
being collectively referred to herein as the "Claim"), Purchaser will give
prompt notice thereof in writing to Seller together with a statement of such
information respecting any of the foregoing as it shall then have; provided
that any delay in giving or failure to give such notice shall not limit the
rights of any Indemnified Party to indemnity hereunder except to the extent
that Seller is shown to have been damaged by such delay or failure.
12.3 Right of Seller to Participate in Defense. With respect to any
Claim as to which Purchaser seeks indemnity hereunder, Purchaser shall provide
Seller with the opportunity to participate in the defense of such Claim with
counsel of Seller's choice and at Seller's cost and expense. Seller shall
reasonably cooperate with Purchaser and its representatives and counsel in any
dispute or defense related to any Claim.
12.4 Payment. Seller shall promptly pay to Purchaser or such other
Indemnified Party as may be entitled to indemnity hereunder in cash the amount
of any Damages to which Purchaser or such Indemnified Party may become entitled
by reason of the provisions of this Agreement.
13. REQUIREMENTS OF SECURITIES LAWS.
13.1 Accredited Investors. Seller recognizes that the Convertible
Note and the Conversion Shares (collectively, the "Securities") are not being
registered under the Securities Act in reliance upon an exemption from the
Securities Act which is
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predicated, in part, on the representations and agreements of Seller set forth
in this Agreement. Seller represents and warrants to Purchaser that Seller is
an "accredited investor" as that term is defined in Rule 501(a) of the
Securities Act and that the Securities are being acquired solely for its own
account for investment and not with a view to, or for offer or resale in
connection with, a distribution thereof within the meaning of the Securities
Act. Seller understands that the effect of such representation and warranty is
that the Securities must be held indefinitely unless subsequently registered
under the Securities Act or an exemption from such registration is available at
the time for any proposed sale or other transfer thereof. Seller also
understands that Purchaser is under no obligation to file a registration
statement under the Securities Act covering the Securities or to take any other
action to enable Seller to transfer or otherwise dispose of the Securities.
Seller represents that it has consulted with counsel in regard to the
Securities Act and that it is fully familiar with the circumstances under which
it is required to hold the Securities and the limitations upon the transfer or
other disposition thereof. Seller acknowledges that Purchaser is relying upon
the truth and accuracy of the foregoing representations and warranties in
issuing the Securities under the Securities Act. Seller agrees to indemnify and
hold Purchaser harmless against all liabilities, costs and expenses, including
reasonable attorneys' fees, incurred by Purchaser as a result of any sale,
transfer or other disposition by Seller of all or any part of the Securities in
violation of the Securities Act.
13.2 Legend. The Securities shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFI-
CATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURI-
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<PAGE> 44
TIES ACT OF 1933, AS AMENDED. THESE SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE AB-
SENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT.
13.3 SEC Documents. Purchaser shall provide to Seller (a) a copy of
the Annual Report on Form 10-K of Purchaser for the fiscal year ended August
31, 1995, in the form filed with the SEC, and (b) copies of all filings since
August 31, 1995 by Purchaser with the SEC in compliance with Section 13 or 14
of the Exchange Act. At closing Seller will represent that it has reviewed the
foregoing documents and acknowledges it has been afforded the opportunity to
obtain any additional information necessary to verify the accuracy of the
information contained in the foregoing documents, including the opportunity to
ask questions of, and receive answers from, officers and representatives of
Purchaser concerning Purchaser and the terms and conditions of the transactions
contemplated by this Agreement. Seller acknowledges that David Hooper, attorney
at law, has advised Seller during the course of the negotiation of this
Agreement, and that Seller has consulted David Hooper, attorney at law, with
respect to the transactions contemplated by this Agreement.
13.4 Incidental Registration. If, at any time after the Closing Date,
Purchaser proposes to register any of the Purchaser's Common Stock (whether
unissued, yet to be authorized or held by any person) under the Securities Act,
it shall, at least 30 days prior to the filing under the Securities Act of the
registration statement relating thereto, give written notice to Seller of its
intention to do so, and, upon the written request of Seller given within 10
days after the giving of any such notice (which request
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shall state the proposed method of distribution), Purchaser shall include or
cause to be included in any such registration statement the Conversion Shares;
provided, however, that Purchaser may at any time withdraw or cease proceeding
with any such registration if it shall at the time withdraw or cease proceeding
with the registration of such Purchaser's Common Stock originally proposed to
be registered; and provided further, that if the registration proposed by
Purchaser relates to an underwritten offering, Seller shall not have any right
to sell the Conversion Shares in any manner or through any underwriter other
than in the manner and through the managing underwriter or underwriters being
used by Purchaser.
a. Notwithstanding any other provision of this Section 13.4,
if a registration pursuant to this Section 13.4 involves a firm commitment,
underwritten offering of the securities so being registered and if the managing
underwriter of such offering informs Purchaser and Seller by letter of its
belief that marketing factors require a limitation of the number of shares to
be underwritten, Purchaser may limit the amount of Conversion Shares to be
included in the registration and underwriting; provided that no such reduction
shall reduce the securities being offered by Purchaser for its own account; and
provided that those shares which are excluded from the underwritten offering
shall be withheld from the market by the holders thereof for a period, not to
exceed 180 days, which the managing underwriter reasonably determines as
necessary in order to effect the underwritten offering.
b. Registration Procedures and Expenses. If and whenever
Purchaser is required to include the Conversion Shares in a registration
statement under the Securities Act, as provided in Section 13.4 hereof,
Purchaser shall, as expeditiously as is reasonably practicable, do each of the
following:
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<PAGE> 46
(i) prepare and file with the SEC a registration
statement with respect to the Conversion Shares and, subject to the
limitations under Section 13.4 hereof, use its best efforts to cause
such registration statement to become effective;
(ii) cooperate with Seller and any underwriter who
shall sell the Conversion Shares in connection with their review of
Purchaser made in connection with such registration;
(iii) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective for 120 days from the date of its effectiveness,
and to comply with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all the Conversion
Shares covered by such registration statement for such period;
(iv) furnish to Seller such number of copies of the
prospectus forming a part of such registration statement (including
each preliminary prospectus), in conformity with the requirements of
the Securities Act, and such other documents as Seller may reasonably
request in order to facilitate the disposition of the Conversion
Shares; and
(v) Purchaser shall (x) notify Seller at any time
when a prospectus relating to the Conversion Shares is required to be
delivered under the Securities Act, of the happening of any event as a
result of which the prospectus forming a part of such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be
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<PAGE> 47
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and (y) at
the request of Seller, prepare and furnish to Seller a reasonable
number of copies of any supplement to or any amendment of such
prospectus that may be necessary so that, as thereafter delivered to
the purchasers of the Conversion Shares such prospectus shall not
include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing.
c. Agreement by Seller. In the event that Seller
participates, pursuant to this Section 13.4, in the offering of the Conversion
Shares Seller shall;
(i) furnish Purchaser all material information
reasonably requested by Purchaser concerning Seller and the proposed
method of sale or other disposition of the Conversion Shares and such
other information and undertakings as shall be reasonably required in
connection with the preparation and filing of the registration
statement covering the Conversion Shares in order to ensure full
compliance with the Securities Act and the rules and regulations of
the SEC thereunder;
(ii) cooperate in good faith with Purchaser and its
underwriters, if any, in connection with such registration, including
placing the Conversion Shares in escrow or custody to facilitate the
sale and distribution thereof provided that such escrow or custody
arrangement shall be no more restrictive upon Seller than upon any
other holder of Purchaser Stock for the benefit of whom such
registration is undertaken; and
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(iii) make no further sales or other dispositions, or offers therefor,
of the Conversion Shares under such registration statement if, during the
effectiveness of such registration statement, an intervening event should
occur which, in the opinion of counsel to Purchaser, makes the prospectus
included in such registration statement no longer comply with the
Securities Act, so long as written notice containing the facts and legal
conclusions relied upon by Purchaser in this regard has been received by
Seller from Purchaser, until such time as Seller has received from
Purchaser copies of a new, amended or supplemented prospectus complying
with the Securities Act, which prospectus shall be delivered to Seller by
Purchaser as soon as practicable after such notice. d. Allocation of
Expenses. If and whenever Purchaser is required by the provisions of this
Section 13.4 to use its best efforts to effect the registration of the
Conversion Shares under the Securities Act, Purchaser shall pay the costs
and expenses in connection therewith; provided, however, that Seller shall
pay all underwriting discounts, selling commissions and stock transfer
taxes attributable to the Conversion Shares under such registration
statement.
e. Indemnification. In the event of any registration of any of the
Conversion Shares under the Securities Act pursuant to this Section 13.4,
Seller shall indemnify and hold harmless, Purchaser, each director of
Purchaser, each officer of Purchaser who shall sign such registration
statement, each underwriter and any person who controls Purchaser or such
underwriter within the meaning of the Securities Act, with respect to any
statement in or omission from such registration statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto, if such statement or omission was made in reliance upon and
in
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conformity with written information furnished to Purchaser or its underwriter
through an instrument duly executed by any of Seller specifically for use in
the preparation of such registration statement, preliminary prospectus, final
prospectus or amendment or supplement.
14. ACCESS TO BOOKS AND RECORDS. Seller represents and warrants to
Purchaser that all of the existing books and records of Target are physically
located at the principal office of Target in Abilene, Texas. Purchaser
covenants that for a period of six (6) years after the date of this Agreement
it will provide Seller with reasonable access to such books and records of
Target covering periods prior to the Closing Date as are reasonably needed in
connection with (i) the preparation of any Tax returns of Seller or (ii) any
dispute between Seller and any Person.
15. NON-COMPETITION AGREEMENT. Unless a default by Purchaser under the
terms and conditions of the Convertible Note shall have occurred and be then
continuing, for a period of two (2) years from the date hereof, neither Seller
nor any Affiliate of Seller shall, within the state of Texas, (i) compete
directly or indirectly with the business engaged in by Target as of the Closing
Date, (ii) solicit directly or indirectly any of the accounts of Target or
(iii) become the employee or consultant of or otherwise render services to, or
own any interest in, any enterprise that directly or indirectly competes with
the business engaged in by Target as of the Closing Date. For purposes of this
Section 15, the term "accounts" shall mean any Person for which Target has
performed or does perform services or to which Target has sold or does sell
merchandise during the period beginning two (2) years immediately prior to the
date of this Agreement and ending one (1) year after the date of this
Agreement.
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Seller agrees that the limitations set forth herein on the rights of
it and its Affiliates to compete with Target are reasonable and necessary for
the protection of Target. In this regard, Seller specifically agrees that the
limitations as to period of time and geographic area, as well as all other
restrictions specified herein, are reasonable and necessary for the protection
of Target. Seller further recognizes and agrees that violation of any of the
agreements contained in this Section 15 will cause irreparable damage or injury
to Target and Purchaser, the exact amount of which may be impossible to
ascertain, and that, for such reason, among others, Target and Purchaser shall
be entitled to an injunction, without the necessity of posting bond therefor,
restraining any further violation of such agreements. Such rights to any
injunction shall be in addition to, and not in limitation of, any other rights
and remedies Target or Purchaser may have against the undersigned, including,
but not limited to, the recovery of damages. Further, it is agreed by Seller
that in the event that the provisions of this Section 15 should ever be deemed
to exceed the time or geographic limitations permitted by applicable law, then
such provisions shall be reformed to the maximum time or geographic limitations
permitted.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Seller and Purchaser
recognize and acknowledge that they have and will have access to certain
confidential information of Target, such as lists of customers, and costs and
financial information, that is valuable, special and unique property of Target.
Seller and Purchaser agree that they will not disclose, and they will use their
best efforts to prevent disclosure by any other Person of, any such
confidential information to any Person or for any purpose or reason whatsoever,
except to authorized representatives of Purchaser or Seller as the case may be.
Seller and Purchaser recognize and agree
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that violation of any of the agreements contained in this Section 16 will cause
irreparable damage or injury to Target, Seller and Purchaser, the exact amount
of which may be impossible to ascertain, and that, for such reason, among
others, Target, Seller and Purchaser shall be entitled to an injunction,
without the necessity of posting bond therefor, restraining any further
violation of such agreements. Such rights to any injunction shall be in
addition to, and not in limitation of, any other rights and remedies Target,
Seller or Purchaser may have against the undersigned.
17. DAMAGE TO ASSETS. If, on or before the Closing Date, the assets or
properties of Target are damaged or destroyed in excess of $50,000.00, Seller
will immediately notify Purchaser of such damage or destruction. In the event
of any such damage or destruction, Purchaser and Seller shall have the right,
in the sole discretion of Seller or Purchaser, to either (i) reduce the
Purchase Price by an amount equal to the value of the damaged or destroyed
asset or assets, and complete the purchase, or (ii) terminate this Agreement as
provided by Section 23.3 hereof and not complete the purchase.
18. EXPENSES. Whether or not the transactions contemplated hereby are
consummated, each of the parties will pay all costs and expenses of its
performance of and compliance with this Agreement.
19. FURTHER ACTIONS. From time to time, at the request of any party
hereto, the other parties hereto shall execute and deliver such instruments and
take such action as may be reasonably requested to evidence the transactions
contemplated hereby.
20. ARBITRATION. The parties agree that any dispute or controversy
arising out of or in connection with this Agreement or any alleged breach hereof
shall be
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settled by arbitration in Houston, Texas pursuant to the rules of the State of
Texas. If Purchaser on the one hand and Seller, on the other hand cannot
jointly select a single arbitrator to determine the matter, one arbitrator
shall be chosen by Purchaser on the one hand and Seller, on the other hand (or,
if either fails to make a choice, by a court of competent jurisdiction on
behalf of such party) and the two arbitrators so chosen will select a third.
The decisions of the single arbitrator jointly selected by the parties, or, if
three arbitrators are selected, the decision of any two of them, will be final
and binding upon the parties and the judgment of a court of competent
jurisdiction may be entered thereon. Each party shall pay the fees and expenses
of its chosen arbitrator, and the fees and expenses of the third arbitrator
shall be shared equally by the parties.
21. NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, given by prepaid telex
or telegram or by facsimile or other similar instantaneous electronic
transmission device or mailed first class, postage prepaid, certified United
States mail, return receipt requested, as follows:
(a) If to Purchaser, at:
Ponder Industries, Inc.
P.O. Drawer 2229
Alice, TX 78333
Attention: Larry Armstrong
Facsimile No. 512-664-8451
With a copy to:
Fulbright & Jaworski, L.L.P.
300 Convent Street, Suite 2200
San Antonio, TX 78205
Attention: Phillip M. Renfro
Facsimile No. 210-223-6459 or 210-224-8336
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<PAGE> 53
(b) If to Seller, at:
LJH Corporation
Eisenhower Yacht Club
R.R. 2 Box 50-M
Denison, TX 75020
Attention: Lacy J. Harber
Facsimile No. 903-465-6514
With a copy to:
David L. Hooper, P.C.
300 North Judge Ely Blvd.
Abilene, TX 79601-6237
Attention: David L. Hooper
Facsimile No. 915-675-5434
provided that any party may change its address for notice by giving to the
other party written notice of such change. Any notice given under this Section
21 shall be effective (i) if delivered personally, when delivered, (ii) if sent
by telex or telegram or by facsimile or other similar instantaneous electronic
transmission device, 24 hours after sending and (iii) if mailed, 48 hours after
mailing.
22. GENERAL PROVISIONS.
22.1 Governing Law; Interpretation; Section Headings. This Agreement
shall be governed by and construed and enforced in accordance with the laws of
the State of Texas. The section headings contained herein are for purposes of
convenience only, and shall not be deemed to constitute a part of this
Agreement or to affect the meaning or interpretation of this Agreement in any
way.
22.2 Severability. Should any provision of this Agreement be held
unenforceable or invalid under the laws of the United States of America or the
State of Texas, or under any other applicable laws of any other jurisdiction,
then the parties hereto
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agree that such provision shall be deemed modified for purposes of performance
of this Agreement in such jurisdiction to the extent necessary to render it
lawful and enforceable, or if such a modification is not possible without
materially altering the intentions of the parties hereto, then such provision
shall be severed herefrom for purposes of performance of this Agreement in such
jurisdiction. The validity of the remaining provisions of this Agreement shall
not be affected by any such modification or severance, except that if any
severance materially alters the intentions of the parties hereto as expressed
herein (a modification being permitted only if there is no material
alteration), then the parties hereto shall use commercially reasonable effort
to agree to appropriate equitable amendments to this Agreement in light of such
severance, and if no such agreement can be reached within a reasonable time,
any party hereto may initiate arbitration as provided in Section 20 above.
22.3 Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the transactions
contemplated hereby, and supersedes all prior agreements, arrangements and
understandings related to the subject matter hereof. No representation,
promise, inducement or statement of intention has been made by any party hereto
which is not embodied in this Agreement, and no party hereto shall be bound by
or liable for any alleged representation, promise, inducement or statement of
intention not so set forth.
22.4 Binding Effect. All the terms, provisions, covenants and
conditions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns.
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22.5 Assignment. Except as specifically permitted herein, this
Agreement and the rights and obligations of the parties hereto shall not be
assigned or delegated by either party hereto without the prior written consent
of the other party hereto.
22.6 Amendment; Waiver. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, provisions, representations,
warranties, covenants or conditions hereof may be waived, only by a written
instrument executed by all parties hereto, or, in the case of a waiver, by the
party waiving compliance. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
to enforce the same. No waiver by any party of any condition contained in this
Agreement, or of the breach of any term, provision, representation, warranty or
covenant contained in this Agreement, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
condition or breach, or as a waiver of any other condition or of the breach of
any other term, provision, representation, warranty or covenant.
22.7 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement
shall be binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of the parties reflected hereon as
signatories.
22.8 Telecopy Execution and Delivery. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto,
and an executed copy of this Agreement may be delivered by one or more parties
hereto by facsimile or similar instantaneous electronic transmission device
pursuant to which the signature of or on behalf of such party can be seen, and
such execution and delivery
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<PAGE> 56
shall be considered valid, binding and effective for all purposes. At the
request of either party hereto, all parties hereto agree to execute an original
of this Agreement as well as any facsimile, telecopy or other reproduction
hereof.
22.9 Guaranty. It is agreed and understood by both Seller and
Purchaser that no shareholder, director, officer or employee of either Seller
or Purchaser shall be called upon to guarantee the performance of Seller,
Purchaser or Target under this Agreement. The only guaranties and/or
commitments binding upon any of such parties shall be those specifically set
forth in this Agreement, and no other shall be implied by either Seller or
Purchaser.
22.10 Joint Venture Agreement with Superior Fishing and Rental, Inc.
Target has heretofore entered into a Joint Venture Agreement dated January 8,
1996, with Superior Fishing and Rental, Inc., a Texas corporation (herein
"Superior"). A true and correct copy of such agreement has been tendered to
Purchaser's legal counsel. Such agreement covers the terms and conditions of a
joint venture entered into between such parties regarding assets formerly owned
by Small Fishing and Rental, Inc. (herein the "Small Assets") and requires
joint venture distributions to be made by Target to Superior as more
specifically set forth in Section 1.5 of said agreement. Seller's shareholder,
Lacy J. Harber, has given a personal guaranty to Superior that the obligations
of Target under such agreement would be timely met, including the said joint
venture distributions. Any delay by Target of more than three business days in
making payment to Superior of any joint venture distribution will require that
Lacy J. Harber personally make payment to Superior of the delinquent joint
venture distribution, or at the option of Superior, the said Joint Venture
Agreement may be terminated and the Small Assets delivered to Superior. It is
understood and agreed
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<PAGE> 57
that after the Closing Date, Purchaser shall cause Target to timely make to
Superior each and every joint venture distribution required under the Joint
Venture Agreement. Purchaser agrees that Purchaser's failure to cause Target to
make any of such joint venture distributions to Superior will subject Purchaser
to the claims of Lacy J. Harber for any damages suffered by him under his
guaranty to Superior of the obligations of Target under the said Joint Venture
Agreement dated January 8, 1996. Venue for any litigation filed by Lacy J.
Harber against Purchaser for Target's failure to make any joint venture
distribution or distributions to Superior shall be in Taylor County, Texas.
22.11 The Small Assets. At time of entering into the Joint Venture
Agreement with Superior, Target was required to take the Small Assets on a
"where is" and "as is" basis without any representations regarding the
suitability or condition of the Small Assets. Seller does not, by this
Agreement enlarge the obligations of Target or Seller regarding the said Small
Assets. Purchaser must take the Small Assets on the same "where is" and "as is"
basis and condition that Target acquired same in the Joint Venture Agreement
with Superior.
23. TERMINATION. This Agreement may be terminated without further
obligation of the parties, as follows:
23.1 Mutual Consent. This Agreement may be terminated at any time
prior to Closing by mutual written consent of the parties hereto.
23.2 Failure of Conditions. By either party hereto, if the conditions,
as set forth in this Agreement, to such party's obligations under this
Agreement are not fulfilled on or prior to the Closing Date; provided that any
such termination shall not limit the remedies otherwise available to such party
as a result of misrepresentations of or breaches by the other party.
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<PAGE> 58
23.3 Damage to Assets. Without limiting Purchaser's rights under this
Agreement, the Agreement may be terminated by Purchaser at its sole option, if
on or prior to the Closing Date, any of the assets or properties of Target are
destroyed or damaged having a fair market value in excess of $50,000.00.
23.4 Failure to Close. This Agreement will automatically terminate on
July 31, 1996, if the Closing shall not have occurred on or before such date,
unless the parties shall have otherwise agreed in writing prior to such date;
provided, however, that in the event the auditors of Purchaser cannot
reasonably complete the audit of Target by July 31, 1996, such termination date
shall be extended to August 31, 1996 (the "Termination Date"). There will be no
further extensions of said Termination Date. No party will be liable in damages
to any other party as a result of termination pursuant to this Section 23.4
unless the failure of the Closing was due to the failure of such party to
comply with the terms of this Agreement.
[signatures on next page]
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<PAGE> 59
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PURCHASER:
PONDER INDUSTRIES, INC.
By:/s/ Larry Armstrong
Name:Larry Armstrong
Title:President
SELLER:
LJH CORPORATION
By:/s/ Lacy J. Harber
Name:Lacy J. Harber
Title:President
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<PAGE> 1
EXHIBIT 4.1
THIS DEBENTURE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS DEBENTURE
(COLLECTIVELY THE "SECURITIES") HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF ANY STATE
UNDER ANY STATE SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO A SAFE
HARBOR FROM REGISTRATION UNDER REGULATION S ("REGULATION S") PROMULGATED UNDER
THE ACT. THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S)
UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS RE MADE PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
No. _____ $50,000 U.S.
PONDER INDUSTRIES, INC.
8% CONVERTIBLE DEBENTURE DUE APRIL 26, 1999
THIS DEBENTURE is one of a duly authorized issue of Debentures of
PONDER INDUSTRIES, INC., a corporation duly organized and existing under the
laws of the state of Delaware (the "Company"), designated as its 8% Convertible
Debentures due April 26, 1999, in an aggregate principal amount not exceeding
Eleven Million Dollars ($11,000,000 U.S.)(the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
________________________________________, or any subsequent registered holder
hereof (the "Holder"), the principal sum of Fifty Thousand Dollars ($50,000
U.S.), on or prior to April 26, 1999 (the "Maturity Date"), and
(continued on reverse)
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.
PONDER INDUSTRIES, INC.
Dated: April 26, 1996
By:_____________________________________
Eugene L. Butler, Executive Vice
President
<PAGE> 2
(Page 2 of _____ of 8% Convertible Debentures of Ponder Industries, Inc. Due
April 26, 1999)
to pay interest on the principal sum outstanding in arrears on the earlier of
the Date of Conversion (as defined in Section 4(c)(iv) below) or the Maturity
Date, at the rate of eight percent (85%) per annum. Accrual of interest on
this Debenture shall commence on the date that, in connection with the
consummation of the initial purchase of this Debenture from the Company, the
escrow agent first had in its possession funds representing full payment for
this Debenture, and shall continue to accrue until payment in full of the
principal sum has been made or duly provided for, or until the Date of
Conversion, whichever is earlier. The interest so payable will be paid on the
Maturity Date or the Date of Conversion, as the case may be. Such interest
shall be paid to the person and at the address in whose name this Debenture is
registered on the records of the Company regarding registration and transfers
of the Debentures (the "Debenture Register") on the business day immediately
preceding the payment date. The principal of, and interest on, this Debenture
are payable, if converted, in shares of Common Stock, or if redeemed, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts, to the person and at the
address in whose name this Debenture is registered on the Debenture Register on
the business day immediately preceding the payment date. The forwarding of
such payment shall constitute a payment of interest hereunder and shall satisfy
and discharge the liability for principal and interest on this Debenture to the
extent of the sum or Common Shares so paid.
This Debenture is subject to the following additional provisions:
Section 1. DEBENTURE DENOMINATIONS. The Debentures are initially
issuable in denominations of at least Fifty Thousand Dollars ($50,000 U.S.) and
integral multiples of Ten Thousand Dollars ($10,000 U.S.) in excess thereof.
Upon conversion of a portion, but less than all, of this Debenture in
accordance with the terms hereof, a new debenture or debentures may be issued
to the Holder in a denomination equal to the exact amount of the unconverted
portion of this Debenture. No service charge will be made for registration of
transfer or exchange.
Section 2. WITHHOLDING. The Company shall be entitled to withhold from
all payment of principal of, and interest on, this Debenture any amounts
required to be withheld under the applicable provisions of the United States
income tax laws, or other applicable laws, at the time of such payments.
Holder shall, prior to any transfer hereof, deliver to the Company a completed
form @-8 for such transferee. The Holder shall pay any other taxes, charges,
or levies in connection with the issuance or transfer thereof.
Section 3. SALE, TRANSFER OR EXCHANGE. This Debenture has been issued
subject to investment representations of the original purchaser hereof and may
be transferred or exchanged only in compliance with the Act, including
Regulation S and any applicable state securities laws ("State Acts"). Any
Holder of this Debenture, by acceptance hereof, agrees to the representations,
warranties and covenants herein. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 4. CONVERSION. The record Holder of this Debenture shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert; Conversion Rate.
The record Holder of this Debenture shall be entitled
to convert, subject to the Company's right of redemption set forth in Section
5(a), (x) up to one-third (1/3) of the Debenture(s) (measured by the aggregate
principal amount) initially issued to such Holder beginning forty-five (45)
days following the date of the last closing of a purchase and sale of
Debentures that occurs pursuant to the offering of the Debentures by the
Company (the "Last Closing Date") and at any time thereafter; (y) an additional
one-third (1/3) of the Debenture(s) (measured by the aggregate principal
amount) initially issued to such Holder beginning seventy-five (75) days
following the Last Closing Date and at any time thereafter; and (z) all
remaining Debentures beginning one hundred five (105) days following the Last
Closing Date (each of the time periods referenced in subclause (x), (y) and (z)
is hereinafter referred to singularly as a "Conversion Gate"), at the office of
the Company or its designated transfer agent for the Debentures (the "Transfer
Agent"), into that number of fully-paid and non-assessable shares of Common
Stock of the Company calculated in accordance with the following formula (the
"Conversion Rate"):
Number of shares issued upon conversion = (Principal + Interest)/Conversion
Price, where
o Principal = The principal amount of the Debenture(s) to be
converted,
<PAGE> 3
(Page 3 of _____ of 8% Convertible Debentures of Ponder Industries, Inc. Due
April 26, 1999)
o Interest = Principal x (N/365) x .08, where
o N = the number of days between (i) the date that, in
connection with the consummation of the initial purchase of
this Debenture from the Company, the escrow agent first had in
its possession funds representing full payment for this
Debenture, and (ii) the applicable Date of Conversion for the
Debenture(s) for which conversion is being elected, and
o Conversion Price = the lesser of (x) 100% of the average
Closing Bid Price, as that term is defined below, for the five
(5) trading days ending on April 26, 19996, which amounts to
$5.0625 (the "Fixed Conversion Price"), or (y) 85% of the
average Closing Bid Price, as that term in defined below, of
the Company's Common Stock for the five (5) trading days
immediately preceding the Date of Conversion, as defined below
(the "Variable Conversion Price").
For purposes hereof, the term "Closing Bid Price"
shall mean the closing bid price on the over- the-counter
market as reported by NASDAQ's National Market System or Small
Capitalization System ("NASDAQ"), or if then traded on a
different national securities exchange, the closing sales
price on the principal national securities exchange on which
it is so traded and if not available, the mean of the daily
high and low sales prices on such securities exchange on which
it is so traded, or, if the actual Closing Bid Price is not
available on any such day on NASDAQ or such other exchange or
market where traded, then the Closing Bid Price on the
immediately preceding reported date.
(b) Conversion at Fixed Conversion Price or
Market Price. Notwithstanding the limitations on conversion set forth above,
the record Holder of this Debenture shall be entitled to convert, subject to
the Company's right of redemption set forth in section 5(a), the Debentures in
whole or in part prior to the applicable Conversion Gate (but no earlier than
forty-five (45) days following the Last Closing Date), at the office of the
Transfer Agent, into that number of fully-paid and non-assessable shares of
Common Stock of Company calculated in accordance with the Conversion Rate set
forth above; provided, however, that, for purposes of the conversion pursuant
to this subsection 4(b), the Conversion Price shall equal the lesser of (x) the
Fixed Conversion Price, or (y) the Closing Bid Price of the Company's Common
Stock on the Date of Conversion.
(c) Mechanics of Conversion. In order to convert
the Debentures into full shares of Common Stock, the Holder shall (i) fax a
copy of the fully executed notice of conversion ("Notice of Conversion") to the
Company at the office of the Company or the Transfer Agent, which notice shall
specify the principal amount of Debentures to be converted and shall contain a
calculation of the conversion Rate (together with a copy of the first page of
each Debenture to be converted) on or prior to 11:59 p.m., New York City time
(the "Conversion Notice Deadline") on the Date of Conversion specified on the
Notice of Conversion and (ii) surrender the original Debenture(s) being
converted,no later than the close of business on the next business day, to a
common courier for either overnight or two (2) day delivery to the office of
the Company or the Transfer Agent; provided, however, that the Company shall
not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless either the original Debentures are
delivered to the Company or the Transfer Agent as provided above, or the Holder
notifies the Company or the Transfer Agent that such Debenture(s) have been
lost, stolen or destroyed. In the case of a dispute as to the calculation of
the Conversion Rate, the Company shall promptly issue the number of Shares that
are not disputed. Company shall submit the disputed calculations to its
outside accountant vis facsimile within three (3) days of receipt of Holder's
Notice of Conversion. The Company shall cause the accountant to perform the
calculations and notify Company and Holder of the results no later than
forty-eight (48) hours from the time such Accountant receives the disputed
calculations. Accountant's calculation shall be deemed conclusive absent
manifest error.
(i) Lost or Stolen Debentures.
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Debenture, and (in the case of loss, theft or destruction)
indemnity or security reasonably satisfactory to the Company, and upon
surrender and cancellation of the Debentures, if mutilated, the Company shall
execute and deliver new Debenture(s) of like tenor and date.
(ii) Delivery of Common Stock upon
Conversion. The Transfer Agent or the Company (as applicable) shall, no later
than the close of business on the second (2nd) business day after delivery to
the Transfer Agent or the Company (as applicable) of the Debenture(s) to be
converted (or after provision for security or indemnification, if required),
issue a certificate for the number of shares of Common Stock to which the
Holder shall be entitled as aforesaid and surrender such original Common Stock
certificates to a
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common courier for either overnight or (if delivery is outside the United
States) two (2) day delivery to the Holder at the address of the Holder on the
books of the Company.
(iii) No Fractional Shares. No
fractional shares of Common Stock shall be issued upon conversion of this
Debenture. If any conversion of the Debenture would create a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock, such
fractional shares, on an aggregate basis, shall be disregarded and the number
of shares of Common Stock issuable upon conversion shall be, on an aggregate
basis, the next higher number of whole shares.
(iv) Date of Conversion. The date
on which conversion occurs (the "Date of Conversion") shall be deemed to be the
date set forth in such Notice of Conversion, provided (i) that the advance copy
of the Notice of Conversion is faxed to the Company on or before 11:59 p.m.,
New York City time, on the Date of Conversion, and (ii) that the original
Debentures to be converted are surrendered by depositing such Debentures with a
common courier for either overnight or two (2) day delivery, as provided above,
and received by the Transfer Agent or the Company within five (5) business days
from the Date of Conversion. The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on the
Date of Conversion. If the original Debentures to be converted are not
received by the Transfer Agent or the Company within five (5) business days
after the Date or Conversion or if the facsimile of the Notice of Conversion is
not received by the Company or the Transfer Agent prior to the Conversion
Notice Deadline, the Notice of Conversion, at the Company's option, may be
declared null and void.
(d) Reservation of Stock Issuable Upon
Conversion. The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Debentures, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
then outstanding Debentures; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding Debentures, the Company will immediately
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(e) Automatic Conversion. Each of the Debentures
that remains issued and outstanding on the date which is three (3) years after
the Last Closing Date automatically shall be converted into Common Stock on
such date at the Conversion Rate then in effect (calculated in accordance with
the formula in Section 4(a) above), and the date which is three (3) years after
the Last Closing Date shall be deemed the Date of Conversion with respect to
such conversion.
(f) Adjusting to Conversion Price.
(i) Adjustment to Fixed conversion
Price Due to Stock Split, Stock Dividend, Etc. If at any time when the
Debentures are issued and outstanding, the number of outstanding shares of
Common Stock is increased by a stock split, stock dividend, or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Fixed Conversion Price
shall be proportionately increased.
(ii) Adjustment to Variable
Conversion Price. If, at any time when Debentures are issued and outstanding
the number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any conversion of the Debentures, then the Variable Conversion Price
shall be calculated giving appropriate effect to the stock split, stock
dividend, combination, reclassification or other similar event for all five (5)
trading days immediately preceding the Date of Conversion.
(iii) Adjustment Due to Merger,
Consolidation, Etc. If at any time when the Debentures are issued and
outstanding, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of the Company shall be changed into the same or a
different number of shares of another class or classes of stock or securities
of the Company or another entity or thee is a sale of all or substantially all
the Company's assets, then the holders of the Debentures shall thereafter have
the right to receive upon conversion of the Debentures, upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock
<PAGE> 5
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immediately theretofore issuable upon conversion, such stock and/or securities
which the holder would have been entitled to receive in such transaction had
the Debentures been converted immediately prior to such transaction, and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the holders of the Debentures to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
Debentures) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities thereafter deliverable upon the exercise hereof.
The Company shall not effect any transaction described in this subsection
4(f)(iii) unless (a) it first gives thirty (30) business days prior notice of
such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holder shall be
entitled to convert its Debentures into Common Stock) and (b) the resulting
successor or acquiring entity (if not the Company) assumes by written
instrument the obligation of this Section 4(f)(iii).
Section 5. REDEMPTION BY COMPANY.
(a) Company's Right to Redeem upon Receipt of Notice of
Conversion. If the Conversion Price of the Company's Common Stock is less than
the Fixed Conversion Price (as defined in Section 4(a)), at the time of receipt
of a Notice of Conversion pursuant to Section 4, the Company shall have the
right in its sole discretion, to redeem in whole or in part any Debentures
submitted for conversion, immediately prior to and in lieu of conversion
("Redemption Upon Receipt of Notice of Conversion"). If the Company elects to
redeem some, but not all, of the Debentures submitted for conversion, the
Company shall redeem from among the Debentures submitted by the various Holders
for conversion on the applicable date, a pro-rate amount from each such holder
so submitting Debentures for conversion.
(i) Redemption Price Upon Receipt
of a Notice of Conversion. The redemption price for a redemption of this
Debenture under this Section 5(a) shall be calculated in accordance with the
following formula:
(Principal + Interest) x Closing Bid Price on the Date of Conversion
--------------------------------------------
Conversion Price
For the purposes of the above formula, "Principal", "Interest",
"Closing Bid Price", "Conversion Price" and "Date of Conversion" shall have the
meanings set forth in Section 4.
(ii) Mechanics of Redemption Upon
Receipt of Notice of Conversion. The Company shall effect each such redemption
by giving notice of its election to redeem, by facsimile within one (1)
business day following receipt of a Notice of Conversion from a Holder, with a
copy by overnight or two (2) day courier, to (A) the Holder of Debentures
submitted for conversion at the address and facsimile number of such Holder
appearing in the Company's register for the Debentures, and (B) the Company's
Transfer Agent. Such redemption notice shall indicate whether the Company will
redeem all or part of the Debentures submitted for conversion and the
applicable redemption price.
(b) Company's Right to Redeem at its Election.
At any time, commencing one (1) year after the Last Closing Date, upon giving
at least thirty (30) business days prior written notice, the Company shall have
the right, in its sole discretion, to redeem ("Redemption at Company's
Election"), from time to time, any or all of the Debentures; provided that the
Company shall only be entitled to redeem Debentures in increments having an
aggregated Stated Value (as defined below) of at least One Million Five Hundred
Thousand Dollars ($1,500,000). If the Company elects to redeem some, but not
all, of the Debentures, the Company shall redeem a pro-rate amount from each
Holder of the Debentures.
(i) Redemption Price at Company's
Election. The "Redemption Price at Company's Election" shall be calculated as
a percentage of Stated Value, as that term is defined below, of the Debentures
redeemed pursuant to this Section 5(b), which percentage shall vary depending
on the Date of Redemption at Company's Election (as that term is defined in
subsection (ii) below), and shall be determined as follows:
<TABLE>
<CAPTION>
Date of Redemption at Company's Election Call Price
---------------------------------------- ----------
<S> <C>
12 months and 1 day to 18 months following Last Closing Date 130% of Stated Value
18 months and 1 day to 24 months following Last Closing Date 125% of Stated Value
24 months and 1 day to 30 months following Last Closing Date 120% of Stated Value
30 months and 1 day to 36 months following Last Closing Date 115% of Stated Value
</TABLE>
<PAGE> 6
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For purposes hereof, "Stated Value" shall mean the original principal
amount of the Debentures being redeemed, plus the unpaid interest being
redeemed, pursuant to this Section 5(b).
(ii) Mechanics of Redemption at
Company's Election. The Company shall effect each such redemption by giving at
least thirty (30) business days prior written notice ("Notice of Redemption at
Company's Election"), which notice may be given on or after thirty (30)
business days prior to twelve (12) months after the Last Closing Date, to (A)
the Holders of the Debentures selected for redemption, at the address and
facsimile number of such Holder appearing in the Company's register for the
Debentures and (B) the Transfer Agent, which Notice of Redemption at Company's
Election shall be deemed to have been delivered three (3) business days after
the Company's mailing (by overnight or two (2) day courier, with a copy by
facsimile) of such Notice of Redemption at Company's Election. Such Notice of
Redemption at Company's Election shall indicate the number of Debentures that
have been selected for redemption, the date which such redemption is to become
effective (the "Date of Redemption at Company's Election") and the applicable
Redemption Price at Company's Election, as defined in subsection (b)(i) above.
Notwithstanding the above, Holder may convert into Common Stock pursuant to
section 4, prior to the close of business on the Date of Redemption at
Company's Election, any Debenture which it is otherwise entitled to convert,
including those selected for Redemption at Company's Election pursuant to this
subsection 5(b); provided, however, that the Company, thereby, would retain its
right to redeem upon receipt of a Notice of Conversion pursuant to section
5(a).
(c) Company Must Have Immediately Available Funds
or Credit Facilities. The Company shall not be entitled to send any Redemption
Notice and begin the redemption procedure under either Section 5(a) or 5(b)
unless it has:
(i) the full amount of the
applicable redemption price, in cash, available in a demand or other
immediately available account in a bank or similar financial institution; or
(ii) immediately available credit
facilities, in the full amount of the applicable redemption price with a bank
or similar financial institution; or
(iii) an agreement with a standby
underwriter willing to purchase from the Company a sufficient number of shares
of stock to provide proceeds necessary to redeem any stock that is not
converted prior to redemption; or
(iv) a combination of the items set
forth in (i), (ii) and (iii) above, in the aggregate, in the full amount of the
redemption price.
(d) Payment of Redemption Price. Each holder
submitting Debentures being redeemed under subsection (b) above shall send
their Debentures so redeemed to the Company or the Transfer Agent, and the
Company shall pay the applicable redemption price to that Holder within five
(5) business days of the date of such receipt of the Debentures. The Company
shall not be obligated to deliver the redemption price unless the Debentures so
redeemed are delivered to the Company or the Transfer Agent, or, in the event
one or more Debentures have been lost, stolen, mutilated or destroyed, the
Holder has complied with Section 4(c)(i).
(e) Blackout Period. Notwithstanding the
foregoing, the Company may not either send out a redemption notice or effect a
redemption pursuant to subsection (b) above during a Blackout Period (defined
as a period during which the Company's officers or directors would not be
entitled to buy or sell stock because of their holding of material non-public
information), unless the Company shall first disclose the non-public
information that resulted in the Blackout Period, provided,however, that no
redemption shall be effected until at least fifteen (15) days after the Company
shall have given the Holder written notice that the Blackout Period has been
lifted.
Section 6. HOLDER'S RIGHT TO ADVANCE NOTICE OF COMPANY'S ELECTION TO
REDEEM.
(a) Holder's Right to Elect to Receive Notice of
Cash Redemption by Company. Holder shall have the right to require Company to
provide advance notice stating whether Company will elect to redeem Holder's
Debentures in cash, pursuant to Company's redemption rights discussed in
Section 5(a).
(b) Mechanics of Holder's Election Notice.
Holder shall send notice ("Election Notice") to Company and such other
person(s) as the Company may designate, (1) via facsimile and (2) via overnight
or two (2) days courier, stating Holder's intention to require Company to
disclose that if Holder were to exercise
<PAGE> 7
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his, her or its right of conversion (pursuant to section 4) whether Company
would elect to redeem a specific number of Holder's Debentures for cash in lieu
of issuing Common Stock. Company is required to disclose to Holder what action
Company would take if the Notice of Conversion is received within the
subsequent five (5) business day period, including the date Company receives
such Election Notice, as further discussed in subsection 6(c).
(c) Company's Response. Company must respond by
the close of business on the next business day following receipt of Holder's
Election Notice (1) via facsimile and (2) via overnight or two (2) day courier.
The Company's response must state whether it would redeem the shares, in whole
or in part, or allow conversion into shares without redemption. If Company
does not respond to Holder within one (1) business day via facsimile and
overnight or two (2) day courier, Company shall be required to issue to Holder
common Stock upon Holder's conversion within the subsequent five (5) business
day period.
Section 7. NO VOTING RIGHTS. This Debenture shall not entitle the Holder
hereof to any of the rights of a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other distributions, or
to receive any notice of, or to attend, meetings of stockholders or any other
proceedings of the Company.
Section 8. PROTECTIVE PROVISION. So long as Debentures are outstanding,
the Company shall not, without first obtaining the approval (by vote or written
consent, as provided by law) of both (i) the Holders of at least seventy-five
percent (75%) of the aggregate principal amount of Debentures then outstanding,
and (ii) seventy-five (75%) of the Holders of Debentures then outstanding,
alter or change the rights, preferences or privileges of the Debentures or of
any securities of debt instruments, senior in right of payment, so as to affect
adversely the Debentures.
Any Holders of the Debentures that did not agree to such
alteration or change (the "Dissenting Holders") shall have the right for a
period of thirty (30) business days to convert pursuant to the terms of this
Debenture as they exist prior to such alteration or change (notwithstanding the
forty-five (45) day, seventy-five (75) day, and one hundred five (105) day
holding requirements set forth in Section 4(a) hereof), or continue to hold
their Debentures; provided, however, that the Dissenting Holders may not
convert anytime on or before the fortieth (40) day following the Last Closing
Date.
Section 9. STATUS OF REDEEMED OR CONVERTED DEBENTURES. After this
Debenture shall have been surrendered for conversion as herein provided or
notice of conversion shall have been given by the Holder pursuant to Section
4(a) herein (or redeemed pursuant to Section 5(a) or 5(b) herein), this
Debenture shall no longer be deemed to be outstanding and all rights with
respect to this Debenture, including, without limitation, the right to receive
interest hereon and the principal hereof, shall forthwith terminate as of the
Date of Conversion or redemption, except only the right of the Holder hereof to
receive shares of Common Stock in exchange for such Debenture(s).
Section 10. EVENT OF DEFAULT. (i) Upon the occurrence of and during the
continuation of an Event of Default (as defined below) specified in subsections
(a), (b), (c) or (e) of this Section 10, upon the written notice of the Holders
of seventy-five percent (75%) of the outstanding principal amount of the
Debentures, and/or (ii) upon the occurrence of any Event of Default specified
in subsections (d) or (f) of this Section 10, the Company shall pay to the
Holder an amount equal to the sum of (x) the unpaid principal amount of this
Debenture plus (y) the accrued and unpaid interest on the unpaid principal
amount of this Debenture to the date of payment and all other amounts payable
hereunder shall immediately become due and payable, all without demand,
presentment, or notice, all of which hereby are expressly waived, together with
all costs, including, without limitation, legal fees and expenses, of
collection, and the Holder shall be entitled to exercise all other rights and
remedies available at law or equity.
If the Company fails to pay any amounts due pursuant to this
Section 10 within five (5) business days of such amounts being due and payable,
then the Holder shall have the right at any time, so long as the Company
remains in default, to require the Company, upon written notice, to immediately
issue, in lieu of such amounts, the number of share s of Common Stock of the
Company equal to the amounts owed by Borrower to the Company divided by the
Conversion Price then in effect.
An "Event of Default" shall mean the following:
(a) Conversion. If the Company fails to issue
shares of Common Stock to the Holder upon exercise by the Holder of the
conversion rights of the Holder in accordance with the terms of this Debenture,
fails to transfer any certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture and when required by this Debenture or
fails to remove any restrictive legend on any certificate or any shares of
Common Stock issued to the Holder upon conversion of this Debenture as and when
required by this Debenture
<PAGE> 8
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April 26, 1999)
or any Subscription Agreement by and between Company and Holder and any such
failure shall continue uncured for ten (10) business days;
(b) Breach of Covenant. If the Company breaches
any material covenant or other material term or condition of this Debenture
(other than as specifically provided in subsection 10(a) hereof), or any
Subscription Agreement by and between Company and Holder (including the failure
to have enough stock available for issuance upon conversion), and the breach of
which would have a material adverse effect on the Company or the prospects of
the Company or a material adverse effect on the Holder or the rights of the
Holder with respect to this Debenture or the shares of Common Stock issuable
upon conversion of this Debenture and such breach continues for a period of ten
(10) business days after written notice thereof to the Company from the Holder;
(c) Breach of Representations and Warranties.
Any representation or warranty of the Company made herein or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith (including, without limitation, any Subscription Agreement by and
between Company and Holder), shall be false or misleading in any material
respect when made and the breach of which would have a material adverse effect
on the Company or the prospects of the Company or a material adverse effect on
the Holder or the rights of the Holder with respect to this Debenture or the
shares of Common Stock issuable upon conversion of this Debenture;
(d) Receiver or Trustee. The Company or any
subsidiary of the Company shall make an assignment for the benefit of
creditors, or apply for or consent to the appointment of a receiver or trustee
for it or for a substantial part of its property or business; or such a
receiver or trustee shall otherwise be appointed;
(e) Judgments. Any money judgment, writ or
similar process shall be entered or filed against the Company or any subsidiary
of the Company or any of its property or other assets for more than Five
Hundred Thousand Dollars ($500,000), and shall remain unvacated, unbonded or
unstayed for a period of twenty (20) days unless otherwise consented to by the
Holder, which consent will not be unreasonably withheld; or
(f) Bankruptcy. Bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors shall be instituted by
or against the Company or any subsidiary of the Company.
Section 11. GOVERNING LAW. This Debenture shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the principles of conflicts of laws, except for matters arising under
the Act or the Securities Exchange Act of 1934, as amended, which matters shall
be governed by and construed in accordance with such laws.
Section 12. BUSINESS DAY DEFINITION. For purposes hereof, the term
"business day" shall mean any day on which banks are generally open for
business in the State of New York, USA and excluding any Saturday and Sunday.
Section 13. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be given as provided herein or delivered
against receipt if to (i) the Company at 511 Commerce Road, Post Office Drawer
2229, Alice, Texas 78333, Attn: Mr. Eugene L. Butler, Telephone No. (512)
664-5831, Telecopy No. (512) 664-8451 and (ii) the Holder of this Debenture, to
such holder at its last address as shown on the Debenture Register (or to such
other address as the party shall have furnished in writing as its new address
to be entered on the Debenture Register (which address must include a telecopy
number) in accordance with the provisions of this Section 13). Any notice or
other communication needs to be made by facsimile and delivery shall be deemed
given, except as otherwise required herein, at the time of transmission of said
facsimile. Any notice given on a day that is not a business day shall be
effective upon the next business day.
Section 14. WAIVER OF ANY BREACH TO BE IN WRITING. Any waiver by the
Company or the Holder hereof of a breach of any provision of the Debenture
shall not operate as, or be construed to be a waiver of any other breach of
such provision or of any breach of any other provision of the Debenture. The
failure of the Company or the Holder hereof to insist upon strict adherence to
any term of the Debenture on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of the Debenture. Any waiver must be
in writing.
Section 15. UNENFORCEABLE PROVISIONS. If any provision of this Debenture
is invalid, illegal or unenforceable, the balance of this Debenture shall
remain in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons and
circumstances.
<PAGE> 1
EXHIBIT 10.1
PONDER INDUSTRIES, INC.
REGULATION S SECURITIES SUBSCRIPTION AGREEMENT
THE DEBENTURES BEING SUBSCRIBED FOR HEREIN AND THE COMMON STOCK
ISSUABLE UPON CONVERSION OF THE DEBENTURES HAVE NOT BEEN REGISTERED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION ("THE COMMISSION") UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. THEY ARE BEING OFFERED
PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S ("REGULATION S")
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS
DEFINED IN REGULATION S) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. INVESTMENT IN SUCH SECURITIES INVOLVES A HIGH DEGREE OF RISK. IN
MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND THE RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED, APPROVED OR DISAPPROVED
BY ANY U.S. FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT REVIEWED, PASSED UPON,
CONFIRMED OR DETERMINED THE ACCURACY OR ADEQUACY OF THIS DOCUMENT OR ANY
INFORMATION PROVIDED BY THE COMPANY TO POTENTIAL INVESTORS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Regulation S Securities Subscription Agreement (the "Agreement")
is executed by the undersigned (the "Subscriber") in connection with the
offering (the "Offering") and subscription by the undersigned for 8%
convertible Debentures (the "Debentures") of PONDER INDUSTRIES, INC. (the
"Company"), due on April 26, 1999, and offered in denominations of at least
Fifty Thousand Dollars ($50,000) and integral multiples of Ten Thousand Dollars
($10,000) in excess thereof up to a maximum aggregate principal amount of
Eleven Million Dollars ($11,000,000). The terms of the Debentures, including
the terms on which the Debentures may be converted into common stock, $.01 par
value of the Company (the "Common Stock"), are set forth in the Debenture,
substantially in the form attached hereto as Exhibit A. The solicitation of
this subscription and, if accepted by the Company, the offer and sale of
Debentures, are being made in reliance upon the provisions of Regulation S.
The Debentures and the shares of Common Stock issuable upon conversion thereof
(the "Shares") are sometimes referred to herein collectively as the
"Securities." The Subscriber wishes to subscribe for Debentures in the amount
set forth in Section 19 in accordance with the terms and conditions of the form
of Debenture and this Agreement.
It is agreed as follows:
1. Offer to Subscribe; Purchase Price; Closing; Placement Fees; and
Conditions to Subscriber's Obligations.
1.1 Offer to Subscriber; Purchase Price. Subject to satisfaction of
the conditions to Closing set forth below, the Subscriber hereby
subscribes for and agrees to purchase the aggregate principal amount
of Debentures for a purchase price set forth in Section 19 of this
Agreement.
1
<PAGE> 2
1.2 Closing. The closing of the sale and purchase of the Debentures
("Closing") will occur upon (i) the satisfaction of all conditions
described in this Agreement, (ii) sale in this Offering of at least
Six Million Dollars ($6,000,000) of aggregate principal amount of
Debentures (the "Minimum Amount"), and no more than Eleven Million
Dollars ($11,000,000) of aggregate principal amount of Debentures (the
"Maximum Amount"), and (iii) the satisfaction (or waiver) of all
conditions required by the Escrow Agreement ("Escrow Agreement"),
defined as the agreement among the Company, Swartz Investments, LLC
("Placement Agent") and First Union National Bank ("Escrow Agent")
regarding this Offering. As soon as subscriptions for at least the
Minimum Amount have been accepted by the Company, in accordance with
the terms of this Agreement, the Company shall close on the Minimum
Amount. Thereafter, the Company may conduct one or more additional
Closings until the Maximum Amount has been reached.
1.3 Placement Fees. The parties hereto acknowledge that the
Placement Agent for this Offering will be compensated by the Company
in cash and warrants to purchase Common Stock of the Company. The
Placement Agent has acted solely as placement agent in connection with
the Offering by the Company of the Debentures pursuant to this
Agreement. The information and data contained in the Disclosure
Documents (as defined in Section 2.2 below) including, but not limited
to, the Risk Factors (as discussed in Section 2.3 below) have not been
subjected to independent verification by Placement Agent, and no
representation or warranty is made by Placement Agent as to the
accuracy or completeness of the information contained in the
Disclosure Documents, including any Risk Factors, or any tax advice or
legal advice.
1.4 Conditions to Subscriber's Obligations. The Subscriber's
obligations hereunder are further conditioned upon the following:
(i) the following documents have been deposited with the
Company's Escrow Agent: the Registration Rights Agreement,
substantially in the form attached hereto as Exhibit B
(executed by the Company), the Opinion of Counsel,
substantially in the form attached hereto as Exhibit C (signed
by Company's counsel), the Irrevocable Instructions to
Transfer Agent, substantially in the form attached hereto as
Exhibit D (executed by Company and transfer agent) and the
Subscriber's Debenture(s) executed by the Company,
substantially in the form attached hereto as Exhibit A;
(ii) the Common Stock issuable upon conversion of the
Debenture has been listed on the National Association of
Securities Dealers, Inc.'s ("Nasdaq") National Market System
or Small Capitalization System, subject to official notice of
issuance;
(iii) the representations and warranties of the Company are
true and correct in all material respects as of the Closing as
if made on such date, and the Company shall deliver an
officer's certificate, signed by at least one officer of the
Company, to such effect to the Escrow Agent;
(iv) there have been no material adverse changes in the
Company's business prospects or financial condition since the
date of the Company's balance sheet dated February 29, 1996;
and
(v) the Company shall have reserved for issuance upon
conversion of the Debentures a sufficient number of shares of
Common Stock which number of shares shall initially be Four
Million (4,000,000) shares.
2. Representations and Covenants; Access to Information; Independent
Information; And Independent Investigation
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<PAGE> 3
The Subscriber hereby makes the following representations and
warranties to the Company (which shall be true at the signing of this
Agreement, as of Closing, and as of any such later date as contemplated
hereunder) and agrees with the Company that:
2.1 Offshore Transaction.
The Subscriber represents and warrants to the Company that (i)
Subscriber is not a U.S. person ("U.S. person") as that term
is defined in Rule 902(o) of Regulation S (a copy of which
definition is attached as Exhibit E) including, without
limitation if a corporation or partnership, (a) it is
organized under the laws of a jurisdiction other than the
United States and (b) if organized by a U.S. person
principally for the purpose of investing in securities not
registered under the Act, it was organized or incorporated and
is owned by accredited investors (as defined in Rule 501(a) of
Regulation D under the Act) who are not natural persons,
estates or trusts; (ii) the Securities were not offered to
the Subscriber in the United States and at the time of
execution of this Subscription Agreement the Subscriber was
physically outside the United States; (iii) the Subscriber is
purchasing the Securities for its own account and not on
behalf of or for the benefit of any U.S. person and the sale
and resale of the Securities have not been prearranged with
any U.S. person or buyer in the United States; (iv) the
Subscriber agrees, and to the knowledge of the Subscriber,
without any independent investigation, each distributor, if
any, participating in the offering of the Securities, has
agreed, that all offers and sales of the Securities prior to
the expiration of a period commencing on the date of the last
closing of a sale and purchase of Debentures (the "Last
Closing") and ending forty (40) days thereafter (the
"Restricted Period") shall not be made to U.S. persons or for
the account or benefit of U.S. persons and shall otherwise be
made in compliance with the provisions of Regulation S; and
(v) subscriber is not an underwriter, dealer, or other person
who participates, pursuant to a contractual arrangement, in
the distribution of the Securities offered or sold in reliance
on Regulation S.
2.2 Subscriber's Independent Investigation. The Subscriber, in
offering to subscribe for the Securities hereunder, has relied
solely upon an (i) independent investigation made by it and
its representatives, if any, and (ii) the representations,
warranties and disclosure statements of the Company set forth
herein and in the Disclosure Documents (as defined below).
Subscriber, prior to the date hereof, has been given access to
and the opportunity to examine all publicly available books
and records of the Company, and all material contracts and
documents of the Company which have been filed as exhibits to
the Company's filings made under the Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), through
publicly available means. Subscriber has been provided with
copies of the Company's (i) Annual Report on Form 10-K for the
year ended August 31, 1995; (ii) Quarterly Reports on Form
10-Q for the quarters ended November 30, 1995 and February 29,
1996; (iii) Risk Factors, attached as Exhibit F (iv)
Capitalization Table, attached as Exhibit G and (v) Use of
Proceeds, attached as Exhibit H (collectively, the "Disclosure
Documents"). In making its investment decision to purchase the
Debentures, the Subscriber is not relying on any oral or
written representations or assurances from the Company or any
other person or any representation of the Company or any other
person other than as set forth in this Agreement, or the
Disclosure Documents. The Subscriber is an accredited
investor as defined in Rule 501 of Regulation D, a copy of
which definition is attached hereto as Exhibit I. The
Subscriber assumes, without any independent investigation,
that neither the Company nor Placement Agent has offered the
Debentures to any Subscribers in the U.S. or to any U.S.
person unless such U.S. person is a professional fiduciary of
a non-U.S. person (as defined in Section (o) (2) through (o)
(4) of rule 902 of Regulation S).
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<PAGE> 4
2.3 Subscriber's Economic Risk. The Subscriber understands and
acknowledges that an investment in the Securities involves a
high degree of risk. Subscriber acknowledges that there are
limitations on the liquidity of the Securities. The
Subscriber represents that the Subscriber is able to bear the
economic risk of an investment in the Securities, including a
possible total loss of investment. In making this statement,
the Subscriber hereby represents and warrants to the Company
that the Subscriber has adequate means of providing for the
Subscriber's current needs and contingencies; that Subscriber
is able to afford to hold the Securities for an indefinite
period; and that Subscriber further represents Subscriber has
such knowledge and experience in financial and business
matters that the Subscriber is capable of evaluating the
merits and risks of the investment in the Securities to be
received by the Subscriber. Further, the Subscriber
represents, as of the date of signing this Agreement, that the
Subscriber has no present need for liquidity in the Securities
and the Subscriber is willing to accept such investment risks.
2.4 No Government Recommendation or Approval. The Subscriber
understands that no United States federal or state agency, or
similar agency of any other country, has reviewed, approved,
passed upon or made any recommendation or endorsement of the
Company, the Offering or the subscription for the Securities.
2.5 No Directed Selling Efforts in Regard to this Transaction. To
the knowledge of the Subscriber, without any independent
investigation, neither the Company, Placement Agent, nor any
distributor participating in the Offering (if any), nor any
person acting for the Company, Placement Agent or any such
distributor, has conducted any "directed selling efforts" in
the United States as the term "directed selling efforts" is
defined in Rule 902(b) of Regulation S, which, in general,
means any activity undertaken for the purpose of, or that
could reasonably be expected to have the effect of,
conditioning the market in the United States for any of the
Securities being offered in reliance on Regulation S. Such
activity includes, without limitation, the mailing of printed
material to investors residing in the United States, the
holding of promotional seminars in the United States, and the
placement of advertisements with radio or television stations
broadcasting in the United States or in publications with a
general circulation in the United States, that refers to the
offering of the Securities in reliance on Regulation S.
2.6 Company's Reliance on Representations of Subscribers. This
Agreement is made by the Company with each Subscriber in
reliance upon such Subscriber's representations and covenants
made in this Section 2, which reliance by his, her or its
execution of this Agreement the Subscriber hereby confirms.
2.7 Securities Not Registered Under the Act or Any State Act.
Subscriber understands that the Debentures and the Common
Stock issuable upon conversion of the Debentures have not been
registered under the Act or any state securities laws ("State
Acts") and are being offered and sold pursuant to Regulation S
based in part upon the representations of Subscriber contained
herein. The Common Stock does, however, carry certain
registration rights as set forth in the Registration Rights
Agreement, substantially in the form of Exhibit B (see Section
7.4 below) executed by the parties hereto.
2.8 No Public Solicitation. Subscriber knows of no public
solicitation or advertisement of an offer in connection with
the proposed issuance and sale of the Securities.
2.9 Investment Intent. Subscriber is acquiring the Debentures to
be issued and sold hereunder (and the Shares issuable upon
conversion of the Debentures) for his, her or its own account
(or a trust account if such Subscriber is a trustee) for
investment and not as a nominee and not with a view to the
distribution thereof. Subscriber understands that Subscriber
must bear the economic risk of this investment indefinitely
unless such Debentures or such Shares are registered pursuant
to the Act and any applicable State Acts,
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<PAGE> 5
or an exemption from such registration is available, and that
the Company has no present intention of registering any such
sale of the Debentures or Shares other than as contemplated by
the Registration Rights Agreement. Subscriber represents and
warrants to the Company, as of the date of this Agreement,
that Subscriber has no present plan or intention to sell the
Debentures or the Shares in the United States at any
predetermined time, and has made no predetermined arrangements
to sell the Debentures or the Shares. Subscriber covenants
that neither Subscriber nor its affiliates nor any person
acting on its or their behalf has entered, has the intention
of entering, or will enter into any put option, short position
or other similar instrument or position in the U.S. with
respect to the Debentures or Common Stock of the Company
anytime after the earlier of (i) the time Subscriber first
received the term sheet (the "Term Sheet") concerning this
Offering and (ii) the time that Subscriber was first notified
by Placement Agent of the existence of the Offering (the
earlier of which is referred to as the "Time of Notification
of the Offering") until the end of the Restricted Period, or
for the intended purpose of lowering the price at which the
Debentures are convertible into Shares.
2.10 Subscriber Not to Sell or Transfer Securities in Violation of
the Securities Laws. Subscriber covenants that he, she or it
will not knowingly make any sale, transfer or other
disposition of the Debentures or the Shares in violation of
(1) the Act (including Regulation S), the Exchange Act, any
applicable State Acts or the rules and regulations of the
Commission or of any state securities commissions or similar
state authorities promulgated under any of the foregoing.
2.11 Subscriber's Power and Authority. Subscriber has the full
power and authority to execute, deliver and perform this
Agreement. This Agreement, when executed and delivered by
Subscriber, will constitute a valid and legally binding
obligation of Subscriber, enforceable in accordance with its
terms.
2.12 Signatory's Representation. The signatory to this Agreement
hereby represents and warrants that he, she or it is either:
(a) not a U.S. person (as defined in Regulation S), and is not
located in the U.S. at the time of signing this Agreement, or
(b) a professional fiduciary of Subscriber (as described in
Section (o)(2) through (o)(4) of Rule 902 of Regulation S),
acting solely in his capacity as holder of such account, as a
fiduciary, executor, administrator, or trustee, and has
completed and signed the accompanying Certificate (Exhibit J)
and forwarded it to Placement Agent.
2.13 No Tax Advice From Company or Its Agents. Subscriber has
reviewed with his, her or its own tax advisors the foreign,
U.S. federal, state and local tax consequences of this
investment, and the transactions contemplated by this
Agreement. Subscriber is relying solely on such advisors and
not on any statements or representations of the Company,
Placement Agent or any of their agents and understands that
Subscriber (and not the Company) shall be responsible for the
Subscriber's own tax liability that may arise as a result of
this investment or the transactions contemplated by this
Agreement.
2.14 No Legal Advice from Company or Its Agents. Subscriber
acknowledges that he, she, or it has had the opportunity to
review this Agreement and the transactions contemplated by
this Agreement with his, or her or its own legal counsel.
Subscriber is relying solely on such counsel and not on any
statements or representations of the Company, Placement Agent
or any of their agents for legal advice with respect to this
investment or the transactions contemplated by this Agreement,
except for the representations, warranties and covenants set
forth herein and in the opinion provided for in paragraph 7.3
herein.
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<PAGE> 6
2.15 Offering Material Statements. Subscriber acknowledges that
all offering materials and documents received by it in
connection with the offers and sales of the Securities
included statements to the effect of those contained in the
first legend set forth on the first page of this Agreement.
2.16 No Scheme to Evade Registration. Subscriber's acquisition of
the Debentures is not a transaction (or any element of a
series of transactions) that is part of a plan or scheme to
evade the registration provisions of the Act.
3. Resales of Securities by Subscriber
Subscriber acknowledges, covenants and agrees that the
Securities may and will only be resold by it in the U.S. (a) in compliance with
Regulation S and applicable State Acts, if any; or (b) pursuant to an exemption
from registration under the Act other than Regulation S; or (c) pursuant to an
effective and current Registration Statement under the Act. In addition, in
connection with any resale of the Debentures in accordance with clause (a) or
(b), above, the Subscriber will deliver to the Company and will cause the
purchaser to deliver to the Company the documents described in Section 3.1 and
3.2 below, respectively:
3.1. Documents to be Delivered for Offshore Regulation S Resales.
If any Debenture is being resold to an offshore purchaser in
compliance with Regulation S:
1. Sales Agreement, executed by Subscriber and
purchaser (substantially in the form of Exhibit K);
2. Seller Representation Letter to Offshore Purchaser
(substantially in the form of Exhibit L);
3. Purchaser Representation Letter (substantially in
the form of Exhibit M);
4. Assignment (substantially in the form of Exhibit
N); and
5. Seller's Instruction Letter (substantially in the
form of Exhibit O).
3.2 Documents to be Delivered for Resales into the United States.
If any Debenture is being resold to a purchaser in the U.S.
pursuant to an exemption from registration under the Act:
1. Sales Agreement, executed by both Subscriber and
purchaser (substantially in the form of Exhibit K);
2. Seller Representation Letter to U.S. Purchaser
(substantially in the form of Exhibit P);
3. Purchaser Representation Letter (substantially in
the Form of Exhibit M);
4. Assignment (substantially in the form of Exhibit
N); and
5. Seller's Instruction Letter (substantially in the
form of Exhibit O).
Upon receipt of the executed documents listed above, the Company will
effect the transfer of the Debentures on the Company's books and will issue and
deliver new Debentures in the purchaser's name (and, in the case of a resale
pursuant to Section 3.2 after the Restricted Period, free of any restrictive
legend) within three (3) business days of such receipt. The provisions of this
Section 3 shall not apply to subsequent resales of Debentures that have
previously been sold by Subscriber in compliance with this Section 3, and the
Company shall or shall cause the Transfer Agent to remove the Legend on any
subsequent resale after the Restricted Period.
4. Legends; Subsequent Sale of Securities
4.1 Debenture Legend. Upon issuance, the Debenture shall bear a
legend substantially in the form of the first legend set forth
on the first page of this Agreement and any other legend or
legends as reasonably required to comply with the state, U.S.
federal, or foreign law.
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<PAGE> 7
4.2 Removal of Debenture Legend for Pledge With a Margin Account.
Upon the submission, at any time after the expiration of forty
(40) days after the Last Closing, by Subscriber of a written
request for removal of the restrictive legend for the purpose
of a bona fide pledge or deposit of Debentures with a margin
account, together with the Debentures for which legend removal
is being requested and a Certificate substantially in the form
of Exhibit Q, the Company shall immediately re-issue the
Debentures without any restrictive legend, and the Company
shall irrevocably instruct its designated transfer agent
("Transfer Agent") to do so, assuming that there are no
changes in the material facts set forth in Section 2 of this
Agreement or applicable law from the date hereof until the
date of such submission. Except for the requirements
otherwise set forth in this Agreement, and assuming there are
no changes after the date hereof in the material facts set
forth in Section 2 of the Agreement (other than subsections
which by their terms would be inapplicable at such time) or
applicable law, no action other than as set forth in this
Section 4.2 shall be required of the Subscriber to remove the
restrictive legend (unless such pledge or deposit would
constitute a violation of securities law).
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<PAGE> 8
4.3 The Shares Obtained Upon Conversion.
(a) No Restrictive Legend. Assuming that there are no
changes in the material facts set forth in Section 2 of this
Agreement (other than subsections which by their terms would
be inapplicable at such time) or applicable law from the date
hereof until the Date of Conversion (as that term is defined
in the Debentures) of the Debentures by Subscriber, the Shares
so obtained shall not bear any restrictive legend, nor shall
any stop order be placed on the books of the Transfer Agent,
provided that the Subscriber delivers to the Company a Notice
of Conversion substantially in the form attached hereto as
Exhibit R (the "Notice of Conversion").
(b) Subscriber's Rights in the Event Shares Issued with a
Restrictive Legend. In the event that the Company issues
Shares with a restrictive legend upon Conversion by the
Subscriber and there have been no changes in the material
facts set forth in Section 2 of this Agreement (other than
subsections which by their terms would be inapplicable at such
time) or applicable law from the date hereof until the Date of
Conversion, then Subscriber, at its option, may require the
Company immediately to either (i) redeem the Debentures
submitted for conversion at the redemption price determined
under Section 5(a)(i) of the Debentures or (ii) demand
(without any other Subscriber's participation) that the
Company file a registration statement under the Act covering
the registration of the Common Stock which has been issued
with such restrictive legend and the Common Stock issuable
upon conversion of such Subscriber's remaining Debentures then
outstanding pursuant to the terms of the Registration Rights
Agreement; provided, however, that nothing hereunder shall
affect any other Subscriber's rights under the terms of the
Registration Rights Agreement.
(c) Issuance of Additional Shares. In the event that the
applicable Conversion Price, as that term is defined in the
Debenture (the "Resubmission Conversion Price") for (i) the
date that such registration statement demanded under Section
4.3(b) above becomes effective, or (ii) the date that the
Company re- issues and delivers to Subscriber such Shares
without a restrictive legend, whichever is earlier (the
"Resubmission Date"), is less than the applicable Conversion
Price on the date that the Subscriber initially submitted such
Debentures for conversion, then the Company shall issue
additional Shares of Common Stock to Subscriber equal in
number to the difference between the number of Shares
initially issued upon conversion and the number of Shares to
which the Subscriber would have been entitled had the
Resubmission Conversion Price been in effect on such
Resubmission Date.
(d) Payment for Failure to Register. The Company shall pay
to a Subscriber who has demanded registration under Section
4.3(b) an amount equal to five percent (5%) per month of the
aggregate principal amount of such Subscriber's Debentures
which were outstanding immediately prior to the delivery of
the Notice of Conversion contemplated under Section 4.3(a),
compounded monthly and accruing daily, payable in cash by the
fifth (5th) day of the month following such demand and the
fifth (5th) day of each month thereafter that (i) a
registration statement demanded under Section 4.3(b) is not
effective, or (ii) the Company has not re-issued and delivered
to Subscriber Shares without a restrictive legend, whichever
is earlier.
4.4 The Company's Instructions to Transfer Agent. The Company
will issue to its Transfer Agent an irrevocable instruction
letter (the "Irrevocable Instructions to Transfer Agent")
substantially in the form of Exhibit D to convert the
Subscriber's Debentures to Common Stock (in accordance with
the Debenture and so long as Section 4.3 is complied with,
free of any restrictive legend) upon receipt of a valid Notice
of Conversion from a Subscriber and the original Debentures,
and such other documents as are required by this Agreement or
the Debenture.
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<PAGE> 9
5. Capital Raising Limitations; Rights of First Refusal.
5.1 Capital Raising Limitations. The Company shall not issue any
debt or equity securities for cash in private capital raising
transactions ("Future Offerings") for a period beginning on
the date hereof and ending one hundred twenty (120) days after
the Last Closing without obtaining the prior written approval
of Subscribers holding a majority of the purchase price of
Debentures then outstanding.
5.2 Subscriber's 240 Day Right of First Refusal. The Company will
not conduct any Future Offerings for a period beginning on the
date hereof and ending two hundred forty (240) days after the
Last Closing without delivering to the Subscriber, at least
seven (7) days prior to the closing of such issuance, written
notice describing the proposed issuance and the terms upon
which such securities are being issued, and providing the
Subscriber the option during such seven (7) day period to
purchase the securities being offered in the Future Offerings
on the same terms as contemplated by such Future Offerings and
in the amount set forth below (the limitations referred to in
this and the immediately preceding sentence are collectively
referred to as the "Capital Raising Limitation").
5.3 Amount of Subscriber's Right of First Refusal. The amount of
securities which a Subscriber is entitled to purchase in such
a Future Offering shall be a number obtained by multiplying
the aggregate amount of securities being offered in the Future
Offering by a fraction, the numerator of which is the purchase
price of the Debentures purchased by the Subscriber pursuant
to this Agreement and the denominator of which is the
aggregate dollar amount of Debentures placed in this Offering.
5.4 Exceptions to the Capital Raising Limitation. The Capital
Raising Limitation shall not apply to any transaction
involving the Company's commercial banking arrangements or
issuances of securities in connection with a merger,
consolidation or purchase or sale of assets, or in connection
with or as part of the same transaction as a joint venture or
other acquisition or disposition of a business, a product or a
license by the Company or exercise of options by employees,
consultants or directors or any transaction with a strategic
corporate partner. The Capital Raising Limitation also shall
not apply to the issuance of securities upon exercise or
conversion of the Company's options, warrants or other
convertible securities outstanding as of the date of the Last
Closing, or to the grant of additional options or warrants, or
the issuance of additional securities, under any Company stock
option, or restricted stock plan. Additionally, the Capital
Raising Limitation shall not apply to any public offerings
undertaken by the Company.
6. Representations and Warranties of Company
The Company hereby makes the following representations and
warranties to the Subscribers (which shall be true at the signing of this
Agreement, as of Closing, and as of any such later date as contemplated
hereunder) and agrees with the Subscribers that:
6.1 Organization, Good Standing, and Qualification. The Company
is a corporation duly organized, validly existing and in good
standing under the laws of state of Delaware and has all
requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted.
The Company is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure to so
qualify would have a material adverse effect on the business
or properties of the Company and its subsidiaries taken as a
whole. The Company is not the subject of any pending or, to
its knowledge, threatened investigation or administrative or
legal proceeding by the Internal Revenue Service, the taxing
authorities of any state or local jurisdiction, or the
Securities and
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<PAGE> 10
Exchange Commission which have not been disclosed in the
reports referred to in Section 2.2 above.
6.2 Corporate Condition. The Company's condition was, in all
material respects, as described in the Disclosure Documents at
the respective dates thereof, including without limitation the
reports filed pursuant to the Exchange Act and described in
Section 2.2. There has been no material adverse change in the
Company's business, financial condition or prospects since
February 29, 1996. The Disclosure Documents are true and
correct, in all material respects, and the financial
statements contained in the Disclosure Documents have been
prepared in accordance with generally accepted accounting
principles, consistently applied, and fairly present the
financial position and results of operation and cash flows of
the Company on a consolidated basis, for the periods then
ended. Without limiting the foregoing, there are no material
liabilities, contingent or actual, that are not disclosed in
the Disclosure Documents. The Company has paid all material
taxes which are due, except for taxes which it reasonably
disputes. There is no material claim, litigation, or
administrative proceeding pending, or to the best of the
Company's knowledge, threatened against the Company, except as
disclosed in the Disclosure Documents. This Agreement and the
Disclosure Documents do not contain any untrue statement of a
material fact and do not omit to state any material fact
required to be stated therein or herein necessary to make
statements contained therein or herein not misleading in the
light of the circumstances under which they were made.
6.3 Authorization. All corporate action on the part of the
Company by its officers, directors and shareholders necessary
for the authorization, execution and delivery of this
Agreement, the Registration Rights Agreement, the Irrevocable
Instructions to Transfer Agent, the Escrow Agreement, the
performance of all obligations of the Company hereunder and
the authorization, issuance and delivery of the Debentures
being sold hereunder and issuance (and reservation for
issuance) of the Common Stock obtainable on conversion of the
Debentures have been taken, and this Agreement, the
Registration Rights Agreement, the Irrevocable Instructions to
Transfer Agent, and the Escrow Agreement constitute valid and
legally binding obligations of the Company, enforceable in
accordance with their terms. The Company has obtained all
consents and approvals required for it to execute, deliver,
and perform this Agreement. The Company is not in violation
of or default under any provisions of its Articles of
Incorporation or By-laws, as amended and in effect on and as
of the date of this Agreement, or of any material provision of
any instrument or contract to which it is a party or by which
it is bound or of any material provision of any federal or
state judgment, writ, decree, order, statute, rule or
governmental regulation applicable to the Company except where
such violation, default and/or conflict would have no material
adverse affect on the Company's business prospects or
financial condition, or on the transaction contemplated
herein. The execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated hereby will not result in any such violation or
be in conflict with or constitute, with or without the passage
of time and giving of notice, either a default under any such
provision, instrument or contract or an event which results in
the creation of any lien, charge or encumbrance upon any
assets of the Company.
6.4 Valid Issuance of Securities. The Debentures, when issued,
sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be validly issued and
binding obligations of the Company, enforceable in accordance
with their terms, and, based in part upon the representations
of the Subscriber in this Agreement, will be issued in
compliance with all applicable U.S. federal and state
securities laws. The Common Stock issuable upon conversion of
the Debentures, when issued in accordance with the terms of
the Debentures, shall be duly and validly issued and
outstanding, fully paid and nonassessable, and based in part
on the representations and warranties of Subscriber of the
Debentures, will be issued in compliance with all applicable
U.S. federal
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<PAGE> 11
securities laws and State Acts. The Shares will be issued
free of any preemptive right. The Company currently has at
least Four Million (4,000,000) shares reserved for issuance
upon conversion of the Debentures.
6.5 Current Public Information. The Company represents and
warrants to the Subscriber that the Company is a "reporting
issuer" as defined in Rule 902(l) of Regulation S and it has a
class of securities registered under Section 12(b) or 12(g) of
the Exchange Act or is required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act, and has filed all
the materials required to be filed as reports pursuant to the
Exchange Act for a period of at least twelve (12) months
preceding the date hereof (or for such shorter period as the
Company was required by law to file such material), and all
such filings have been made on a timely basis. The Company
undertakes to furnish the Subscriber with copies of such
information as may be reasonably requested by the Subscriber
prior to consummation of this Offering.
6.6 No Securities Offered in U.S. or to any U.S. Person. The
Company represents that it has not offered the Debentures to
the Subscriber in the U.S. or to any person in the United
States or any U.S. person (as defined in Regulation S) unless
such U.S. person is a professional fiduciary of a non-U.S.
person (as defined in Section (o) (2) through (o) (4) of rule
902 of Regulation S).
6.7 No Directed Selling Efforts in Regard to this Transaction.
The Company, nor any person acting for the Company, Placement
Agent or any such distributor, has conducted any "directed
selling efforts" in the United States, as the term "directed
selling efforts" is defined in Rule 902(b) of Regulation S,
which in general, means any activity undertaken for the
purpose of, or that could reasonably be expected to have the
effect of, conditioning the market in the United States for
any of the Securities being offered in reliance upon
Regulation S. Such activity includes, without limitation, the
mailing of printed material to investors residing in the
United States, the holding of promotional seminars in the
United States, and the placement of advertisements with radio
or television stations broadcasting in the United States or in
publications with a general circulation in the United States,
that refers to the offering of the Securities.
6.8 Capitalization Structure of the Company. The capitalization
of the Company, as of the date of the Closing, after giving
effect to the issuances of the Securities in this Offering, is
as set forth in Exhibit G.
6.9 Termination Date of Offering. In no event shall the Last
Closing of a sale of a Debenture occur later than May 10,
1996, which date can be extended by up to ten (10) days upon
written approval by the Company and the Placement Agent.
6.10 Use of Proceeds. As of the date hereof, the Company expects
to use the proceeds from this Offering (less fees and
expenses) for the purposes and in the approximate amounts as
set forth in Exhibit H hereto. These purposes and amounts are
estimates and are subject to change.
6.11 Intellectual Property. The Company has valid, unrestricted,
enforceable and exclusive patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology
and other intellectual property necessary to the conduct of
its business, as set forth in Schedule IP-1 (Section A). The
Company also has trade secrets necessary to the conduct of its
business which are necessarily secret and cannot be disclosed
to the Subscribers. The Company has granted licenses or has
assigned or otherwise transferred a portion of (or all of)
such valid, unrestricted, enforceable and exclusive patents,
trademarks, trademark registrations trade names, copyrights,
know-how, technology and
11
<PAGE> 12
other intellectual property necessary to the conduct of its
business, as set forth in Schedule IP-1 (Section B).
Company has been granted licenses or has been assigned or has
otherwise had transferred to it from other persons or entities
the use of patents, trademarks, trademark registrations, trade
names, copyrights, know-how, technology and/or other
intellectual property necessary to the conduct of its business
as set forth in Schedule IP-2.
To the best of the Company's knowledge, the Company is not
infringing on the intellectual property rights of any third
party, nor is any third party infringing on the Company's
intellectual property rights. There are no restrictions in
any agreements, licenses, franchises, or other instruments
that are necessary for the conduct of the Company's business
as presently conducted or as planned to be conducted in the
future.
6.12 Underwriter's Fees and Rights of First Refusal. The Company
is not obligated to pay any compensation or other fees, costs,
or related expenditures in cash or securities to any
underwriter, broker, agent or other representative other than
the Placement Agent in connection with this Offering. The
Company is not obligated to offer the securities offered
hereunder on a right of first refusal basis or otherwise to
any third parties including, but not limited to, current or
former shareholders of the Company, underwriters, brokers,
agents or other third parties.
7. Covenants of Company
7.1 Independent Auditors. The Company shall, until at least three
(3) years after the date of the Last Closing, maintain as its
independent auditors an accounting firm authorized to practice
before the Commission.
7.2 Corporate Existence and Taxes. The Company shall, until at
least the earlier of three (3) years after the date of the
Last Closing or the conversion or redemption of all the
Debentures purchased pursuant to this Agreement maintain its
corporate existence in good standing (provided, however, that
the foregoing covenant shall not prevent the Company from
entering into any merger or corporate reorganization as long
as the surviving entity in such transaction, if not the
Company, assumes the Company's obligations with respect to the
Debentures) and shall pay all its material taxes when due
except for taxes which the Company reasonably disputes.
7.3 Opinion of Counsel. Subscriber shall, upon purchase of the
Debentures, receive an opinion letter from outside counsel to
the Company, substantially in the form attached hereto as
Exhibit C, to the effect that (i) the Company is duly
incorporated and validly existing under the laws the state of
Delaware; (ii) this Agreement, the Registration Rights
Agreement, the Irrevocable Instructions to Transfer Agent, the
Escrow Agreement, the issuance of the Debentures, and the
issuance of the Common Stock upon conversion of the Debentures
(and the reservation of a sufficient number of shares of
Common Stock into which the Debentures can be converted) have
been duly authorized by all required corporate action assuming
that there are sufficient authorized shares of Common Stock
and, if there is not a sufficient number of shares of Common
Stock authorized, that there is a mechanism for the Company to
authorize additional shares of Common Stock, and that all such
Shares, upon delivery, shall be validly issued and
outstanding, fully paid and nonassessable; (iii) this
Agreement, the Registration Rights Agreement, the Irrevocable
Instructions to Transfer Agent and the Escrow Agreement
constitute valid and binding obligations of the Company,
enforceable in accordance with their terms, except as
enforceability of any indemnification provisions may be
limited by principles of public policy, and subject to laws of
general application relating to bankruptcy, insolvency and the
relief of debtors and rules of laws governing specific
performance and other equitable
12
<PAGE> 13
remedies; (iv) based upon the representations and warranties
of the Subscribers contained in the Regulation S Subscription
Agreements entered into in connection with the Offering and
upon the representations made by the Placement Agent in its
Manner of Offering Certificate, and assuming that no
Subscriber is engaged in a plan or scheme to evade the
registration requirements of the Act, the issuance of the
Debentures has been effected in compliance with Regulation S,
and the issuance of the Shares upon conversion of the
Debentures in accordance with their terms by the Subscriber
(assuming that no commission or other remuneration is paid or
given, directly or indirectly, for soliciting such conversion)
will not be subject to the registration provisions of the Act;
and (v) the execution, delivery and performance of this
Agreement and the other agreements entered into in connection
herewith, does not conflict with or result in a breach of the
Company's Articles of Incorporation, By- laws, or any material
agreement to which the Company is a party or by which its
property is bound or any judgment, or decree to which it is
subject.
7.4 Registration Rights. The Company will grant Subscriber the
registration rights covering the Common Stock issuable on
conversion of the Debentures on the terms of the Registration
Rights Agreement substantially in the form attached hereto as
Exhibit B.
7.5 Notification of Final Closing Date & Restricted Period by
Company. Within five (5) business days after the Last
Closing, the Company shall notify the Subscriber in writing
that the Last Closing has occurred, the date of the Last
Closing, the date upon which the forty (40) day Restricted
Period will terminate with respect to the Securities, the
dates that the subscribers are entitled to convert the
respective portions of their Debentures and the value of the
Fixed Conversion Price, as that term is defined in the
Debenture.
7.6 Payments for Late Conversion or Failure to Reserve Authorized
but Unissued Common.
(a) Payments for Late Conversion. As set forth in the
Debenture, the Company shall issue and deliver, within two (2)
business days after the Subscriber has fulfilled all
conditions and submitted all necessary documents duly executed
and in the proper form required for conversion (the
"Deadline") (including the original Debenture(s)), to such
Holder of Debentures at the address of the Holder on the books
of the Company, a certificate or certificates for the number
of Shares of Common Stock to which the Holder shall be
entitled upon submission of a notice of conversion. The
Company understands that a delay in the issuance of the Shares
of Common Stock beyond the Deadline could result in economic
loss to the Holder. As compensation to the Holder for such
loss, the Company agrees to pay late payments to the Holder
for late issuance of Shares upon Conversion in accordance with
the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond three (3)
business days from the date of receipt by the Company of a
notice of conversion and the Transfer Agent of all necessary
documentation duly executed and in proper form required for
conversion, including the original Debentures to be converted,
all in accordance with the subscription documents):
<TABLE>
<CAPTION>
Late Payment For Each
$10,000 Of Debenture Principal
No. Business Days Late Amount Being Converted
---------------------- ----------------------
<S> <C>
1 $50
2 $100
3 $150
4 $200
5 $250
6 $300
7 $350
8 $400
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C>
9 $450
10 $500
>10 $500 + $100 for each
Business Day Late beyond 10 days
</TABLE>
To the extent that the failure of the Company to issue the Common
Stock pursuant to this Section 7.6 is due to the unavailability of
authorized but unissued shares of Common Stock, the provisions of this
Section 7.6(a) shall not apply but instead the provisions of Section
7.6(b) shall apply.
The Company shall pay any payments incurred under this Section 7.6(a)
immediately available funds within three (3) business days from the
date of issuance of the applicable Common Stock. Nothing herein shall
limit a Holder's right to pursue actual damages for the Company's
failure to issue and deliver Common Stock to the Holder pursuant to
the terms of the Debenture.
(b) Payments for Failure to Reserve Authorized but Unissued Common.
If, at any time a Holder of Debentures submits a Notice of Conversion
(as defined in the Debenture) and the Company does not have sufficient
authorized but unissued shares of Common Stock available to effect, in
full, a conversion of the Debentures under Section 4 of the Debenture
(a "Conversion Default", the date of such default being referred to
herein as the "Conversion Default Date"), the Company shall issue to
the Holder all of the shares of Common Stock which are available, and
the Notice of Conversion as to any Debentures requested to be
converted but not converted (the "Unconverted Debentures") shall
become null and void. The Company shall provide notice of such
Conversion Default ("Notice of Conversion Default") to all Holders of
outstanding Debentures, by facsimile, within one (1) business day of
such default (with the original delivered by overnight or two (2) day
courier). No Holder may submit a Notice of Conversion after receipt of
a Notice of Conversion Default until the date additional shares of
Common Stock are authorized by the Company.
The Company agrees to pay to all Holders of outstanding
Debentures payments for a Conversion Default ("Conversion Default
Payments") in the amount of (N/365) x (.24) x the initial issuance
price of the outstanding Debentures held by each Holder where N = the
number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient number
of shares of Common Stock to effect conversion of all remaining
Debentures. The Company shall send notice ("Authorization Notice") to
each Holder of outstanding Debentures, by facsimile, within one (1)
business day after the Authorization Date (with the original delivered
by overnight or two (2) day courier) that additional shares of Common
Stock have been authorized, the Authorization Date and the amount of
Holder's accrued Conversion Default Payments. The accrued Conversion
Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate (as that term is defined in the
Debenture), at the Holder's option, payable as follows: (i) in the
event Holder elects to take such payment in cash, cash payments shall
be made to each Holder of outstanding Debentures by the fifth (5th)
day of the following calendar month, or (ii) in the event Holder
elects to take such payment in stock, the Holder may convert such
payment amount into Common Stock at the Conversion Rate at any time
after the fifth (5th) day of the calendar month following the month
the Authorization Notice was received, until the automatic conversion
date set forth in the Debenture. The Company will use its best effort
to increase the number of authorized shares as soon as practicable
following the Conversion Default.
Nothing herein shall limit the Subscriber's right to pursue actual
damages for the Company's failure to maintain a sufficient number of
authorized shares of Common Stock.
14
<PAGE> 15
7.7 Listing. The Company shall maintain the listing of the shares
of Common Stock on NASDAQ-Small Cap Market or National Market
System or another national securities exchange or quotation
system.
8. Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the state of New York, U.S.A. applicable to agreements made in and
wholly to be performed in that jurisdiction, except for matters arising under
the Act or the Exchange Act which matters shall be construed and interpreted in
accordance with such laws. Any action brought to enforce, or otherwise arising
out of, this Agreement shall be heard and determined only in either a federal
or state court sitting in the State of New York, U.S.A.
9. Entire Agreement; Written Amendments Required
This Agreement, the Debentures, the Registration Rights Agreement the
Irrevocable Instructions to Transfer Agent, the Escrow Agreement and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
10. Written Notices, Etc.
Any notice, demand or request required or permitted to be given by
either the Company or the Subscriber pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally, or by
facsimile (with a hard copy to follow by either overnight or two (2) day
courier), addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing.
11. Execution in Counterparts Permitted
This Agreement 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 (1) instrument.
12. Representations and Warranties Survive the Closing; Agreement is
Severable
The Subscriber's and the Company's representations and warranties
shall survive the closing of the transaction notwithstanding any due diligence
investigation made by or on behalf of the party seeking to rely thereon. In
the event that any provision of this Agreement becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided that no such severability shall be effective if it materially changes
the economic benefit of this Agreement to any party.
13. Titles and Subtitles; Gender
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement. The use in this Agreement of a masculine, feminine or neuter
pronoun shall be deemed to include a reference to the others.
14. Exact Registered Name of Security Holder; Offshore Delivery
Instructions
15
<PAGE> 16
Subscriber agrees to provide Company with the exact name in which he,
she or it wishes the Securities to be registered by providing that information
on the accompanying signature page of this Agreement. Additionally, Subscriber
also agrees to provide Company with detailed delivery instructions to an
offshore addressee and will also provide that information on the accompanying
signature page of this Agreement.
15. Subscriber to Forward Original Signed Subscription Agreement to
Company
Subscriber agrees to courier to Company his, her or its original inked
signed Subscription Agreement within two (2) days after faxing said signed
agreement to the Placement Agent.
16. Limitations on Assignment of this Agreement.
Neither party to this Agreement may assign this Agreement without the
written consent of the other (which may be withheld for any reason); provided,
however, that Subscriber may assign its rights to any accredited investor who
is a non-U.S. person controlled by, controlling or under common control with
the Subscribers or to any other accredited investor who is a non-U.S. person to
which it transfers Securities. Further, this provision does not limit the
Subscriber's right to transfer the Securities pursuant to the terms of the
Debenture and this Agreement.
17. Subscription and Wiring Instructions; Irrevocability
(a) Subscriber shall send its signed Subscription Agreement by
facsimile to Placement Agent at (770) 640-7150, and shall send its subscription
funds by wire transfer, to the Escrow Agent as follows:
First Union National Bank of Georgia
Attn: Rick Schaal
Corporate Trust Administration
999 Peachtree Street, N.E., Suite 1100
Atlanta, Georgia 30309
Fax: 404-827-7305
ABA Number: 053000219
Account Number: 465946
Attn: Claire Moore
REFERENCE
Account Name: Ponder Industries, Inc./Swartz Investments, LLC
Ref: Subscriber's Name
ACCT: 3072232729
Contact: Nicole Stefanini
Telephone Number: 404-827-7326
SWIFT Code: FUNBUS33
(b) The Subscriber hereby acknowledges and agrees, subject to the
provisions of any applicable laws providing for the refund of subscription
amounts submitted by the Subscriber, that this Agreement is irrevocable and
that the Subscriber is not entitled to cancel, terminate or revoke this
Agreement; provided, however, that if the conditions to Closing are not
satisfied or if the Disclosure Documents are discovered prior to Closing to
contain statements which are materially inaccurate, or omit statements of
material fact, the Subscriber may revoke or cancel this Agreement.
(c) This Agreement shall be accepted by the Company when the Company
countersigns this Agreement. The Subscriber hereby confirms that the Company
has full right in its sole discretion to accept or reject the subscription of
the Subscriber, in whole or in part, provided that, if the Company decides to
16
<PAGE> 17
reject such subscription, the Company must do so promptly and in writing. In
the case of rejection, the Company will promptly return any rejected payments
(together with any interest earned on such rejected funds in the Escrow
account) and (if rejected in whole) copies of all executed subscription
documents (including without limitation this Agreement) to Subscriber.
18. Indemnification.
The Company shall indemnify and hold harmless the Subscriber and the
Placement Agent and each of their officers, directors, employees, partners,
control persons and agents (a "Subscriber Indemnified Party") who is or may be
a party to any threatened, pending, or completed action, suit or proceeding of
any kind, against any losses, damages, liabilities and expenses (including
reasonable attorneys fees) suffered or incurred by a Subscriber Indemnified
Party and not otherwise reimbursed, arising from or due to any representation
or warranty made by the Company contained in this Agreement or contained in
the Disclosure Documents that is determined to be a misstatement of applicable
facts or omission to state applicable facts in connection with the Offering.
The Subscriber shall indemnify and hold harmless the Company and the
Placement Agent and each of their officers, directors, employees, partners,
control persons and agents (a "Company Indemnified Party") who is or may be a
party to any threatened, pending, or completed action, suit or proceeding of
any kind, against any losses, damages, liabilities and expenses (including
reasonable
17
<PAGE> 18
attorneys fees) suffered or incurred by a Company Indemnified Party and not
otherwise reimbursed, arising from or due to any representation or warranty
made by the Subscriber contained in this Agreement that is determined to be a
misstatement of applicable facts or omission to state applicable facts in
connection with the Offering.
[Intentionally Left Blank]
18
<PAGE> 19
19. Amount
The undersigned hereby subscribes for _________________________ principal
amount of Debentures, and pays herewith funds in the amount of
________________________ U.S. Dollars ($______________U.S.) on the terms and
conditions of this Agreement.
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
Dated this _____ day of ___________, 1996.
<TABLE>
<S> <C>
____________________________________ _________________________________
Your Signature EXACT NAME IN WHICH YOU
WANT THE SECURITIES TO BE
REGISTERED
(Please Print Exact Registered Name)
____________________________________
OFFSHORE DELIVERY
INSTRUCTIONS:
Name: Please Print
Please type or print address where
your security is to be delivered.
ATTN: ______________________
____________________________________ _____________________________
Title/Representative Capacity (if applicable) Street Address
____________________________________ _____________________________
Name of Company You Represent (if applicable) Street Address
____________________________________ ____________________________
Place of Execution of this Agreement City, State or Province, Country
_______________________________________
Offshore Postal Code
_______________________________________
Phone Number (For Federal Express)
_______________________________________
Facsimile Number (re: Notice)
</TABLE>
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE ____ DAY OF
________________ 1996.
PONDER INDUSTRIES, INC.
By:_______________________________________
Eugene L. Butler, Executive Vice President
19
<PAGE> 20
EXHIBIT J
PONDER INDUSTRIES, INC.
FIDUCIARY, ADMINISTRATOR, EXECUTOR OR TRUSTEE CERTIFICATE
Nature of Signatory. The signatory to this Agreement hereby
represents and warrants that he, she or it is a professional fiduciary
of Subscriber (as described in Section (o)(2) through (o)(4) of Rule
902 of Regulation S), acting solely in his capacity as holder of such
account, in which case:
(i) the Subscriber is not a U.S. person (as defined in Regulation S);
and
(ii) either (sign either A, B or C, as applicable):
A. The account for which the Securities are being purchased
by Subscriber is a discretionary account or similar account
(other than an estate or trust) which the undersigned manages
and holds for the benefit or account of Subscriber and the
Subscriber is not located in the U.S. at the time of signing
this Agreement;
_________________ (signature)
OR
B. The account for which the Securities are being purchased
by Subscriber is the account of an estate of which the
undersigned acts as executor or administrator, provided that
an executor or administrator of the estate who is not a U.S.
person (as defined in Regulation S) has sole or shared
investment discretion with respect to the assets of the
estate, and the estate is governed by foreign law and provided
further that the Subscriber is not located in the U.S. at the
time of signing this Agreement;
_________________ (signature)
OR
C. The account for which the securities are being purchased
by Subscriber is the account of a trust of which the
undersigned acts as trustee, provided that the undersigned,
who is not a U.S. person (as defined in Regulation S), has
sole or shared investment discretion with respect to the trust
assets, and no beneficiary of the trust (and no settlor if the
trust is revocable) is a U.S. person (as defined in Regulation
S) and provided further that the Subscriber is not located in
the U.S. at the time of signing this Agreement.
_________________ (signature)
_________________________________ _________________________________________
Print Your Name Person or Entity for Whom You are Signing
20
<PAGE> 21
NOTICE OF CONVERSION
-- Ponder Industries, Inc--
(To be Executed by the Registered Holder
in order to Convert the Debentures)
The undersigned hereby irrevocably elects to convert Debentures into shares of
common stock ("Common Stock") of Ponder Industries, Inc. (the "Company")
according to the conditions of the Debenture, as of the date written below. If
shares are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto. No fee
will be charged to the Holder for any conversion, except for transfer taxes, if
any.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Debentures shall be made in compliance with Regulation S,
pursuant to registration of the Common Stock under the Securities Act of 1933,
as amended (the "Act") or pursuant to an exemption from registration under the
Act, subject to any restrictions on sale or transfer set forth in the
Subscription Agreement between the Company and the original holder of the
Debentures submitted herewith for conversion.
The undersigned hereby confirms that its representations and warranties
contained within the Subscription Agreement between the undersigned and the
Company are true and correct as of the date of this Notice, or, if the
undersigned is not the original Subscriber of the Debentures being converted,
the undersigned hereby confirms and reaffirms its representations contained in
the Purchaser Representation Letter which it executed in conjunction with
purchasing the Debentures.
Date of Conversion:___________________________
Applicable Conversion Price:__________________
Signature:____________________________________
Name:_________________________________________
Address: _____________________________________
* No shares of Common Stock will be issued until the original Debenture(s) to
be converted and the Notice of Conversion are received by the Company or its
Transfer Agent. The Holder shall (i) fax, on or prior to 11:59 p.m., New York
City time, on the date of conversion, a copy of this completed and fully
executed Notice of Conversion to the Company at the office of the Company or
its designated Transfer Agent for the Debenture(s) that the Holder elects to
convert and (ii) surrender, to a common courier during the regular business
hours the next business day for either overnight or two (2) day delivery to the
office of the Company or the Transfer Agent, the original Debenture(s)
representing the Debenture(s) being converted. The Company or its Transfer
Agent shall issue shares of Common Stock and surrender them to a common courier
for delivery to the Debenture Holder no later than two (2) business days
following receipt of a facsimile of this Notice of Conversion and receipt by
the Company or its Transfer Agent of the Debenture(s) to be converted, pursuant
to the terms of the Debenture(s) and the Subscription Agreement, and shall make
payments for the number of business days such issuance and delivery is late,
pursuant to the terms of the Subscription Agreement.
EXHIBIT R
21
<PAGE> 1
EXHIBIT 10.2
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
This Offshore Securities Subscription Agreement is executed in
reliance upon the transaction exemption afforded by Regulation S ("Regulation
S") as promulgated by the Securities and Exchange Commission ("SEC"), under
the Securities Act of 1933, as amended ("1933 Act").
This Agreement has been executed by the undersigned in connection
with the private placement of shares of Common Stock of PONDER INDUSTRIES,
INC., a corporation organized under the laws of Delaware, United States of
America (hereinafter referred to as the "Seller"). The undersigned EAGLE
MANAGEMENT SERVICES LIMITED (hereinafter referred to as the "Purchaser")
hereby represents and warrants to, and agrees with Seller, as follows:
1. AGREEMENT TO SUBSCRIBE
a. The undersigned hereby agrees to purchase 750,00 shares of
Common Stock of Seller (the "Shares").
b. Form of Payment. Purchaser shall pay the agreed purchase
price by delivering a Promissory Note in the principal amount
of $456,000, payable on or before 60 days from the issue
date of the receipt of the Shares.
2. SUBSCRIBER REPRESENTATIONS; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION.
a. Offshore Transaction. Purchaser represents and warrants to
Seller as follows:
i. Purchaser is not a U.S. person a that term is defined
under Regulation S;
ii. At the time the buy order was originated, Purchaser
was outside the United States as of the date of the
execution and delivery of this Agreement;
iii. Purchaser is purchasing the Shares for its own
account and not on behalf of any U.S. person, and
the sale has not been pre-arranged with a purchaser
in the United States;
iv. Each distributor participating in the offering of
the securities, if any, has agreed in writing that
all offers and sales of the securities prior to the
expiration of a period commencing on the date of
the transaction and ending 40 days thereafter shall
only be made in compliance with the safe harbor
contained in Regulation S, pursuant to registration
of Shares under the Securities Act of 1933 or
pursuant to an exemption from registration;
<PAGE> 2
v. Purchaser represents and warrants and hereby agrees
that all offers and sales of the Shares prior to the
expiration of a period commencing on the date of the
transaction and ending 40 days thereafter shall only
be made in compliance with the safe harbor contained
in Regulation S, pursuant to registration of
securities under the Securities Act of 1933 or
pursuant to an exemption from registration, and all
offers and sales after the expiration of the 40-day
period shall be made only pursuant to such a
registration or to such exemption from registration.
vi. All offering documents received by Purchaser
include statements to the effect that the Shares
have not been registered under the Securities Act
of 1933 and may not be offered or sold in the
United States or to U. S. persons during a period
commencing on the date of the transaction and
ending 40 days thereafter unless the Shares are
registered under the Securities Act of 1933 or an
exemption from the registration requirements is
available.
vii. Purchaser acknowledges that the purchase of the
Shares involves a high degree of risk and further
acknowledges that it can bear the economic risk of
the purchase of the Shares, including the total
loss of its investment.
viii. Purchaser understands that the Shares are being
offered and sold to it in reliance on specific
exemptions from the registration requirements of
Federal and State securities laws and that the
Seller is relying upon the truth and accuracy of
the representations, warranties, agreements,
acknowledgements and understandings of Purchaser
set forth herein in order to determine the
applicability of such exemptions and the
suitability of Purchaser to acquire the Shares.
ix. Purchaser represents and warrants that the subject
purchase of Shares by Purchaser is not a
transaction (or any element of a series of
transactions) that is part of any plan or scheme to
evade the registration provisions of the 1933 Act.
b. Current Public Information. Purchaser acknowledges that
Purchaser has been furnished with or has acquired copies of
the Seller's most recent Annual Report on the Form 10-K
filed with the Securities and Exchange Commission and any
Forms 10-Q and 8-K filed thereafter (collectively the "SEC
Filings").
c. Independent Investigation; Access. Purchaser acknowledges
that Purchaser in making the decision to purchase the Shares
subscribed for, has relied upon independent investigations
made by it and its purchaser representatives, if any, have,
prior to any sale to it, been given access and the opportunity
to examine all
-2-
<PAGE> 3
material books and records of the Seller, SEC filings, all
material contracts and documents relating to this offering
and an opportunity to ask questions of, and to receive
answers from Seller or any person acting on its behalf
concerning the terms and conditions of the offering.
Purchaser and its advisors, if any, have been furnished with
access to all publicly available materials relating to the
business, finances and operations of the Seller and
materials relating to the offer and sale of the Shares which
have been requested. Purchaser and its advisors, if any,
have received complete and satisfactory answers to any such
inquiries.
d. No Government Recommendation or Approval. Purchaser
understands that no federal or state agency has passed on or
made any recommendation or endorsement of the Shares.
3. ISSUER REPRESENTATIONS
a. Reporting Company Status. Seller is reporting issuer as
defined by Rule 902 of Regulation S. Seller is in full
compliance, to the extent applicable, with all reporting
obligations under either Section 12(b), 12(g), or 15(d) of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Seller has registered its common stock
pursuant to Section 12 of the Exchange Act and the common
stock is quoted on NASDAQ.
b. Offshore Transaction.
i. Seller has not offered these securities to any person
in the United States or to any U. S. person as that
term is defined in Regulation S.
ii. At the time this buy order was originated, Seller
and/or its agent, reasonably believed Purchaser was
outside the United States and was not a U.S. person.
iii. Seller and/or its agents, reasonably believe that the
transaction has not been pre-arranged with a
Purchaser in the United States.
iv. Seller represents and warrants that the subject
sale of Shares by Seller is not a transaction (or
any element of a series of transactions) that is
part of any plan or scheme to evade the
registration provisions of the 1933 Act.
c. No Directed Selling Efforts. In regard to this transaction,
Seller has not conducted any "directed selling efforts" as
that term is defined in Rule 902 of Regulation S, nor has
Seller conducted any general solicitation relating to the
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<PAGE> 4
offer and sale of the within securities to persons resident
within the United States or elsewhere.
4. EXEMPTION; RELIANCE ON REPRESENTATIONS. Purchaser understands that the
offer and sale of the Shares is not being registered under the 1933 Act.
Seller is relying on the rules governing offers and sales made outside the
United States pursuant to Regulation S. Rules 901 through 904 of Regulation S
govern this transaction. Purchaser agrees that it will only effect an offer
and sale of the shares if the Note remains unpaid in full. The transaction
restriction in connection with this offshore offer and sale restrict Purchaser
from offering and selling to U. S. person or for the account or benefit of a
U.S. person for a 40-day period. Rule 903(c)(2) governs the 40- day
transaction restriction.
5. TRANSFER AGENT INSTRUCTIONS. Seller's transfer agent will be instructed to
issue certificates representing Shares in the names of purchasers to be
specified. These certificates will be without a restrictive legend, but
Purchasers agree that such shares shall remain subject to the terms of this
Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS TO SELL. Purchaser understands that
Seller's obligation to sell the Stock is conditioned upon:
a. The receipt and acceptance by Seller of this Subscription
Agreement.
b. Delivery of the Promissory Note.
7. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE. Seller understands that
Purchaser's obligation to purchase the Stock is conditioned upon:
a. Acceptance by Purchaser of a satisfactory Subscription
Agreement for the transfer of Shares;
b. Delivery of certificates for Shares of Common Stock registered
in the name of designated individual purchasers.
8. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the rulings of the laws of the State of Texas, U.S.A.
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<PAGE> 5
IN WITNESS WHEREOF, this Offshore Securities Subscription Agreement
was duly executed on the date first written below.
DATED this 22nd day of December, 1995.
PURCHASER:
EAGLE MANAGEMENT SERVICES LIMITED
an Isle of Man corporation
By: /s/ William Vincent Walter
ACCEPTED this ____ day of
December, 1995
PONDER INDUSTRIES, INC.
By /s/ Larry Armstrong, President
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<PAGE> 1
EXHIBIT 10.3
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
This Offshore Securities Subscription Agreement is executed in
reliance upon the transaction exemption afforded by Regulation S ("Regulation
S") as promulgated by the Securities and Exchange Commission ("SEC"), under
the Securities Act of 1933, as amended ("1933 Act").
This Agreement has been executed by the undersigned in connection
with the private placement of shares of Common Stock of PONDER INDUSTRIES,
INC., a corporation organized under the laws of Delaware, United States of
America (hereinafter referred to as "Seller"). The undersigned ATLANTIC
HOLDINGS LIMITED (hereinafter referred to as the "Purchaser") hereby
represents and warrants to, and agrees with Seller, as follows:
1. AGREEMENT TO SUBSCRIBE
a. The undersigned hereby agrees to purchase 750,000 shares of
Common Stock of Seller (the "Shares").
b. FORM OF PAYMENT. Purchaser shall pay the agreed purchase
price by delivering a Promissory Note in the principal amount
of $456,000, payable on or before 60 days from the issue date
of the receipt of the Shares.
2. SUBSCRIBER REPRESENTATIONS; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION.
a. OFFSHORE TRANSACTION. Purchaser represents and warrants to
Seller as follows:
i. Purchaser is not a U.S. person as that term is
defined under Regulation S;
ii. At the time the buy order was originated, Purchaser
was outside the United States as of the date of the
execution and delivery of this Agreement;
iii. Purchaser is purchasing the Shares for its own
account and not on behalf of any U.S. person, and
the sale has not been pre-arranged with a purchaser
in the United States;
iv. Each distributor participating in the offering of
the securities, if any, has agreed in writing that
all offers and sales of the securities prior to the
expiration of a period commencing on the date of
the transaction and ending 40 days thereafter shall
only be made in compliance with the safe harbor
contained in Regulation S, pursuant to registration
of Shares under the Securities Act of 1933 or
pursuant to an exemption from registration;
<PAGE> 2
v. Purchaser represents and warrants and hereby agrees
that all offers and sales of the Shares prior to the
expiration of a period commencing on the date of the
transaction and ending 40 days thereafter shall only
be made in compliance with the safe harbor contained
in Regulation S, pursuant to registration of
securities under the Securities Act of 1933 or
pursuant to an exemption from registration, and all
offers and sales after the expiration of the 40-
day period shall be made only pursuant to such a
registration or to such exemption from registration.
vi. All offering documents received by Purchaser
include statements to the effect that the Shares
have not been registered under the Securities Act
of 1933 and may not be offered or sold in the
United States or to U.S. Persons during a period
commencing on the date of the transaction and
ending 40 days thereafter unless the Shares are
registered under the Securities Act of 1933 or an
exemption from the registration requirements is
available.
vii. Purchaser understands that the Shares are being
offered and sold to it in reliance on specific
exemptions from the registration requirements of
Federal and State securities laws and that the Seller
is relying upon the truth and accuracy of the
representations, warranties, agreements,
acknowledgments and understandings of Purchaser set
forth herein in order to determine the applicability
of such exemptions and the suitability of Purchaser
to acquire the Shares.
viii. Purchaser represents and warrants that the subject
purchase of Shares by Purchaser is not a
transaction (or any element of a series of
transactions) that is part of any plan or scheme to
evade the registration provisions of the 1933 Act.
b. CURRENT PUBLIC INFORMATION. Purchaser acknowledges that
Purchaser has been furnished with or has acquired copies of
Seller's most recent Annual Report on the Form 10-K filed
with the Securities and Exchange Commission and any Forms
10-Q and 8-K filed thereafter (collectively the "SEC
Filings").
c. INDEPENDENT INVESTIGATION; ACCESS. Purchaser acknowledges
that Purchaser in making the decision to purchase the Shares
subscribed for, has relied upon independent investigations
made by it and its purchaser representatives, if any, have,
prior to any sale to it, been given access and the opportunity
to examine all material books and records of Seller, SEC
filings, all material contracts and documents relating to
this offering and an opportunity to ask questions of, and to
receive answers from Seller or any person acting on its
behalf concerning the terms and conditions of the offering.
Purchaser and its advisors, if any, have been furnished with
access to all publicly available materials relating to the
business, finances and operations of the Seller and materials
relating to the offer and sale of the Shares which have been
requested. Purchaser and its advisors, if
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<PAGE> 3
any, have received complete and satisfactory answers to any
such inquiries.
d. NO GOVERNMENT RECOMMENDATION OR APPROVAL. Purchaser
understands that no federal or state agency has passed on or
made any recommendation or endorsement of the Shares.
3. ISSUER REPRESENTATIONS
a. REPORTING COMPANY STATUS. Seller is a reporting issuer as
defined by Rule 902 of Regulation S. Seller is in full
compliance, to the extent applicable, with all reporting
obligations under either Section 12(b), 12(g), or 15(d) of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Seller has registered its common stock
pursuant to Section 12 of the Exchange Act and the common
stock is quoted on NASDAQ.
b. OFFSHORE TRANSACTION.
i. Seller has not offered these securities to any person
in the United States or to any U.S. person as that
term is defined in Regulation S.
ii. At the time this buy order was originated, Seller
and/or its agent, reasonably believed Purchaser was
outside of the United States and was not a U.S.
person.
iii. Seller and/or its agents reasonably believe that the
transaction has not been pre-arranged with a
Purchaser in the United States.
iv. Seller represents and warrants that the subject
sale of Shares by Seller is not a transaction (or
element of a series of transactions) that is part
of any plan or scheme to evade the registration
provisions of the 1933 Act.
c. NO DIRECTED SELLING EFFORTS. In regard to this transaction,
Seller has not conducted any "directed selling efforts" as
that term is defined in Rule 902 of Regulation S, nor has
Seller conducted any general solicitation relating to the
offer and sale of the within securities to persons resident
within the United States or elsewhere.
4. EXEMPTION; RELIANCE ON REPRESENTATIONS. Purchaser understands that the
offer and sale of the Shares is not being registered under the 1933 Act.
Seller is relying on the rules governing offers and sales made outside the
United States pursuant to Regulation S. Rules 901 through 904 of Regulation S
govern this transaction. Purchaser agrees that it will only effect an offer
and sale of the shares if the Note remains unpaid in full. The transaction
restriction in connection with this offshore offer and sale restrict Purchaser
from offering and selling to U.S. persons or for the account or benefit of a
U.S. person for a 40-day period. Rule 903(c)(2) governs the 40-day transaction
restriction.
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<PAGE> 4
5. TRANSFER AGENT INSTRUCTIONS. Seller's transfer agent will be instructed to
issue certificates representing Shares in the names of purchasers to be
specified. These certificates will be without a restrictive legend, but
Purchasers agree that such shares shall remain subject to the terms of this
Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS TO SELL. Purchaser understands that
Seller's obligation to sell the Stock is conditioned upon:
a. The receipt and acceptance by Seller of this Subscription
Agreement.
b. Delivery of the Promissory Note.
7. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE. Seller understands that
Purchaser's obligation to purchase the Stock in conditioned upon:
a. Acceptance by Purchaser of a satisfactory Subscription
Agreement for the transfer of Shares;
b. Delivery of certificates for Shares of Common Stock registered
in the name of designated individual purchasers.
8. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the rulings of the laws of the State of Texas, U.S.A.
IN WITNESS WHEREOF, this Offshore Securities Subscription Agreement was duly
executed on the date first written below.
DATED this 22nd day of December, 1995.
PURCHASER:
ATLANTIC HOLDINGS LIMITED
an Ireland corporation
By:___________________________
ACCEPTED this 22nd day of
December, 1995
PONDER INDUSTRIES, INC.
By:_______________________
Larry Armstrong
President
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<PAGE> 1
EXHIBIT 10.4
WARRANT
To Purchase Common Stock, $.01 par value, of
PONDER INDUSTRIES, INC.
Exercisable until March 2, 1998
THIS IS TO CERTIFY THAT, for value received, Eagle Management
Services Limited, or its assigns, is entitled to purchase from Ponder
Industries, Inc., a Delaware corporation (the "Company"), from 9:00 a.m.,
local time, on January 2, 1996 until 5:00 p.m., local time, on March 2, 1998,
(the "Exercise Period") at the place where the Warrant Office is located, up
to 500,000 shares of Common Stock, $.01 par value of the Company (the "Common
Stock"), at a purchase price of $1 per share, such purchase price subject to
adjustment (the "Current Warrant Price"), and is entitled also to exercise the
other appurtenant rights, powers and privileges hereinafter set forth. This
Warrant is granted in connection with the purchase by the holder of 750,000
shares of the Common Stock of the Company made on December 22, 1995.
Certain terms used in this Warrant are defined in Article VI.
Page 1
<PAGE> 2
ARTICLE I
EXERCISE OF WARRANT
1.1 Method of Exercise. To exercise this Warrant in whole or in part,
the holder hereof shall during the Exercise Period deliver to the Company, at
the Warrant Office designated pursuant to Section 2.1: (a) a written notice
(in the form of Exhibit A) of such holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be
purchased; (b) a certified or bank cashier's check payable to the order of the
Company in an amount equal to the aggregate Current Warrant Price for the
number of shares of Common Stock being purchased; and (c) this Warrant.
Subject to the satisfaction of Article III, the Company shall, as promptly as
practicable and in any event within 14 days thereafter, execute and deliver or
cause to be executed and delivered, in accordance with said notice, a
certificate or certificates representing the aggregate number of shares of
Common Stock specified in said notice. The stock certificate or certificates
so delivered shall be in denominations of 100 shares each or such lesser or
greater denominations as may be specified in said notice and shall be issued
in the name of such holder or such other name as shall be designated in said
notice. If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of the certificate or certificates, deliver to
the holder a new Warrant evidencing the rights to purchase the remaining
shares of Common Stock called for by this Warrant, which new Warrant shall in
all other respects be identical with this Warrant, or, at the request of the
holder, appropriate notation may be made on this Warrant which shall be
returned to the holder. The Company shall pay all expenses, taxes and other
charges payable in connection with the preparation,
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<PAGE> 3
issuance and delivery of stock certificates and new Warrants, except that, in
case stock certificates or new Warrants shall be registered in a name or names
other than the name of the holder of this Warrant, funds sufficient to pay all
stock transfer taxes, which shall be payable upon the issuance of stock
certificates or new Warrants, shall be paid by the holder hereof at the time
of delivering the notice of exercise mentioned above or promptly upon receipt
of a written request of the Company for payment.
1.2 Warrant Shares to be Fully Paid and Nonassessable. All shares of
Common Stock issued upon the exercise of this Warrant shall be validly issued,
fully paid and nonassessable.
1.3 No Fractional Shares to be Issued. The Company shall not be
required upon any exercise of this Warrant to issue a certificate representing
any fraction of a share of Common Stock, but, in lieu thereof, shall pay to
the holder of this Warrant cash in the amount equal to a corresponding
fraction (calculated to the nearest 1/100 of a share) of the Current Market
Price of one share of Common Stock as of the date of receipt by the Company of
notice of exercise of this Warrant.
1.4 Legend on Warrant and Warrant Shares. Any warrant issued at any
time in exchange or substitution of this Warrant, unless at the time of
exchange or substitution the Warrant or Warrant Shares are registered under
the 1933 Act, or there is an exemption from registration.
Each certificate evidencing Warrant Shares issued upon exercise of
this Warrant, unless at the time of exercise or transfer the Warrant or such
Warrant Shares are registered under the 1933 Act, or an exemption is
available, shall bear a legend (and any additional
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<PAGE> 4
legend required by any national securities exchanges upon which such Warrant
Shares may, at the time of such exercise, be listed).
ARTICLE II
WARRANT OFFICE; TRANSFER,
DIVISION OR COMBINATION OF WARRANTS
2.1 Warrant Office. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's office at 511 Commerce Road, Alice, Texas 78333, 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 all of the Warrantholders.
2.2 Ownership of Warrant. The Company may deem and treat the person
in whose name this Warrant is 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.
2.3 Transfer of Warrant. The Company agrees to maintain at the
Warrant Office books for the registration of permitted transfer of the
Warrants, and this Warrant and all rights hereunder are transferable, in whole
or in part, on the books at that office, upon surrender of this Warrant at
that office, together with a written assignment of this Warrant (in the form
of Exhibit B) duly executed by the holder hereof or his duly authorized agent
or attorney and funds sufficient to pay any transfer taxes payable upon the
making of the transfer. Upon surrender and payment, the Company shall execute
and deliver a new
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<PAGE> 5
Warrant or Warrants in the name of the assignee or assignees and in the
denominations specified in the instrument of assignment, and this Warrant
shall promptly be canceled.
2.4 Division or Combination of Warrants. This Warrant may be divided
or combined with other Warrants upon presentation hereof and of any Warrant or
Warrants with which this Warrant is to be combined at the Warrant Office,
together with a written notice specifying the names and denominations in which
new Wan-ants are to be issued, signed by the holders hereof and thereof or
their respective duty authorized agents or attorneys. Subject to compliance
with Section 2.3 as to any transfer which may be involved in the division or
combination, the Company shall execute and deliver a new Warrant or Warrants
in exchange for the Warrant or Warrants to be divided or combined in
accordance with the notice.
2.5 Expenses of delivery of Warrants. The Company shall pay all
expenses, taxes (other than transfer taxes), and other charges payable in
connection with the preparation, issuance and delivery of Warrants hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Holder.
(a) The holder represents and warrants to the Company that
it is acquiring the Warrant and, in the event that it should acquire Warrant
Shares upon exercise of the Warrant, that the holder will be acquiring the
Warrant Shares, for its own account, for investment and not with a view to the
distribution thereof within the meaning of the 1933 Act.
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<PAGE> 6
(b) The holder understands that the Warrant has not been,
and the Warrant Shares issuable upon exercise of the Warrant may not be,
registered under the 1933 Act, by reason of their issuance by the Company in a
transaction exempt from the registration requirements of the 1933 Act; and
that the Warrant and the Warrant Shares must be held by the holder
indefinitely unless a subsequent disposition thereof is registered under the
1933 Act or is exempt from registration.
(c) The holder further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to the
holder) promulgated under the 1933 Act depends on the satisfaction of various
conditions, and that, if applicable, Rule 144 may afford the basis for sales
only in limited amounts.
(d) The holder further represents and warrants that it is an
"accredited investor" as defined in Rule 501(a) promulgated under the 1933
Act.
ARTICLE IV
ADJUSTMENT PROVISIONS
4.1 Adjustment of Number of Shares.
Upon each adjustment of the Current Wan-ant Price as
provided in Section 4.2, the holder of this Warrant shall thereafter be
entitled to purchase, at the Current Warrant Price resulting from such
adjustment, the number of shares (calculated to the nearest I / I 00 of a
share) obtained by multiplying the Current Warrant 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
Current Warrant Price resulting from such adjustment.
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<PAGE> 7
4.2 Adjustment of Current Warrant Price. The Current Warrant Price
shall be subject to adjustment from time to time as follows:
(a) If, at any time subsequent to the date of the issue of
this Warrant and prior to the expiration of the Exercise Period, the
number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or
split-up of shares of Common Stock, then immediately after the record
date fixed for the determination of holders of Common Stock entitled
to receive such stock dividend, subdivision or split-up, the Current
Warrant Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on exercise of the Warrant shall be
increased in proportion to such increase in outstanding shares.
(b) If, at any time subsequent to the date of the issue of
this Warrant and prior to the expiration of the Exercise Period, the
number of shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock, then
immediately after the record date for such combination, the Current
Warrant Price shall be appropriately increased so that the number of
shares of Common Stock issuable on exercise of the Warrant shall be
decreased in proportion to such decrease in outstanding shares.
(c) In case the Company, at any time subsequent to the date
of the issue of this Warrant and prior to the expiration of the
Exercise Period, shall distribute to all holders of its Common Stock
evidences of its indebtedness or assets (excluding any regular cash
dividend) or rights to subscribe for or warrants to purchase
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<PAGE> 8
(excluding those referred to in paragraph (d) below) shares of Common
Stock, then in each such case the Current Warrant Price shall be
adjusted so that the same shall equal the price determined by
multiplying the Current Warrant Price in effect immediately prior to
the date of such distribution by a fraction whose numerator shall be
the Current Market Price on the record date for the distribution less
the fair market value (as determined in good faith by the Board of
Directors) of the portion of the assets or evidences of indebtedness
so distributed or of such subscription rights or warrants applicable
to one share of Common Stock, and whose denominator shall be such
Current Market Price. Such adjustment shall be made whenever any such
distribution is made and shall be retroactively effective as of
immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(d) In case the Company, at any time subsequent to the date
of the issue of this Warrant and prior to the expiration of the
Exercise Period, shall issue any warrants, rights or options to
subscribe for or purchase shares of Common Stock or shall issue any
Common Stock, other than pursuant to warrants, rights or options
outstanding on the date of the issue of this Warrant, or securities
convertible into Common Stock at a price per share less than the
Current Market Price (as defined in Article VI), the Current Warrant
Price shall be adjusted by multiplying the then existing Current
Warrant Price by a fraction, the numerator of which is the sum of (i)
the number of shares of Common Stock outstanding immediately prior to
such issue plus (ii) the number of shares which the aggregate
offering price of the total number of shares so offered pursuant to
the warrants, rights, options or convertible
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<PAGE> 9
securities would purchase at the Current Market Price and the
denominator of which is the sum of (i) the number of shares of Common
Stock outstanding immediately prior to such issue plus (ii) the
maximum number of additional shares of Common Stock offered for
subscription or purchase or issuable upon conversion of convertible
securities offered for subscription or purchase. For the purpose of
the foregoing computation, the aggregate offering price of the shares
of Common Stock issuable upon exercise of convertible securities
shall be deemed to be the consideration paid to the Company in
respect of the purchase of such convertible securities plus the
additional consideration, if any, payable to the Company upon the
exercise of the right of conversion or exchange in such convertible
securities. For the purpose of any adjustment of the Current Warrant
Price pursuant to this paragraph in the case of an issue of any of
the aforementioned securities for a purchase price other than cash,
the consideration received by the Company therefor shall be deemed to
be the fair value of such consideration as determined in good faith
by the Board of Directors. Adjustments pursuant to this paragraph
shall become effective immediately after the issuance of such
warrants, rights, options or Common Stock or convertible securities;
provided that if such warrants, rights, options or the rights of
conversion of such convertible securities shall expire without being
exercised, the Current Warrant Price shall be recomputed as if the
total number of shares of Common Stock so offered pursuant to the
warrants, rights, options or convertible securities were that number
of shares actually issued upon the exercise or conversion.
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<PAGE> 10
(e) In case, during the Exercise Period, of any capital
reorganization, or any reclassification of the stock of the Company
(other than a change in par value or from par value to no par value
or from no par value to par value or as a result of a stock dividend
or subdivision, split-up or combination of shares), or the
consolidation or merger of the Company with or into another person
(other than a consolidation or merger in which the Company is the
continuing corporation and the Common Stock of the Company remains
outstanding and unchanged) or of the sale or other disposition of all
or substantially all the properties and assets of the Company as an
entirety to any other person, the Warrant shall after such
reorganization, reclassification, consolidation, merger, sale or
other disposition be exercisable for the kind and number of shares of
stock or other securities or property of the Company, or of the
corporation resulting from such consolidation or surviving such
merger or to which such properties and assets shall have been sold or
otherwise disposed, to which the holder of the number of shares of
Common Stock deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation, merger, sale or
other disposition) upon exercise of the Warrant would have been
entitled upon such reorganization, reclassification, consolidation,
merger, sale or other disposition. The provisions of this paragraph
shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or other
dispositions.
(f) All calculations under this Section 4.2 shall be made to
the nearest cent ($.01) or to the nearest 1/100 of a share, as the
case may be.
(g) In any case in which the provisions of this Section 4.2
shall require that
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an adjustment shall become effective immediately after a record date
for an event, the Company may defer until the occurrence of such
event (i) issuing to the holder of the Warrant exercised after such
record date and before the occurrence of such event the additional
shares of capital stock issuable upon such exercise by reason of the
adjustment required by such event over and above the shares of
capital stock issuable upon such exercise before giving effect to
such adjustment and (ii) paying to such holder any amount in cash in
lieu of a fractional share of capital stock pursuant to Section 1.3
above; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares, and such cash, upon
the occurrence of the event requiring such adjustment. 4.3 Notice of
Adjustment of Current Warrant Price.
(a) Whenever the Current Warrant Price shall be adjusted as
provided in Section 4.2 above, the Company shall forthwith file, at
the office of the transfer agent for the Company, or at such other
place as may be designated by the Company, a statement, signed by its
independent certified public accountants, showing in detail the facts
requiring such adjustment and the Current Warrant Price that shall be
in effect after such adjustment. The Company shall also cause a copy
of such statement to be sent by first-class, certified mail, return
receipt requested, postage prepaid, to the holder of the Warrant at
such holder's address appearing on the Company's records. Where
appropriate, such copy may be given in advance and may be included as
part of a notice required to be mailed under the provisions of
Section
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4.3(b) below.
(b) In the event the Company shall propose to take any
action of the types described in Section 4.2 (a), (b), (c), (d) or
(e) the Company shall give notice to the holder of the Warrant in the
manner set forth in Section 4.3(a) above, which notice shall specify
the record date, if any, with respect to any such action and the date
on which such action is to take place. Such notice shall also set
forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Current
Warrant Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable upon
the occurrence of such action or deliverable upon exercise of the
Warrant. In the case of any action which would require the fixing of
a record date, such notice shall be given at least seven days prior
to the date so fixed, and in case of all other action, such notice
shall be given at least 15 days prior to the taking of such proposed
action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
(c) Anything herein to the contrary notwithstanding, no
adjustment in the Current Warrant Price shall be required unless such
adjustment would require a change of at least 1% in the Current
Warrant Price; provided, that any adjustments which by reason of this
Section 4.3(c) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
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ARTICLE V.
REGISTRATION RIGHTS
5.1 Registration Rights.
(a) If the Warrantholder requests the Company in writing to
register at least 50% of the Warrant Shares under the 1933 Act (which
request shall specify that it is being made pursuant to this Article
V and shall contain the undertaking of the Warrantholder to provide
all such information and to take all such action as may be required
in order to permit the Company to comply with all applicable
requirements of the 1933 Act and the Commission and to obtain
acceleration of the effective date of the registration statement),
the Company will cause the offering of Warrant Shares designated in
such request to be registered under the 1933 Act as soon as
practicable. Upon any such registration statement becoming effective,
the Company shall keep such registration statement current for a
period not to exceed nine months. The Company shall make such
filings, and will use its best efforts to cause such filings to
become effective, so that the Warrant Shares shall be registered or
qualified for sale under the securities or Blue Sky laws of such
jurisdictions as shall be requested by the Warrantholder and the
managing underwriter, if any, for the distribution of the Warrant
Shares covered by such registration statement; provided, that the
Company shall not be required to qualify as a foreign corporation to
do business under the laws of any jurisdiction in which it is not
then qualified or to file any general consent to service of process.
(b) If the Company shall at any time propose the
registration under the
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1933 Act of an offering of Common Stock solely for cash on a form
that would also permit registration of the Warrant Shares, the
Company shall give notice to the Warrantholder as promptly as
possible of such proposed registration and the Company will cause the
offering of such number of Warrant Shares as the Warrantholder shall
request within 10 business days after the receipt of such notice to
be included, upon the same terms (including the method of
distribution), in any such offering; provided, that: (i) the Company
shall not be required to give notice or to include Warrant Shares in
any such registration if the proposed registration is (A) a
registration of a dividend reinvestment, stock option, employee
benefit or compensation plan or of securities issued or issuable
pursuant to any such plan or (B) a registration of securities
proposed to be issued in exchange for securities or assets of, or in
connection with a merger or consolidation with, another entity; (ii)
if the Company is advised in writing by its underwriters that the
inclusion of all or any portion of such Warrant Shares would in their
opinion jeopardize the success of the proposed offering, the Company
may exclude all or such portion of such Warrant Shares from
registration, provided that if other selling shareholders who are
employees or directors of the Company have requested registration of
securities in the proposed offering, the Company will reduce or
eliminate such other selling shareholders' securities before any
reduction of Warrant Shares; (iii) the offering of such Warrant
Shares by the Warrantholder shall be on the same terms as the
offering by the Company; and (iv) the Company may, without the
consent of the Warrantholder, withdraw such registration statement
and abandon the proposed
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offering in which the Warrantholder had requested to participate.
(c) The obligation of the Company under this Section 5.1 is
subject to the following limitations:
(i) In the event of a registration under this Section 5.1
the Company shall be responsible for all costs of such registration,
including, without limitation, all printing expenses (including a
reasonable number of prospectuses for circulation by the
Warrantholder), all legal fees and disbursements of the Company's
counsel, Blue Sky expenses, accounting fees of the Company and
filing fees, but not including underwriters' discounts and
commissions attributable to the Warrant Shares;
(ii) The Company shall not be obligated to provide
more than one registration pursuant to paragraph (a) or more than one
registration pursuant to paragraph (b); provided, that in the event
any Warrant Shares are excluded in an initial registration pursuant
to paragraph (b) or in the event such registration is withdrawn or
abandoned by the Company, the Warrantholder shall have additional
registration rights pursuant to such subsection until such time as
the Warrant Shares originally proposed to be registered thereunder
have been registered pursuant to this Section; and
(iii) The Company, the Warrantholder and any
underwriter of an offering pursuant to any registration statement
provided for in paragraph (b) shall have entered into an underwriting
agreement containing provisions with respect to
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the indemnification of the aforementioned parties in connection with
the preparation and use of such registration statement in form and
substance satisfactory to the Company and such underwriters.
ARTICLE VI
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise
requires, the following terms shall have the following respective meanings:
"1933 Act": the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder, all
as the same shall be in effect at the time.
"Commission": the Securities and Exchange Commission, or any
other federal agency then administering the 1933 Act.
"Common Stock": the Company's authorized Common Stock, par
value $0.01 per share, as such class existed on the date of issuance
of this Warrant and any other securities as to which this Warrant
becomes exercisable pursuant to Article IV.
"Current Market Price" per share of Common Stock at any
date: the average of the daily closing prices for the 30 consecutive
business days ending no more than 15 days before the day in question
(as adjusted for any stock dividend, split-up, combination or
reclassification that took effect during such 30 business day
period). The closing price for each day shall be the last reported
sales price regular way or, if no such reported sales took place on
such day, the average of the last reported bid and asked prices
regular way, in either case on the principal national securities
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exchange on which the Common Stock is listed or admitted to trading.
If the Common Stock is not at that time listed or admitted for
trading on any such exchange, then the closing price for each day
shall be the last trade price or, if no such trade took place on such
day, the average of the last reported bid and asked prices, in either
case as reported by the National Association of Securities Dealers
Automated Quotations System ("NASDAQ") on such day (but if on any
such day the security shall not be quoted on NASDAQ, then such price
shall be equal to the last reported bid and asked prices on such day
as reported by the National Quotation Bureau, Inc., or, if not
reported by it, by any similar reputable quotation and reporting
service). If the Common Stock is not traded in such a manner that any
quotation referred to in this paragraph is available for the period
required hereunder, then the Current Market Price shall be deemed to
be the greater of (i) the Current Warrant Price or (ii) such price,
if any, at which the most recent issue and sale by the Company of
Common Stock in an arm's length transaction took place within the
180- day period prior to the date on which the Current Market Price
is to be determined; provided, however, that in case the Company
makes an underwritten public offering of shares of Common Stock, for
purposes of the adjustment, if any, pursuant to Article IV, the
Current Market Price with respect to such shares shall be deemed to
be the price to the public shown in the final prospectus used in
connection with such public offering.
"Current Warrant Price": See the first paragraph on page 1.
"Exchange Act": the Securities Exchange Act of 1934, as
amended, and the
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<PAGE> 18
rules and regulations of the Commission promulgated thereunder, all as
the same shall be in effect at the time.
"Outstanding": when used with reference to Common Stock at any
date, all issued shares of Common Stock (including, but without
duplication, shares deemed issued pursuant to Article IV) at such date,
except shares then held in the treasury of the Company.
"Person": any individual, corporation, partnership, trust,
unincorporated organization and any government, and any political
subdivision, instrumentality or agency thereof.
"Sell": as to the Warrant or the Warrant Shares, shall mean
to sell or in any other way directly or indirectly transfer, assign,
distribute, encumber or otherwise dispose of, either voluntarily or
involuntarily.
"Warrant Office": see Section 2. 1.
"Warrant Shares": the shares of Common Stock purchasable or
purchased by the holder upon the exercise of this Warrant.
"Warrantholders": the registered holder of a Warrant or
Warrants or any related Warrant Shares.
"Warrants": this warrant and all warrants issued in
substitution, combination or subdivision thereof.
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ARTICLE VII
CERTAIN COVENANTS OF THE COMPANY
The Company covenants and agrees that:
(a) it will reserve and set apart and have at all times,
free from preemptive rights, a number of shares of authorized but
unissued Common Stock or other securities or property deliverable
upon the exercise of the Warrants sufficient to enable it at any time
to fulfill all its obligations hereunder.
(b) this Warrant shall be binding, and it will take all
action necessary to make this War-rant binding, upon any corporation
succeeding to the Company by merger, share exchange, consolidation,
acquisition of all or substantially all of the Company's assets or
any similar transaction.
ARTICLE VIII
MISCELLANEOUS
8.1 Entire Agreement. This Warrant contains the entire agreement
between the Warrantholder and the Company with respect to the purchase of the
Warrant Shares and supersedes all prior arrangements or understandings with
respect thereto.
8.2 Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Texas.
8.3 Waiver and Amendment. Any term or provision of this Wan-ant 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 Warrantholder and the Company, except that any
waiver of any term or condition, or
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<PAGE> 20
any amendment or supplement, of this Warrant must 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 affect, limit or waive a party's rights hereunder
at any time to enforce strict compliance thereafter with any term or condition
of this Warrant.
8.4 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.
8.5 Filing of Warrant. A copy of this Warrant shall be filed in
the records of the Company.
8.6 Notice. Any notice or other document required or permitted to be
given or delivered to the Warrantholders shall be delivered personally, or
sent by certified or registered mail, to each such holder at the last address
shown on the books of the Company maintained at the Warrant Office for the
registration of, and the registration of transfer of, the Warrants or at any
more recent address of which any Warrantholder 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 office of the Company at 511 Commerce Road, Alice,
Texas 78333, attention: President, or such other address within the United
States of America as shall have been furnished by the Company to the
Warrantholders and the holders of record of Warrant Shares.
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8.7 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 notice, 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 Warrant Shares or
as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
8.8 Loss, Destruction, Etc. of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
any Warrant, and in the case of any such loss, theft or destruction, upon
delivery of a bond of indemnity 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 the 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 8.8
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.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its name by its President.
DATED: 15th day of January, 1996.
PONDER INDUSTRIES, INC.
By: /s/ Larry Armstrong, President
Larry Armstrong President
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EXHIBIT A
SUBSCRIPTION NOTICE
Ponder Industries, Inc.
The undersigned, the holder of the foregoing Warrant, hereby elects
to exercise purchase rights represented by said Warrant for, and to purchase
thereunder, _________ shares of the Common Stock covered by said Warrant and
herewith makes payment in full therefor of $500,000 by certified or official
bank check payable to the order of the Company, and requests (a) that
certificates for such shares (and any securities or other property issuable
upon such exercise) be issued in the name of and delivered to Eagle Management
Services Limited whose address is ____________________________ and (b) if such
shares shall not include all of the shares issuable as provided in said
Wan-ant, that a new Warrant of like tenor and date for the balance of the
shares issuable thereunder be delivered to the undersigned.
Eagle Management Services Limited
By: /s/ William Vincent Walker
Signature Guaranteed:
Dated:
April 15, 1996
0223746
<PAGE> 24
EXHIBIT B
ASSIGNMENT
FOR VALUE RECEIVED,the undersigned hereby sells, assigns and
transfers unto __________________________________________ the rights
to ________ shares of Common Stock represented by the foregoing
Warrant of Ponder Industries, Inc., and appoints
________________________________________ attorney to transfer said
rights on the books of said corporation, with full power of
substitution.
<PAGE> 1
EXHIBIT 10.5
WARRANT
To Purchase Common Stock, $.01 par value, of
PONDER INDUSTRIES, INC.
Exercisable until March 2, 1998
THIS IS TO CERTIFY THAT, for value received, Atlantic Holdings Limited,
or its assigns, is entitled to purchase from Ponder Industries, Inc., a
Delaware corporation (the "Company"), from 9:00 a.m., local time, on January
2, 1996 until 5:00 p.m., local time, on March 2, 1998, (the "Exercise Period")
at the place where the Warrant Office is located, up to 500,000 shares of
Common Stock, $.01 par value of the Company (the "Common Stock"), at a
purchase price of $2 per share, such purchase price subject to adjustment (the
"Current Warrant Price"), and is entitled also to exercise the other
appurtenant rights, powers and privileges hereinafter set forth. This Warrant
is granted in connection with the purchase by the holder of 750,000 shares of
the Common Stock of the Company made on December 22, 1995.
Certain terms used in this Warrant are defined in Article VI.
Page 1
<PAGE> 2
ARTICLE I
EXERCISE OF WARRANT
1.1 Method of Exercise. To exercise this Warrant in whole or in part,
the holder hereof shall during the Exercise Period deliver to the Company, at
the Warrant Office designated pursuant to Section 2.1: (a) a written notice
(in the form of Exhibit A) of such holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be
purchased; (b) a certified or bank cashier's check payable to the order of the
Company in an amount equal to the aggregate Current Warrant Price for the
number of shares of Common Stock being purchased; and (c) this Warrant.
Subject to the satisfaction of Article 111, the Company shall, as promptly as
practicable and in any event within 14 days thereafter, execute and deliver or
cause to be executed and delivered, in accordance with said notice, a
certificate or certificates representing the aggregate number of shares of
Common Stock specified in said notice. The stock certificate or certificates
so delivered shall be in denominations of 100 shares each or such lesser or
greater denominations as may be specified in said notice and shall be issued
in the name of such holder or such other name as shall be designated in said
notice. If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of the certificate or certificates, deliver to
the holder a new Warrant evidencing the rights to purchase the remaining
shares of Common Stock called for by this Warrant, which new Warrant shall in
all other respects be identical with this Warrant, or, at the request of the
holder, appropriate notation may be made on this Warrant which shall be
returned to the holder. The Company shall pay all expenses, taxes and other
charges payable in connection with the preparation, issuance and delivery of
stock certificates and new
Page 2
<PAGE> 3
Warrants, except that, in case stock certificates or new Warrants shall be
registered in a name or names other than the name of the holder of this
Warrant, funds sufficient to pay all stock transfer taxes, which shall be
payable upon the issuance of stock certificates or new Warrants, shall be paid
by the holder hereof at the time of delivering the notice of exercise
mentioned above or promptly upon receipt of a written request of the Company
for payment.
1.2 Warrant Shares to be Fully Paid and Nonassessable. All shares
of Common Stock issued upon the exercise of this Warrant shall be validly
issued, fully paid and nonassessable.
1.3 No Fractional Shares to be Issued. The Company shall not be
required upon any exercise of this Warrant to issue a certificate representing
any fraction of a share of Common Stock, but, in lieu thereof, shall pay to
the holder of this Warrant cash in the amount equal to a corresponding
fraction (calculated to the nearest I/ I 00 of a share) of the Current Market
Price of one share of Common Stock as of the date of receipt by the Company of
notice of exercise of this Warrant.
1.4 Legend on Warrant and Warrant Shares. Any warrant issued at any
time in exchange or substitution of this Warrant, unless at the time of
exchange or substitution the Warrant or Warrant Shares are registered under
the 1933 Act, or there is an exemption from registration.
Each certificate evidencing Warrant Shares issued upon exercise of
this Warrant, unless at the time of exercise or transfer the Warrant or such
Warrant Shares are registered under the 1933 Act, or an exemption is
available, shall bear a legend (and any additional legend required by any
national securities exchanges upon which such Warrant Shares may, at the time
of such
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exercise, be listed).
ARTICLE II
WARRANT OFFICE; TRANSFER,
DIVISION OR COMBINATION OF WARRANTS
2.1 Warrant Office. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's office at 511 Commerce Road, Alice, Texas 78333, 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 all of the Warrantholders.
2.2 Ownership of Warrant. The Company may deem and treat the person
in whose name this Warrant is 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.
2.3 Transfer of Warrant. The Company agrees to maintain at the
Warrant Office books for the registration of permitted transfer of the
Warrants, and this Warrant and all rights hereunder are transferable, in whole
or in part, on the books at that office, upon surrender of this Warrant at
that office, together with a written assignment of this Warrant (in the form
of Exhibit B) duly executed by the holder hereof or his duly authorized agent
or attorney and funds sufficient to pay any transfer taxes payable upon the
making of the transfer. Upon surrender and payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denominations specified in the instrument of
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assignment, and this Warrant shall promptly be canceled.
2.4 Division or Combination of Warrants. This Warrant may be divided
or combined with other Warrants upon presentation hereof and of any Warrant or
Warrants with which this Warrant is to be combined at the Warrant Office,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the holders hereof and thereof or
their respective duty authorized agents or attorneys. Subject to compliance
with Section 2.3 as to any transfer which may be involved in the division or
combination, the Company shall execute and deliver a new Warrant or Warrants
in exchange for the Warrant or Warrants to be divided or combined in
accordance with the notice.
2.5 Expenses of Delivery of Warrants. The Company shall pay all
expenses, taxes (other than transfer taxes), and other charges payable in
connection with the preparation, issuance and delivery of Warrants hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Holder.
(a) The holder represents and warrants to the Company that
it is acquiring the Warrant and, in the event that it should acquire Warrant
Shares upon exercise of the Warrant, that the holder will be acquiring the
Warrant Shares, for its own account, for investment and not with a view to the
distribution thereof within the meaning of the 1933 Act.
(b) The holder understands that the Warrant has not been,
and the Warrant Shares issuable upon exercise of the War-rant may not be,
registered under the 1933 Act, by reason of their issuance by the Company in a
transaction exempt from the registration
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<PAGE> 6
requirements of the 1933 Act; and that the Warrant and the Warrant Shares must
be held by the holder indefinitely unless a subsequent disposition thereof is
registered under the 1933 Act or is exempt from registration.
(c) The holder further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to the
holder) promulgated under the 1933 Act depends on the satisfaction of various
conditions, and that, if applicable, Rule 144 may afford the basis for sales
only in limited amounts.
(d) The holder further represents and warrants that it is an
"accredited investor" as defined in Rule 50 1 (a) promulgated under the 1933
Act.
ARTICLE IV
ADJUSTMENT PROVISIONS
4.1 Adjustment of Number of Shares.
Upon each adjustment of the Current Warrant Price as provided in
Section 4.2, the holder of this Warrant shall thereafter be entitled to
purchase, at the Current Warrant Price resulting from such adjustment, the
number of shares (calculated to the nearest 1/100 of a share) obtained by
multiplying the Current War-rant 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 Current
Warrant Price resulting from such adjustment.
4.2 Adjustment of Current Warrant Price. The Current Warrant
Price shall be subject to adjustment from time to time as follows:
(a) If, at any time subsequent to the date of the issue
of this Warrant and
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prior to the expiration of the Exercise Period, the number of shares of Common
Stock outstanding is increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of Common Stock, then
immediately after the record date fixed for the determination of holders of
Common Stock entitled to receive such stock dividend, subdivision or split-up,
the Current Warrant Price shall be appropriately decreased so that the number
of shares of Common Stock issuable on exercise of the Warrant shall be
increased in proportion to such increase in outstanding shares.
(b) If, at any time subsequent to the date of the issue of
this Warrant and prior to the expiration of the Exercise Period, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then immediately after the record date for
such combination, the Current Warrant Price shall be appropriately increased
so that the number of shares of Common Stock issuable on exercise of the
Warrant shall be decreased in proportion to such decrease in outstanding
shares.
(c) In case the Company, at any tune subsequent to the date
of the issue of this Warrant and prior to the expiration of the Exercise
Period, shall distribute to all holders of its Common Stock evidences of its
indebtedness or assets (excluding any regular cash dividend) or rights to
subscribe for or warrants to purchase (excluding those referred to in
paragraph (d) below) shares of Common Stock, then in each such case the
Current Warrant Price shall be adjusted so that the same shall equal the price
determined by multiplying the Current Warrant Price in effect immediately
prior to the date of such distribution by a fraction whose numerator shall be
the Current Market Price on the record date for the distribution less the fair
market value (as determined in good faith by the Board of Directors) of the
portion of
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<PAGE> 8
the assets or evidences of indebtedness so distributed or of such subscription
rights or warrants applicable to one share of Common Stock, and whose
denominator shall be such Current Market Price. Such adjustment shall be made
whenever any such distribution is made and shall be retroactively effective as
of immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(d) In case the Company, at any time subsequent to the date
of the issue of this Warrant and prior to the expiration of the Exercise
Period, shall issue any warrants, rights or options to subscribe for or
purchase shares of Common Stock or shall issue any Common Stock, other than
pursuant to warrants, rights or options outstanding on the date of the issue
of this Warrant, or securities convertible into Common Stock at a price per
share less than the Current Market Price (as defined in Article VI), the
Current Warrant Price shall be adjusted by multiplying the then existing
Current Warrant Price by a fraction, the numerator of which is the sum of (i)
the number of shares of Common Stock outstanding immediately prior to such
issue plus (ii) the number of shares which the aggregate offering price of the
total number of shares so offered pursuant to the warrants, rights, options or
convertible securities would purchase at the Current Market Price and the
denominator of which is the sum of (i) the number of shares of Common Stock
outstanding immediately prior to such issue plus (ii) the maximum number of
additional shares of Common Stock offered for subscription or purchase or
issuable upon conversion of convertible securities offered for subscription or
purchase. For the purpose of the foregoing computation, the aggregate offering
price of the shares of Common Stock issuable upon exercise of convertible
securities shall be deemed to be the consideration paid to the Company in
respect of the purchase of such convertible securities plus
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<PAGE> 9
the additional consideration, if any, payable to the Company upon the exercise
of the right of conversion or exchange in such convertible securities. For the
purpose of any adjustment of the Current War-rant Price pursuant to this
paragraph in the case of an issue of any of the aforementioned securities for
a purchase price other than cash, the consideration received by the Company
therefor shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors. Adjustments pursuant to
this paragraph shall become effective immediately after the issuance of such
warrants, rights, options or Common Stock or convertible securities; provided
that if such warrants, rights, options or the rights of conversion of such
convertible securities shall expire without being exercised, the Current
Warrant Price shall be recomputed as if the total number of shares of Common
Stock so offered pursuant to the warrants, rights, options or convertible
securities were that number of shares actually issued upon the exercise or
conversion.
(e) In case, during the Exercise Period, of any capital
reorganization, or any reclassification of the stock of the Company (other
than a change in par value or from par value to no par value or from no par
value to par value or as a result of a stock dividend or subdivision, split-up
or combination of shares), or the consolidation or merger of the Company with
or into another person (other than a consolidation or merger in which the
Company is the continuing corporation and the Common Stock of the Company
remains outstanding and unchanged) or of the sale or other disposition of all
or substantially all the properties and assets of the Company as an entirety
to any other person, the Warrant shall after such reorganization,
reclassification, consolidation, merger, sale or other disposition be
exercisable for the kind and number of shares of stock or other securities or
property of the Company, or of the corporation
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<PAGE> 10
resulting from such consolidation or surviving such merger or to which such
properties and assets shall have been sold or otherwise disposed, to which the
holder of the number of shares of Common Stock deliverable (immediately prior
to the time of such reorganization, reclassification, consolidation, merger,
sale or other disposition) upon exercise of the Warrant would have been
entitled upon such reorganization, reclassification, consolidation, merger,
sale or other disposition. The provisions of this paragraph shall similarly
apply to successive reorganizations, reclassifications, consolidations,
mergers, sales or other dispositions.
(f) All calculations under this Section 4.2 shall be made to
the nearest cent ($.01) or to the nearest 1/100 of a share, as the case may
be.
(g) In any case in which the provisions of this Section 4.2
shall require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of such
event (i) issuing to the holder of the Warrant exercised after such record
date and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon such exercise
before giving effect to such adjustment and (ii) paying to such holder any
amount in cash in lieu of a fractional share of capital stock pursuant to
Section 1.3 above; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares, and such cash, upon the occurrence of
the event requiring such adjustment.
4.3 Notice of Adjustment of Current Warrant Price.
(a) Whenever the Current Warrant Price shall be adjusted
as provided in
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Section 4.2 above, the Company shall forthwith file, at the office of the
transfer agent for the Company, or at such other place as may be designated by
the Company, a statement, signed by its independent certified public
accountants, showing in detail the facts requiring such adjustment and the
Current Warrant Price that shall be in effect after such adjustment. The
Company shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt requested, postage prepaid, to the holder of
the Warrant at such holder's address appearing on the Company's records. Where
appropriate, such copy may be given in advance and may be included as part of
a notice required to be mailed under the provisions of Section 4.3(b) below.
(b) In the event the Company shall propose to take any
action of the types described in Section 4.2 (a), (b), (c), (d) or (e) the
Company shall give notice to the holder of the Warrant in the manner set forth
in Section 4.3(a) above, which notice shall specify the record date, if any,
with respect to any such action and the date on which such action is to take
place. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Current
Warrant Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon exercise of the Warrant. In the case of any action
which would require the fixing of a record date, such notice shall be given at
least seven days prior to the date so fixed, and in case of all other action,
such notice shall be given at least 15 days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
0223738
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<PAGE> 12
(c) Anything herein to the contrary notwithstanding, no
adjustment in the Current Warrant Price shall be required unless such
adjustment would require a change of at least 1% in the Current Warrant Price;
provided, that any adjustments which by reason of this Section 4.3(c) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
ARTICLE V.
REGISTRATION RIGHTS
5.1 Registration Rights.
(a) If the Warrantholder requests the Company in writing to
register at least 50% of the Warrant Shares under the 1933 Act (which request
shall specify that it is being made pursuant to this Article V and shall
contain the undertaking of the Warrantholder to provide all such information
and to take all such action as may be required in order to permit the Company
to comply with all applicable requirements of the 1933 Act and the Commission
and to obtain acceleration of the effective date of the registration
statement), the Company will cause the offering of Warrant Shares designated
in such request to be registered under the 1933 Act as soon as practicable.
Upon any such registration statement becoming effective, the Company shall
keep such registration statement current for a period not to exceed nine
months. The Company shall make such filings, and will use its best efforts to
cause such filings to become effective, so that the Warrant Shares shall be
registered or qualified for sale under the securities or Blue Sky laws of such
jurisdictions as shall be requested by the Warrantholder and the managing
underwriter, if any, for the distribution of the Warrant Shares covered by
such registration statement; provided, that the Company shall not be required
to qualify as a
0223738
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<PAGE> 13
foreign corporation to do business under the laws of any jurisdiction in which
it is not then qualified or to file any general consent to service of process.
(b) If the Company shall at any time propose the
registration under the 1933 Act of an offering of Common Stock solely for cash
on a form that would also permit registration of the Warrant Shares, the
Company shall give notice to the Warrantholder as promptly as possible of such
proposed registration and the Company will cause the offering of such number
of Warrant Shares as the Warrantholder shall request within 10 business days
after the receipt of such notice to be included, upon the same terms
(including the method of distribution), in any such offering; provided, that:
(i) the Company shall not be required to give notice or to include Warrant
Shares in any such registration if the proposed registration is (A) a
registration of a dividend reinvestment, stock option, employee benefit or
compensation plan or of securities issued or issuable pursuant to any such
plan or (B) a registration of securities proposed to be issued in exchange for
securities or assets of, or in connection with a merger or consolidation with,
another entity; (ii) if the Company is advised in writing by its underwriters
that the inclusion of all or any portion of such Warrant Shares would in their
opinion jeopardize the success of the proposed offering, the Company may
exclude all or such portion of such Warrant Shares from registration, provided
that if other selling shareholders who are employees or directors of the
Company have requested registration of securities in the proposed offering,
the Company will reduce or eliminate such other selling shareholders'
securities before any reduction of Warrant Shares; (iii) the offering of such
Warrant Shares by the Warrantholder shall be on the same terms as the offering
by the Company; and (iv) the Company may, without the consent of the
Warrantholder, withdraw such registration statement
0223738
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<PAGE> 14
and abandon the proposed offering in which the Warrantholder had requested to
participate.
(c) The obligation of the Company under this Section 5.1
is subject to the following limitations:
(i) In the event of a registration under this
Section 5.1 the Company shall be responsible for all costs
of such registration, including, without limitation, all
printing expenses (including a reasonable number of
prospectuses for circulation by the Warrantholder), all
legal fees and disbursements of the Company's counsel, Blue
Sky expenses, accounting fees of the Company and filing
fees, but not including underwriters' discounts and
commissions attributable to the Warrant Shares;
(ii) The Company shall not be obligated to provide
more than one registration pursuant to paragraph (a) or more
than one registration pursuant to paragraph (b); provided,
that in the event any Warrant Shares are excluded in an
initial registration pursuant to paragraph (b) or in the
event such registration is withdrawn or abandoned by the
Company, the Warrantholder shall have additional
registration rights pursuant to such subsection until such
time as the Warrant Shares originally proposed to be
registered thereunder have been registered pursuant to this
Section; and
(iii) The Company, the Warrantholder and any
underwriter of an offering pursuant to any registration
statement provided for in paragraph (b) shall have entered
into an underwriting agreement containing provisions with
respect to the indemnification of the aforementioned parties
in connection with
0223738
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<PAGE> 15
the preparation and use of such registration statement in
form and substance satisfactory to the Company and such
underwriters.
ARTICLE VI
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise
requires, the following terms shall have the following respective meanings:
"1933 Act": the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder, all as
the same shall be in effect at the time.
"Commission": the Securities and Exchange Commission, or any
other federal agency then administering the 1933 Act.
"Common Stock": the Company's authorized Common Stock, par
value $0.01 per share, as such class existed on the date of issuance
of this War-rant and any other securities as to which this Warrant
becomes exercisable pursuant to Article IV.
"Current Market Price" per share of Common Stock at any
date: the average of the daily closing prices for the 30 consecutive
business days ending no more than 15 days before the day in question
(as adjusted for any stock dividend, split-up, combination or
reclassification that took effect during such 30 business day
period). The closing price for each day shall be the last reported
sales price regular way or, if no such reported sales took place on
such day, the average of the last reported bid and asked prices
regular way, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading.
If the Common Stock is not
0223738
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<PAGE> 16
at that time listed or admitted for trading on any such exchange,
then the closing price for each day shall be the last trade price or,
if no such trade took place on such day, the average of the last
reported bid and asked prices, in either case as reported by the
National Association of Securities Dealers Automated Quotations
System ("NASDAQ") on such day (but if on any such day the security
shall not be quoted on NASDAQ, then such price shall be equal to the
last reported bid and asked prices on such day as reported by the
National Quotation Bureau, Inc., or, if not reported by it, by any
similar reputable quotation and reporting service). If the Common
Stock is not traded in such a manner that any quotation referred to
in this paragraph is available for the period required hereunder,
then the Current Market Price shall be deemed to be the greater of
(i) the Current Warrant Price or (ii) such price, if any, at which
the most recent issue and sale by the Company of Common Stock in an
arm's length transaction took place within the 180-day period prior
to the date on which the Current Market Price is to be determined;
provided, however, that in case the Company makes an underwritten
public offering of shares of Common Stock, for purposes of the
adjustment, if any, pursuant to Article IV, the Current Market Price
with respect to such shares shall be deemed to be the price to the
public shown in the final prospectus used in connection with such
public offering.
"Current Warrant Price": See the first paragraph on page 1.
"Exchange Act": the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect at the time.
0223738
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<PAGE> 17
"Outstanding": when used with reference to Common Stock at any
date, all issued shares of Common Stock (including, but without
duplication, shares deemed issued pursuant to Article IV) at such date,
except shares then held in the treasury of the Company.
"Person": any individual, corporation, partnership, trust,
unincorporated organization and any government, and any political
subdivision, instrumentality or agency thereof.
"Sell": as to the Warrant or the Warrant Shares, shall mean to
sell or in any other way directly or indirectly transfer, assign,
distribute, encumber or otherwise dispose of, either voluntarily or
involuntarily.
"Warrant Office": see Section 2. 1.
"Warrant Shares": the shares of Common Stock purchasable
or purchased by the holder upon the exercise of this Warrant.
"Warrantholders": the registered holder of a Warrant or
Warrants or any related Warrant Shares.
"Warrants": this warrant and all warrants issued in
substitution, combination or subdivision thereof.
ARTICLE VII
CERTAIN COVENANTS OF THE COMPANY
The Company covenants and agrees that:
(a) it will reserve and set apart and have at all times,
free from preemptive rights, a number of shares of authorized but unissued
Common Stock or other securities or
0223738
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<PAGE> 18
property deliverable upon the exercise of the Warrants sufficient to enable it
at any time to fulfill all its obligations hereunder.
(b) this Warrant shall be binding, and it will take all
action necessary to make this Warrant binding, upon any corporation succeeding
to the Company by merger, share exchange, consolidation, acquisition of all or
substantially all of the Company's assets or any similar transaction.
ARTICLE VIII
MISCELLANEOUS
8.1 Entire Agreement. This Warrant contains the entire agreement
between the Warrantholder and the Company with respect to the purchase of the
Warrant Shares and supersedes all prior arrangements or understandings with
respect thereto.
8.2 Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Texas.
8.3 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 Warrantholder and the Company, except that any
waiver of any term or condition, or any amendment or supplement, of this
Warrant must 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 affect, limit
or waive a party's rights hereunder at any time to enforce strict compliance
thereafter with any term or condition of this Warrant.
8.4 Illegality. In the event that any one or more of the
provisions contained in this
0223738
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<PAGE> 19
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.
8.5 Filing of Warrant. A copy of this Warrant shall be filed in
the records of the Company.
8.6 Notice. Any notice or other document required or permitted to be
given or delivered to the Warrantholders shall be delivered personally, or
sent by certified or registered mail, to each such holder at the last address
shown on the books of the Company maintained at the Warrant Office for the
registration of, and the registration of transfer of, the Warrants or at any
more recent address of which any Warrantholder 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 office of the Company at 511 Commerce Road, Alice,
Texas 78333, attention: President, or such other address within the United
States of America as shall have been furnished by the Company to the
Warrantholders and the holders of record of Warrant Shares.
8.7 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 notice, 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
0223738
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<PAGE> 20
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 Warrant Shares or
as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
8.8 Loss, Destruction, Etc. of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
any Warrant, and in the case of any such loss, theft or destruction, upon
delivery of a bond of indemnity 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 the 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 8.8
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.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its name by its President.
DATED: 15th day of January, 1996.
PONDER INDUSTRIES, INC.
By: /s/ Larry Armstrong, President
Larry Armstrong, President
0223738
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<PAGE> 21
EXHIBIT A
SUBSCRIPTION NOTICE
Ponder Industries, Inc.
The undersigned, the holder of the foregoing Warrant, hereby elects
to exercise purchase rights represented by said Warrant for, and to purchase
thereunder, 500,000 shares of the Common Stock covered by said Warrant and
herewith makes payment in full therefor of $1,000,000 by certified or official
bank check payable to the order of the Company, and requests (a) that
certificates for such shares (and any securities or other property issuable
upon such exercise) be issued in the name of and delivered to Atlantic
Holdings whose address is
and (b) if such shares shall not include all of the shares
issuable as provided in said Warrant, that a new Warrant of like tenor and
date for the balance of the shares issuable thereunder be delivered to the
undersigned.
Atlantic Holdings Limited
By: /s/ William Vincent Walter
Signature Guaranteed:
Dated:
April 15, 1996
0223738
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<PAGE> 22
EXHIBIT B
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ___________________ the rights to ____________ shares of
Common Stock represented by the foregoing Warrant of Ponder Industries, Inc.,
and appoints __________________________ attorney to transfer said rights on
the books of said corporation, with full power of substitution.
0223738
Page 22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) PONDER
INDUSTRIES, INC FINANCIAL STATEMENTS AT MAY 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 5,332,721
<SECURITIES> 0
<RECEIVABLES> 3,691,986
<ALLOWANCES> 0
<INVENTORY> 869,492
<CURRENT-ASSETS> 10,622,369
<PP&E> 25,705,069
<DEPRECIATION> 13,326,344
<TOTAL-ASSETS> 25,922,020
<CURRENT-LIABILITIES> 4,121,860
<BONDS> 9,885,417
<COMMON> 112,665
0
0
<OTHER-SE> 8,814,485
<TOTAL-LIABILITY-AND-EQUITY> 25,922,020
<SALES> 7,184,421
<TOTAL-REVENUES> 7,184,421
<CGS> 3,120,126
<TOTAL-COSTS> 4,438,422
<OTHER-EXPENSES> 526,905
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 444,251
<INCOME-PRETAX> (1,345,283)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,345,283)
<DISCONTINUED> 1,400,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,717
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
