<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
TUBOSCOPE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
<TABLE>
<CAPTION>
DELAWARE 1389 76-0252850
<C> <S> <C>
(PRIMARY STANDARD
(STATE OR OTHER JURISDICTION OF INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
--------------
2835 HOLMES ROAD
HOUSTON, TEXAS 77051
(713) 799-5100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
JAMES F. MARONEY, III
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
2835 HOLMES ROAD
HOUSTON, TEXAS 77051
(713) 799-5100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
PATRICK T. SEAVER
LATHAM & WATKINS
650 TOWN CENTER DRIVE
COSTA MESA, CALIFORNIA 92626
(714) 540-1235
--------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
--------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING PRICE AMOUNT OF
TO BE REGISTERED REGISTERED (1) (1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7 1/2% Senior Notes due
2008................... $100,000,000 100% $100,000,000 $29,500
Guarantees of 7 1/2%
Senior Notes due 2008.. -- -- -- (2)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee
for the guarantees is payable.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
Each of the following subsidiaries of Tuboscope Inc., and each other
subsidiary that is or becomes a guarantor of certain of the securities
registered hereby, is hereby deemed to be a Registrant.
<TABLE>
<CAPTION>
EXACT NAME AS SPECIFIED JURISDICTION OF INCORPORATION PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER
IN THEIR CHARTERS* OR ORGANIZATION CLASSIFICATION NUMBER IDENTIFICATION NUMBER
----------------------- ----------------------------- --------------------------- ---------------------
<S> <C> <C> <C>
Environmental Procedures Inc. Delaware SIC 1389 76-0380977
Fiber Glass Systems Holdings
Inc. Delaware SIC 3089 52-2048215
Tubo-FGS Inc. Delaware SIC 3089 74-2843661
Tuboscope (Holding U.S.) Inc. Delaware SIC 1389 76-0561266
Tuboscope I/P Inc. Delaware SIC 1389 76-0551156
Tuboscope Pipeline Services,
Inc. Texas SIC 7389 76-0259606
Tuboscope Vetco International
Inc. Texas SIC 1389 74-1473942
</TABLE>
- --------
* The address and telephone number of the principal executive offices are the
same as those of Tuboscope Inc.
<PAGE>
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
OFFER TO EXCHANGE
7 1/2% SENIOR NOTES DUE 2008 (THE "EXCHANGE NOTES")
FOR ALL OUTSTANDING 7 1/2% SENIOR NOTES DUE 2008 (THE "PRIVATE NOTES")
OF
[LOGO of TUBOSCOPE]
TUBOSCOPE
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 1998
UNLESS, EXTENDED.
--------------
Tuboscope Inc., a Delaware corporation (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 7 1/2% Senior Notes
due 2008 (the "Exchange Notes"), which exchange has been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which this Prospectus is a part (the "Registration
Statement"), for each $1,000 principal amount of its outstanding 7 1/2% Senior
Notes due 2008 (the "Private Notes"), of which $100,000,000 in aggregate
principal amount are outstanding as of the date hereof. The form and terms of
the Exchange Notes are the same as the form and terms of the Private Notes
except that (i) the exchange will have been registered under the Securities
Act, and, therefore, the Exchange Notes will not bear legends restricting the
transfer thereof, (ii) holders of the Exchange Notes will not be entitled to
certain rights of holders of the Private Notes under the Registration Rights
Agreement (as defined), and (iii) certain provisions relating to an increase
in the stated interest rate on the Private Notes provided for under certain
circumstances will be eliminated. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be entitled to
the benefits of an indenture dated as of February 25, 1998 governing the
Private Notes and the Exchange Notes (the "Indenture"). The Private Notes and
the Exchange Notes are sometimes referred to herein collectively as the
"Notes." See "The Exchange Offer" and "Description of the Notes."
The Notes are redeemable at any time at the option of the Company in whole
or in part, at a price equal to 100% of the principal amount, plus accrued and
unpaid interest, if any, to date of redemption plus a Make-Whole Premium (as
defined), if any, relating to the then prevailing Treasury Yield (as defined)
and the remaining life of the Notes. The Notes are senior unsecured
obligations of the Company and rank pari passu in right of payment with all
other existing and future senior indebtedness of the Company, including
borrowings under its bank credit facility (the "Bank Credit Facility"), and
rank senior in right of payment to any existing and future subordinated
indebtedness of the Company. The Private Notes are and the Exchange Notes will
be unconditionally guaranteed on a senior unsecured basis (the "Guarantees")
by certain of its subsidiaries so that the Notes are not structurally
subordinated to the Company's obligations under the Bank Credit Facility or
any other funded indebtedness of the Company that is guaranteed, from time to
time, by subsidiaries of the Company. The guarantee of the Notes by any
subsidiary of the Company may be released if, but only so long as, no other
funded indebtedness of the Company is guaranteed by such subsidiary. See
"Description of the Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will bear interest at
the rate of 7 1/2% per annum and the interest thereon will be payable semi-
annually on February 15 and August 15 of each year, commencing August 15,
1998. The Exchange Notes will bear interest from and including the date of
issuance of the Private Notes (February 25, 1998). Holders whose Private Notes
are accepted for exchange will be deemed to have waived the right to receive
any interest accrued on the Private Notes.
SEE "RISK FACTORS," BEGINNING ON PAGE 9, FOR A DISCUSSION OF CERTAIN FACTORS
THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------
THE COMPANY WILL ACCEPT FOR EXCHANGE ANY AND ALL VALIDLY TENDERED PRIVATE
NOTES NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE
DISCRETION (THE "EXPIRATION DATE"). TENDERS OF PRIVATE NOTES MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
THE EXCHANGE OFFER IS NOT CONDITIONED UPON ANY MINIMUM PRINCIPAL AMOUNT OF
PRIVATE NOTES BEING TENDERED FOR EXCHANGE. PRIVATE NOTES MAY BE TENDERED ONLY
IN INTEGRAL MULTIPLES OF $1,000. IN THE EVENT THE COMPANY TERMINATES THE
EXCHANGE OFFER AND DOES NOT ACCEPT FOR EXCHANGE ANY PRIVATE NOTES, THE COMPANY
WILL PROMPTLY RETURN ALL PREVIOUSLY TENDERED PRIVATE NOTES TO THE HOLDERS
THEREOF. THE EXCHANGE OFFER IS SUBJECT TO CUSTOMARY CONDITIONS. SEE "THE
EXCHANGE OFFER--CONDITIONS."
The date of this Prospectus is , 1998
<PAGE>
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
a person that is an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act; provided that the holder
is acquiring the Exchange Notes in the ordinary course of its business and is
not participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Private
Notes wishing to accept the Exchange Offer must represent to the Company, as
required by the Registration Rights Agreement, that such conditions have been
met. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Company believes that none of the
registered holders of the Private Notes is an affiliate (as such term is
defined in Rule 405 under the Securities Act) of the Company.
Prior to the Exchange Offer, there has been no public market for the Notes.
The Exchange Notes will not be listed on any securities exchange, but the
Private Notes are eligible for trading in the National Association of
Securities Dealers, Inc.'s Private Offerings, Resales and Trading through
Automatic Linkages (PORTAL) market. There can be no assurance that an active
market for the Notes will develop. To the extent that a market for the Notes
does develop, the market value of the Notes will depend on market conditions
(such as yields on alternative investments), general economic conditions, the
Company's financial condition and certain other factors. Such conditions might
cause the Notes, to the extent that they are traded, to trade at a significant
discount from face value. See "Risk Factors--Absence of Public Market for
Notes."
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus,
meeting the requirements of the Securities Act, in connection with any resale
of such Exchange Notes. Any broker-dealer that resells Exchange Notes that
were received by it for its own account pursuant to the Exchange Offer may be
deemed to be an "underwriter" within the meaning of the Securities Act. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of Exchange Notes received in exchange for
Private Notes where such Private Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities. The Company
has indicated its intention to make this Prospectus (as it may be amended or
supplemented) available to any broker-dealer for use in connection with any
such resale for a period of 90 days after the Expiration Date. See "The
Exchange Offer--Resale of the Exchange Notes" and "Plan of Distribution."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection
with this Exchange Offer. See "The Exchange Offer--Resale of the Exchange
Notes."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
i
<PAGE>
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
OFFERING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN CONNECTION
THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC"
or the "Depositary") and registered in its name or in the name of Cede & Co.,
as its nominee. Beneficial interests in the global note representing the
Exchange Notes will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary and its participants. After the
initial issuance of such global note, Exchange Notes in certificated form will
be issued in exchange for the global note only in accordance with the terms
and conditions set forth in the Indenture. See "Description of the Notes--The
Exchange Offer--Book-Entry Transfer" and "--Book Entry; Delivery and Form."
----------------
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act. When included in this Prospectus or in
documents incorporated herein by reference, the words "may," "expects,"
"intends," "anticipates," "plans," "projects," "estimates," and the negatives
thereof and analogous or similar expressions are intended to identify forward-
looking statements. Such statements, which include statements contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," are inherently subject to a variety of risks and
uncertainties that could cause actual results to differ materially from those
reflected in such forward-looking statements. Such risks and uncertainties
include, among others, the cyclical nature of the oilfield services industry,
risks associated with the Company's significant foreign operations, compliance
with the environmental laws, risks associated with growth through acquisitions
and various other matters, many of which are beyond the Company's control.
These forward-looking statements speak only as of the date of this Prospectus.
The Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statement contained
in this Prospectus to reflect any change in the Company's expectations with
regard thereto or any change in events, conditions or circumstances on which
any such statement is based.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) under the Securities Act with respect
to the Exchange Notes offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. For further
information with respect to the Company and the Exchange Notes offered hereby,
reference is made to the Registration Statement, including the exhibits
thereto and the financial statements, notes and schedules filed as a part
thereof. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act") and, in accordance therewith, files reports,
proxy statements and other information with the Commission. All such
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington D.C. 20549 and at the following Regional Offices of the
Commission:
ii
<PAGE>
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and New York Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Commission also maintains a web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission (http://www.sec.gov). In addition, the
Company's common stock, par value $.01 per share is listed for trading on the
New York Stock Exchange and reports, proxy statements and other information
concerning the Company may be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as any of the Notes
remain outstanding, it will furnish to the holders of the Notes and file with
the Commission (unless the Commission will not accept such filing) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such forms pursuant to the Exchange Act
including a "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and, with respect to the annual financial statements
only, a report thereon by the Company's independent accountants and (ii) all
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference the following documents:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1997;
(b) The sections of the Company's Proxy Statement for the May 8, 1998
Annual Meeting of Stockholders entitled "Voting Securities and Principal
Holders Thereof," "Executive Compensation--Summary Compensation Table," "--
Option Grants in Last Fiscal Year," "Aggregated Option Exercises in Last
Fiscal Year and Year-End Option Value," "--Management Agreements" and
"Certain Transactions"; and
(b) All other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to termination of the offering made hereby.
Any statement contained herein or in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
that also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH
PERSON TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED ON THE WRITTEN OR
ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY AND ALL OF THE DOCUMENTS
REFERRED TO ABOVE WHICH ARE INCORPORATED IN THIS PROSPECTUS BY REFERENCE,
OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). SUCH REQUESTS FOR DOCUMENTS
SHOULD BE DIRECTED TO TUBOSCOPE INC., 2835 HOLMES ROAD, HOUSTON, TEXAS 77051,
ATTENTION: SECRETARY, TELEPHONE NUMBER (713) 799-5100.
iii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information in this Prospectus, including
the consolidated financial statements of the Company (the "Consolidated
Financial Statements") and Notes thereto included elsewhere in this Prospectus.
Unless the context otherwise requires, reference to the "Company" or
"Tuboscope" shall mean Tuboscope Inc. and its subsidiaries.
THE COMPANY
The Company is a leading supplier of highly-engineered products and services
to the oil and gas drilling, production, and transmission industries worldwide.
It conducts operations in 54 countries, spanning every major oilfield market,
and believes it is the global market leader in products accounting for
approximately 89% of its 1997 revenue. The Company operates through four main
product lines: (i) Tubular Services, (ii) Solids Control Products & Services,
(iii) Coiled Tubing & Pressure Control Products, and (iv) Pipeline & Other
Industrial Services. These four main product lines generally serve to improve
efficiency and reduce the operating costs of oil and gas operations and span
all major activities comprising upstream oil and gas production, including
drilling, production and hydrocarbon transportation.
In 1997, the Company had record sales of $525.2 million, net income of $53.1
million (10.1% of sales) and earnings before interest, taxes, depreciation and
amortization ("EBITDA") of $125.5 million (23.9% of sales). The Company made
capital expenditures of $35.2 million in 1997. Revenues in 1997 were generated
in the United States (37%), Europe (20%), Latin America (18%), Canada (11%) and
other locations (14%). The Company was founded in 1937 and today employs
approximately 4,500 people worldwide. In 1997, compared to 1996, revenue grew
54%, gross profit before goodwill amortization grew 68%, EBITDA grew 73%, and
operating income grew 82%, excluding certain nonrecurring charges taken in
1996.
STRATEGY
The Company's strategy is to achieve significant earnings and cash flow
growth through (i) investment in promising internal growth opportunities and
(ii) the execution of attractive consolidating and growth acquisitions within
or related to the Company's four main product lines.
The Company's leading positions in high-growth segments within oilfield
services provide attractive reinvestment opportunities. The Company invests
aggressively in revenue-generating capital equipment, employee training,
product development and technology to achieve growth over both short-term and
long-term horizons, while striving to maintain a prudent capital structure. The
Company emphasizes superior customer service and technology leadership
throughout its operations.
The Company underwent major management, strategic and product mix changes
when it merged with D.O.S., Ltd. ("Drexel") in April 1996. Subsequently, the
Company successfully acquired and integrated 18 other businesses in 1996 and
1997, of which four were in the Company's Tubular Services market, ten were in
the Company's Solids Control Products & Services market, three were in the
Company's Coiled Tubing & Pressure Control Products market, and one was in the
Company's Pipeline & Other Industrial Services market. The criteria the Company
uses in evaluating acquisition opportunities include the potential for
operating efficiency savings; regional or product line consolidations;
potential for revenue enhancement; attractive valuations; and new products or
services which can benefit from the Company's technical expertise, geographic
coverage or market presence.
1
<PAGE>
BUSINESS LINES
Tubular Services is the Company's largest business line, accounting for
approximately 43% of its 1997 revenues. Tubular Services consists of the
provision of inspection and quality assurance services for tubular goods (such
as drill pipe, tubing, line pipe and casing), internal coating products and
services, and fiberglass tubulars (tubing, casing and line pipe), used
primarily in oil and gas operations. Additionally, Tubular Services includes
the sale and leasing of proprietary equipment used to inspect tubular products
at steel mills. The Company believes it is the largest provider of tubular
inspection and internal tubular coating services worldwide. The Company also
believes it is the second largest manufacturer and provider of fiberglass
tubulars for oilfield applications worldwide.
Solids Control Products & Services is the Company's second largest business
line, accounting for approximately 30% of its 1997 revenues. Solids Control
Products & Services consists of the sale and rental of technical equipment used
in, and the provision of services related to, the separation of drill cuttings
(solids) from fluids used in oil and gas drilling processes. The Company
believes it is the world's leading manufacturer and provider of solids control
equipment and services to the oil and natural gas drilling industry. The
Company believes the increased use of expensive synthetic drilling fluids and
certain environmental issues are leading to higher demand for highly-engineered
solids control products and closed loop drilling systems. Additionally, the
Company believes that rising awareness among oil and gas producers of the
drilling efficiency gains enabled by effective solids control technology will
spur further growth in the Solids Control Products and Services line.
Coiled Tubing and Pressure Control Products accounted for approximately 16%
of the Company's 1997 revenues. Coiled Tubing and Pressure Control Products
consists of the sale of highly-engineered coiled tubing, pressure control,
pressure pumping, wireline and related tools to companies engaged in providing
oil and gas well drilling, completion and remediation services. Use of coiled
tubing generally allows for continuous production of the well during servicing
operations, thereby eliminating the need to temporarily stop the flow of
hydrocarbons and significantly improving the economics of servicing a well. The
Company believes it is the world's largest manufacturer of coiled tubing
equipment, and that growing customer understanding and acceptance of the
technology and an increase in the number of applications for which it is useful
will lead to continued high growth in this market.
Pipeline & Other Industrial Services accounted for approximately 11% of the
Company's revenues. The Pipeline & Other Industrial Services product line
consists primarily of the provision of technical inspection services and
quality assurance for in-service pipelines used to transport oil and gas.
Industrial Services consists of inspection and monitoring services for the
construction, operation and maintenance of major projects in energy-related
industries. Driven by the advancing age of the world's pipelines, continued
construction of new pipelines and environmental and regulatory concerns, the
Company believes that the inspection of pipelines and related facilities will
continue to be a high growth market.
The Company's headquarters are located at 2835 Holmes Road, Houston, Texas
77051, and its telephone number is (713) 799-5100.
2
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer.......... The Company is offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Private Notes that
are properly tendered and accepted. The Company
will issue Exchange Notes on or promptly after
the Expiration Date. There is $100,000,000
aggregate principal amount of Private Notes
outstanding. See "The Exchange Offer--Purpose of
the Exchange Offer."
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Private Notes may be
offered for resale, resold and otherwise
transferred by a holder thereof (other than (i)
a broker-dealer who purchases such Exchange
Notes directly from the Company to resell
pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a
person that is an affiliate of the Company
within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery provisions
of the Securities Act; provided that the holder
is acquiring Exchange Notes in the ordinary
course of its business and is not participating,
and had no arrangement or understanding with any
person to participate, in the distribution of
the Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in
exchange for Private Notes, where such Private
Notes were acquired by such broker-dealer as a
result of market-making activities or other
trading activities, must acknowledge that it
will deliver a prospectus in connection with any
resale of such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received
by it for its own account pursuant to the
Exchange Offer may be deemed to be an
"underwriter" within the meaning of the
Securities Act. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the
meaning of the Securities Act. See "The Exchange
Offer--Resale of the Exchange Notes."
Registration Rights
Agreement................... The Private Notes were sold by the Company on
February 25, 1998 to Credit Suisse First Boston
Corporation, ABN AMRO Incorporated, Chase
Securities Inc. and Salomon Smith Barney
(collectively, the "Initial Purchasers")
pursuant to a Purchase Agreement, dated February
19, 1998, by and among the Company and the
Initial Purchasers (the "Purchase Agreement").
Pursuant to the Purchase Agreement, the Company
and the Initial Purchasers entered into a
Registration Rights Agreement, dated as of
February 25, 1998 (the "Registration Rights
Agreement"), which grants the holders of the
Private Notes certain exchange and registration
rights. The Exchange Offer is intended to
satisfy such
3
<PAGE>
rights, which will terminate upon the
consummation of the Exchange Offer. See "The
Exchange Offer--Termination of Certain Rights."
Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, unless the
Exchange Offer is extended by the Company in its
sole discretion, in which case the term
"Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
See "The Exchange Offer--Expiration Date;
Extensions; Amendments."
Accrued Interest on the
Exchange Notes and the
Private Notes.............. The Exchange Notes will bear interest from and
including the date of issuance of the Private
Notes (February 25, 1998). Holders whose Private
Notes are accepted for exchange will be deemed
to have waived the right to receive any interest
accrued on the Private Notes. See "The Exchange
Offer--Interest on the Exchange Notes."
Conditions to the Exchange
Offer...................... The Company reserves the right in its sole and
absolute discretion, subject to applicable law,
at any time and from time to time, (i) to delay
the acceptance of the Private Notes for
exchange, (ii) to terminate the Exchange Offer
if certain specified conditions have not been
satisfied, (iii) to extend the Expiration Date
of the Exchange Offer and retain all Private
Notes tendered pursuant to the Exchange Offer,
subject, however, to the right of holders of
Private Notes to withdraw their tendered Private
Notes, or (iv) to waive any condition or
otherwise amend the terms of the Exchange Offer
in any respect. See "The Exchange Offer--Terms
of the Exchange Offer." In addition, the
Exchange Offer is subject to certain customary
conditions that may be waived by the Company.
The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Private
Notes being tendered for exchange. See "The
Exchange Offer--Conditions."
Procedures for Tendering
Private Notes.............. Each holder of Private Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Private Notes
and any other required documentation to The Bank
of New York Trust Company of Florida, as
exchange agent (the "Exchange Agent"), at the
address set forth herein. By executing the
Letter of Transmittal, the Holder will represent
to and agree with the Company that, among other
things, (i) the Exchange Notes to be acquired by
such Holder of Private Notes in connection with
the Exchange Offer are being acquired by such
Holder in the ordinary course of its business,
(ii) if such Holder is not a broker-dealer, such
Holder is not currently participating in, does
not intend to participate in, and has no
arrangement or understanding with any
4
<PAGE>
person to participate in a distribution of the
Exchange Notes, (iii) such Holder is a broker-
dealer registered under the Exchange Act or is
participating in the Exchange Offer for the
purposes of distributing the Exchange Notes,
such Holder will comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with a secondary
resale transaction of the Exchange Notes
acquired by such person and cannot rely on the
position of the staff of the Commission set
forth in no-action letters (see "The Exchange
Offer--Resale of Exchange Notes"), (iv) such
Holder understands that a secondary resale
transaction described in clause (iii) above and
any resales of Exchange Notes obtained by such
Holder in exchange for Private Notes acquired by
such Holder directly from the Company should be
covered by an effective registration statement
containing the selling securityholder
information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission
and (v) such Holder is not an "affiliate," as
defined in Rule 405 under the Securities Act, of
the Company. Any broker-dealer that resells
Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer may
be deemed to be an "underwriter" within the
meaning of the Securities Act. If the Holder is
a broker-dealer that will receive Exchange Notes
for its own account in exchange for Private
Notes that were acquired as a result of market-
making activities or other trading activities,
such Holder will be required to acknowledge in
the Letter of Transmittal that such Holder will
deliver a prospectus in connection with any
resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus,
such Holder will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. See "The Exchange Offer--
Procedures for Tendering."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Private Notes in
the Exchange Offer should contact such
registered Holder promptly and instruct such
registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering such
owner's Private Notes, either make appropriate
arrangements to register ownership of the
Private Notes in such owner's name or obtain a
properly completed bond power from the
registered Holder. The transfer of registered
ownership may take considerable time and may not
be able to be completed prior to the Expiration
Date. See "The Exchange Offer-- Procedures for
Tendering."
Guaranteed Delivery
Procedures................. Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver
their Private Notes, the Letter of Transmittal
or any other
5
<PAGE>
documentation required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Private Notes
according to the guaranteed delivery procedures
set forth under "The Exchange Offer-- Guaranteed
Delivery Procedures."
Acceptance of the Private
Notes and Delivery of the
Exchange Notes............. Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company
will accept for exchange any and all Private
Notes that are properly tendered in the Exchange
Offer prior to the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer will
be delivered on the earliest practicable date
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Withdrawal Rights........... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders."
Certain Federal Income Tax
Considerations............. The exchange of Private Notes for Exchange Notes
will be treated as a "non-event" for federal
income tax purposes. As a result, no material
federal income tax consequences will result to
holders exchanging Private Notes for Exchange
Notes. See "Certain United States Federal Income
Tax Considerations."
Exchange Agent.............. The Bank of New York, the Trustee under the
Indenture, is serving as the Exchange Agent in
connection with the Exchange Offer. The mailing
address of the Exchange Agent is 101 Barclay
St.--Floor 7E, New York, New York 10286. For
assistance and requests for additional copies of
this Prospectus, the Letter of Transmittal or
the Notice of Guaranteed Delivery, the telephone
number for the Exchange Agent is (212) 815-4146,
and the facsimile number for the Exchange Agent
is (212) 815-6339.
6
<PAGE>
THE EXCHANGE NOTES
The Exchange Offer applies to the entire aggregate principal amount of the
Private Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof, (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement, and (iii) certain provisions relating
to an increase in the stated interest rate on the Private Notes provided for
under certain circumstances will be eliminated. The Exchange Notes will
evidence the same debt as the Private Notes (which they replace) and will be
issued under, and be entitled to the benefits of, the Indenture. For further
information and for definitions of certain capitalized terms used below, see
"Description of the Notes."
Securities Offered.......... $100,000,000 aggregate principal amount of 7 1/2%
Senior Notes due 2008 of the Company
Maturity Date............... February 15, 2008.
Interest Payment Dates...... February 15 and August 15 of each year,
commencing August 15, 1998.
Optional Redemption......... The Notes may be redeemed at any time, at the
option of the Company, in whole or in part, at a
price equal to 100% of the principal amount plus
accrued and unpaid interest (if any) to the date
of redemption plus a Make-Whole Premium (if any)
relating to the then prevailing Treasury Yield
and the remaining life of the Notes. See
"Description of the Notes--Optional Redemption."
Ranking and Guarantees...... The Exchange Notes will be senior unsecured
indebtedness of the Company and will rank pari
passu in right of payment with any existing and
future senior unsecured indebtedness of the
Company, including obligations under its Bank
Credit Facility and senior in right of payment
to all existing and future indebtedness that is,
by its terms, expressly subordinated to the
Notes. See "Capitalization." The Company's
obligations under the Exchange Notes will be
unconditionally guaranteed by certain of its
subsidiaries (the "Guarantors") so that the
Exchange Notes will not be structurally
subordinated to the Company's obligations under
the Bank Credit Facility or any other funded
indebtedness of the Company that is guaranteed,
from time to time, by subsidiaries of the
Company. The Indenture will provide for the
release and addition of subsidiaries of the
Company as guarantors and for the limitation of
the obligations of each guarantor under certain
circumstances. The guarantee of the Exchange
Notes by any subsidiary may be released if, but
only so long as, no other funded indebtedness of
the Company is guaranteed by such subsidiary.
See "Description of the Notes--Ranking and
Guarantees."
Covenants................... The Indenture contains covenants that limit the
Company's ability to incur indebtedness secured
by certain liens and to engage in certain
sale/leaseback transactions. These limitations
are subject to certain qualifications and
exceptions. See "Description of the Notes--
Certain Covenants."
RISK FACTORS
See the specific matters set forth under "Risk Factors" on pages 9 through 12
hereof, for a discussion of certain factors that should be considered in
connection with the Exchange Offer and an investment in the Exchange Notes.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data for the
Company and its subsidiaries as of and for the five years ended December 31,
1997. The summary financial data have been derived from the Company's audited
consolidated financial statements. The following data should be read in
conjunction with "Selected Historical Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $525,231 $341,431 $190,015 $192,175 $183,340
Operating profit (loss). 100,925 (21,281)(1) 27,460 27,048 2,445(1)
Income (loss) before
income taxes and
extraordinary loss..... 84,949 (34,988) 15,205 14,289 (10,807)
Net income (loss)....... 53,104 (49,599) 8,819 7,524 (12,859)
OTHER DATA:
EBITDA(2)............... $125,515 $ 72,633 $ 42,570 $ 40,859 $ 27,262
Ratio of EBITDA to
interest expense(3).... 8.7x 5.4x 3.5x 3.6x 2.6x
Ratio of earnings to
fixed charges(4)....... 6.8x 3.9x 2.2x 2.1x 1.2x
Depreciation and
amortization........... $ 26,110 $ 17,606 $ 15,037 $ 14,380 $ 14,218
Capital expenditures.... $ 35,190 $ 18,681 $ 7,645 $ 7,549 $ 14,640
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ 81,294 $ 74,393 $ 44,623 $ 35,926 $ 5,279
Total assets............ 686,167 505,165 306,679 317,027 310,108
Total debt.............. 218,377 184,743 111,617 123,851 101,489
Common stockholders'
equity................. 300,033 218,902 121,441 113,424 105,256
</TABLE>
- --------
(1) The 1996 operating loss includes $63.1 million of charges for the write-
off of certain assets, $11.3 million of Drexel transaction costs, and $2.2
million of charges for the write-off of Italian operations. Excluding
these costs, operating profit in 1996 was $55.3 million. The 1993
operating profit includes restructuring charges of $13.3 million.
Excluding these costs, operating profit in 1993 was $15.7 million.
(2) "EBITDA" means earnings before interest, taxes, depreciation,
amortization, restructuring charges, write-off of long-lived assets,
Drexel transaction costs, write-off of Italian operations and
extraordinary items and should not be considered as an alternative to net
income or any other generally accepted accounting principles measure of
performance as an indicator of the Company's operating performance or as a
measure of liquidity. The Company believes EBITDA is a widely accepted
financial indicator of a company's ability to service debt.
(3) Ratio of EBITDA to interest expense represents an industry ratio that
provides an investor with information as to the Company's current ability
to meet its interest costs.
(4) For the purpose of this calculation, "earnings" consist of net income
(loss) before income taxes, write-off of long-lived assets, Drexel
transaction costs, write-off of Italian operations, restructuring charges,
extraordinary items, and fixed charges. "Fixed charges" consist of
interest expense and amortization of debt discount and related expenses
believed by management to be representative of the interest factor
thereon. Earnings were insufficient to cover fixed charges by $35.0
million in 1996 if the write-off of long-lived assets, Drexel transaction
costs, and the write-off of Italian operations is included in 1996
earnings. Earnings were insufficient to cover fixed charges by $10.8
million in 1993 if restructuring charges are included in 1993 earnings.
8
<PAGE>
RISK FACTORS
Prior to making an investment in the Exchange Notes, prospective investors
should carefully consider all of the information contained and incorporated by
reference in this Prospectus and, in particular, should evaluate the following
risk factors.
RISKS ASSOCIATED WITH THE OIL AND GAS INDUSTRY
The oil and gas industry in which the Company participates historically has
experienced significant volatility. Demand for the Company's services and
products depends primarily upon the number of oil and gas wells being drilled,
the depth and drilling conditions of such wells, the volume of production, the
number of well completions and the level of workover activity. Drilling and
workover activity can fluctuate significantly in a short period of time,
particularly in the United States and Canada. The willingness of oil and gas
operators to make capital expenditures for the exploration and production of
oil and natural gas will continue to be influenced by numerous factors over
which the Company has no control, including the ability of the members of the
Organization of Petroleum Exporting Countries ("OPEC") to maintain price
stability through voluntary production limits, the level of production by non-
OPEC countries, worldwide demand for oil and gas, general economic and
political conditions, costs of exploration and production, availability of new
leases and concessions, and governmental regulations regarding, among other
things, environmental protection, taxation, price controls and product
allocations. No assurance can be given as to the level of future oil and gas
industry activity or demand for the Company's services and products.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Approximately 63% and 65% of the Company's revenues in 1996 and 1997,
respectively, were derived from operations outside the United States. The
Company's foreign operations, which include significant operations in Europe,
Latin America, Canada, the Far East and the Middle East, are subject to the
risks normally associated with conducting business in foreign countries,
including uncertain political and economic environments, which may limit or
disrupt markets, restrict the movement of funds or result in the deprivation
of contract rights or the taking of property without fair compensation.
Government-owned petroleum companies located in some of the countries in which
the Company operates have adopted policies (or are subject to governmental
policies) giving preference to the purchase of goods and services from
companies that are majority-owned by local nationals. As a result of such
policies, the Company relies on joint ventures, license arrangements and other
business combinations with local nationals in these countries. In addition,
political considerations may disrupt the commercial relationship between the
Company and such government-owned petroleum companies. Although the Company
has not experienced any significant problems in foreign countries arising from
nationalistic policies, political instability, economic instability or
currency restrictions, there can be no assurance that such a problem will not
arise in the future.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company is actively seeking strategic acquisitions that will provide
additional and complementary products, equipment and services. However, there
can be no assurance that attractive acquisitions will be available to the
Company at reasonable prices, or that the Company will successfully integrate
the operations and assets of any acquired business with its own or that the
Company's management will be able to manage effectively the increased size of
the Company or operate a new line of business. Any inability on the part of
the Company to integrate and manage acquired businesses and their assumed
liabilities could have a material adverse effect on the Company's results of
operations and financial condition. The Company may incur substantial
indebtedness to finance future acquisitions. There can be no assurance that
the Company will be able to obtain any such financing or that, if available,
such financing will be on terms acceptable to the Company. Acquisitions may
result in increased depreciation and amortization expense, increased interest
expense, increased financial leverage or decreased operating income, any of
which could have a material adverse effect on the Company's operating results.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Financial Condition and Liquidity."
9
<PAGE>
LEVERAGE
As of December 31, 1997, as adjusted for the issuance of the Notes and the
application of the net proceeds therefrom, the Company's total debt would have
been $236.9 million compared to total stockholders equity of $300.0 million.
See "Capitalization." The Company's level of indebtedness will have several
important effects on its operations, including (i) a substantial portion of
the Company's cash flow from operations will be dedicated to the payment of
interest on its indebtedness and will not be available for other purposes and
(ii) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate
purposes or other purposes may be impaired. Moreover, future acquisition or
development activities may require the Company to alter its capitalization
significantly. These changes in capitalization may significantly alter the
leverage of the Company. The Company's ability to meet its debt service
obligations and to reduce its total indebtedness will be dependent upon the
Company's future performance, which will be subject to general economic
conditions and to financial, business and other factors affecting the
operations of the Company, many of which are beyond its control. There can be
no assurance that the Company's future performance will not be adversely
affected by such economic conditions and financial, business and other
factors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Condition and Liquidity."
Furthermore, to the extent that the Company is unable to repay the principal
amount of the Notes at maturity out of cash on hand, it will need to refinance
the Notes, or repay the Notes with the proceeds of an equity offering, at or
prior to their maturity. There can be no assurance that the Company will be
able to generate sufficient cash flow to service its interest payment
obligations under its indebtedness or that future borrowings or equity
financing will be available for the payment or refinancing of the Company's
indebtedness. To the extent that the Company is not successful in negotiating
renewals of its borrowings or in arranging new financing, it may have to sell
significant assets, which would have a material adverse effect on the
Company's business and results of operations. Among the factors that will
affect the Company's ability to effect an offering of its capital stock or
refinance the Notes are financial market conditions and the value and
performance of the Company at the time of such offering or refinancing. There
can be no assurance that any such offering or refinancing can be successfully
completed. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Financial Condition and Liquidity" and "Description
of Certain Indebtedness."
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION
Substantially all of the Company's operating income and cash flow is
generated by its subsidiaries. As a result, funds necessary to meet the
Company's debt service obligations are provided in part by distributions or
advances from its subsidiaries. Under certain circumstances, contractual and
legal restrictions, as well as the financial condition and operating
requirements of the Company's subsidiaries, could limit the Company's ability
to obtain cash from its subsidiaries for the purpose of meeting its debt
service obligations, including the payment of principal and interest on the
Notes. Although holders of the Notes are direct creditors of the Company's
material United States subsidiaries by virtue of the Guarantees (as defined
herein), the Company has other subsidiaries ("Non-Guarantor Subsidiaries"),
including its foreign subsidiaries, that are not included among the Guarantors
(as defined herein), and such Non-Guarantor Subsidiaries are not obligated
with respect to the Notes or the Bank Credit Facility although they generate a
substantial portion of the Company's operating income and cash flow. As a
result, the claims of creditors of the Non-Guarantor Subsidiaries effectively
have priority with respect to the assets and earnings of such companies over
the claims of creditors of the Company, including the holders of the Notes. In
the event of an insolvency, liquidation or reorganization of a Non-Guarantor
Subsidiary, any creditors of such Non-Guarantor Subsidiary, including trade
creditors, would be entitled to payment in full from the assets of such Non-
Guarantor Subsidiary before the Company, as a stockholder, would be entitled
to receive any distribution therefrom.
FRAUDULENT CONVEYANCE RISKS
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the issuance of the Guarantees. To the extent that a court were
to find that (x) a Guarantee was incurred by a Guarantor with intent to
hinder, delay or defraud any present or future creditor of such Guarantor or
such Guarantor contemplated insolvency with a design to prefer one or more of
its creditors to the exclusion in whole or in part of others,
10
<PAGE>
(y) a Guarantor did not receive fair consideration or reasonably equivalent
value for issuing its Guarantee and such Guarantor (i) was insolvent, (ii) was
rendered insolvent by reason of the issuance of its Guarantee, (iii) was
engaged or about to engage in a business or transaction for which the
remaining assets of such Guarantor constituted unreasonably small capital to
carry on its business or (iv) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, the court
could avoid or subordinate such Guarantee in favor of other creditors of such
Guarantor. Among other things, a legal challenge of any Guarantee may focus on
the benefits, if any, realized by such Guarantor as a result of the Company's
issuance of the Notes. The Guarantees will contain a savings clause, which
generally will limit the obligation of any Guarantor under its Guarantee to
the maximum amount as will, after giving effect to all of the liabilities of
such Guarantor, result in such obligation not constituting a fraudulent
conveyance. To the extent a Guarantee was avoided or limited as a fraudulent
conveyance or held unenforceable for any other reason, holders of the Notes
would cease to have any claim against such Guarantor and would be creditors
solely of the Company and the other Guarantors. In that event, the claims of
holders of the Notes against such Guarantor would be subject to the prior
payment of all liabilities (including trade payables) of such Guarantor. There
can be no assurance that, after providing for all prior claims, there would be
sufficient assets to satisfy the claims of the holders of the Notes relating
to any avoided portion of any Guarantee.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally,
however, a guarantor may be considered insolvent if the sum of its debts,
including contingent liabilities, is greater than the fair market value of all
of its assets at a fair valuation or if the present fair market value of its
assets is less than the amount that would be absolute and mature. Based upon
financial and other information including the terms of the Guarantees, the
Company believes that the Guarantors are solvent and will continue to be
solvent after issuing the Guarantees, will have sufficient capital for
carrying on their business after such issuance and will be able to pay their
debts as they mature. There can be no assurance, however, that a court passing
on such standards would agree with such beliefs. See "Description of the
Notes--Ranking and Guarantees."
OPERATING RISK AND LEGAL PROCEEDINGS
The operations of the Company involve many risks, which even through a
combination of experience, knowledge and careful evaluation may not be
overcome. These risks include equipment failures, pipeline ruptures and other
accidents which could also result in personal injury, property damages,
pollution and other environmental risks. Although the Company maintains
insurance in accordance with customary industry practice, the Company may not
be fully insured against possible losses pursuant to such risks. Such losses
could have a material adverse impact on the Company. In addition, from time to
time the Company is involved in various litigation matters arising in the
ordinary course of its business and is currently involved in numerous legal
proceedings in connection with its operations and those of its acquired
companies. The Company believes that, based upon insurance, indemnification
obligations from third parties, and the Company's legal defenses that none of
these legal proceedings will have a material adverse effect on the results of
operation or financial condition of the Company. There can be no absolute
assurance that the indemnity obligations, insurance coverage or legal defenses
will always be sufficient to protect the Company from incurring substantial
liability as a result of these types of proceedings. For a description of the
Company's legal proceedings, see Item 3 Legal Proceedings included in the
Company's 1997 Annual Report on Form 10-K incorporated herein by reference.
ENVIRONMENTAL REGULATION
The Company is subject to numerous local, state and federal laws and
regulations concerning the containment and disposal of hazardous materials,
pursuant to which the Company has been required to incur compliance and clean-
up costs, which costs have not been material. The Company's inspection,
coating and solids control services routinely involve the handling of waste
materials, some of which may be considered to be hazardous wastes. Compliance
with environmental laws and regulations due to currently unknown circumstances
or developments, however, could result in substantial costs and have a
material adverse effect on the Company's results of operations and financial
condition.
11
<PAGE>
ABSENCE OF PUBLIC MARKET FOR NOTES
The Private Notes have not been registered under the Securities Act or any
state securities law and, unless so registered, may not be offered or sold
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and any applicable state
securities laws.
Although the Exchange Notes may be resold or otherwise by the holders (who
are not affiliates of the Company) without compliance with the registration
requirements under the Securities Act, they will be new securities for which
there is currently no established trading market. The Company does not intend
to apply for listing of the Exchange Notes on a national securities exchange
or for quotation of the Exchange Notes on an automated dealer quotation
system. Although the Initial Purchasers in the offering of the Private Notes,
have informed the Company that they currently intend to make a market in the
Exchange Notes, they are not obligated to do so, and any such market-making,
if initiated, may be discontinued at any time without notice. The liquidity of
any market for the Exchange Notes will depend upon the number of holders of
the Notes, the interest of securities dealers in making a market in the
Exchange Notes and other factors. Accordingly, there can be no assurance as to
the development or liquidity of any market for the Exchange Notes. If an
active trading market for the Exchange Notes does not develop, the market
price and liquidity of the Exchange Notes may be adversely affected. If the
Exchange Notes are traded, they may trade at a discount from their face value,
depending upon prevailing interest rates, the market for similar securities,
the performance of the Company and certain other factors.
Notwithstanding the registration of the Exchange Notes in the Exchange
Offer, holders who are "affiliates" (as defined under Rule 405 of the
Securities Act) of the Company may publicly offer for sale or resell the
Exchange Notes only in compliance with provisions of Rule 144 under the
Securities Act.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. Therefore, holders of Private Notes desiring to tender such
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Company is under
any duty to give notification of defects or irregularities with respect to
tenders of Private Notes for exchange. Private Notes that are not tendered or
are tendered but not accepted will, following consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof. In addition, any holder of Private Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or any other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer may be
deemed to be an "underwriter" within the meaning of the Securities Act. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. To the extent that
Private Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Private Notes could be
adversely affected due to the limited amount, or "float," of the Private Notes
that are expected to remain outstanding following the Exchange Offer.
Generally, a lower "float" of a security could result in less demand to
purchase such security and could, therefore, result in lower prices for such
security. For the same reason, to the extent that a large amount of Private
Notes are not tendered or are tendered and not accepted in the Exchange Offer,
the trading market for the Exchange Notes could be adversely affected. See
"Plan of Distribution" and "The Exchange Offer."
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<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on February 25, 1998 (the
"Closing Date") to the Initial Purchasers pursuant to the Purchase Agreement.
The Initial Purchasers subsequently sold the Private Notes to (i) "qualified
institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities
Act ("Rule 144A"), in reliance on Rule 144A and (ii) to certain persons in
offshore transactions in reliance on Regulations under the Securities Act. As
a condition to the sale of the Private Notes, the Company and the Initial
Purchasers entered into the Registration Rights Agreement on February 25,
1998. Pursuant to the Registration Rights Agreement, the Company agreed that,
unless the Exchange Offer is not permitted by applicable law or Commission
policy, it would (i) file with the Commission a Registration Statement under
the Securities Act with respect to the Exchange Notes within 60 days after the
Closing Date, and (ii) use its best efforts to cause such Registration
Statement to become effective under the Securities Act within 180 days after
the Closing Date. A copy of the Registration Rights Agreement has been filed
as an exhibit to the Registration Statement. The Registration Statement is
intended to satisfy certain of the Company's obligations under the
Registration Rights Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a Holder (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) who exchanges Private Notes for Exchange
Notes in the ordinary course of business and who is not participating, does
not intend to participate, and has no arrangement with any person to
participate, in a distribution of the Exchange Notes, will be allowed to
resell Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in the distribution of the
Exchange Notes or is a broker-dealer, such holder cannot rely on the position
of the staff of the Commission enumerated in certain no-action letters issued
to third parties and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available. Each broker-
dealer that receives Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Private Notes where such Private Notes were acquired by such
broker-dealer as a result of market-making or other trading activities.
Pursuant to the Registration Rights Agreement, the Company has agreed to make
this Prospectus, as it may be amended or supplemented from time to time,
available to broker-dealers for use in connection with any resale for a period
of 90 days after the Expiration Date. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Private Notes surrendered pursuant
to the Exchange Offer. Private Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear
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<PAGE>
legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to any of the rights of holders of the Private
Notes under the Registration Rights Agreement. The Exchange Notes will
evidence the same indebtedness as the Private Notes (which they replace) and
will be issued under, and be entitled to the benefits of, the Indenture, which
also authorized the issuance of the Private Notes, such that both series of
Notes will be treated as a single class of debt securities under the
Indenture.
As of the date of this Prospectus, $100,000,000 in aggregate principal
amount of the Private Notes are outstanding. Only a registered holder of the
Private Notes (or such holder's legal representative or attorney-in-fact) as
reflected on the records of the Trustee under the Indenture may participate in
the Exchange Offer. There will be no fixed record date for determining
registered holders of the Private Notes entitled to participate in the
Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, and (ii) mail to
the registered holders an announcement thereof which shall include disclosure
of the approximate number of Private Notes deposited to date, each prior to
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
The Company reserves the right, in its reasonable discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such
delay, extension or termination to the Exchange Agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders. If
the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 7 1/2% per annum.
Interest on the Exchange Notes will be payable semi-annually on each February
15 and August 15, commencing August 15, 1998. Holders of
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<PAGE>
Exchange Notes will receive interest on August 15, 1998 from the date of
initial issuance of the Exchange Notes, plus an amount equal to the accrued
interest on the Private Notes from the date of initial delivery to the date of
exchange thereof for Exchange Notes. Holders of Private Notes that are
accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile
thereof, have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile to the Exchange Agent at the address set forth below under "--
Exchange Agent" for receipt prior to the Expiration Date. In addition, either
(i) certificates for such Private Notes must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a book-
entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such
procedure is available, into the Exchange Agent's account at the Depositary
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the
holder must comply with the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name
or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box titled "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be made by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act which is a member of one of the recognized signature guarantee programs
identified in the Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
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<PAGE>
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes. All
questions as to the validity, form, eligibility (including time of receipt),
acceptance and withdrawal of tendered Private Notes will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Private Notes
not properly tendered or any Private Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Private Notes. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Private
Notes must be cured within such time as the Company shall determine. Although
the Company intends to notify holders of defects or irregularities with
respect to tenders of Private Notes, neither the Company, the Exchange Agent
nor any other person shall incur any liability for failure to give such
notification. Tenders of Private Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Private Notes that are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Private Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "--Conditions,"
to terminate the Exchange Offer and, to the extent permitted by applicable
law, purchase Private Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of the respective business of such holder, (ii)
such holder has no arrangement or understanding with any person to participate
in the distribution of the Exchange Notes, (iii) such holder acknowledges and
agrees that any person who is a broker-dealer registered under the Exchange
Act or is participating in the Exchange Offer for the purposes of distributing
the Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on
the position of the staff of the Commission set forth in certain no-action
letters, (iv) such holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange Notes obtained by
such holder in exchange for Private Notes acquired by such holder directly
from the Company should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 or Item
508, as applicable, of Regulation S-K of the Commission and (v) such holder is
not an "affiliate," as defined in Rule 405 under the Securities Act, of the
Company. If the holder is a broker-dealer that will receive Exchange Notes for
such holder's own account in exchange for Private Notes that were acquired as
a result of market-making activities or other trading activities, such holder
will be required to acknowledge in the Letter of Transmittal that such holder
will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, such
holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn or are submitted for a greater principal amount than the holders
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<PAGE>
desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Private Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depositary pursuant to the book-entry transfer
procedures described below, such Private Notes will be credited to an account
maintained with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in
accordance with the Depositary's procedures for transfer. However, although
delivery of Private Notes may be effected through book-entry transfer at the
Depositary, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date or pursuant
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Private Notes and
the principal amount of Private Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof), together with the certificate(s) representing the
Private Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to 5:00 P.M. on the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Private Notes to be withdrawn (the
"Depositor"), (ii) identify the Private Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Private Notes) and
(iii) be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such Private Notes
17
<PAGE>
were tendered (including any required signature guarantees). All questions as
to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company in its sole discretion, whose
determination shall be final and binding on all parties. Any Private Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Private Notes so withdrawn are validly retendered. Properly
withdrawn Private Notes may be retendered by following one of the procedures
described above under "The Exchange Offer--Procedures for Tendering" at any
time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates
applicable law, rules or regulations or an applicable interpretation of the
staff of the Commission.
If the Company reasonably determines that such condition (that the Exchange
Offer not violate applicable law, rules, regulations or interpretation of the
Staff) is not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders or (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders
to withdraw such Private Notes (see "--Withdrawal of Tenders").
LIQUIDATED DAMAGES
The Company has agreed pursuant to a registration rights agreement (the
"Registration Rights Agreement") with the Initial Purchasers, for the benefit
of the holders of the Private Notes, that the Company will, at its cost, (i)
within 60 days after the Issue Date, file a registration statement (the
"Exchange Offer Registration Statement") with the Securities and Exchange
Commission (the "Commission") with respect to the Exchange Offer to exchange
the Private Notes for Exchange Notes, which will have terms substantially
identical in all material respects to the Private Notes except that the
Exchange Notes will not contain terms with respect to transfer restrictions
and (ii) use its best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 180 days
after the Issue Date. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer the Exchange Notes in exchange
for surrender of the Notes. The Company will keep the Registered Exchange
Offer open for not less than 30 days (or longer if required by applicable law)
after the date notice of the Exchange Offer is mailed to the holders of the
Private Notes. For each Private Note surrendered to the Company pursuant to
the Exchange Offer, the holder of such Private Note will receive an Exchange
Note having a principal amount at maturity equal to that of the surrendered
Private Note at maturity. Interest on each Exchange Note will accrue from the
last interest payment date on which interest was paid on the Private Note
surrendered in exchange thereof or, if no interest has been paid on such
Private Note, from the date interest begins to accrue on such Private Note.
Under existing Commission interpretations, the Exchange Notes would be freely
transferable by holders other than affiliates of the Company after the
Exchange Offer without further registration under the Securities Act if the
holder of the Exchange Notes acquires the Exchange Notes in the ordinary
course of its business, has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes and is not an affiliate
of the Company, as such terms are interpreted by the Commission; provided,
however, that broker-dealers ("Participating Broker-Dealers") receiving
Exchange Notes in the Exchange Offer will have a prospectus delivery
requirement with respect to resales of such Exchange Notes. The Commission has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to Exchange Notes (other than a
resale of an unsold allotment from the original sale of the Notes) with the
prospectus contained in the Exchange Offer Registration Statement. Under the
Registration Rights Agreement, the Company is required to allow Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of such Exchange Notes.
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A holder of Private Notes (other than certain specified holders) who wishes
to exchange such Private Notes for Exchange Notes in the Exchange Offer is
required to represent that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the Exchange Offer it has no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes and that it is not an "affiliate" of the
Company, as defined in Rule 405 of the Securities Act, or if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such a Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the Issue
Date, or if the Initial Purchasers so request with respect to Notes not
eligible to be exchanged for Exchange Notes in the Exchange Offer, or if any
holder of Private Notes is not eligible to participate in the Exchange Offer
or does not receive freely tradable Exchange Notes in the Exchange Offer, the
Company, will, at its cost, (a) as promptly as practicable, file a shelf
registration statement (the "Shelf Registration Statement") with the
Commission covering resales of the Private Notes or the Exchange Notes, as the
case may be, (b) use its best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act and (c) keep the
Shelf Registration Statement effective until the earlier of (i) the time when
the Notes covered by the Shelf Registration Statement can be sold pursuant to
Rule 144 without any limitations under clauses (c), (e), (f) and (h) of Rule
144 and (ii) two years from the Issue Date. The Company will, in the event a
Shelf Registration Statement is filed, among other things, provide to each
holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is a part of the Shelf Registration Statement, notify each
such holder when the Shelf Registration Statement has become effective and
take certain other actions as are required to permit unrestricted resales of
the Private Notes or the Exchange Note, as the case may be. A holder selling
such Private Notes or Exchange Notes pursuant to the Shelf Registration
Statement generally would be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such holder (including
certain indemnification obligations).
If (i) by April 27, 1998, neither the Exchange Offer Registration Statement
nor the Shelf Registration Statement has been filed with the Commission; (ii)
by August 24, 1998, neither the Registered Exchange Offer is consummated nor
the Shelf Registration Statement is declared effective; or (iii) after either
the Exchange Offer Registration Statement or the Shelf Registration Statement
is declared effective, such Registration Statement thereafter ceases to be
effective or usable (subject to certain exceptions) in connection with resales
of Private Notes or Exchange Notes in accordance with and during the periods
specified in the Registration Rights Agreement (each such event referred to in
clause (i) through (iii) being herein called a "Registration Default" and each
period during which a Registration Default has occurred and is continuing, a
"Registration Default Period"), additional cash interest will accrue on the
Private Notes and the Exchange Notes at the rate of 0.25% per annum for the
first 90 days of the Registration Default Period and at the rate of 0.50% per
annum thereafter for the remaining portion of the Registration Default Period,
calculated on the principal amount of the Notes as of the date on which such
interest is payable. Such interest is payable in addition to any other
interest payable from time to time with respect to the Notes.
If the Company effects the Exchange Offer, it will be entitled to close the
Exchange Offer 30 business days after the commencement thereof provided that
it has accepted all Notes theretofore validly tendered in accordance with the
terms of the Exchange Offer.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
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TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify such
holders (including any broker-dealers) and certain parties related to such
holders against certain liabilities (including liabilities under the
Securities Act), (ii) to provide, upon the request of any holder of a
transfer-restricted Private Note, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Private Notes
pursuant to Rule 144A, (iii) use its best efforts to keep the Registration
Statement effective and to amend and supplement the prospectus in order to
permit the prospectus to be lawfully delivered by all persons subject to the
prospectus delivery requirements of the Securities Act for such period of time
as such persons must comply with such requirement in order to resell the
Exchange Notes and (iv) to provide copies of the latest version of the
Prospectus to broker-dealers upon their request for a period of not less than
90 days after the Expiration Date.
EXCHANGE AGENT
The Bank of New York Trust Company of Florida has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail or By Facsimile:
Overnight Delivery:
(212) 815-6339
The Bank of New York
Corporate Trust Operations Confirm by Telephone
101 Barclay St.--Floor 7E
New York, New York 10286 (212) 815-4146
</TABLE>
Delivery of the Letter of Transmittal to an address other than as set forth
above or transmission of instructions via facsimile other than as set forth
above does not constitute a valid delivery of such Letter of Transmittal.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$250,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax
is imposed for any reason other than the exchange of the Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
20
<PAGE>
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their
own decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Private Notes may be resold only (i) to a person whom the seller reasonably
believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii)
in a transaction meeting the requirements of Rule 144 under the Securities
Act, (iii) outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act, (iv) in
accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if the Company so
requests), (v) to the Company or (vi) pursuant to an effective registration
statement and, in each case, in accordance with any applicable securities laws
of any state of the United States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
21
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. In
consideration for issuing the Exchange Notes as contemplated in this
Prospectus, the Company will receive in exchange Private Notes in like
principal amount, the terms of which are identical in all material respects to
the Exchange Notes except that (i) the offering of the Exchange Notes has been
registered under the Securities Act, (ii) the Exchange Notes are not subject
to transfer restrictions and (iii) certain provisions relating to an increase
in the stated interest rate on the Private Notes provided for under certain
circumstances will be eliminated. The Private Notes surrendered in exchange
for Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in a change in the
indebtedness of the Company.
The net proceeds from the Private Offering, which were approximately $97.9
million after deducting discounts, commissions and estimated fees and expenses
incurred in connection therewith, were applied, in part, to repay
approximately $81.5 million of indebtedness outstanding under the Bank Credit
Facility. The remaining net proceeds (approximately $16.4 million) will be
used for future acquisitions, working capital and other general corporate
purposes. For a description of the indebtedness repaid with the proceeds of
the Private Offering, see "Description of Certain Indebtedness."
CAPITALIZATION
The following table sets forth the capitalization, including short-term
borrowings, of the Company at December 31, 1997 and as adjusted to reflect the
issuance of the Private Notes on February 25, 1998 and the use of the net
proceeds therefrom.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED
------------ -------------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C>
Short-term borrowings and current portion of long-
term debt........................................... $ 30,574 $ 30,574
Long-term debt (excluding current portion):
Bank Credit Facility............................... 175,352 93,832
7% Senior Notes due 2008........................... -- 100,000
Other.............................................. 12,451 12,451
------------ ------------
Total debt....................................... 218,377 236,857
Total stockholders' equity........................... 300,033 300,033
------------ ------------
Total capitalization including short-term borrowings. $ 518,410 $ 536,890
============ ============
</TABLE>
22
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data for the Company as of and for the five years ended December 31, 1997. The
summary financial data have been derived from the Company's audited
consolidated financial statements. The following data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue.................. $525,231 $341,431 $190,015 $192,175 $183,340
Cost of sales............ 362,251 243,854 138,367 140,462 137,188
Gross profit............. 162,980 97,577 51,648 51,713 46,152
Selling, general and
administrative expense.. 51,475 35,662 20,732 21,511 26,773
Research and engineering
costs................... 10,580 6,595 3,456 3,154 3,678
Write-off of assets and
restructure costs....... -- 76,601 -- -- 13,256
-------- -------- -------- -------- --------
Operating profit (loss).. 100,925 (21,281)(1) 27,460 27,048 2,445(1)
Interest expense......... 14,456 13,414 12,328 12,190 10,595
Other (income) expense,
net..................... 1,520 293 (73) 569 2,657
-------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary loss...... 84,949 (34,988) 15,205 14,289 (10,807)
Provision (benefit) for
income taxes............ 31,845 8,238 6,386 6,001 (2,445)
-------- -------- -------- -------- --------
Income (loss) before
extraordinary loss...... 53,104 (43,226) 8,819 8,288 (8,362)
Extraordinary loss, net
of income tax........... -- (6,373) -- (764) (4,497)
-------- -------- -------- -------- --------
Net income (loss)........ 53,104 (49,599) 8,819 7,524 (12,859)
Dividends applicable to
redeemable preferred
stock................... -- -- 700 700 700
-------- -------- -------- -------- --------
Net income (loss)
applicable to common
stock................... $ 53,104 $(49,599) $ 8,119 $ 6,824 $(13,559)
======== ======== ======== ======== ========
Earnings (loss) per
common share............ $ 1.22 $ (1.35) $ .44 $ .37 $ (.74)
======== ======== ======== ======== ========
Earnings (loss) per
common share assuming
dilution................ $ 1.14 $ (1.35) $ .44 $ .37 $ (.74)
======== ======== ======== ======== ========
OTHER DATA:
EBITDA(2)................ $125,515 $ 72,633 $ 42,570 $ 40,859 $ 27,262
Ratio of EBITDA to
interest expense(3)..... 8.7x 5.4x 3.5x 3.4x 2.6x
Ratio of earnings to
fixed charges(4)........ 6.8x 3.9x 2.2x 2.1x 1.2x
Depreciation and
amortization............ $ 26,110 $ 17,606 $ 15,037 $ 14,380 $ 14,218
Capital expenditures..... $ 35,190 $ 18,681 $ 7,645 $ 7,549 $ 14,640
BALANCE SHEET DATA (END
OF PERIOD):
Working capital.......... $ 81,294 $ 74,393 $ 44,623 $ 35,926 $ 5,279
Total assets............. 686,167 505,165 306,679 317,027 310,108
Total debt............... 218,377 184,743 111,617 123,851 101,489
Preferred stock.......... -- -- 10,175 10,175 10,175
Common stockholders'
equity.................. 300,033 218,902 121,441 113,424 105,256
</TABLE>
- --------
(1) The 1996 operating loss includes $63.1 million of charges for the write-
off of certain assets, $11.3 million of Drexel transaction costs, and
$2.2 million of charges for the write-off of Italian operations.
Excluding these costs, operating profit in 1996 was $55.3 million. The
1993 operating profit includes restructuring charges of $13.3 million.
Excluding these costs, operating profit in 1993 was $15.7 million.
(2) "EBITDA" means earnings before interest, taxes, depreciation,
amortization, restructuring charges, write-off of long-lived assets,
Drexel transaction costs, write-off of Italian operations and
extraordinary items and should not be considered as an alternative to net
income or any other generally accepted accounting principles measure of
performance as an indicator of the Company's operating performance or as
a measure of liquidity. The Company believes EBITDA is a widely accepted
financial indicator of a company's ability to service debt.
(3) Ratio of EBITDA to interest expense represents an industry ratio that
provides an investor with information as to the Company's current ability
to meet its interest costs.
(4) For the purpose of this calculation, "earnings" consist of net income
(loss) before income taxes, write-off of long-lived assets, Drexel
transaction costs, write-off of Italian operations, restructuring
charges, extraordinary items, and fixed charges. "Fixed charges" consist
of interest expense and amortization of debt discount and related
expenses believed by management to be representative of the interest
factor thereon. Earnings were insufficient to cover fixed charges by
$35.0 million in 1996 if the write-off of long-lived assets, Drexel
transaction costs, and the write-off of Italian operations is included in
earnings. Earnings were insufficient to cover fixed charges by $10.8
million in 1993 if restructuring charges are included in 1993 earnings.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
historical financial statements included elsewhere in this Prospectus.
GENERAL
Drexel Merger and Other Significant Events
The Company completed the Drexel Merger on April 24, 1996. The Drexel Merger
represented the combination of the largest provider of oilfield-related
inspection and coating services in the world with the world's leading provider
of solids control equipment and services to the oil and natural gas industry
and coiled tubing units and related pressure control equipment to oilfield
service companies.
The Drexel Merger, together with seven subsequent strategic acquisitions
completed during 1996 and eleven additional strategic acquisitions completed
during 1997, have significantly impacted the operating results, financial
condition, liquidity, and direction of the Company. Excluding the Drexel
Merger, the total consideration for the 1997 and 1996 acquisitions was $134.6
million consisting of net cash of $80.1 million, notes payable of $12.4
million, equity of $23.9 million, and accrued payments of $18.2 million.
The Company's strategic acquisitions following the Drexel Merger have
accomplished the following goals:
. Provided the Company with a leading solids control equipment and
services market position in Canada with its acquisitions of Wadeco
Oilfield Services Ltd. ("Wadeco") and Polar Oilfield Services in 1996
and its acquisitions of Fisher Fluids Processing Inc. and the operating
assets of Blackfire Oil Inc. in 1997.
. Established the Company as a leading provider of solids control
equipment and services on the Louisiana Gulf Coast with its acquisition
of Gauthier Brothers Rentals, Inc. ("Gauthier Brothers") in 1996, and
expanded the Company's solids control product offerings with its
acquisitions of the solids control division of Nu-Tec, Inc., WMCO
Instruments, Inc. and WMCO Equipment Inc. in 1997.
. Increased the Company's solids control sales and market share in
Venezuela with its acquisition of substantially all the assets of
Western Service and Supply, S.A.
. Increased the Company's worldwide pipeline inspection market share and
achieved consolidation cost benefits and integrated technologies with
its acquisition of Vetco Pipeline Services, Inc. ("Vetco Pipeline") in
1996.
. Increased the Company's manufacturing capabilities and further
strengthened the Company's presence in the growing market for coiled
tubing and wireline pressure control products with its acquisition of
S.S.R. (International) Ltd. and Pressure Control Engineering Ltd. in
1996 and its acquisition of Tulsa Equipment Manufacturing Company, a
manufacturer of pressure pumping equipment, in 1997.
. Established the Company as a leading manufacturer of high pressure fiber
glass tubulars used in oil field applications through its acquisition of
Fiber Glass Systems, Inc. ("FGS") in 1997.
. Expanded the Company's tubular services product offerings through the
acquisitions of Gator Hawk, Inc., a leading provider of external
hydrostatic pressure testing of tubular connections; Cut-Rite Tubular
Services Ltd., a provider of inspection, repair and cleaning services in
Canada; and the tubular inspection division of Pro Serv AS, a provider
of inspection services in Norway.
. Increased the Company's solids control centrifuge manufacturing and
refurbishment capabilities with its acquisition of SouthWest Centrifuge,
Inc.
. Enhanced the Company's solids control product line and entered the liner
hanger market in the North Sea with its acquisition of the Enaco Plc
companies ("ENACO") and certain operating assets owned by ENACO's
shareholders.
24
<PAGE>
In addition to these acquisitions, the Company took the following actions in
1997 and 1996 to improve its overall profitability, financial condition, and
liquidity:
. In connection with the Drexel Merger, the Company raised net equity of
$29.1 million by executing the sale of 4.2 million shares of its Common
Stock and warrants to purchase 2.533 million shares of Common Stock at
$10 per share to a partnership affiliated with SCF Partners, LP. In
addition, the Company converted 100,000 shares of Series A Convertible
Preferred Stock into 1.5 million shares of Common Stock and warrants to
purchase 1.25 million shares of Common Stock at an exercise price of $10
per share.
. The Company completed the consolidation of its solids control
manufacturing operations to help improve profitability and efficiencies.
In addition, the operating facilities of the Company and Drexel were
consolidated in Texas, California, Argentina, Scotland, Colombia, and
Singapore. Also, corporate overhead functions were consolidated in
Houston, and the eastern hemisphere headquarters were consolidated in
Aberdeen, Scotland.
. The Company consolidated the operations of recently acquired Vetco
Pipeline with its existing pipeline services operations.
. The Company shut down or sold operations which were performing at less
than satisfactory levels, including its U.S. tank inspection operation,
and its oilfield inspection operations in Japan and Italy.
. The Company established a solids control market presence in Argentina
and began screen manufacturing operations in Trinidad and Canada.
. The Company achieved significant technological advances in several
products, including the delivery of five coiled tubing drilling units,
the successful installation and operation of two Truscope(R) units (full
body rotary ultrasonic inspection system) at major oil country tubular
manufacturing facilities, and the commercial introduction of TruRes(R)
unit (high-resolution pipeline inspection).
. In August 1996, the Company refinanced the Bank Credit Facility. The new
agreement included a $130 million term loan facility, a $100 million
revolving credit facility, and a $5 million swingline facility. The new
facility has been used to retire debt outstanding under the previous
senior credit agreement and the $75 million 10 3/4% Senior Subordinated
Notes (the "10 3/4% Notes"), and to finance growth and acquisitions. At
December 31, 1997, the Company had $16.5 million available for borrowing
under its revolving credit facility.
. The Company consolidated its U.S. solids control manufacturing of
centrifuges and screens into their own manufacturing locations to
provide an increased focus on their processes.
. The Company expanded its fleet of pipeline inspection equipment and
increased the high resolution market penetration with the introduction
of TR1000(TM) tools.
Operating Environment Overview and Pro Forma Discussion
The Company's results depend, in large part, on the level of worldwide oil
and gas drilling and production activity, the price of oil and gas, and
worldwide oil and gas inventory levels. Key industry indicators for the past
three years include the following:
<TABLE>
<CAPTION>
1997* 1996* 1995*
------ ------ ------
<S> <C> <C> <C>
Rig Activity:
U.S................................................... 943 779 723
Canada................................................ 374 271 231
International......................................... 810 805 757
------ ------ ------
Worldwide............................................. 2,127 1,855 1,711
====== ====== ======
U.S. Workover Rig Activity............................. 1,422 1,334 1,277
====== ====== ======
West Texas Intermediate Crude (per barrel)............. $20.70 $22.01 $18.46
====== ====== ======
Natural Gas Prices $/mbtu (per mbtu)................... $ 2.40 $ 2.41 $ 1.47
====== ====== ======
</TABLE>
- --------
* Averages for the years indicated. The source for rig activity information
was Baker Hughes Incorporated ("BHI"), and the source for oil and gas
prices was Spears and Associates.
25
<PAGE>
Worldwide drilling and U.S. workover activity improved during 1997. U.S.,
Canada, and international rig activity in 1997 increased 21%, 38%, and 1% over
1996 levels, while U.S. workover activity in 1997 was up 7% from 1996 levels.
The price for West Texas Intermediate Crude declined 6% in 1997 compared to
1996, and 1997 natural gas prices were down slightly from 1996 levels. The
overall improvement in market conditions created strong demand for the
Company's products and services which, together with the 1997 and 1996
initiatives discussed above, resulted in improved operating results as shown
in the Company's following actual and pro forma (giving effect to all 1996 and
1997 acquisitions) financial statements (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ------------------ --------
PRO PRO
FORMA(1) ACTUAL FORMA(1) ACTUAL ACTUAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue......................... $559,213 $525,231 $479,458 $341,431 $190,015
Net Income Before Write-off of
Assets, Merger Costs, and
Extraordinary Charges.......... $ 55,145 $ 53,104 $ 32,244 $ 25,384 $ 8,819
Net Income (Loss)............... $ 55,145 $ 53,104 $(42,731) $(49,599) $ 8,819
Dilutive earnings Per Share
Before Write-off of Assets,
Merger Costs, and Extraordinary
Charges........................ $ 1.17 $ 1.14 $ 0.72 $ 0.69 $ 0.44
Dilutive earnings (Loss) Per
Share.......................... $ 1.17 $ 1.14 $ (0.96) $ (1.35) $ 0.44
</TABLE>
- --------
(1) Pro forma information is unaudited and is presented as if the 1997 and
1996 acquisitions were made as of January 1, 1996. Such information
should not be considered indicative of actual results that would have
been achieved if the 1997 and 1996 acquisitions had been consummated on
January 1, 1996.
The $79.8 million (17%) increase in pro forma revenue for 1997 over 1996 was
due to several factors including: improved overall market conditions as
discussed above; a significant growth in Latin American revenue and in revenue
from solids control and pipeline operations; greater revenue from the
Company's coiled tubing/pressure control products; and an increase in
worldwide coating sales.
The pro forma 1997 net income (before write-off of assets, merger costs, and
extraordinary item) of $55.1 million was $22.9 million higher than the
comparable amount in 1996 of $32.2 million. This increase was due to revenue
growth from greater activity levels as discussed in the results of operations.
Subsequent to December 31, 1997, the average price of oil and gas has
declined. This change in price has been caused by various concerns, including
rising reported world oil inventories, the financial crisis in Asia, an
increase in official production quotas, concerns that increased Iraq
production might soon reenter the world market, and temperate weather
conditions. Although oil prices have declined, the U.S. rig count (as reported
by BHI) at January 23, 1998 was 996, up 6% over the average rig count for
1997. At the date of this Prospectus, the Company was not aware of any
material spending cut-backs of its major customers, although lower oil prices
for a prolonged period could result in some spending reductions, which could
have a material adverse effect on the Company.
During 1997 the Company generated approximately $31.8 million, or 6%, of its
total revenue from Singapore, Malaysia, Indonesia, Thailand, Vietnam,
Australia, Japan, and Korea. Most of the Company's customers in these
countries are large, multinational oil companies with limited direct exposure
to the current economic climate in Southeast Asia, and a significant portion
of the Company's contracts are denominated in U.S. dollars. Management does
not believe that the economic downturn in Southeast Asia will have a material
direct adverse impact on the business of the Company, except to the extent
that reduced hydrocarbon demand in the area may contribute to lower oil and
gas prices and reduced oil and gas activity worldwide.
1996 Write-off of Assets, Drexel Transaction Costs, and Extraordinary Charges
During 1996 the Company incurred the following write-off of assets, Drexel
transaction costs, and extraordinary charges:
. During the first quarter of 1996, the Company recorded a write-off of
long-lived assets of $63.1 million. The write-off was due to the
adoption of SFAS No. 121 and a decision by management to sell certain
assets, primarily as a result of the Drexel Merger.
26
<PAGE>
. During the second quarter of 1996, the Company recorded $11.3 million of
transaction costs associated with the Drexel Merger. Severance payments
to former executive officers of the Company represented $6.5 million of
the transaction costs. The remaining costs related mainly to the
consolidation of eastern hemisphere headquarters and consolidation costs
associated with personnel and facilities.
. During the fourth quarter of 1996, the Company decided to close its
direct Italian operation, resulting in a write-off of assets of $2.2
million.
. During the fourth quarter of 1996, the Company recorded an after-tax
extraordinary charge of $6.4 million related to the early retirement of
its outstanding 10 3/4% Notes.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 vs Year Ended December 31, 1996
Revenue. Revenue for the year ended December 31, 1997 was $525.2 million, an
increase of $183.8 million, or 54%, over the $341.4 million of revenue in
1996. On a pro forma basis giving effect to only the Drexel acquisition, 1997
revenue was up $148.5 million, or 39%, over 1996 revenue. This increase was
due to greater activity during 1997, the 1997 acquisitions and the full year
effect of the 1996 acquisitions. Increases in internal growth revenue
accounted for $78.1 million, or 53% of the $148.5 million increase in pro
forma revenue, while the 1997 and 1996 acquisitions (excluding the Drexel
Merger) increased pro forma revenue by $70.4 million, or 47%.
Tubular Services, comprised of Inspection, Coating and Mill Systems and
Sales, generated revenue of $225.0 million in 1997, an increase of $51.2
million, or 29%, over 1996 revenue of $173.8 million. Inspection operations
grew 9.7% over the 1996 levels due primarily to the acquisitions of Gator
Hawk, Cut-Rite and the tubular inspection division of Pro Serv AS, and to an
increase in North American revenue, which resulted, in part, from a 25%
increase in the average North American rig count. Tubular coating and
corrosion control revenue in 1997 increased 60% from 1996 levels due mainly to
the acquisition in March 1997 of FGS and a 31% increase in North American
revenue as a result of higher activity levels. Mill Systems and Sales revenue
was higher due to the sale of high speed ultrasonic equipment in the U.S. and
the sale of equipment into the CIS during 1997.
Solids Control Products and Services revenue was $155.4 million in 1997, an
increase of $78.1 million, or 101%, over 1996 revenue of $77.3 million. The
Drexel Merger added the rental and sale of solids control products to the
Company's operations. The 1996 and 1997 acquisitions (excluding the Drexel
Merger) accounted for a $24.0 million increase in solids control rental
revenue. U.S. solids control rental operations increased 147% primarily due to
the acquisition of Gauthier Brothers and growth in the Gulf Coast market.
Canadian rental revenue grew 139% due primarily to the Wadeco acquisition in
1996, the acquisition of Fisher Fluids in August 1997, the acquisition of the
operating assets of Blackfire Oil, Inc. in September 1997 and general market
growth as represented by the 38% increase in the Canadian average rig count in
1997. Latin American rental revenue increased 83% in 1997 over 1996 due
primarily to the Company's operations in Venezuela, Mexico, and Colombia.
Further growth in rental revenue occurred in Europe with the acquisition of
ENACO and an increase in general activity. Solids control equipment sales in
1997 increased 69% over 1996 levels due primarily to increased U.S. and Latin
American sales.
Coiled Tubing and Pressure Control Products revenue was $83.4 million in
1997, an increase of $36.4 million, or 77%, over 1996 revenue of $47.0
million. This increase was due to (i) the full year impact of the Drexel
Merger, (ii) the 1997 acquisitions and the full year impact of the 1996
acquisitions (excluding the Drexel Merger), which collectively accounted for
$13.7 million of the increase in revenue, and (iii) the growth in the sale of
coiled tubing units and coiled tubing blowout preventors.
Pipeline and Other Industrial Services revenue was $61.4 million, an
increase of $18.1 million, or 42%, over 1996 revenue of $43.4 million.
Pipeline revenue grew $14.1 million due to strong growth in the North American
and Latin American markets, the acquisition of Vetco Pipeline and the
successful introduction of "Tru Res" (high resolution pipeline inspection
unit). In addition, Industrial Services increased $5.3 million over 1996
levels primarily due to improving operations in the Middle East.
27
<PAGE>
Gross Profit. Gross profit was $163.0 million, an increase of $65.4 million,
or 67%, over 1996 profits of $97.6 million. This increase was primarily due to
the Drexel Merger, the 1997 and 1996 acquisitions, and the growth in revenue
discussed above.
Selling, General, and Administrative Costs. Selling, general and
administrative costs were $51.5 million in 1997, an increase of $15.8 million
over 1996 costs of $35.7 million. This increase was due primarily to increased
costs associated with the 1997 acquisitions and the full year effect of 1996
acquisitions.
Research and Engineering Costs. 1997 research and engineering costs were
$10.6 million, an increase of $4.0 million over the 1996 costs of $6.6
million. The majority of these costs were related to solids control
innovations associated with screens, shakers, and centrifuges, the Company's
"Tru Res(R)" high resolution pipeline tools, and continuing efforts related to
product and service development in Tubular Services and Coiled Tubing
technology. The increase in costs was due primarily to research and
engineering projects associated with Drexel operations and the various
acquisitions in 1997 and 1996, and the Company's efforts to increase its
technological development.
Write-off of Long-Lived Assets. The first quarter 1996 write-off of long-
lived assets of $63.1 million included (i) a writedown of $50.8 million
associated with the Company's adoption of SFAS No. 121 and (ii) a decision by
management to sell certain assets following the Drexel Merger, which resulted
in additional write-downs of approximately $12.3 million.
Drexel Transaction Costs. The $11.3 million of Drexel transaction costs
incurred in 1996 included executive severance costs of $6.5 million associated
with former officers of the Company and consolidation costs of $4.8 million
related to Tuboscope personnel and facilities. The consolidation costs were
related mainly to the consolidation of overhead facilities and personnel in
Europe and the consolidation of certain operating locations in North America.
Write-off of Italian Operations. The $2.2 million write-off of Italian
operations was due to a decision by the Company in December 1996 to exit
direct operations of its inspection business in Italy. In November 1996, the
Italian operations were placed in liquidation, and in February 1997 the
operations were officially shut down. The Italian operations contributed
approximately $2.5 million of revenue in 1996 with break-even profit results.
Operating Profit (Loss). Operating profit was $100.9 million, an increase of
$45.6 million, or 82%, over 1996 profit of $55.3 million (excluding write-off
of long-lived assets, Drexel transaction costs, and the write-off of Italian
operations, as discussed above). Including these charges, operating profits
for 1997 were $100.9 million compared to a 1996 operating loss of $21.3
million. This improvement in operating profit was due to the increase in
operations related to increased activity levels and market share gains,
consolidation savings, minor price increases, and the effect of the 1997
acquisitions and the full year results of the 1996 acquisitions.
Interest Expense. Interest expense was $14.5 million, an increase of $1.0
million over 1996 interest expense of $13.4 million. This increase was due to
an increase in debt resulting primarily from the 1996 and 1997 acquisitions.
The increase was partially offset by a lower effective interest rate resulting
from the Company's retirement in the fourth quarter of 1996 of its 10 3/4%
Notes from proceeds of the Company's Bank Credit Facility. In addition, the
Company entered into four interest rate swap transactions in 1996 which
effectively hedged $90 million of the Company's variable interest rate debt.
Also in May 1997, the Company purchased a $40 million interest rate collar
agreement which provides protection if interest rates rise above 7.77%.
Other Expense (Income). Other expense, which includes interest income,
foreign exchange, minority interest and other expense (net), resulted in a net
expense of $1.5 million, an increase of $1.2 million from 1996 net expense of
$.3 million. This increase was primarily related to a slight foreign exchange
expense in 1997 as compared to foreign exchange gains in 1996.
Provision for Income Taxes. The Company's effective tax rate for 1997 was
37.5%. This rate is higher than the domestic rate of 35% due to charges not
allowed under domestic and foreign jurisdictions related to goodwill
amortization and foreign earnings subject to tax rates differing from domestic
rates.
Net Income (Loss). Net income was $53.1 million in 1997, an improvement over
the 1996 net loss of $49.6 million. This improvement was due to the factors
discussed above.
28
<PAGE>
Year Ended December 31, 1996 vs Year Ended December 31, 1995
Revenue. Revenue was $341.4 million for the fiscal year ended December 31,
1996, an increase of $151.4 million over 1995 results. The increase was
primarily related to the seven acquisitions the Company completed during 1996.
The Drexel Merger, which was completed April 1, 1996, accounted for $107.5
million of the increase.
Revenue from the Company's Tubular Services, comprised of Inspection,
Coating, and Mill Systems and Sales, was approximately $173.8 million in 1996,
an increase of $20.1 million, or 13.1%, over 1995 results. Inspection revenue
increased in 1996 due to an increase in Latin American inspection operations,
which benefitted from the acquisition of an Argentina operation in September
1995 and a large contract in Colombia awarded in the fourth quarter of 1995.
In addition, Europe and North America Inspection operations increased as rig
activity increased slightly in both areas. Coating revenue also increased as a
result of improved volume at all of the Company's North America Coating plants
and stronger operations at the Scotland and Singapore Coating plants. Mill
Systems and Sales revenue was down due to lower international Mill equipment
sales.
The Drexel Merger added the rental and sale of Solids Control equipment to
the Company's operations. In addition, the Company completed the acquisition
of Wadeco effective May 1, 1996. Solids Control operations, which includes the
rental and sale of equipment used in the removal of rock cuttings and other
solid contaminants from the fluids used in drilling operations, earned revenue
of $77.3 million since the effective date of the Drexel Merger and the
effective dates of other Solids Control acquisitions made in 1996. On a pro
forma basis, Solids Control revenue was up $13.0 million in 1996 over 1995 due
to increased activity in Latin America, specifically Venezuela and Argentina,
and greater revenue from North America rental operations.
Coiled Tubing and Pressure Control Products, which were also acquired as
part of the Drexel Merger, contributed revenue of $47.0 million since the
effective date of the Drexel Merger and the acquisition of S.S.R.
(International) Ltd. and Pressure Control Engineering (SSR/PCE), in September
1996. Coiled Tubing Products included the sale of coiled tubing units,
wireline units, downhole tools and blowout preventors used in oilfield
workover, drilling and production operations. On a pro forma basis, Coiled
Tubing and Pressure Control Products revenue was up $10.5 million, due mainly
to an increase in Coiled Tubing sales in the North Sea and Norway, and the
sale of coiled tubing drilling units.
Pipeline and Other Industrial Services revenue was $43.4 million in 1996, an
increase of $7.0 million over 1995 results. The improvement was primarily in
international pipeline operations as a result of greater revenue in Saudi
Arabia, Nigeria, and Argentina, and revenue from Vetco Pipeline, which was
acquired in September 1996. These results were offset to some extent by lower
Industrial Inspection revenue in the Middle East and the sale of the Company's
CTI Tank Inspection operation.
Gross Profit. Gross profit was approximately $97.6 million (28.6% of
revenue) for 1996, compared to $51.6 million (27.2% of revenue) for 1995.
Drexel and Wadeco operations accounted for the majority of the 1996
improvement ($37.8 million of $46.0 million). Improved gross profit
percentages for 1996 benefited from greater revenue in high profit margin
product lines, including Pipeline, Coating, and Solids Control, and from lower
depreciation and amortization expense associated with the write-off of long-
lived assets in the first quarter of 1996.
Selling, General, and Administrative Costs. Selling, general, and
administrative costs were $35.7 million in 1996, compared to $20.7 million in
1995. The $15.0 million increase was due primarily to $16.3 million of
overhead costs associated with the operations of Drexel, Wadeco, SSR/PCE, and
Vetco Pipeline since the effective dates of their acquisitions.
Research and Engineering Costs. Research and engineering costs were $6.6
million in 1996, compared to $3.5 million in 1995. The increase was primarily
due to engineering costs associated with Drexel operations, which were $2.7
million since the effective date of the acquisition. Other increases were due
primarily to costs associated with the Company's TruRes(R) "High Resolution"
pipeline tools.
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Write-off of Long-Lived Assets. The first quarter 1996 write-off of long-
lived assets of $63.1 million included a writedown of $50.8 million associated
with the Company's adoption of SFAS No. 121 and a decision by management to
sell certain assets, primarily as a result of the Drexel Merger, which
resulted in additional write-downs of approximately $12.3 million. See
additional discussions in Note 2 of the Consolidated Financial Statements.
Drexel Transaction Costs. The $11.3 million of Drexel transaction costs
incurred in 1996 included executive severance costs of $6.5 million associated
with former officers of the Company and consolidation costs of $4.8 million
related to Tuboscope personnel and facilities. The consolidation costs were
related mainly to the consolidation of overhead facilities and personnel in
Europe and the consolidation of certain operating locations in North America.
Write-off of Italian operations. The $2.2 million write-off of Italian
operations was due to a decision by the Company in December 1996 to exit
direct operations of its inspection business in Italy. In November 1996, the
Italian operations were placed in liquidation, and in February 1997 the
operations were officially closed. The Italian operations contributed
approximately $2.5 million of revenue in 1996 with break-even profit results.
Operating Profit (Loss). Operating loss was $21.3 million for 1996 compared
to operating profit of $27.5 million in 1995. The operating loss was due to
the write-off of long-lived assets, Drexel transaction costs, and the write-
off of Italian operations, as discussed above. Excluding these charges,
operating profit would have been $55.3 million in 1996, an increase of $27.8
million over 1995 results. The improvement was mainly due to the operating
profit contributed by the Drexel operations since the merger date. In
addition, the acquisitions of Wadeco, SSR/PCE, and Vetco Pipeline also
contributed to the increase in operating profit, as well as stronger
operations from Coating, Pipeline, and Latin American Inspection operations
and the decrease in depreciation and amortization expense resulting from the
first quarter 1996 write-off of long-lived assets.
Interest Expense. Interest expense was $13.4 million in 1996, a $1.1 million
increase over 1995. The increase was due to greater outstanding debt balances
as a result of the acquisitions, offset to some extent by lower effective
interest rates on outstanding debt balances.
Other Expense (Income). Other expense (income), which includes interest
income, foreign exchange, amortization of debt financing cost, minority
interest, and other expense (income) resulted in a net gain of $293,000 in
1996, compared to a net gain of $73,000 in 1995. The 1996 gain was due to
foreign exchange gains recognized primarily in the U.K. related to an increase
in the pound sterling compared to the U.S. dollar.
Provision (Benefit) for Income Taxes. The Company reported a provision of
$8.2 million on a pre-tax loss of $35 million. The provision is primarily a
result of charges not allowable under domestic and foreign jurisdictions
related to the long-lived assets and Drexel transaction costs, goodwill
amortization and foreign earnings subject to tax at rates differing from the
domestic rate.
The Company has, as of December 31, 1996, gross deferred tax assets of $10.2
million, which includes $3.3 million attributable to domestic and foreign net
operating loss carryovers. The Company has recorded a valuation allowance of
$1.2 million against these deferred tax assets. The Company believes that
sufficient sources of taxable income will occur in future periods so that the
net deferred tax assets will be realized.
Extraordinary Loss, Net of Income Tax Benefit. In the fourth quarter of
1996, the Company retired its outstanding $75 million 10% Notes with the
proceeds from its Bank Credit Facility. The early retirement of the 10% Notes
resulted in an extraordinary loss of $6.4 million (net of income tax benefits
of $3.4 million).
Net Income (Loss). Net loss was $49.6 million for 1996, compared to net
income of $8.8 million in 1995, due to the factors discussed above.
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FINANCIAL CONDITION AND LIQUIDITY
For the twelve months ended December 31, 1997, the Company generated $46.3
million of cash from operations as compared to $10.6 million in 1996.
Excluding changes in working capital accounts and other liabilities, cash
provided by operating activities was $89.9 million in 1997 compared to $29.1
million in 1996. The 1996 results included the transaction costs associated
with the Drexel Merger and an extraordinary loss due to the early retirement
of the 10% Notes. The Company's principal uses of cash generated from
operations were for capital expenditures, acquisitions, and debt payments. At
December 31, 1997, working capital was $81.3 million, an increase of $6.9
million from December 31, 1996. This increase was due primarily to the 1997
acquisitions, larger manufacturing operations, and a greater revenue base.
Accounts receivable increased $48.0 million as a result of the 1997
acquisitions and internal revenue growth. Total days sales outstanding based
on trade accounts receivable was 82.7 days and 82.3 days at December 31, 1997
and 1996, respectively. Inventory was up $31.1 million due to increased
manufacturing at the Company's Conroe, Ft. Worth, Houston and UK facilities to
meet the industry demand for the Company's products, coupled with inventories
associated with 1997 acquisitions. Accounts payable and accrued liabilities
increased mainly as a result of 1997 acquisitions and an increase in trade
payables due to the growth in operations. The current portion of long-term
debt increased due to the terms of the Bank Credit Facility and debt
associated with 1997 acquisitions.
For the twelve months ended December 31, 1997, cash flows used for investing
activities were $73.0 million compared to $60.5 million in 1996. During 1997,
cash flows used for investing activities included $35.2 million of capital
spending and $36.9 million for 1997 acquisitions. Capital expenditures for
1997 were concentrated primarily in the fast growing Latin American, Canadian,
and Gulf Coast markets for solids control, oilfield inspection equipment and
pipeline operations. The Company anticipates that it will continue to invest
in its products and expects to fund its capital expenditure requirements in
1998 principally from cash generated from operations and its revolving credit
line.
For the twelve months ended December 31, 1997, net cash generated from
financing activities was $29.0 million, compared to $50.5 million in 1996. The
1997 cash generated from financing activities was principally from net
borrowings under the Company's Bank Credit Facility and net proceeds from the
sale of the Company's Common Stock.
Current and long-term debt was $218.4 million at December 31, 1997, an
increase of $33.6 million compared to December 31, 1996. This increase was due
mainly to borrowings on the revolving credit facility and debt assumed in the
1996 and 1997 acquisitions. The Company's outstanding debt at December 31,
1997 consisted of $115.3 million of term loans due under the Company's Bank
Credit Facility, $79.0 million due under the Company's revolving credit
facility, $5.0 million of convertible notes related to the acquisition of
Gauthier Brothers, $4.2 million of debt assumed in the FGS acquisition, $2.5
million due under the Company's swingline facility, and other debt of $12.4
million.
The Company had $16.5 million available for borrowing at December 31, 1997
under a $100 million revolving credit facility and $1.3 million available
under its $5 million swingline facility, subject to certain financial
covenants which limit total borrowing availability. Approximately $4.5 million
of the revolving credit facility was used for outstanding letters of credit.
The Company's Bank Credit Facility restricts the Company from paying
dividends on its capital stock unless the total funded debt to capital ratio
is less than 40%. The Company's total funded debt to capital ratio (calculated
as defined under the agreement) was 42.5% at December 31, 1997, 4.3 percentage
points lower than the December 31, 1996 ratio.
YEAR 2000
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The
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Year 2000 problem is a result of computer programs being written using two
digits (rather than four) to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Company presently believes that, with
modifications to existing software and converting to new software, the Year
2000 problem will not pose significant operational problems for the Company's
computer systems as so modified and converted.
PENDING ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS No. 131) which establishes standards for the way that public companies
report information about operating segments in both annual and interim
financial statements. SFAS No. 131 also establishes standards for disclosures
about products and services, geographic areas and major customers. SFAS No.
131 is effective for fiscal years beginning after December 15, 1997. The
Company will adopt SFAS No. 131 retroactively in 1998. The adoption of SFAS
No. 131 will not affect the Company's results of operations or financial
position, but will increase the Company's disclosure of segment information.
In June 1997, the FASB also issued SFAS No. 130, "Reporting Comprehensive
Income" which establishes new rules for the reporting and display of
comprehensive income. Adoption of SFAS No. 130 will have no impact on the
Company's net income or financial position. SFAS No. 130 would require the
Company's foreign currency translation adjustments, which are currently
reported in stockholders' equity, to be added to net income to determine total
comprehensive income. Disclosure of total comprehensive income is also
required.
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BUSINESS
GENERAL
The Company is a supplier of technical services and highly-engineered
products to the oil and gas drilling, completion, production, and transmission
industries worldwide.
The Company operates through four main product lines in the oil and gas
industry segment. The product lines are: (i) Tubular Services; (ii) Solids
Control Products & Services; (iii) Coiled Tubing & Pressure Control Products;
and (iv) Pipeline & Other Industrial Services. Tubular Services consists of
the provision of internal coating products and services, inspection and
quality assurance services for tubular goods (such as drill pipe, tubing, line
pipe, and casing), and fiberglass tubulars (tubing, casing, and line pipe),
used primarily in oil and gas operations. Additionally, Tubular Services
includes the sale and leasing of proprietary equipment used to inspect tubular
products at steel mills. Solids Control Products & Services consists of the
sale and rental of technical equipment used in, and the provision of services
related to, the separation of drill cuttings (solids) from fluids used in oil
and gas drilling processes. Coiled Tubing & Pressure Control Products consists
of the sale of highly-engineered coiled tubing, pressure control, pressure
pumping, wireline, and related tools to companies engaged in providing oil and
gas well drilling, completion and remediation services. Pipeline & Other
Industrial Services consists primarily of the provision of technical
inspection services and quality assurance for in-service pipelines used to
transport oil and gas. Additionally, this product line includes a wide variety
of technical industrial inspection, monitoring, and quality assurance services
provided by the Company for the construction, operation, and maintenance of
major projects in energy-related industries.
The Company is a successor to one of the first companies to provide tubular
inspection services to the oil and gas industry, which commenced operations in
1937. The Company has since grown through a series of mergers and acquisitions
which have added product lines. The Company entered the Solids Control
Products & Services and the Coiled Tubing & Pressure Control Products
businesses on April 24, 1996, when it completed its merger with Drexel, the
largest provider of solids control services and coiled tubing equipment
worldwide.
Tubular Services
Tubular Services is the Company's largest business line. It generated
approximately 43%, 51%, and 81% of the Company's revenue for the years ended
December 31, 1997, 1996 and 1995, respectively. The Tubular Services business
generated approximately $225 million in revenue for the year ended December
31, 1997. The Company's Tubular Services operates in the oilfield tubular
markets of 54 countries, in North America, Latin America, Europe, Africa, the
Middle East, and the Far East. The Company provides tubular inspection
services at drilling and workover rig locations, at pipe yards owned by its
customers, at steel mills manufacturing tubular goods, and at facilities which
it owns. The Company provides for the internal coating of tubular goods at ten
plants worldwide and through licensees in certain locations. The Company
entered the fiberglass tubular market on March 7, 1997, with its acquisition
of Fiber Glass Systems, Inc. ("Fiber Glass Systems"), which manufactures
fiberglass tubulars at plants in San Antonio, Texas and Big Spring, Texas.
Demand for Tubular Services products depends upon the activity level of
drilling, well remediation, and flowline installation operation activity in
the oil and gas industry. The Company's customers rely on tubular inspection
services to avoid failure of in-service tubing, casing, flowlines, and
drillpipe. Such tubular failures are expensive and in some cases catastrophic.
The Company's customers rely on internal coatings of tubular goods to prolong
the useful lives of tubulars and to increase the volumetric throughput of in-
service tubular goods. The Company's customers sometimes use their fiberglass
tubulars in lieu of conventional steel tubulars, due to the corrosion
resistant properties of fiberglass. Tubular inspection and coating services,
and fiberglass tubulars, are used most frequently in operations in high-
temperature, deep, corrosive oil and gas environments. In selecting a provider
of tubular inspection and tubular coating services, oil and gas operators
consider such factors as reputation, experience, technology of products
offered, reliability and price. The Company believes it is the largest
provider of tubular inspection and the largest provider of internal tubular
coating services worldwide. The Company believes it is the second largest
provider of fiberglass tubulars to oilfield applications worldwide.
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Tubular Corrosion Control. The Company develops, manufactures and applies
its proprietary tubular coatings, known as Tube-Kote(R) coatings, to new and
used tubulars. Tubular coatings help prevent corrosion of tubulars by
providing a tough plastic shield to isolate steel from corrosive oilfield
fluids such as CO/2/, H/2/S and brine. Delaying or preventing corrosion
extends the life of existing tubulars, reduces the frequency of well
remediation and reduces expensive interruptions in service and production for
oil and gas producers. In addition, coatings are designed to increase the
fluid flow through tubulars by decreasing or eliminating paraffin and scale
buildup, which can reduce or block oil flow in producing wells. The smooth
inner surfaces of coated tubulars often increase the fluid through-put on
certain high-rate oil and gas wells.
The Company has a long history of introducing new coating products custom-
engineered to address increasingly corrosive environments encountered in oil
and gas drilling and production operations. The Company's reputation for
supplying quality internal coatings is an important factor in its business,
since the failure of coatings can lead to expensive production delays and
premature tubular failure.
On March 7, 1997, the Company acquired Fiber Glass Systems, a leading
provider of high pressure fiberglass tubulars used in oilfield applications,
for a combination of stock and cash. Fiber Glass Systems has manufactured
fiber glass pipe since 1968 under the name "Star(R)," and was the first
manufacturer of high-pressure fiberglass pipe to be licensed by the API in
1992. Like coated tubulars, fiberglass pipe is used to guard against corrosive
fluids produced in the oilfield. The acquisition added a new product to the
Company's corrosion control products.
Tubular Inspection. Newly manufactured pipe sometimes contains serious
defects that are not detected by the mill. In addition, pipe can be damaged in
transit and during handling prior to use at the well site. As a result,
exploration and production companies often have new tubulars inspected before
they are placed in service to reduce the risk of tubular failures during
drilling and completion of oil and gas wells. Used tubulars are inspected by
the Company to detect service-induced flaws after the tubulars are removed
from operation. Used drill pipe and used tubing inspection programs allow
operators to replace defective lengths, thereby prolonging the life of the
remaining pipe and saving the customer the cost of unnecessary tubular
replacements and expenses related to tubular failures.
The Company's tubular inspection services employ all major non-destructive
inspection techniques, including electromagnetic, ultrasonic, magnetic flux
leakage and gamma ray. These inspection services are provided both by mobile
units which work at the wellhead as used tubing is removed from a well, and at
fixed site tubular inspection locations. The Company provides an ultrasonic
inspection service for detecting potential fatigue cracks in the end area of
used drill pipe, the portion of the pipe that traditionally has been the most
difficult to inspect. Tubular inspection facilities also offer a wide range of
related services, such as API thread inspection and ring and plug gauging, and
a complete line of reclamation services necessary to return tubulars to useful
service, including tubular cleaning and straightening, hydrostatic testing and
re-threading.
In July 1997, Tuboscope began offering hydrostatic testing of tubular
connections when it acquired substantially all of the operating assets of
Gator Hawk, Inc. ("Gator Hawk"). The Company offers a proprietary external
measurement, the Iso-Gator(R) service at the rig site as strings of tubulars
are assembled on critical or high-pressure wells.
In August 1997, the Company improved its market position in Canada by
acquiring Cut-Rite Tubular Services, Ltd., a provider of tubular inspection,
repair and cleaning services. Also, in September 1997, the Company
strengthened its market position in Norway by acquiring the tubular inspection
division of Pro Serv AS, a provider of tubular inspection services.
In addition to its new and used tubular inspection and reclamation services,
the Company also offers a comprehensive proprietary tubular inventory
management system (TDS(TM)) which permits the real-time tracking of customer's
tubular inventories within the Company's facilities. The system permits
customers to dial-in to monitor tubular inspection and coating progress.
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In 1996, the Company installed its first proprietary high-speed full body
ultrasonic tubular inspection unit (TruScope(R)). The new service provides
100% ultrasonic coverage of tubulars at a rate of up to 200 feet per minute.
The first commercial TruScope unit was installed in 1997.
Mill Systems and Sales. The Company engineers and fabricates inspection
equipment for steel mills, which it sells and leases. The equipment is
operated by the steel mills and is used for quality control purposes to detect
transverse, longitudinal and three-dimensional defects in the pipe during the
high-speed manufacturing process. Each piece of mill inspection equipment is
designed to customer specifications and is installed and serviced by the
Company. Since 1962, the Company has installed more than 80 units worldwide,
in most major steel mills. Equipment is manufactured at the Company's Houston,
Texas facility. In 1996, the Company moved its NDT division manufacturing
facilities from Midland, Texas to Houston to improve overall manufacturing
efficiency and reduce the cost of manufacturing products. Revenue for Mill
Systems and Sales fluctuates significantly from year to year due to the timing
of negotiating large domestic and export sales contracts, arranging financing
and manufacturing equipment.
The Company's Tubular Services customers include almost all major oil and
gas companies, large and small independent producers, national oil companies,
drilling contractors, oilfield supply stores, and steel mills. No single
customer accounted for more than 10% of the Company's revenue in 1997. The
Company's competitors in Tubular Services include ICO Inc., Ameron, A.O.
Smith, Shaw Industries, and Shield Coat Inc. In addition the Company competes
with a number of smaller regional competitors in tubular inspection. Certain
foreign jurisdictions and government-owned petroleum companies located in some
of the countries in which the Company operates have adopted policies or
regulations which may give local nationals in these countries certain
competitive advantages. In tubular coating certain substitutes such as non-
metallic tubulars, inhibitors, corrosion resistant alloys, cathodic protection
systems, and non-metallic liners systems also compete with the Company's
products.
Solids Control Products & Services
The Company generated approximately 30% of its revenue for the year ended
December 31, 1997 from Solids Control Products & Services. The Solids Control
Products & Services business generated approximately $155 million in revenue
for the year ended December 31, 1997. The Company's Solids Control Products &
Services business serves oilfield drilling markets in North America, Latin
America, Europe, Africa, the Middle East and the Far East.
Solids control is the application of highly-engineered products and services
to extract drill cuttings from fluids used in oil and gas drilling operations.
The removal of drill cuttings is required to permit the reuse of expensive
drilling fluids. By removing rock cuttings and other solid contaminants from
the fluids used in drilling operations, solids control equipment reduces the
volume of drilling fluids and solids which must be disposed of subsequent to
drilling operations (which minimizes the environmental impact of the drilling
operation and reduces post-drilling reclamation costs). Efficient separation
of rock cuttings also reduces the volume of drilling fluids consumed by the
operation, further reducing drilling costs. Effective solids control also
reduces the probability of sticking and losing expensive downhole drilling
equipment in the wellbore and the resulting need to redrill the well. Solids
control technology improves the efficiency of the drilling process by
preventing the recirculation and subsequent recutting of solids at the drill
bit and by reducing wear on mechanical components such as mud pumps and mud
motors.
The Company believes the regulatory and industry trend towards minimizing
the environmental impact of drilling operations in a number of environmentally
sensitive oil and gas productive regions will lead to higher demand for highly
engineered solids control products and closed loop drilling systems. The
Company further believes the trend towards more technically complex drilling,
including highly deviated directional wells and slim-hole completions, will
favorably impact the demand for solid controls technology because of its
ability to reduce costly downhole problems.
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The Company believes it is the world's leading manufacturer and provider of
solids control equipment and services to the oil and natural gas drilling
industry. The Company manufactures conventional and linear motion shale
shakers, high speed and conventional centrifuges, desanders, desilters,
screens, degassers and closed loop drilling fluids systems at its facilities
in Conroe, Texas and Dundee, United Kingdom. The Company markets solids
control equipment under the Brandt(R) and various other brand names. For the
year ended December 31, 1997, approximately 44% of the Company's solids
control equipment revenue was generated from the sale of solids control
equipment and inventory, and approximately 56% of such revenue was generated
from rentals and services.
The Company's customers for Solids Control Products & Services include
almost all major oil and gas companies, large and small independent producers,
national oil companies, and drilling contractors. No single customer accounted
for more than 10% of the Company's revenue in 1997. Competitors in oilfield
solids control equipment and services include Smith International ("SWACO"),
Derrick Manufacturing Corp. and a number of regional competitors. The Company
acquired six regional competitors in solids control in 1997 in order to
enhance its manufacturing and refurbishing capacity, achieve consolidation
savings, strengthen its presence in Canada and expand its product lines. The
Company's solids control equipment is sold or rented in highly competitive
markets. Management believes that on-site service is becoming an increasingly
important competitive element in the solids control equipment market.
Management believes that, in addition to on-site services, the principal
competitive factors affecting its solids control equipment business are
performance, quality, reputation, customer service, product availability,
breadth of product line and price. Management believes market conditions are
generally improving in solids control due to strong demand by oil and gas
drillers to reduce overall drilling costs and minimize environmental impact,
and rising levels of technology required to serve the market.
Coiled Tubing & Pressure Control Products
The Company believes it is the world's leading designer and manufacturer of
coiled tubing equipment and coiled tubing pressure control equipment used in
oil and gas well remediation, completion and drilling operations. This product
line generated approximately 16% of the Company's revenue for the year ended
December 31, 1997. The Coiled Tubing & Pressure Control Products segment
generated approximately $83 million in revenue for the year ended December 31,
1997. The Company's Coiled Tubing & Pressure Control Products line sells
capital equipment and consumables to all the major oilfield coiled tubing
remediation and drilling service providers.
Coiled tubing consists of flexible steel tubing manufactured in a continuous
string and wrapped on a spool. It can extend several thousand feet in length
and is run in and out of the well bore at a high rate of speed by a
hydraulically operated coiled tubing unit. A coiled tubing unit is typically
mounted on a truck or skid and consists of a hydraulically operated tubing
reel or drum, an injector head which pushes or pulls the tubing in or out of
the well bore, and various power and control systems. Coiled tubing is
typically used with sophisticated pressure control equipment which permits the
operator to continue to safely produce the well. The Company manufactures and
sells both coiled tubing units and the ancillary pressure control equipment
used in these operations.
Coiled tubing provides a number of significant functional advantages over
the principal alternatives of conventional drillpipe and workover pipe. Coiled
tubing allows faster "tripping" since the coiled tubing can be reeled very
quickly on and off a drum and in and out of a well bore. In addition, the
small size of the coiled tubing unit compared to an average workover rig
reduces preparation time at the well site. Coiled tubing permits a variety of
workover and other operations to be performed without having to pull the
existing production tubing from the well and allows ease of operation in
horizontal/highly deviated wells. Thus, operations using coiled tubing can be
performed much more quickly and, in many instances, at a significantly lower
cost. Finally, use of coiled tubing generally allows continuous production of
the well, eliminating the need to temporarily stop the flow of hydrocarbons.
As a result, the economics of a workover are improved because the well can
continue to produce hydrocarbons and thus produce revenues while the well
treatments are occurring. Continuous production also reduces the risk of
formation damage which can occur when the well is "shut in."
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Currently, most coiled tubing units are used in well remediation and
completion applications. The Company believes that advances in the
manufacturing process of coiled tubing, tubing fatigue protection and the
capability to manufacture larger diameter coiled tubing strings have resulted
in increased uses and applications for coiled tubing products. For example,
well operators are increasingly finding uses for coiled tubing in drilling
applications such as slim hole reentries of existing wells. The Company
engineered and manufactured the first three coiled tubing units built
specifically for coiled tubing drilling in 1996, and delivered two more in
1997.
There are certain limitations to the use of coiled tubing. Coiled tubing
generally is made of high strength, alloy steel which wears down or fatigues
over time as a result of internal pressure, acidic operating environments and
normal bending cycles. Thus, operators must carefully monitor the use of the
tubing. In addition, coiled tubing will buckle if the weight the coiled tubing
is pushing becomes too great or if the tube becomes inhibited by some obstacle
or irregularity in the well bore. Buckling has not proven to be a significant
obstacle in most well remediation applications, and the Company believes it
will become less of an issue as the result of the availability of stronger and
larger diameter coiled tubing.
Generally, the Company supplies customers with the equipment and components
necessary to use coiled tubing, which the customers typically purchase
separately. The Company's coiled tubing product line consists of coiled tubing
units, coiled tubing injector heads, coiled tubing and wireline pressure
control equipment, pressure pumper equipment, snubbing units, nitrogen pumping
equipment and cementing, stimulation, and blending equipment. The Company
markets its coiled tubing equipment under the Hydra Rig(R) brand name
primarily to providers of coiled tubing drilling and workover services. The
Company's primary coiled tubing unit production facilities are located at its
Hydra Rig facility in Fort Worth, Texas. In addition, the Company markets
coiled tubing pressure control equipment under the Texas Oil Tools(R) brand
name and manufactures such equipment at its facility in Conroe, Texas and to a
lesser extent at the Dundee facility in the United Kingdom. Through its
September 1996 acquisitions of SSR (International) Ltd. and Pressure Control
Engineering Ltd., the Company entered the wireline unit manufacturing
business, and greatly expanded its offering of downhole coiled tubing tools.
Many coiled tubing customers also purchase and operate wireline units.
Additionally, the Company began offering cementing equipment and fabricating
nitrogen pumping units in Tulsa, Oklahoma, in December 1997, when it acquired
Tulsa Equipment Manufacturing Company.
The Company's coiled tubing product offering includes a wide variety of
sophisticated downhole tools engineered to enable oil and gas producers to re-
enter complex multilateral wells, to install coiled tubing velocity strings,
to bypass electrical submersible pumps, and to perform a variety of other
remediation and completion activities utilizing coiled tubing. One such
product, the MLR(TM) system, was awarded a Meritorious Award for Engineering
Innovation at the 1996 Offshore Technology Conference in Houston, Texas.
Management believes that high-productivity multilateral drilling will continue
to grow.
The Company's customers for Coiled Tubing & Pressure Control Products
include almost all major oil and gas coiled tubing service companies, as well
as major oil companies and large independents. No single customer accounted
for more than 10% of the Company's revenue in 1997. Competitors in Coiled
Tubing & Pressure Control Products include Stewart & Stevenson, National
Oilwell, Elmar, Eastern Oil Tools, and a few smaller competitors. Management
believes market conditions are generally improving in the coiled tubing
equipment market due to growing widespread acceptance of the technology, and
growth in the number of oilfield applications such as coiled tubing drilling.
Pipeline & Other Industrial Services
Pipeline & Other Industrial Services generated approximately 11%, 12%, and
19%, of the Company's revenue for the years ended December 31, 1997, 1996 and
1995, respectively. Pipeline & Other Industrial Services generated
approximately $61 million in revenue for the year ended December 31, 1997. The
Company's Pipeline & Other Industrial Services provides a wide variety of
industrial inspection services, including in-place inspection services of oil
and gas transmission pipelines, and technical industrial inspection,
monitoring, and quality assurance services for the construction, operation,
and maintenance of major projects in energy-related industries.
37
<PAGE>
Pipeline Services. In-place inspection services for oil and gas pipelines
identifies defects in the pipelines without removing or dismantling the
pipelines or disrupting the product flow, giving customers a convenient and
cost-effective method of identifying defects in pipelines. The Company
inspects pipelines by launching a sophisticated survey instrument into the
pipeline. Propelled by the product flow, the instrument uses electromagnetics
and digital and analog recording devices to monitor the severity and location
of internal and external pitting-type corrosion as well as defects in the
pipeline, providing a basis for evaluation and repair by the customer. Once
the test is complete, the survey instrument is returned to the Company,
refurbished and used for future pipeline inspections.
Management believes there are growth opportunities for the Company's
Pipeline Services due to the aging of the worldwide pipeline network and new
pipeline construction. U.S. regulatory inspection requirements and an
extensive pipeline infrastructure in Eastern Europe are additional industry
factors expected to contribute to the growth of the Company's Pipeline
Services. Additionally, management believes that the Linalog(R) Plus
technology and the Company's new digital TruRes(R) inspection technology will
provide growth opportunities. The Linalog(R) Plus service is a computer
enhanced method for presenting the inspection report produced by the Company's
traditional Linalog technology. The TruRes(R) technology applies advanced
digital computer technology and other advancements within the body of the
inspection tool to provide greater measurement sampling density and pipe-body
coverage.
Industrial Inspection Services. The Company provides industrial inspection
and monitoring services for the construction, operation and maintenance of
major projects in energy-related industries. Inspection techniques include the
x-raying of pipeline girth welds and ultrasonic or eddy current inspection of
refinery equipment. Monitoring services include various quality assurance and
control and supervision services. Most of these services are provided during
fabrication, installation and maintenance of energy-related facilities. The
primary customers are power plants undergoing construction or maintenance,
chemical and petrochemical plants, pipeline construction companies and
pipeline owners.
The Company's Pipeline & Other Industrial Services customers include most
major pipeline operators, national oil and gas companies, and various nuclear
power plant operators. No customer accounted for more than 10 percent of
revenues for the Company in 1997. The Company's primary competitors include
Pipeline Integrity International, a subsidiary of British Gas Plc; Pipetronix
GmbH, a subsidiary of Preussag Ag; and H. Rosen Engineering GmbH, and BJ
Services. Management believes the major competitive factors for Pipeline
Services are reputation for quality service, reliability of obtaining a
successful survey on the first run, product technology, price, and technical
support of survey results interpretation.
1997 ACQUISITIONS
In 1997, Tuboscope made the following acquisitions:
<TABLE>
<CAPTION>
DATE OF
ACQUIRED ENTITY PRODUCT LINE ACQUISITION
--------------- ------------ -----------
<S> <C> <C>
Fiber Glass Systems, Inc. ......... Tubular Services March 1997
South-West Centrifuge Services,
Inc. ............................. Solids Control July 1997
Gator Hawk, Inc. .................. Tubular Services July 1997
Chargewood Limited, Enaco Plc, and
Pump Systems Limited together with
certain assets owned by their
shareholders...................... Solids Control August 1997
Fisher Fluids Processing, Inc. .... Solids Control August 1997
Cut-Rite Tubular Services, Ltd. ... Tubular Services August 1997
Operating assets of Blackfire Oil
Inc. ............................. Solids Control September 1997
Pro Serv AS........................ Tubular Services September 1997
Nu-Tec, Inc.'s Solids Control Divi-
sion.............................. Solids Control December 1997
WMCO Instruments, Inc. and WMCO
Equipment, Inc. .................. Solids Control December 1997
Tulsa Equipment Manufacturing Com- Coiled Tubing and December 1997
pany, Inc. ....................... Pressure Control Products
</TABLE>
38
<PAGE>
SEASONAL NATURE OF THE COMPANY'S BUSINESS
Historically, the level of the Company's business has followed seasonal
trends, which are described below. However, the historical trends in Tubular
Services and Solids Control Products & Services can also be subject to
significant changes resulting from fluctuations in oil prices and changes in
rig count.
The Company's tubular inspection, tubular coating, and solids control
businesses in the United States tend to realize lower activity levels during
the first quarter of the calendar year due to the typical delay in the
approval of drilling budgets and weather restrictions. The Company's tubular
inspection, tubular coating, and solids control businesses in Canada typically
realize a strong first quarter of the calendar year as operators take
advantage of the winter freeze to help gain access to drilling and production
areas, and then declines during the second quarter of the calendar year due to
weather conditions which result in road bans that curtail drilling activity.
Tubular Services activity in both the United States and Canada typically
increases during the third quarter of the calendar year and then peaks in the
fourth quarter of the calendar year as operators authorize the spending of
remaining drilling and/or production capital budgets for the year. The
seasonal trend in North America is somewhat offset by the increased activity
level in Latin America during the first quarter of each year.
Pipeline inspection typically experiences reduced activity during the first
quarter of the calendar year. The high winter demand for gas and petroleum
products in the northern states and the consequent curtailment of
maintenance/inspection programs result in less opportunity to perform pipeline
inspection during this time. During the second quarter of the calendar year,
activity begins to increase and normally continues at relatively stable levels
through the end of the year as operators finish scheduled maintenance
programs. Mill systems sales and industrial inspection services have no
particular seasonal trend. The timing of mill equipment sales is not easily
predictable and, accordingly, revenue tends to fluctuate from quarter to
quarter.
In general, the Coiled Tubing and Pressure Control line has experienced
lower revenue in the fourth quarter due to major customers placing orders,
based on their budgeting process, in the fourth quarter for delivery during
the next three quarters. This process may change in the future as a major
customer has changed to a continuous budgeting process and will place orders
throughout the year. There can be no guarantees that this trend will continue
or that any other customer will change its ordering process.
The Company anticipates that these seasonal trends will continue; however,
there can be no guarantee that spending by the Company's customers will
continue or that other customers will remain the same as in prior years.
MARKETING & DISTRIBUTION NETWORK
The Company's products are marketed through a sales organization and a
network of agents and distributors which spans 54 countries. The Company's
customers include major and independent oil and gas companies, national oil
companies, oilfield equipment and product distributors and manufacturers,
drilling and workover contractors, oilfield service companies, pipeline
operators, steel mills, and other industrial companies.
Certain tubular inspection and tubular coating products and service often
are incorporated as a part of a tubular package sold by tubular supply stores
to end users. The Company primarily has direct operations in the international
marketplace, but operates through agents in certain markets.
The Company's Solids Control customers are predominantly oil and natural gas
producers and rig operators. The Company operates sales and distribution
facilities at strategic locations worldwide to service areas with intensive
drilling activity. The Company's worldwide employee Solids Control sales
organization is complemented by service and engineering facilities which
provide specialty repair and maintenance services to existing customers.
The Company's Coiled Tubing & Pressure Control Products primarily are sold
directly to end users through a worldwide employee Coiled Tubing & Pressure
Control Products sales organization. The Company also has in place certain
exclusive alliances with major oilfield service companies to provide pressure
control equipment.
The Company's Pipeline Services customers are primarily major oil and gas
transmission companies and national oil companies in various countries around
the world. The Company sells its services worldwide through a network of sales
employees and agency agreements.
39
<PAGE>
PATENTS, LICENSES AND TRADEMARKS
Management believes that the Company's strong market position in its major
businesses is enhanced by its leading technologies and reputation for
innovation and expertise. Through an internal development program and certain
acquisitions, the Company has assembled an extensive array of coiled tubing,
solids control, tubular coating, tubular inspection, mill systems, and
pipeline inspection technologies protected by a substantial number of trade
and service marks, patents, trade secrets, and other proprietary rights.
In 1996, the Company engineered, manufactured, and delivered the first three
coiled tubing units designed specifically to drill wells. In 1997 the Company
manufactured and delivered two more such coiled tubing units designed for
drilling. The Company continues to invest in technology to improve and expand
coiled tubing drilling, and holds a number of patents in both coiled tubing
drilling and conventional coiled tubing unit designs. Additionally, the
Company holds a number of patents related to the manufacture and design of
pressure control equipment. The Company has joint development agreements for
the proprietary SAFECONN(TM) connector system which permits the safe
deployment of long perforating guns into live wells. The Company, through its
Pressure Control Engineering subsidiary, also offers a wide array of coiled
tubing completion and fishing tools, including its patented multi-lateral
reentry (MLR(TM)) system, its StiffLine 2000(TM) coiled tubing velocity string
wellhead hanger system, its HAPPI(TM) coiled tubing hydraulic anchor push-pull
intensifier. The Company has a wide complement of patented blow out preventors
and ancillary equipment for coiled tubing.
The Company's Solids Control Products & Services engineers and assembles
linear motion shakers, combination linear motion/scalping shakers and various
centrifuge designs. Additionally, various styles of screens for use with
shakers are designed by the Company for specialized use in the separation of
drill cuttings from fluids used in oil and gas drilling operations. The
Company has various patents related to its screens and shale shakers in both
the U.S. and international locations. During 1997, the Company acquired the
proprietary Gumbo Box(TM) and related Solids Control products of Nu-Tec, and
the proprietary Accu-Scan(TM) automated rig instrumentation service of WMCO.
The Gumbo Box(TM) removes certain sticky shales from drilling fluids, and the
Accu-Scan(TM) monitors drilling fluid levels, mud gas, and makes other
important measurements related to drilling operations.
The Company and its recent acquisition Vetco Pipeline Services pioneered the
pipeline inspection process with what is now known as "conventional pipeline"
inspection technology. The Company's copyrighted Linalog(R) technology plus
computer enhancement technique adds the ability to integrate computer analysis
into the conventional technology.
The Company's Tru Res(R) technology employs a patented state of the art high
resolution inspection tool and next generation magnetic flux leakage
technology to provide enhanced defect characterization.
The Company's electromagnetic inspection system, known as Amalog(R) IV,
performs four separate inspections in one semi-automated process: the
Sonoscope(R) section detects transverse defects, which are flaws aligned
across the pipe; the Amalog(R) section detects flaws with longitudinal
dimensions; the Isolog(R) section detects variations in the thickness of the
wall of the pipe; and the grade verifier section compares each length with a
standard to determine whether all the pipe is of the same metallurgical grade.
In addition, the Company's PipeImage(TM) System for electromagnetic inspection
system uses small sensors, digital signal processing, computer interpretation
and three-dimensional image presentation to help identify flaws in mid-range
walled pipe which may be undetectable with conventional electromagnetic
inspection services.
The equipment and technology used in the Company's ultrasonic inspection
systems (U-Tron(R), SOS Ultrasonic Inspection Unit, Vetcoscan(R) and NDT(TM)
Eagle) is designed to inspect heavywall or non-magnetic tubing, casing and
line pipe for manufacturing defects, where the effectiveness of
electromagnetic inspection is limited. The Company's ultrasonic capabilities
were further enhanced with the introduction of its Endsonic(R) technology for
ultrasonic end area inspection in 1994, and its patented full body ultrasonic
inspection unit (Truscope(R)) which provides 100% ultrasonic coverage at a
rate of 200 feet per minute.
40
<PAGE>
As part of the Vetco Services acquisition, the Company acquired the
interests of BHI in substantially all of the foreign and domestic trademarks
and patents and other proprietary technology used in the Vetco Services
business (other than Vetcoscan(R)). These technologies include Vetcolog(R),
PipeImage(TM) and Vetcoscope(R) electromagnetic inspection systems and the end
area inspection system and all of the liquid and powder coating technology. In
addition, the Company obtained certain rights to use the Vetcoscan(R)
ultrasonic inspection technology outside the United States. In connection with
such acquisition, BHI's domestic coating and inspection business retained the
right to use such technology in the United States. ICO, Inc. acquired the
domestic inspection and coating business of BHI in September 1992. In 1993 the
Company introduced its WellChek(R) technology which inspects pipe on the rig
floor as it is "tripped" from the well. High demand for the WellChek(R)
service prompted Tuboscope to expand its fleet of these units by 42% during
1997. The Gator Hawk acquisition provided the Company with the patented Iso-
Gator(R) hydrostatic tubular connection testing service, which is performed at
the rig site to ensure tubing strings are made up properly.
As part of the Company's tubular coating services, the Company develops,
manufactures and applies its proprietary tubular coatings, known as Tube-
Kote(R) coatings, to new and used tubulars. Tube-Kote(R) coatings are
manufactured by and for the Company using a variety of resins, including
phenolic, epoxy or urethane, each selected for its suitability under certain
corrosive conditions and then formulated to enhance performance. Presently the
Company utilizes both thermoplastic and thermosetting plastics technology to
provide materials with enhanced chemical resistance or mechanical properties
to meet the end users field requirements. Every coating is tested and
evaluated in field conditions before being released for customer use. Tube-
Kote(R) coatings are developed and manufactured either at the Company's
Houston, Texas, facility or are manufactured in North America or Europe
through restricted sales agreements with third party manufacturers.
The Company also offers a complete line of connection services for
internally coated pipe. These include Thru-Kote(R) and Thru-Kote(R) U.B.
systems for welding coated line pipe, and a variety of other specialized
fittings. Additionally, the Company's TK(R)-tubing insert is a cost effective
solution for corrosive down hole environments.
The Company has proprietary rights to a number of foreign and domestic
trademarks and service marks important to its business. It also owns various
foreign and domestic patents related to the design and manufacture of certain
products. Many of the patents have expired or will soon expire, and many of
the trademark registrations are up for renewal within the next two years.
Management intends to renew these trademarks. Although management believes
that no single patent is material to the business of the Company, it continues
to seek new patents to protect the Company's proprietary interests in certain
products as necessary.
ENGINEERING AND MANUFACTURING
The Company manufactures or assembles the equipment and products which it
leases and sells to customers, and which it uses in providing solids control,
inspection, tubular coating, and pipeline inspection services. In addition to
producing new equipment and products, the Company produces spare parts for its
equipment and for resale, and renovates and repairs equipment at its
manufacturing facilities in Houston, Texas; Conroe, Texas; Dundee, Scotland;
and Montrose, Scotland. The Company manufactures screens used in its solids
control operations and for sale to others at its New Iberia, Louisiana;
Conroe, Texas; Leduc, Alberta; and Trinidad facilities. The Company
manufactures coiled tubing units, wireline units, pressure pumping equipment
and pressure control equipment at its Fort Worth, Texas; Conroe, Texas; Tulsa,
Oklahoma; Montrose, Scotland; Aberdeen, Scotland; and Poole, England
facilities. The Company, through its 1997 acquisition of Fiber Glass Systems,
manufactures fiber glass tubulars and fittings at its San Antonio, Texas and
Big Springs, Texas facilities. The Company manufactures its tubular coatings
in its Houston, Texas facility, or through restricted sale agreements with
third party manufacturers.
The equipment and products designed and manufactured by the Company range
from electromagnetic and ultrasonic inspection systems, coating products,
electromagnetic pipeline inspection tools, mechanical solids control
equipment, coiled tubing and wireline equipment, pressure pumping equipment,
pressure control equipment, and downhole coiled tubing tools. Design and
engineering are based on research and development efforts as well as
established customer and industry standards.
41
<PAGE>
Certain of the Company's manufacturing facilities and certain of the
Company's products have various certification, including, ISO 9001, API and
ASME.
RAW MATERIALS
The Company believes that materials and components used in its servicing and
manufacturing operations and purchased for sales are readily available at
competitive prices from numerous sources.
BACKLOG
The Company's backlog is based upon anticipated revenues from customer
orders that the Company believes are firm and scheduled for shipment within
twelve months. The level of backlog at any particular time is not necessarily
indicative of the future operating performance of the Company, and orders may
be changed at any time. As of December 31, 1997, the Company's backlog of
Coiled Tubing & Pressure Control Products was $42.1 million, an increase of
approximately 92% above the $21.9 million in backlog as of December 31, 1996.
Backlog amounts in the Company's other product lines are not meaningful
indicators of future business.
ENVIRONMENTAL MATTERS
The Company's inspection, coating and solids control services routinely
involve the handling and disposal of chemical substances and waste materials,
some of which may be considered to be hazardous wastes. These potential
hazardous wastes result primarily from the use of mineral spirits to clean
pipe threads during the tubular inspection process and from the coating
process and the handling of drilling fluids on behalf of the drillers and/or
producers.
The Company's operations are subject to numerous local, state and federal
laws and regulations, including the regulations promulgated by the
Occupational Safety and Health Administration, the United States Environmental
Protection Agency, the Nuclear Regulatory Commission and the United States
Department of Transportation. Management believes that the Company is in
substantial compliance with these laws and regulations, and that the
compliance and remedial action costs associated with these laws and
regulations have not had a material adverse effect on its results of
operations, financial condition or competitive position, to date.
The Company cannot predict the effect on it of new laws and regulations with
respect to radioactive hazardous wastes caused by naturally occurring
radioactive materials or with respect to other environmental matters.
Circumstances or developments which are not currently known as well as the
future cost of compliance with environmental laws and regulations could be
substantial and could have a material adverse effect on the results of
operations and financial condition of the Company.
Pursuant to an agreement executed as part of the acquisition of the Company
in 1988 from Minstar Inc. ("Minstar"), Minstar has agreed, subject to certain
limitations concerning the time for submitting claims and the amount of losses
to be covered as described below, to indemnify the Company with respect to all
losses, liabilities, damages and expenses incurred in connection with, arising
out of or resulting from the production, use, generation, emission, storage,
treatment, transportation, disposal or other handling or disposition or
migration of any kind of any toxic or hazardous wastes at any time prior to
the closing of the 1988 acquisition date. Claims for indemnification were
required to be made before May 13, 1992. Minstar is obligated to indemnify the
Company for the first $1 million of losses incurred by the Company and fifty
percent of losses in excess of $2 million. The Company is solely responsible
for the second $1 million of losses incurred and fifty percent of losses in
excess of $2 million.
EMPLOYEES
As of December 31, 1997, the Company employed 4,598 full-time employees
worldwide, of whom approximately 2,626 were employed in North America. The
Company considers its relations with its employees to be excellent.
42
<PAGE>
MANAGEMENT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
L.E. Simmons............ 51 Chairman of the Board
John F. Lauletta........ 53 Director, President and Chief Executive Officer
Joseph C. Winkler....... 46 Executive Vice President, Chief Financial Officer and Treasurer
Martin I. Greenberg..... 58 Vice President--Controller and Assistant Secretary
James F. Maroney, III... 46 Vice President--Secretary and General Counsel
Kenneth L. Nibling...... 47 Vice President--Human Resources and Administration
Haynes B. Smith, III.... 46 Vice President--Western Hemisphere Operations
Peter J. Stuart......... 40 Vice President--Eastern Hemisphere Operations
Clay C. Williams........ 35 Vice President--Corporate Development
Jerome R. Baier......... 45 Director
Eric L. Mattson......... 46 Director
Jeffrey A. Smisek....... 43 Director
Douglas E. Swanson...... 59 Director
</TABLE>
Executive Officers and Directors of the Company
L.E. Simmons. Mr. Simmons has been a director and Chairman of the Board of
the Company since April 1996. Mr. Simmons has for more than five years served
as President and a director of L.E. Simmons & Associates, Incorporated, which,
through an affiliate, manages private institutional investment partnerships.
Mr. Simmons also serves as a director of Zions Bancorporation and CE Franklin
Ltd.
John F. Lauletta. Mr. Lauletta has been the President and Chief Executive
Officer and a director of the Company and TVI since April 1996. From 1993 to
April 1996, Mr. Lauletta was the President and Chief Executive Officer of
Drexel. From 1973 until 1993, Mr. Lauletta was with BHI, holding several
executive positions, including President of Exlog/TOTCO, President of Milpark
Drilling Fluids and Vice President of Baker Hughes INTEQ.
Joseph C. Winkler. Mr. Winkler has been Executive Vice President, Chief
Financial Officer and Treasurer of the Company and TVI since April 1996. From
1993 to April 1996, Mr. Winkler served as the Chief Financial Officer of
Drexel. Prior to joining Drexel, he was Chief Financial Officer of Baker
Hughes INTEQ and served in a similar role for various companies owned by BHI,
including Eastman/Teleco and Milpark Drilling Fluids. For ten years prior to
joining BHI, Mr. Winkler held the position of Chief Financial Officer of an
independent oil and gas producer after having spent several years with Arthur
Young & Company.
Martin I. Greenberg. Mr. Greenberg has been Vice President, Controller,
Assistant Treasurer and Assistant Secretary of the Company and TVI since
November 1991. From June 1991 to November 1991, Mr. Greenberg was Vice
President-Finance and Controller of the Company and TVI. Mr. Greenberg served
as Vice President-Controller and Assistant Secretary of the Company and TVI
from July 1990 to June 1991. Mr. Greenberg was Assistant Controller of TVI
from January 1974 to July 1990.
James F. Maroney, III. Mr. Maroney has been Vice President of the Company
and TVI since May 1991, Secretary of the Company and TVI since January 1991
and General Counsel of the Company and TVI since November 1989. Mr. Maroney
was Assistant Secretary of the Company and TVI from December 1989 to January
1991. Mr. Maroney was Associate General Counsel and Head of Litigation for
TransAmerican Natural Gas Corporation, a gas production company, from 1987 to
1989. From 1985 to 1987, Mr. Maroney was in a private law practice
specializing in commercial litigation.
Kenneth L. Nibling. Mr. Nibling has been Vice President-Human Resources and
Administration of the Company and TVI since December 1991. From July 1988 to
November 1991, Mr. Nibling was Director of
43
<PAGE>
Human Resources for Union Texas Petroleum Corp., an international exploration
and production company. From January 1984 to July 1988, Mr. Nibling was
Manager, Compensation and Employment for Louisiana Land and Exploration
Company.
Haynes B. Smith, III. Mr. Smith has been Vice President--Western Hemisphere
Operations of the Company since February 1998 and of TVI since April 1996.
From May 1991 to April 1996, Mr. Smith was Vice President and General Manager
of Inspection Services of the Company. From 1989 to May 1991, Mr. Smith was
Northeast Zone Manager of the Company. From June 1972 to 1989, Mr. Smith held
various sales and managerial positions with the Company and AMF Tuboscope Inc.
Peter J. Stuart. Mr. Stuart has been Vice President--Eastern Hemisphere
Operations of the Company since February 1998 and of TVI since April 1996. Mr.
Stuart has been Managing Director of Tuboscope (UK) Ltd. since January 1998
and of Tuboscope Vetco (UK) Ltd. since April 1996. From March 1992 to April
1996, Mr. Stuart was Managing Director of Drexel Equipment (UK) Ltd. From
August 1985 to March 1992, Mr. Stuart was a Project Engineer, and latterly
Operations Manager, for Drexel's operations in the United Kingdom. From August
1979 to July 1985, Mr. Stuart held engineering positions with Sparrows
Offshore and Halliburton in the United Kingdom.
Clay C. Williams. Mr. Williams has been Vice President--Corporate
Development of the Company and TVI since February 1997. From April 1996 to
February 1997, Mr. Williams was Director of Corporate Development of the
Company and TVI. From March 1996 to April 1996, Mr. Williams was Director of
Corporate Development of Drexel. Mr. Williams was an associate at SCF Partners
from December 1993 to March 1996. From July 1992 to December 1993, Mr.
Williams was a graduate student at the University of Texas business school.
Mr. Williams was a senior petrophysical engineer for Shell Oil Company from
1985 to July 1992.
Jerome R. Baier. Mr. Baier has been a director of the Company since 1988.
Mr. Baier is and has been a Managing Director of Northwestern Investment
Management Company since January 1998. From October 1996 to December 1997, Mr.
Baier was Vice President-Securities of Northwestern Mutual Life Insurance
Company ("Northwestern"). From October 1989 to October 1996, Mr. Baier was
Director--Securities of Northwestern. For more than five years prior to
October 1989, Mr. Baier was Associate Director-Securities of Northwestern.
Eric L. Mattson. Mr. Mattson has been a director of the Company since
January 1994. Mr. Mattson is and has been Senior Vice President and Chief
Financial Officer of BHI since July 1993. For more than five years prior to
1993, Mr. Mattson was Vice President and Treasurer of BHI. Mr. Mattson also
serves as a director of Rental Service Corporation.
Jeffrey A. Smisek. Mr. Smisek has been a director of the Company since his
appointment in February 1998. Mr. Smisek has been Executive Vice President,
General Counsel and Secretary of Continental Airlines since November 1996, and
was previously Senior Vice President, General Counsel and Secretary of
Continental Airlines. Prior to joining Continental Airlines in 1995, Mr.
Smisek was a partner of Vinson & Elkins L.L.P., a law firm, for more than five
years.
Douglas E. Swanson. Mr. Swanson has been a director of the Company since his
appointment in October 1997. Mr. Swanson is and has been the President, Chief
Executive Officer and Chairman of the Board of Cliffs Drilling Company since
1992. From 1978 to 1992, Mr. Swanson was an Executive Vice President of Cliffs
Drilling Company.
44
<PAGE>
DESCRIPTION OF THE NOTES
The Private Notes were issued pursuant to the Indenture, dated as of
February 25, 1998, by and among the Company, the Guarantors and The Bank of
New York Trust Company of Florida, N.A., as trustee under the Indenture (the
"Trustee"). The Exchange Notes will be issued under the same Indenture. The
Indenture also provides the Company the flexibility of issuing additional
Notes in the future in an unlimited amount. The Exchange Notes will be issued
solely in exchange for an equal principal amount of Private Notes pursuant to
the Exchange Offer. The form and terms of the Exchange Notes will be identical
in all material respects to the form and terms of the Private Notes except
that (i) the offering of the Exchange Notes has been registered under the
Securities Act, (ii) the Exchange Notes will not be subject to transfer
restrictions and (iii) certain provisions relating to an increase in the
stated interest rate on the Private Notes provided for under certain
circumstances will be eliminated.
The following summaries of certain provisions of the Notes and the Indenture
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the Notes and the Indenture. Certain capitalized
terms used herein without definition are defined in the Indenture. References
to the Notes herein refers to the Private Notes and the Exchange Notes,
collectively. Copies of the Indenture in substantially the form in which it is
to be executed are available from the Company upon request.
The Private Notes and the Exchange Notes will constitute a single series of
debt securities under the Indenture. Upon consummation of the Exchange Offer,
holders of Private Notes who do not exchange their Private Notes for Exchange
Notes will vote together with holders of the Exchange Notes for all relevant
purposes under the Indenture. In that regard, the Indenture requires that
certain actions by the holders thereunder (including acceleration following an
Event of Default) must be taken, and certain rights must be exercised, by
specified minimum percentages of the aggregate principal amount of the
outstanding securities issued under the Indenture. In determining whether
holders of the requisite percentage in principal amount have given any notice,
consent or waiver or taken any other action permitted under the Indenture, any
Private Notes that remain outstanding after the Exchange Offer will be
aggregated with the Exchange Notes, and the holders of such Private Notes and
the Exchange Notes will vote together as a single series for all such
purposes. Accordingly, all references herein to specified percentages in
aggregate principal amount of the outstanding Notes shall be deemed to mean,
at any time after the Exchange Offer is consummated, such percentages in
aggregate principal amount of the Private Notes and the Exchange Notes then
outstanding.
GENERAL
Each Note will mature on February 15, 2008 and will bear interest at the
rate of 7% per annum from February 25, 1998, payable semiannually on February
15 and August 15 of each year, commencing August 15, 1998, to the person in
whose name the Note is registered at the close of business on the February 1
or August 1 next preceding such interest payment date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. Principal and
interest will be payable at the offices of the Trustee, provided that, at the
option of the Company, payment of interest will be made by check mailed to the
address of the person entitled thereto as it appears in the register of the
Notes (the "Register") maintained by the Registrar. The Notes will be
transferable and exchangeable at the office of the Registrar and any co-
registrar and will be issued in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. The Company may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection with certain transfers and
exchanges.
The Notes will be redeemable at any time at the option of the Company in
whole or in part, at a price equal to 100% of the principal amount, plus
accrued and unpaid interest, if any, to date of redemption plus a Make-Whole
Premium (as defined) if any, relating to the then prevailing Treasury Yield
(as defined) and the remaining life of the Notes. See "--Optional Redemption."
For a discussion of the circumstances in which the interest rate on the
Notes may be temporarily increased, see "--Registered Exchange Offer;
Registration Rights."
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BOOK-ENTRY; DELIVERY AND FORM
The Private Notes were initially issued in fully registered form without
interest coupons, represented by a global Note in definitive, fully registered
form without interest coupons (the "Private Global Note") and was deposited
with the Trustee as custodian for DTC and registered in the name of a nominee
of DTC.
The Private Notes, to the extent validly tendered and accepted and directed
by their holders in their Letters of Transmittal, will be exchanged through
book-entry electronic transfer for the Exchange Global Note in definitive,
fully registered form deposited with the Trustee as custodian for DTC and
registered in the name of a nominee of DTC. Reference to the "Global Note"
shall be references to the Private Global Note and the Exchange Global Note.
Upon the issuance of the Global Note, DTC will credit, on its internal
system, the respective principal amount of the individual beneficial interests
represented by such Global Note to the accounts of persons who have accounts
with such depositary. Such accounts initially were designated by or on behalf
of the Initial Purchasers. Ownership of beneficial interests in a Global Note
will be limited to persons who have accounts with DTC ("participants") or
persons who hold interests through participants. Ownership of beneficial
interests in the Global Note will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Qualified Institutional Buyers may hold their interests in the Global Note
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. In addition, no beneficial owner
of an interest in a Global Note will be able to transfer that interest except
in accordance with the applicable procedures of DTC and, if applicable, Cedel,
societe anonyme ("Cedel"), and Morgan Guaranty Trust Company of New York, as
operator of the Euroclear system ("Euroclear") (in addition to those under the
Indenture referred to herein, see "Transfer Restrictions").
Payments of the principal of, and interest on, the Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records
of DTC or its nominee. The Company also expects that payments by participants
to owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note is credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such
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direction. However, if there is an Event of Default under the Notes, DTC will
exchange the Global Note for Certificated Notes which it will distribute to
its participants and which will be legended as set forth under the heading
"Transfer Restrictions."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC was
created to hold securities for its participants and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the DTC
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in the Global Note
among participants of DTC, Euroclear and Cedel, they are under no obligation
to perform or continue to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Guarantors or the Trustee
will have any responsibility for the performance by DTC, Euroclear or Cedel or
the participants or indirect participants of their respective obligations
under the rules and procedures governing their respective operations.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for the Notes in the form of Certificated Notes. Upon any
such issuance, the Trustee is required to register such Notes in the name of,
and cause the same to be delivered to, such Person or Persons (or the nominee
of any thereof). All such Certificated Notes would be subject to the legend
requirements described herein under "Transfer Restrictions." In addition, if
(i) DTC or any successor depositary (the "Depositary") notifies the Company in
writing that it is no longer willing or able to act as a depositary and the
Company is unable to locate a qualified successor within 90 days or (ii) the
Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Notes in the form of Certificated Notes under the
Indenture, then, upon surrender by the registered owner or holder of a Global
Note (a "Global Note Holder") of its Global Note, Notes in such form will be
issued to each Person that such Global Note Holder and the Depositary identify
as the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
related Global Note Holder or the Depositary in identifying the beneficial
owners of the related Notes, and each such Person may conclusively rely on,
and will be protected in relying on, instructions from such Global Note Holder
or of the Depositary for all purposes (including with respect to the
registration and delivery, and the respective principal amounts, of the Notes
to be issued).
RANKING AND GUARANTEES
The Notes are senior unsecured obligations of the Company and rank pari
passu in right of payment with all existing and future senior unsecured
obligations of the Company, including the Company's obligations under the Bank
Credit Facility and senior in right of payment to all future indebtedness of
the Company that is, by its terms, expressly subordinated to the Notes.
The following subsidiaries of the Company, each of which also is a guarantor
of the Company's obligations under the Bank Credit Facility and which
constitute all of the material United States subsidiaries of the Company
(collectively, the "Guarantors"), have unconditionally guaranteed (the
"Guarantees") on a joint and several
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basis the Company's obligations to pay principal and interest with respect to
the Notes: Tuboscope I/P Inc., Tuboscope Vetco International Inc., Tubo-FGS
Inc., Fiber Glass Holdings, Inc., Environmental Procedures Inc., Tuboscope
Pipeline Services Inc. and Tuboscope (Holding U.S.) Inc. Each of the
Guarantees is an unsecured obligation of the Guarantor providing such
Guarantee and will rank pari passu with the guarantee provided by such
Guarantor under the Bank Credit Facility and with all existing and future
unsecured indebtedness of such Guarantor that is not, by its terms, expressly
subordinated in right of payment to such Guarantee.
Under the terms of the Indenture, a Guarantor may be released from its
Guarantee if such Guarantor is not a guarantor of (or co-obligor on) any
Funded Indebtedness of the Company other than the Notes and other than Funded
Indebtedness of the Company (i) subject to a release provision similar to the
release provision described in this paragraph and (ii) the related guarantee
(or obligation) of which will be released concurrently with the release of the
Guarantee of such Guarantor pursuant to such release provision, provided that
no Default or Event of Default under the Indenture has occurred and is
continuing. The Indenture will also provide that if any Subsidiary of the
Company guarantees or becomes a co-obligor on any Funded Indebtedness of the
Company other than the Notes at any time subsequent to the date on which the
Notes are originally issued (including, without limitation, following any
release of such Subsidiary from its Guarantee as described above), then the
Company will cause the Notes to be equally and ratably guaranteed by such
Subsidiary, which shall thereupon become a Guarantor.
The obligations of each Guarantor are limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the obligations of such
other Guarantor under its Guarantee or pursuant to its contribution
obligations under the Indenture, result in the obligations of such Guarantor
under its Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal, state or foreign law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Guarantor in a pro rata amount based on the Adjusted Net
Assets of each Guarantor.
OPTIONAL REDEMPTION
The Notes are redeemable, at the option of the Company, at any time in whole
or from time to time in part, upon not less than 30 and not more than 60 days'
notice mailed to each holder of Notes to be redeemed at the holder's address
appearing in the Register, on any date prior to maturity at a price equal to
100% of the principal amount thereof plus accrued interest to the Redemption
Date (subject to the right of holders of record on the relevant record date to
receive interest due on an interest payment date that is on or prior to the
Redemption Date) plus a Make-Whole Premium, if any (the "Redemption Price").
In no event will the Redemption Price ever be less than 100% of the principal
amount of the Notes plus accrued interest to the Redemption Date.
The amount of the Make-Whole Premium with respect to any Note (or portion
thereof) to be redeemed is equal to the excess, if any, of:
(i) the sum of the present values, calculated as of the Redemption Date,
of:
A. each interest payment that, but for such redemption, would have been
payable on the Note (or portion thereof) being redeemed on each Interest
Payment Date occurring after the Redemption Date (excluding any accrued
interest for the period prior to the Redemption Date); and
B. the principal amount that, but for such redemption, would have been
payable at the final maturity of the Note (or portion thereof) being
redeemed;
over
(ii) the principal amount of the Note (or portion thereof) being
redeemed.
The present values of interest and principal payments referred to in clause
(i) above will be determined in accordance with generally accepted principles
of financial analysis. Such present values will be calculated by
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discounting the amount of each payment of interest or principal from the date
that each such payment would have been payable, but for the redemption, to the
Redemption Date at a discount rate equal to the Treasury Yield (as defined
below) plus 25 basis points.
The Make-Whole Premium will be calculated by an independent investment
banking institution of national standing appointed by the Company; provided,
that if the Company fails to make such appointment at least 45 business days
prior to the Redemption Date, or if the institution so appointed is unwilling
or unable to make such calculation, such calculation will be made by Credit
Suisse First Boston Corporation or, if such firm is unwilling or unable to
make such calculation, by an independent investment banking institution of
national standing appointed by the Trustee (in any such case, an "Independent
Investment Banker").
For purposes of determining the Make-Whole Premium, "Treasury Yield" means a
rate of interest per annum equal to the weekly average yield to maturity of
United States Treasury Notes that have a constant maturity that corresponds to
the remaining term to maturity of the Notes, calculated to the nearest 1/12th
of a year (the "Remaining Term"). The Treasury Yield will be determined as of
the third business day immediately preceding the applicable Redemption Date.
The weekly average yields of United States Treasury Notes will be determined
by reference to the most recent statistical release published by the Federal
Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or
any successor release (the "H.15 Statistical Release"). If the H.15
Statistical Release sets forth a weekly average yield for United States
Treasury Notes having a constant maturity that is the same as the Remaining
Term, then the Treasury Yield will be equal to such weekly average yield. In
all other cases, the Treasury Yield will be calculated by interpolation, on a
straight-line basis, between the weekly average yields on the United States
Treasury Notes that have a constant maturity closest to and greater than the
Remaining Term and the United States Treasury Notes that have a constant
maturity closest to and less than the Remaining Term (in each case as set
forth in the H.15 Statistical Release). Any weekly average yields so
calculated by interpolation will be rounded to the nearest 1/100th of 1%, with
any figure of 1/200% or above being rounded upward. If weekly average yields
for United States Treasury Notes are not available in the H.15 Statistical
Release or otherwise, then the Treasury Yield will be calculated by
interpolation of comparable rates selected by the Independent Investment
Banker.
If less than all of the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed by such method as the Trustee shall deem fair and
appropriate. The Trustee may select for redemption Notes and portions of Notes
in amounts of $1,000 or whole multiples of $1,000.
The Bank Credit Facility currently restricts the Company from redeeming the
Notes. The Notes are not entitled to the benefit of any sinking fund or other
mandatory redemption provisions.
CERTAIN COVENANTS
Limitation on Liens
Nothing in the Indenture or the Notes in any way limits the amount of
indebtedness or securities (other than the Notes) that the Company or its
Subsidiaries may incur or issue. The Indenture provides that the Company will
not, and will not permit any Subsidiary of the Company to, issue, assume or
guarantee any Indebtedness for borrowed money secured by any Lien on any
property or asset now owned or hereafter acquired by the Company or such
Subsidiary without making effective provision whereby any and all Notes then
or thereafter outstanding will be secured by a Lien equally and ratably with
any and all other obligations thereby secured for so long as any such
obligations shall be so secured.
The foregoing restriction does not, however, apply to:
(a) Liens existing on the date on which the Notes are originally issued or
provided for under the terms of agreements existing on such date;
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(b) Liens on property securing (i) all or any portion of the cost of
acquiring, constructing, altering, improving or repairing any property or
assets, real or personal, or improvements used or to be used in connection
with such property or (ii) Indebtedness incurred by the Company or any
Subsidiary of the Company prior to or within one year after the later of the
acquisition, the completion of construction, alteration, improvement or repair
or the commencement of commercial operation thereof, which Indebtedness is
incurred for the purpose of financing all or any part of the purchase price
thereof or construction or improvements thereon;
(c) Liens securing Indebtedness owed by a Subsidiary of the Company to the
Company or to any other Subsidiary of the Company;
(d) Liens on the property of any Person existing at the time such Person
becomes a Subsidiary of the Company and not incurred as a result of (or in
connection with or in anticipation of) such Person becoming a Subsidiary of
the Company, provided that such Liens do not extend to or cover any property
or assets of the Company or any of its Subsidiaries other than the property
encumbered at the time such Person becomes a Subsidiary of the Company and do
not secure Indebtedness with a principal amount in excess of the principal
amount outstanding at such time;
(e) Liens on any property securing (i) Indebtedness incurred in connection
with the construction, installation or financing of pollution control or
abatement facilities or other forms of industrial revenue bond financing or
(ii) Indebtedness issued or guaranteed by the United States or any State
thereof or any department, agency or instrumentality of either;
(f) any Lien extending, renewing or replacing (or successive extensions,
renewals or replacements of) any Lien of any type permitted under clause (a),
(b), (d) or (e) above, provided that such Lien extends to or covers only the
property that is subject to the Lien being extended, renewed or replaced and
that the principal amount of the Indebtedness secured thereby shall not exceed
the principal amount of Indebtedness so secured at the time of such extension,
renewal or replacement; or
(g) Liens (exclusive of any Lien of any type otherwise permitted under
clauses (a) through (f) above) securing Indebtedness for borrowed money of the
Company or any Subsidiary of the Company in an aggregate principal amount
which, together with the aggregate amount of Attributable Indebtedness deemed
to be outstanding in respect of all Sale/Leaseback Transactions entered into
pursuant to clause (a) of the covenant described under "Limitation on
Sale/Leaseback Transactions" below (exclusive of any such Sale/Leaseback
Transactions otherwise permitted under clauses (a) through (f) above), does
not at the time such Indebtedness is incurred exceed 10% of the Consolidated
Net Worth of the Company (as shown in the most recent audited consolidated
balance sheet of the Company and its Subsidiaries).
Limitation on Sale/Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
Subsidiary to, enter into any Sale/Leaseback Transaction with any person
(other than the Company or a Subsidiary) unless:
(a) the Company or such Subsidiary would be entitled to incur Indebtedness,
in a principal amount equal to the Attributable Indebtedness with respect to
such Sale/Leaseback Transaction, secured by a Lien on the property subject to
such Sale/Leaseback Transaction pursuant to the covenant described under
"Limitation on Liens" above without equally and ratably securing the Notes
pursuant to such covenant;
(b) after the date on which the Notes are originally issued and within a
period commencing six months prior to the consummation of such Sale/Leaseback
Transaction and ending six months after the consummation thereof, the Company
or such Subsidiary shall have expended for property used or to be used in the
ordinary course of business of the Company and its Subsidiaries an amount
equal to all or a portion of the net proceeds of such Sale/Leaseback
Transaction and the Company shall have elected to designate such amount as a
credit against such Sale/Leaseback Transaction (with any such amount not being
so designated to be applied as set forth in clause (c) below); or
(c) the Company, during the 12-month period after the effective date of such
Sale/Leaseback Transaction, shall have applied to the voluntary defeasance or
retirement of Notes or any Pari Passu Indebtedness an amount
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equal to the greater of the net proceeds of the sale or transfer of the
property leased in such Sale/Leaseback Transaction and the fair value, as
determined by the Board of Directors of the Company, of such property at the
time of entering into such Sale/Leaseback Transaction (in either case adjusted
to reflect the remaining term of the lease and any amount expended by the
Company as set forth in clause (b) above), less an amount equal to the
principal amount of Notes and Pari Passu Indebtedness voluntarily defeased or
retired by the Company within such 12-month period and not designated as a
credit against any other Sale/Leaseback Transaction entered into by the
Company or any Subsidiary during such period.
Limitations on Mergers and Consolidations
The Indenture provides that neither the Company nor any Guarantor (other
than any Guarantor that shall have been released from its Guarantee pursuant
to the provisions of the Indenture) will consolidate with or merge into any
Person, or sell, lease, convey, transfer or otherwise dispose of all or
substantially all of its assets to any Person, unless: (i) the Person formed
by or surviving such consolidation or merger (if other than the Company or
such Guarantor, as the case may be), or to which such sale, lease, conveyance,
transfer or other disposition shall be made (collectively, the "Successor"),
is a corporation organized and existing under the laws of the United States or
any State thereof or the District of Columbia (or, alternatively, in the case
of a Guarantor organized under the laws of a jurisdiction outside the United
States, a corporation organized and existing under the laws of such foreign
jurisdiction), and the Successor assumes by supplemental indenture in a form
satisfactory to the Trustee all of the obligations of the Company or such
Guarantor, as the case may be, under the Indenture and under the Notes; and
(ii) immediately after giving effect to such transaction, no Default or Event
of Default shall have occurred and be continuing.
CERTAIN DEFINITIONS
The following is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all such terms
and for the definitions of other capitalized terms used herein and not defined
below.
"Adjusted Net Assets" of a Guarantor at any date means the lesser of (x) the
amount by which the fair value of the property of such Guarantor at such date
exceeds the total amount of liabilities, including, without limitation, the
probable amount of contingent liabilities (after giving effect to all other
fixed and contingent liabilities incurred or assumed on such date) of such
Guarantor at such date, but excluding liabilities under the Guarantee of such
Guarantor, and (y) the amount by which the present fair saleable value of the
assets of such Guarantor at such date exceeds the amount that will be required
to pay the probable liability of such Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on
such date and after giving effect to any collection from any Subsidiary of
such Guarantor in respect of any obligations of such Subsidiary under the
Guarantee of such Guarantor), excluding debt in respect of the Guarantee of
such Guarantor, as they become absolute and matured.
"Attributable Indebtedness," when used with respect to any Sale/Leaseback
Transaction, means, as at the time of determination, the present value
(discounted at the rate set forth or implicit in the terms of the lease
included in such transaction) of the total obligations of the lessee for
rental payments (other than amounts required to be paid on account of property
taxes, maintenance, repairs, insurance, assessments, utilities, operating and
labor costs and other items which do not constitute payments for property
rights) during the remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease has been extended).
"Capitalized Lease Obligation" of any Person means any obligation of such
Person to pay rent or other amounts under a lease of property, real or
personal, that is required to be capitalized for financial reporting purposes
in accordance with generally accepted accounting principles; and the amount of
such obligation shall be the capitalized amount thereof determined in
accordance with generally accepted accounting principles.
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"Consolidated Net Worth" of the Company means the consolidated stockholders'
equity of the Company and its Subsidiaries, as determined in accordance with
generally accepted accounting principles.
"Funded Indebtedness" means all Indebtedness (including Indebtedness
incurred under any revolving credit, letter of credit or working capital
facility) that matures by its terms, or that is renewable at the option of any
obligor thereon to a date, more than one year after the date on which such
Indebtedness is originally incurred.
"Hedging Obligations" of any Person means the net obligation (not the
notional amount) of such Person pursuant to any interest rate swap agreement,
foreign currency exchange agreement, interest rate collar agreement, option or
future contract or other similar agreement or arrangement relating to interest
rates or foreign exchange rates.
"Indebtedness" of any Person at any date means, without duplication, (i) all
indebtedness of such Person for borrowed money (whether or not the recourse of
the lender is to the whole of the assets of such Person or only to a portion
thereof), (ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments, (iii) all obligations of such Person in
respect of letters of credit or other similar instruments (or reimbursement
obligations with respect thereto), other than standby letters of credit and
performance bonds issued by such Person in the ordinary course of business, to
the extent not drawn or, to the extent drawn, if such drawing is reimbursed
not later than the third Business Day following demand for reimbursement, (iv)
all obligations of such Person to pay the deferred and unpaid purchase price
of property or services, except trade payables and accrued expenses incurred
in the ordinary course of business, (v) all Capitalized Lease Obligations of
such Person, (vi) all Indebtedness of others secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person, (vii)
all Indebtedness of others guaranteed by such Person to the extent of such
guarantee and (viii) all Hedging Obligations of such Person.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law. For the
purposes of the Indenture, the Company or any Subsidiary of the Company shall
be deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capitalized Lease Obligation or other title retention agreement
relating to such asset.
"Non-Recourse Indebtedness" means, at any date, the aggregate amount at such
date of Indebtedness of the Company or a Subsidiary of the Company in respect
of which the recourse of the holder of such Indebtedness, whether direct or
indirect and whether contingent or otherwise, is effectively limited to
specified assets, and with respect to which neither the Company nor any of its
Subsidiaries provides any credit support.
"Pari Passu Indebtedness" means any Indebtedness of the Company, whether
outstanding on the date on which the Notes are originally issued or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
be subordinated in right of payment to the Notes.
"Sale/Leaseback Transaction" means any arrangement with any Person providing
for the leasing by the Company or any Subsidiary of the Company, for a period
of more than three years, of any real or tangible personal property, which
property has been or is to be sold or transferred by the Company or such
Subsidiary to such Person in contemplation of such leasing.
"Significant Subsidiary" has the meaning set forth in Regulation S-X under
the Exchange Act.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture as being: (i) default by the
Company or any Guarantor for 30 days in payment of any interest on the Notes;
(ii) default by the Company or any Guarantor in any payment
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of principal of or premium, if any, on the Notes; (iii) default by the Company
or any Guarantor in compliance with any of its other covenants or agreements
in, or provisions of, the Notes, the Guarantees or the Indenture which shall
not have been remedied within 60 days after written notice by the Trustee or
by the holders of at least 25% in principal amount of the Notes then
outstanding; (iv) the acceleration of the maturity of any Indebtedness (other
than the Notes or any Non-Recourse Indebtedness) of the Company or any
Subsidiary of the Company having an outstanding principal amount of $10
million or more individually or in the aggregate, or a default in the payment
of any principal or interest in respect of any Indebtedness (other than the
Notes or any Non-Recourse Indebtedness) of the Company or any Subsidiary of
the Company having an outstanding principal amount of $10 million or more
individually or in the aggregate and such default shall be continuing for a
period of 30 days without the Company or such Subsidiary, as the case may be,
effecting a cure of such default; (v) a judgment or order for the payment of
money in excess of $10 million (net of applicable insurance coverage) having
been rendered against the Company, a Guarantor or any Significant Subsidiary
of the Company and such judgment or order shall continue unsatisfied and
unstayed for a period of 30 days; or (vi) certain events involving bankruptcy,
insolvency or reorganization of the Company, a Guarantor or any Significant
Subsidiary of the Company. Pursuant to the Indenture, Guarantors may not be
released from their Guarantees if a Default or Event of Default has occurred
and is continuing. The obligations of any Subsidiary of the Company that
becomes a Guarantor are not dependent upon whether such Subsidiary becomes a
Guarantor prior to or after an Event of Default. The Indenture provides that
the Trustee may withhold notice to the holders of the Notes of any default
(except in payment of principal of or premium, if any, or interest on the
Notes) if the Trustee considers it in the interest of the holders of the Notes
to do so.
The Indenture provides that if an Event of Default occurs and is continuing
with respect to the Indenture, the Trustee or the holders of not less than 25%
in principal amount of the Notes outstanding may declare the principal of and
premium, if any, and accrued but unpaid interest on all the Notes to be due
and payable. Upon such a declaration, such principal, premium, if any, and
interest will be due and payable immediately. If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization of the Company
or a Guarantor occurs and is continuing, the principal of and premium, if any,
and interest on all the Notes will become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holders
of the Notes. The amount due and payable on the acceleration of any Note will
be equal to 100% of the principal amount of such Note, plus accrued interest
to the date of payment. Under certain circumstances, the holders of a majority
in principal amount of the outstanding Notes may rescind any such acceleration
with respect to the Notes and its consequences.
The Indenture provides that no holder of a Note may pursue any remedy under
the Indenture unless (i) the Trustee shall have received written notice of a
continuing Event of Default, (ii) the Trustee shall have received a request
from holders of at least 25% in principal amount of the Notes to pursue such
remedy, (iii) the Trustee shall have been offered indemnity reasonably
satisfactory to it and (iv) the Trustee shall have failed to act for a period
of 60 days after receipt of such notice and offer of indemnity; however, such
provision does not affect the right of a holder of a Note to sue for
enforcement of any overdue payment thereon.
The holders of a majority in principal amount of the Notes then outstanding
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee under the
Indenture, subject to certain limitations specified in the Indenture. The
Indenture requires the annual filing by the Company with the Trustee of a
written statement as to compliance with the covenants contained in the
Indenture.
MODIFICATION AND WAIVER
The Indenture provides that modifications and amendments to the Indenture or
the Notes may be made by the Company, the Guarantors and the Trustee with the
consent of the holders of a majority in principal amount of the Notes then
outstanding; provided that no such modification or amendment may, without the
consent of the holder of each Note then outstanding affected thereby, (i)
reduce the amount of Notes whose holders must
53
<PAGE>
consent to an amendment, supplement or waiver; (ii) reduce the rate of or
change the time for payment of interest, including default interest, on any
Note; (iii) reduce the principal of or change the fixed maturity of any Note
or alter the premium or other provisions with respect to redemption; (iv) make
any Note payable in money other than that stated in the Note; (v) impair the
right to institute suit for the enforcement of any payment of principal of, or
premium, if any, or interest on, any Note; (vi) make any change in the
percentage of principal amount of Notes necessary to waive compliance with
certain provisions of the Indenture; or (vii) waive a continuing Default or
Event of Default in the payment of principal of, or premium, if any, or
interest on the Notes. The Indenture will provide that modifications and
amendments of the Indenture may be made by the Company, the Guarantors and the
Trustee without the consent of any holders of Notes in certain limited
circumstances, including (a) to cure any ambiguity, omission, defect or
inconsistency, (b) to provide for the assumption of the obligations of the
Company or any Guarantor under the Indenture upon the merger, consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or any such Guarantor, (c) to provide for uncertificated Notes in
addition to or in place of certificated Notes, (d) to reflect the release of
any Guarantor from its Guarantee, or the addition of any Subsidiary of the
Company as a Guarantor, in the manner provided by the Indenture, (e) to comply
with any requirement in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act of 1939 or (f) to make any change that
does not adversely affect the rights of any holder of Notes in any material
respect.
The Indenture provides that the holders of a majority in aggregate principal
amount of the Notes then outstanding may waive any past default under the
Indenture, except a default in the payment of principal, or premium, if any,
or interest.
DISCHARGE AND TERMINATION
Defeasance of Certain Obligations
The Indenture provides that the Company and the Guarantors may terminate
certain of their obligations under the Indenture, including those described
under the section "Certain Covenants," if (i) the Company irrevocably deposits
in trust with the Trustee cash or non-callable U.S. Government Obligations or
a combination thereof sufficient to pay principal of and interest on the Notes
to maturity, and to pay all other sums payable by it under the Indenture; (ii)
no Default or Event of Default shall have occurred and be continuing on the
date of such deposit; (iii) the Company shall have delivered to the Trustee an
Opinion of Counsel from nationally recognized counsel acceptable to the
Trustee or a tax ruling to the effect that the holders of the Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
the Company's exercise of its option under such section and will be subject to
Federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such option had not been exercised; (iv)
the Company delivers to the Trustee certain other documents called for by the
Indenture, including an Officers' Certificate and Opinions of Counsel; and (v)
certain other conditions are satisfied. The Company's payment obligations and
the Guarantors' Guarantees shall survive until the Notes are no longer
outstanding.
Discharge
The Indenture provides that the Indenture shall cease to be of further
effect (subject to certain exceptions relating to compensation and indemnity
of the Trustee and repayment to the Company of excess money or securities)
when (i) either (A) all outstanding Notes theretofore authenticated and issued
(other than destroyed, lost or stolen Notes that have been replaced or paid)
have been delivered to the Trustee for cancellation; or (B) all outstanding
Notes not theretofore delivered to the Trustee for cancellation (x) have
become due and payable or (y) will become due and payable at their stated
maturity within one year and the Company has deposited or caused to be
deposited with the Trustee as funds (immediately available to the holders in
the case of clause (x)) in trust for such purpose an amount which, together
with earnings thereon, will be sufficient to pay and discharge the entire
indebtedness on such Notes for principal and interest to the date of such
deposit (in the case of Notes which have become due and payable) or to the
stated maturity, as the case may be; (ii) the Company has paid all
54
<PAGE>
other sums payable by it under the Indenture; and (iii) the Company has
delivered to the Trustee an Officers' Certificate stating that all conditions
precedent to satisfaction and discharge of the Indenture have been complied
with, together with an Opinion of Counsel to the same effect.
GOVERNING LAW
The Indenture provides that it will be governed by and will be construed in
accordance with the laws of the State of New York.
THE TRUSTEE
The Bank of New York is the Trustee under the Indenture. Its address is 101
Barclay Street--Floor 7E, New York, New York 10286. The Company has also
appointed the Trustee as the initial Registrar and as initial Paying Agent
under the Indenture.
The Indenture contains certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee is permitted to engage in
other transactions; however, if it acquires any conflicting interest (as
defined in the Trust Indenture Act of 1939, as amended), it must eliminate
such conflict or resign.
The Indenture provides that in case an Event of Default shall occur (and be
continuing), the Trustee will be required to use the degree of care and skill
of a prudent man in the conduct of his own affairs. The Trustee will be under
no obligation to exercise any of its powers under the Indenture at the request
of any of the holders of the Notes, unless such holders shall have offered the
Trustee indemnity reasonably satisfactory to it.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Tuboscope Inc.,
2835 Holmes Road, Houston, Texas 77051, Attention: Secretary.
55
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
THE BANK CREDIT FACILITY
On February 9, 1998, the Company and a group of participating lenders,
including affiliates of certain of the Initial Purchasers, agreed to amend the
Bank Credit Facility. See "Plan of Distribution." The Bank Credit Facility, as
amended, is a $235 million facility which includes a $130 million advance/term
loan facility ("term loans") due over six years, a $100 million revolving
credit facility ("revolving loans") due over five years, and a $5 million
agent swingline facility due over five years. The Bank Credit Facility, as
amended, will rank pari passu in right of payment with all existing and future
senior unsecured obligations of the Company, including the Company's
obligations under the Notes and senior in right of payment to all future
indebtedness of the Company that is, by its terms, expressly subordinated to
the Bank Credit Facility, as amended. The Company's obligations under the Bank
Credit Facility, as amended, are guaranteed by all current and future material
United States subsidiaries. All outstanding stock pledges of the Company's
subsidiaries under the Bank Credit Facility were released in connection with
the amendment to the Bank Credit Facility, although the participating lenders
may request stock pledges from any foreign subsidiary which is a direct
material subsidiary. Under the terms of the Indenture, the Notes are equally
and ratably secured by any such stock pledges. The Company does not currently
have any foreign subsidiaries which are direct material subsidiaries.
As of December 31, 1997, the Company had borrowed approximately $196.8
million under the Bank Credit Facility. The Company retired $81.5 million
under the Bank Credit Facility with proceeds from the Offering. Following the
consummation of the offering of the Private Notes, the Company had
approximately $99.3 million available for borrowing under the Bank Credit
Facility, as amended.
The revolving loans and the swingline facility may be repaid in whole or in
part, at any time prior to August 6, 2001. The term loan facility requires
quarterly installments with the initial payment of 3.75% of the term loan
outstanding at June 30, 1997 beginning September 30, 1997 and the final
payment due August 6, 2002.
Interest rates for the revolving and term loans, at the option of the
Company, are stated in either the lenders announced fluctuating commercial
base rate or a Eurodollar rate plus an applicable margin ranging from 0.450%
to 0.875%. Commitment fees on the unused revolving and term loan balances
range from 0.175% to 0.375%. Interest is payable on all notes at calendar
quarter end for base rate borrowing and on the earlier of the interest period
or three months from inception for LIBOR rate borrowings. The Bank Credit
Facility, as amended, requires interest rate protection agreements be
maintained on at least 50% of the term loan outstanding balance, for not less
than three years.
The Bank Credit Facility, as amended, restricts the Company from paying
dividends on its capital stock unless the total funded debt to capital ratio
(as defined in the Bank Credit Facility, as amended) is less than 40%. The
Company's total funded debt to capital ratio was 42.5% at December 31, 1997.
The Bank Credit Facility, as amended, also currently restricts the optional
redemption of the Notes. In addition, the Bank Credit Facility, as amended,
contains financial covenants with respect to interest coverage ratio, total
funded debt to capital ratio, and a minimum net worth. Management believes it
is in compliance with all covenants in the Bank Credit Facility, as amended,
at December 31, 1997.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following general discussion summarizes certain of the material U.S.
federal income of the Exchange Offer to holders of the Private Notes. This
discussion is a summary for general information only and does not consider all
aspects of the Private Notes in light of such holder's personal circumstances.
This discussion also does not address the federal income tax consequences to
holders subject to special treatment under the U.S. federal income tax laws,
such as dealers in securities, or foreign currency, tax-exempt entities,
banks, thrifts, insurance companies, persons that hold the Notes as part of a
"straddel," a "hedge" against currency risk or a "conversion transaction;"
persons that have a "functional currency" other than the U.S. dollar, and
investors in pass-through entities. In addition, this discussion does not
prescribe any tax consequences arising out of the tax laws of any state, local
or foreign jurisdiction.
56
<PAGE>
This discussion is based upon the Code, existing and proposed regulations
thereunder, Internal Revenue Service ("IRS") rulings and pronouncements and
judicial decisions now in effect, all of which are subject to change (possibly
on a retroactive basis). The Company has not and will not seek any rulings or
opinions from the IRS or counsel with respect to the matters discussed below.
There can be no assurance that the IRS will not take positions concerning the
tax consequences of the Exchange Offer which are different from those
discussed herein.
HOLDERS OF THE PRIVATE NOTES SHOULD CONSULT THEIR OWN ADVISORS CONCERNING
THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY
STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THE EXCHANGE OFFER IN LIGHT OF
THEIR PARTICULAR SITUATIONS.
The exchange of Private Notes for Exchange Notes pursuant to the Exchange
Offer should not constitute a taxable exchange. As a result, a holder (i)
should not recognize taxable gain or loss as a result of exchanging Private
Notes for Exchange Notes pursuant to the Exchange Offer; (ii) the holding
period of the Exchange Notes should include the holding period of the Private
Notes exchanged therfor and (iii) the adjusted tax basis of the Exchange Notes
should be the same as the adjusted tax basis of the Private Notes exchanged
therefor immediately before the exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with the resale of Exchange Notes received in exchange for
Private Notes where such Private Notes were acquired as a result of market-
making activities or other trading activities. The Company has agreed that for
a period not less than 90 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer that
requests such document in the Letter of Transmittal for use in connection with
any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities,
including liabilities under the Securities Act.
57
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by James F. Maroney, III, Vice President, Secretary and General
Counsel of the Company.
EXPERTS
The consolidated financial statements of Tuboscope Inc. at December 31, 1997
and 1996, and for each of the three years in the period ended December 31,
1997, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon, appearing elsewhere herein, and are included in reliance upon
the authority of such firm as experts in accounting and auditing.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at December 31, 1997 and 1996................. F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1996, and 1995..................................................... F-4
Consolidated Statements of Common Stockholders' Equity and Redeemable
Preferred Stock for the years ended December 31, 1997, 1996, and 1995.... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996, and 1995..................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tuboscope Inc.
We have audited the accompanying consolidated balance sheets of Tuboscope
Inc. as of December 31, 1997 and 1996 and the related consolidated statements
of operations, common stockholders' equity and redeemable preferred stock, and
cash flows for each of the three years in the period ended December 31, 1997.
Our audits also included the financial statement schedules listed in the Index
at Item 14(a). These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Tuboscope Inc. at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for the impairment of long-lived assets in
1996.
Ernst & Young LLP
Houston, Texas
February 4, 1998
except for Note 13, as to which the date is
February 25, 1998
F-2
<PAGE>
TUBOSCOPE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1997 1996
------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 12,593 $ 10,407
Accounts receivable, net........................... 144,067 96,083
Inventory, net..................................... 78,317 47,170
Deferred income taxes.............................. 984 776
Prepaid expenses and other......................... 11,755 11,797
-------- --------
Total current assets............................. 247,716 166,233
-------- --------
Property and equipment:
Land, buildings and leasehold improvements......... 79,581 73,499
Operating equipment and equipment leased to
customers......................................... 208,052 167,440
Accumulated depreciation and amortization.......... (77,072) (59,559)
-------- --------
Net property and equipment....................... 210,561 181,380
Identified intangibles, net.......................... 23,315 22,583
Goodwill, net........................................ 202,301 132,125
Other assets, net.................................... 2,274 2,844
-------- --------
Total assets..................................... $686,167 $505,165
======== ========
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C>
Current liabilities:
Accounts payable................................... $ 43,350 $ 28,896
Accrued liabilities................................ 76,596 41,554
Income taxes payable............................... 15,902 4,876
Current portion of long-term debt and short-term
borrowings........................................ 30,574 16,514
-------- --------
Total current liabilities........................ 166,422 91,840
Long-term debt....................................... 187,803 168,229
Pension liabilities.................................. 8,916 9,846
Deferred taxes payable............................... 22,239 15,364
Other liabilities.................................... 754 984
-------- --------
Total liabilities................................ 386,134 286,263
-------- --------
Common stockholders' equity:
Common stock, $.01 par value, 60,000,000 shares au-
thorized, 44,235,591 shares issued and outstanding
(41,612,495 at December 31, 1996)................... 442 416
Paid-in capital.................................... 294,402 261,932
Retained earnings (deficit)........................ 10,155 (42,949)
Cumulative translation adjustment.................. (4,966) (497)
-------- --------
Total common stockholders' equity................ 300,033 218,902
-------- --------
Total liabilities and equity..................... $686,167 $505,165
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
TUBOSCOPE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Sale of services and rental of equipment. $ 335,339 $ 248,415 $ 182,171
Sale of products......................... 189,892 93,016 7,844
---------- ---------- ----------
525,231 341,431 190,015
---------- ---------- ----------
Costs and expenses:
Cost of services sold and rental of
equipment............................... 236,510 183,101 132,799
Cost of products sold.................... 120,460 58,127 4,258
Amortization of goodwill................. 5,281 2,626 1,310
Selling, general and administrative...... 51,475 35,662 20,732
Research and engineering costs........... 10,580 6,595 3,456
Write-off of long-lived assets........... -- 63,061 --
Drexel transaction costs................. -- 11,306 --
Write-off of Italian operations.......... -- 2,234 --
---------- ---------- ----------
424,306 362,712 162,555
---------- ---------- ----------
Operating profit (loss).................... 100,925 (21,281) 27,460
Other expense (income):
Interest expense......................... 14,456 13,414 12,328
Interest income.......................... (331) (470) (210)
Foreign exchange (gains) losses.......... 69 (1,221) (440)
Minority interest........................ 629 741 652
Other, net............................... 1,153 1,243 (75)
---------- ---------- ----------
Income (loss) before income taxes and
extraordinary loss........................ 84,949 (34,988) 15,205
Provision for income taxes................. 31,845 8,238 6,386
---------- ---------- ----------
Income (loss) before extraordinary loss.... 53,104 (43,226) 8,819
Extraordinary loss, net of income tax
benefits of $3,431,000 in 1996............ -- (6,373) --
---------- ---------- ----------
Net income (loss).......................... 53,104 (49,599) 8,819
Dividends applicable to preferred stock.... -- -- 700
---------- ---------- ----------
Net income (loss) applicable to common
stock..................................... $ 53,104 $ (49,599) $ 8,119
========== ========== ==========
Basic earnings (loss) per common share:
Income (loss) before extraordinary item.. $ 1.22 $ (1.17) $ 0.44
Extraordinary loss....................... -- (.17) --
---------- ---------- ----------
Net income (loss) per common share....... $ 1.22 $ (1.35) $ 0.44
========== ========== ==========
Dilutive earnings (loss) per common share:
Income (loss) before extraordinary item.. $ 1.14 $ (1.17) $ 0.44
Extraordinary loss....................... -- (.17) --
---------- ---------- ----------
Net income (loss) per common share-
assuming dilution....................... $ 1.14 $ (1.35) $ 0.44
========== ========== ==========
Weighted average number of common shares
outstanding:
Basic.................................... 43,575,458 36,809,126 18,530,338
========== ========== ==========
Dilutive................................. 46,946,432 36,809,126 18,530,338
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
TUBOSCOPE INC.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
AND REDEEMABLE PREFERRED STOCK
<TABLE>
<CAPTION>
COMMON
STOCK RETAINED CUMULATIVE REDEEMABLE
$.01 PAID-IN EARNINGS TRANSLATION PREFERRED
PAR CAPITAL (DEFICIT) ADJUSTMENT STOCK
------ -------- --------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994.... $184 $115,982 $ (1,469) $(1,273) $ 10,175
Common stock issued, 71,171
shares at an average price
of $5.59 per share......... 1 397 -- -- --
Dividends paid during 1995
($5.25 per share for Series
A Convertible Preferred
Stock), net of December 31,
1994 accrual............... -- -- (525) -- (175)
Dividends accrued at
December 31, 1995, ($1.75
per share for Series A
Convertible Preferred
Stock)..................... -- -- (175) -- 175
Net Income.................. -- -- 8,819 -- --
Translation adjustment...... -- -- -- (500) --
---- -------- -------- ------- --------
Balance, December 31, 1995.... 185 116,379 6,650 (1,773) 10,175
Common stock issued, 661,697
shares at an average price
of $6.86 per share......... 7 4,534 -- -- --
Common stock issued,
4,200,000 shares and
warrants to purchase
2,533,000 shares of common
stock for net proceeds of
$29,100,000................ 42 29,058 -- -- --
Common stock issued in
merger with Drexel,
16,704,723 shares at $6.00
per share and 962,915
options assumed............ 167 101,976 -- -- --
Common stock issued,
1,500,000 shares in
exchange for outstanding
Series A Convertible
Preferred Stock and
warrants to purchase
1,250,000 shares of common
stock...................... 15 9,985 -- -- (10,000)
Dividends paid during 1996
($1.75 per share for Series
A Convertible Preferred
Stock)..................... -- -- -- -- (175)
Net Loss.................... -- -- (49,599) -- --
Translation adjustment...... -- -- -- 1,276 --
---- -------- -------- ------- --------
Balance, December 31, 1996.... 416 261,932 (42,949) (497) --
Common stock issued, 124,766
shares in exchange for
outstanding debt of
$1,871,490................. 1 1,870 -- -- --
Common stock issued, 820,698
shares at an average price
of $6.71 per share......... 8 5,499 -- -- --
Common stock issued in
acquisition of Fiber Glass
Systems Inc., 1,689,542
shares at $13.00 per share. 17 21,947 -- -- --
Tax benefit of options
exercised.................. -- 3,154 -- -- --
Net Income.................. -- -- 53,104 -- --
Translation adjustment...... -- -- -- (4,469) --
---- -------- -------- ------- --------
Balance, December 31, 1997.... $442 $294,402 $ 10,155 $(4,966) $ --
==== ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
TUBOSCOPE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ 53,104 $ (49,599) $ 8,819
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 26,110 17,606 15,037
Compensation related to employee 401(K)
plan....................................... 676 229 239
Provision (recovery) for losses on accounts
receivable................................. 2,421 628 (272)
Provision (recovery) for losses on
inventory.................................. 1,996 329 (275)
Write-off of long-lived assets.............. -- 63,061 --
Write-off of unamortized debt fees.......... -- 2,231 --
Provision (benefit) for deferred income
taxes...................................... 5,976 (4,894) 3,057
Pension amortization benefit................ (352) (485) (315)
Changes in current assets and liabilities,
net of effects from various acquisitions:
Accounts receivable....................... (39,339) (4,374) (731)
Inventory................................. (27,118) (2,163) (1,658)
Prepaid expenses and other................ 256 (4,373) (762)
Accounts payable, accrued liabilities and
other.................................... 11,319 (7,671) (2,594)
Federal and foreign income taxes payable.. 11,819 (424) 158
Pension liabilities....................... (578) 462 878
-------- --------- --------
Net cash provided by operating activities... 46,290 10,563 21,581
-------- --------- --------
Cash flows used for investing activities:
Capital expenditures.......................... (35,190) (18,681) (7,645)
Proceeds from sale-leaseback transactions..... -- 2,973 12,500
Business acquisitions, net of cash acquired... (36,856) (43,236) (5,373)
Other......................................... (963) (1,513) (566)
-------- --------- --------
Net cash used for investing activities...... (73,009) (60,457) (1,084)
-------- --------- --------
Cash flows provided by (used for) financing
activities:
Borrowings under financing agreements, net.... 60,567 175,090 1,844
Principal payments under financing agreements. (36,428) (157,244) (20,825)
Cash received in Drexel merger................ -- 2,101 --
Debt issuance costs........................... -- (785) (95)
Purchase of foreign currency options.......... -- -- (258)
Dividends paid on Redeemable Series A
Convertible Preferred Stock.................. -- (175) (700)
Issuance of common stock under employee stock
plan......................................... 479 128 125
Net proceeds from sale of common stock........ 4,351 31,350 34
-------- --------- --------
Net cash provided by (used for) financing
activities................................. 28,969 50,465 (19,875)
-------- --------- --------
Effect of exchange rate changes on cash......... (64) 442 241
-------- --------- --------
Net increase in cash and cash equivalents....... 2,186 1,013 863
Cash and cash equivalents:
Beginning of period........................... 10,407 9,394 8,531
-------- --------- --------
End of period................................. $ 12,593 $ 10,407 $ 9,394
======== ========= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND RISK FACTORS
On April 24, 1996, pursuant to an Agreement and Plan of Merger dated January
3, 1996, the merger of Tuboscope Inc. (the Company) and D.O.S. Ltd. (Drexel)
was consummated (the "Drexel Merger"). The Merger represented the combination
of the largest provider of oilfield-related inspection and coating services in
the world with the world's leading provider of solids control equipment and
services to the oil and natural gas industry and coiled tubing units and
related pressure control equipment to oilfield service companies.
The Company is primarily engaged in the inspection and coating of oil
country tubular goods (drill pipe, line pipe, casing and tubing), the in-place
inspection of oil and gas pipelines, the rental and sale of solids control
equipment and services, and the sale of coiled tubing and pressure control
equipment. All of these services and equipment are sold primarily to the oil
and gas industry. Demand for the Company's inspection services is based, in
part, on the relatively low cost of such services compared to the potential
cost to a customer of the failure of a tubular or pipeline segment. Demand for
the Company's coating services is based on the economic benefits of extending
the life of existing tubulars, reducing the frequency of well workovers, and
reducing interruptions in services and increasing the hydraulic efficiency of
the wells. The Company's Solids Control operations help reduce drilling costs
and minimize the environmental impact of drilling operations by removing rock
cuttings and other solid contaminants from the fluids used in drilling
operations. Coiled tubing equipment provides several economic benefits in oil
and gas workover operations versus conventional techniques, including quicker
service time and the continuous production of the well. Overall, the Company's
results depend to a large extent upon the level of worldwide oil drilling and
production activity, the price of oil and gas, and worldwide oil and gas
inventory levels.
The Company operates in over 54 countries in North America, Latin America,
Europe, Africa, the Middle East, and the Far East. Approximately 51% of the
Company's 1997 revenue was earned outside of North America, and as a result,
the Company's operations are subject to the risks normally associated with
conducting business in foreign countries, including uncertain political and
economic environments, which may limit or disrupt markets, restrict the
movements of funds or result in the deprivation of contract rights or the
taking of property without compensation.
In addition, the Company has significant international customer
concentrations in such countries as Saudi Arabia, Venezuela, Colombia,
Argentina, Indonesia, and Thailand whose spending can be volatile based on oil
price changes, the political environment, and delays in the government budget.
Adverse changes in individual circumstances can have a significant negative
impact on the financial performance of the Company.
The Company's common stock became listed on the New York Stock Exchange
under the symbol "TBI" on September 9, 1997. Prior to that date, the Company
was listed on the Nasdaq Stock Market.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated.
Revenue recognition
The Company recognizes revenue when goods are shipped or when services are
rendered. On large equipment sales which have multiple completion stages and
where the collection of payment is assured, the Company recognizes revenue
under the percentage of completion method.
F-7
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Accounts receivable
Accounts receivable are net of allowances for doubtful accounts of
approximately $3,560,000, and $2,382,000 in 1997 and 1996, respectively.
Inventory
The Company maintains inventory consisting of equipment components,
subassemblies and expendable parts required to manufacture and support its
tubular inspection equipment, coating facilities, solids control operations,
and coiled tubing/pressure control operations. Equipment under production for
specific sale and lease contracts is also included in equipment components and
parts. Expendable parts are charged to maintenance or supply expense as used.
Components and parts maintained at outlying coating and inspection facilities
are generally not inventoried and are expensed upon issuance. Rehabilitated
equipment and parts are restored to inventory at their net rehabilitation
cost.
Inventory is stated at the lower of cost, as determined by the weighted
moving average method, or market. At December 31, inventory consists of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Components, subassemblies and expendable parts............. $52,354 $42,689
Equipment under production................................. 34,484 13,475
Inventory reserve.......................................... (8,521) (8,994)
------- -------
Inventory, net........................................... $78,317 $47,170
======= =======
</TABLE>
Property and equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives for financial reporting
purposes and generally by the accelerated or modified accelerated costs
recovery systems for income tax reporting purposes. Estimated useful lives are
33 years for buildings and 5-12 years for machinery and equipment. The cost of
repairs and maintenance is charged to income as incurred. Major repairs and
improvements are capitalized and depreciated over the remaining useful life of
the asset. The depreciation of fixed assets recorded under capital lease
agreements is included in depreciation expense. Property and equipment
depreciation expense was $19,142,000, $13,118,000, and $10,515,000 for
December 31, 1997, 1996, and 1995, respectively.
Identified intangibles
Identified intangibles are being amortized on a straight-line basis, over
estimated useful lives between 5 and 40 years, and are presented net of
accumulated amortization of approximately $9,998,000 and $9,059,000 at
December 31, 1997 and 1996, respectively. Identified intangibles consist
primarily of technology, patents, trademarks, license agreements, existing
service contracts and covenants not to compete.
Goodwill
Goodwill represents the excess of the purchase price over the fair market
value of the net assets acquired (See Note 3). Such excess costs are being
amortized on a straight-line basis over lives ranging from ten to forty years
depending on the estimated economic life. Accumulated amortization at December
31, 1997 and 1996 was approximately $13,052,000 and $7,771,000 respectively.
F-8
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-Lived Assets
In 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS No. 121).
Impairment losses are recognized when indicators of impairment are present and
the estimated discounted cash flows are not sufficient to recover the asset's
carrying amount. Assets held for disposal are measured at the lower of
carrying value or estimated fair value less costs to sell.
Write-Off of Long-Lived Assets
During the first quarter 1996, the Company recorded a write-off of long-
lived assets of $63,061,000 including a writedown of approximately $50,761,000
associated with the Company's adoption of SFAS No. 121 and a decision by
management to sell certain assets, primarily as a result of the Drexel Merger,
which resulted in additional write-downs of approximately $12,300,000.
Accounting for income taxes
Deferred income taxes are recognized for the tax effects of temporary
differences between the financial reported carrying amounts of assets and
liabilities and the income tax amounts.
Derivative Financial Instruments
The Company is not a trader in financial instruments. On occasion, the
Company utilizes various derivative financial instruments, including interest
rate caps, interest rate swap transactions and options to manage its exposure
to interest rate risk and currency fluctuations associated with specific
liabilities and assets, principally debt. Substantially all of the Company's
financial instruments are interest rate transactions. Interest rate swap
transactions involve the receipt of fixed rate interest payments for floating
rate amounts without an exchange of the underlying notional amount.
The Company's objectives for using swap transactions on its debt are to
effectively convert a portion of its floating rate term loans to a fixed rate
and to hedge against the risk of rising interest rates. Expenses associated
with interest rate caps and swap transactions are deferred and recognized as a
component of interest expense over the term of the agreement. At December 31,
1997, the Company had an interest rate cap and various swap transactions in
place (see Note 6).
As a result of having sales and purchases denominated in currencies other
than functional currencies used by the Company's foreign subsidiaries, the
Company is exposed to the effect of foreign exchange rate fluctuations. To the
extent possible, the Company has natural hedges to minimize the effect of rate
fluctuations. When natural hedges are not sufficient, generally it is the
Company's policy to enter into forward foreign exchange contracts to hedge
significant transactions for periods consistent with the underlying risk. The
Company does not engage in foreign exchange speculation. While forward
contracts affect the Company's results of operations, they do not subject the
Company to uncertainty from exchange rate movements, because gains and losses
on these contracts offset losses and gains on the transactions being hedged.
At December 31, 1997 the Company had no forward foreign exchange contracts
outstanding.
The fair value of the Company's financial instruments which includes cash,
accounts receivable, short-term borrowings, and long-term debt, approximates
their carrying amounts.
Foreign exchange rates
Revenue and expenses for foreign operations have been translated into U.S.
dollars using average exchange rates and reflect currency exchange gains and
losses resulting from transactions conducted in other than local currencies.
F-9
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The assets and liabilities of certain foreign subsidiaries are translated at
current exchange rates and the related translation adjustments are recorded
directly in stockholders equity. For subsidiaries which operate in countries
which have highly inflationary economies, certain assets are translated at
historical exchange rates and all translation adjustments are reflected in the
statements of operations.
Stock Based Compensation
The Company is permitted to recognize compensation cost related to its stock
based employee compensation plans using either the intrinsic value method or
the fair value method. The Company has elected to continue to use the
intrinsic value method in accounting for its stock based employee compensation
plans, and accordingly, compensation cost for stock options is recognized over
the vesting period only to the extent the market price exceeds the exercise
price on the date of grant.
Earnings per common share
The computation of earnings per common share is based on SFAS No. 128,
"Earnings per Share" (SFAS No. 128), which was issued by the Financial
Accounting Standards Board in 1997. The statement, which was effective for
fiscal years ending after December 15, 1997, replaces the presentation of
primary and fully diluted earnings per common share with a presentation of
basic and diluted earnings per common share. Basic earnings per common share
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. The
Company's diluted earnings per common share is calculated by adjusting the
income available to common stockholders for after-tax interest expense on
convertible debt ($219,000 in 1997 and $0 in 1996 and 1995) and dividing that
number by the weighted average number of common shares plus shares which would
be assumed outstanding assuming conversion of convertible debt, vested stock
options and outstanding stock warrants under the treasury stock method, and
shares to be issued pursuant to earnout provisions. Results for 1996 and 1995
have been restated to be consistent with the 1997 presentation.
Reclassification of prior year amounts
Certain reclassifications of 1996 and 1995 amounts have been made to conform
to the 1997 financial statement presentation.
Use of estimates in the preparation of financial statements
The consolidated financial statements and related notes, which have been
prepared in conformity with generally accepted accounting principles, require
the use of management estimates. Actual results could differ from these
estimates.
F-10
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS
During 1996, the Company began to implement its strategy of executing
consolidating acquisitions and adding related strategic products and services
by completing seven acquisitions, including the Drexel Merger. In 1997, the
Company continued its strategic plan by completing ten acquisitions and two
equity investments.
Each of the acquisitions was accounted for using the purchase method of
accounting and, accordingly, the results of operations of each business is
included in the consolidated results of operations from the date of
acquisition. A summary of the acquisitions follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- -------
<S> <C> <C> <C>
Fair value of assets acquired.................. $103,083 $ 257,938 $ 6,373
Cash paid...................................... (36,856) (43,890) (5,373)
Common stock issued in Drexel Merger........... -- (102,143) --
Common stock issued in other acquisitions...... (21,964) (1,935) --
-------- --------- -------
Liabilities assumed and debt issued.......... $ 44,263 $ 109,970 $ 1,000
======== ========= =======
</TABLE>
The purchase price of the fiscal 1997 acquisitions exceeded the preliminary
allocation of the fair value of assets acquired by $66,449,000. The purchase
price of the fiscal 1996 acquisitions exceeded the allocation of the fair
value of assets acquired by $105,185,000, principally as a result of the
Drexel Merger.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company as if these acquisitions had
occurred at the beginning of 1996. The pro forma information includes certain
adjustments which give effect to amortization of goodwill, interest expense on
acquisition debt and other adjustments, together with related income tax
effects. The pro forma financial information is not necessarily indicative of
the results of operations as they would have been had the transactions been
effected at the beginning of 1996.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenue.................................................. $559,213 $479,458
Income (loss) before extraordinary loss.................. $ 55,145 $(36,358)
Net income (loss)........................................ $ 55,145 $(42,731)
Earnings (loss) per share................................ $ 1.17 $ (0.96)
</TABLE>
Excluding the write-off of long-lived assets, the write-off of Italian
operations, the Drexel transaction costs, and the extraordinary loss, pro
forma net income would have been $32,244,000 and pro forma earnings per share
would have been $0.72 in 1996.
A discussion of the significant acquisitions follows for each of the
respective years:
Fiscal 1997
On March 7, 1997, the Company acquired Fiber Glass Systems, Inc. ("FGS"), a
manufacturer of premium fiberglass tubulars used in corrosive oilfield
applications, for an aggregate purchase price of $32,668,270. The purchase
price includes 1,689,542 shares of Common Stock of the Company valued at
$13.00 per share and $906,869 in cash. Approximately $9.8 million of the
purchase price was accrued at December 31, 1997, and such payment is expected
to be made substantially in common stock in the first half of 1998. The
Company also assumed debt of $5,250,000 as part of the acquisition of FGS.
In addition to the acquisition of FGS, the Company completed ten additional
acquisitions and two equity investments for an aggregate purchase price of
$48,675,000 consisting of cash of $35,949,000, notes payable of $4,276,000 and
accrued cash payments of $8,450,000. In addition, the Company assumed debt of
$1,989,000 as part of these acquisitions.
F-11
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fiscal 1996
During 1996, the Company executed seven acquisitions, including the Drexel
Merger. Upon consummation of the Drexel Merger, the Company issued 16,704,723
shares of Company Common Stock valued at $102,143,000. In addition, the
Company sold to SCF-III, L.P., a Delaware limited partnership ("SCF"),
4,200,000 shares of Company Common Stock and warrants to purchase 2,533,000
shares of Company Common Stock at an exercise price of $10 per share expiring
on December 31, 2000, for an aggregate purchase price of $31,000,000 (net
proceeds of $29,100,000). Also in connection with the Drexel Merger, Baker
Hughes Incorporated ("Baker Hughes") exchanged all of its 100,000 shares of
Series A Convertible Preferred Stock, par value $.01 per share, of the Company
for 1,500,000 shares of Company Common Stock and warrants to purchase
1,250,000 shares of Company Common Stock at an exercise price of $10 per share
expiring on December 31, 2000. In connection with the Drexel Merger, the
Company recorded $11,306,000 of transaction costs, including severance costs
of former executive officers and consolidation costs of personnel and
facilities.
The Company completed seven additional acquisitions in 1996 for total
consideration of $53,312,000. The consideration included cash of $43,236,000
notes payable of $8,141,000 and 129,967 shares of Company Common Stock valued
at $1,935,000. In addition, the Company assumed debt of $7,493,000 as part of
these acquisitions.
Fiscal 1995
In September 1995, the Company acquired the assets and operations of its
former agent in Argentina for $6,131,000 in cash and the assumption of
$242,000 in debt. The assets purchased included inspection equipment used in
the inspection of oil country tubular goods, sucker rod inspection technology,
and covenant not to compete agreements with the former owners.
4. ACCRUED LIABILITIES
At December 31, accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Compensation................................................ $14,580 $13,466
Insurance................................................... 4,678 4,211
Real estate, sales and other taxes.......................... 4,045 3,346
Payable to sellers for acquisitions......................... 18,247 --
Other....................................................... 35,046 20,531
------- -------
$76,596 $41,554
======= =======
</TABLE>
5. INCOME TAXES
The components of income (loss) before income taxes and extraordinary loss
consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Domestic.......................................... $52,769 $(54,022) $(2,610)
Foreign........................................... 32,180 19,034 17,815
------- -------- -------
$84,949 $(34,988) $15,205
======= ======== =======
</TABLE>
Such income is inclusive of various intercorporate eliminations of income or
expense items, such as royalties, interest and similar items that are taxable
or deductible in the respective locations. Such income is also inclusive of
export sales by domestic locations. Therefore, the relationship of domestic
and foreign taxes to reported domestic and foreign income is not
representative of actual effective tax rates.
F-12
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision (benefit) for income taxes before extraordinary loss consists
of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current provision:
Domestic......................................... $15,996 $ 4,034 $ 2,179
Foreign.......................................... 9,873 9,098 1,150
------- ------- -------
Total current provision........................ 25,869 13,132 3,329
------- ------- -------
Deferred provision (benefit):
Domestic......................................... 934 (5,492) (2,481)
Foreign.......................................... 5,042 598 5,538
------- ------- -------
Total deferred provision (benefit)............. 5,976 (4,894) 3,057
------- ------- -------
Total provision................................ $31,845 $ 8,238 $ 6,386
======= ======= =======
</TABLE>
In 1996 the Company recorded a current tax benefit of $3,431,000 related to
the extraordinary loss of $9,804,000. The reconciliation of the expected to
the computed tax provision (benefit) is as follows at December 31 (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- ------
<S> <C> <C> <C>
Tax expense (benefit) at federal statutory rate... $29,732 $(12,246) $5,322
Incremental effect of foreign operations.......... 1,582 3,729 163
Nondeductible goodwill amortization............... 1,004 591 266
Nondeductible write-off of long-lived assets and
Drexel transaction costs......................... -- 16,071 --
State income taxes, net of federal benefit........ 228 130 33
Other, net........................................ (701) (37) 602
------- -------- ------
$31,845 $ 8,238 $6,386
======= ======== ======
</TABLE>
F-13
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Gross deferred tax assets:
Receivables......................................... $ 4,567 $ --
Domestic and foreign net operating losses........... 1,997 3,276
Accrued liabilities and other reserves.............. 2,310 3,104
Inventory reserves.................................. 3,055 2,791
Other deferred tax assets........................... 527 1,056
-------- --------
Subtotal gross deferred tax assets................ 12,456 10,227
Valuation allowance................................. (1,651) (1,171)
-------- --------
Net deferred tax assets............................... 10,805 9,056
-------- --------
Gross deferred tax liabilities:
Property and equipment.............................. (17,194) (15,012)
Intangible assets................................... (1,112) (1,015)
Reserve for foreign earnings........................ (6,500) (4,402)
Pension liability................................... (1,142) (1,290)
All other........................................... (6,112) (1,925)
-------- --------
Gross deferred tax liabilities........................ (32,060) (23,644)
-------- --------
Total net deferred tax liability...................... $ 21,255 $ 14,588
======== ========
</TABLE>
The total net deferred tax liability is comprised of $984,000 of net current
tax assets and $22,239,000 net noncurrent deferred tax liabilities.
The Company has undistributed earnings of foreign subsidiaries, as
calculated under the laws of the jurisdiction in which the foreign subsidiary
is located, of approximately $41,754,000 at December 31, 1997. If such
earnings were repatriated, foreign withholding taxes of approximately
$2,370,000 would result. The Company has already recognized and provided
federal income taxes related to the majority of these earnings of its foreign
subsidiaries. It is not practical to determine the amount of federal income
taxes, if any, that might become due in the event that the balance of such
earnings were to be distributed.
At December 31, 1997 the Company has $2,188,000 of domestic net operating
losses which will be carried forward and will expire between 2007 and 2011.
The Company also has approximately $3,372,000 of foreign net operating loss
carryforwards.
The Company has a valuation allowance of $1,651,000 against these net
operating losses as the Company believes that the corresponding deferred tax
asset may not be fully realizable. The Company's valuation allowance for these
loss carryforwards increased from $1,171,000 at December 31, 1996 to
$1,651,000 at December 31, 1997. This increase is principally related to
current year net operating losses.
The Company is currently engaged in tax audits and appeals in various tax
jurisdictions. The years covered by each audit or appeal vary considerably
among legal entities. Assessments, if any, are not expected to have a material
adverse effect on the financial statements.
F-14
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT
At December 31, long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
$130,000,000 Term Notes payable to lenders, interest at
6.625% at December 31, 1997. Principal and interest payable
as described below through August 6, 2002................... $115,282 $130,000
$100,000,000 Revolving Facility expiring August 6, 2001.
Interest ranging from 6.5% to 6.625% at December 31, 1997
payable as described below.................................. 79,020 28,520
$5,000,000 Unsecured convertible subordinated Promissory
Notes, interest at 7.0%. Principal and interest payable
beginning January 31, 1998 and each January 31 thereafter
through January 31, 2002.................................... 5,000 5,000
$5,000,000 Swingline Facility expiring August 6, 2001.
Interest of 8.5% at December 31, 1997 payable as described
below....................................................... 2,500 3,000
Other........................................................ 16,575 18,223
-------- --------
Total debt................................................... 218,377 184,743
Less: Current maturities..................................... 30,574 16,514
-------- --------
Long-term debt due after one year.......................... $187,803 $168,229
======== ========
</TABLE>
Principal payments of long-term debt for years subsequent to 1998 are as
follows (in thousands):
<TABLE>
<S> <C>
1999............................................................. $ 29,527
2000............................................................. 30,337
2001............................................................. 113,333
2002............................................................. 12,532
Thereafter....................................................... 2,074
--------
$187,803
========
</TABLE>
On August 6, 1996, the Company's principal subsidiaries entered into a new
Senior Credit Agreement (the "Credit Agreement") with a group of participating
lenders. The agreement included a $130,000,000 advance/term loan facility
("term loans") due over six years, a $100,000,000 revolving credit facility
("revolving loans") due over five years, and a $5,000,000 agent swingline
facility due over six years. These obligations are guaranteed by the Company
and listed subsidiaries of the Company, and secured by the stock pledge of
listed subsidiaries of the Company. Proceeds from these loans were used to
retire the debt balances outstanding under the previous senior credit
agreement, to finance growth and acquisitions, and to retire in the fourth
quarter 1996 the $75,000,000 10 3/4% Senior Subordinated Notes ("the Notes")
of the Company. In connection with the retirement of the Notes, the Company
recorded a before tax extraordinary charge of approximately $9,804,000
($6,373,000 after tax), consisting of $2,231,000 of unamortized debt cost and
$7,573,000 of premium and other cash costs paid on redemption.
The revolving loans and the swingline facility may be repaid in whole or in
part, at any time prior to August 6, 2001. At December 31, 1997 the Company
had outstanding letters of credit amounting to approximately $4,494,400 and an
available facility of approximately $16,485,600 on the $100,000,000 revolving
line of credit. Outstanding letters of credit on the Swingline were
approximately $1,236,202 and availability under the facility was $1,263,798.
The outstanding balance on the term loans became fixed on June 30, 1997. The
term loan facility requires quarterly installments through August 6, 2002.
Mandatory prepayment is required when the Company generates excess cash flow
as defined, or upon transfer of certain assets. An excess cash flow payment of
$4,968,000 was made on December 31, 1997.
F-15
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest rates for the revolving and term loans, at the option of the
Company, are stated in either the lenders announced fluctuating commercial
base rate or a Eurodollar rate plus an applicable margin ranging from 0.450%
to 0.875%. Commitment fees on the unused revolving and term loan balances
range from 0.175% to 0.375%. Interest is payable on all notes at calendar
quarter end for base rate borrowing and on the earlier of the interest period
or three months from inception for LIBOR rate borrowings. The credit agreement
requires interest rate protection agreements be maintained on at least 50% of
the term loan outstanding balance, for not less than three years.
The Company actively monitors its interest rate exposure by entering into
interest rate swap, cap, floor, and collar agreements to reduce the impact of
changes in interest rates on its floating rate debt. The Company entered into
two interest rate swap transactions on October 31, 1996 in notional amounts of
$25,000,000 each ("Swap1"), effective February 13, 1997, and expiring February
13, 1999, with the issuer (ABN Amro Bank N.V. for one swap and The Chase
Manhattan Bank, the other) ("the counterparties") having the option to extend
the termination date to February 13, 2000. In addition, on December 27, 1996
the Company entered into two additional swap transactions with the same
counterparties with notional amounts of $20,000,000 each, ("Swap2"), effective
February 13, 1997 and expiring February 14, 2000. The Company also entered
into a $40,000,000 zero cost collar agreement with ABN Bank N.V. on May 14,
1997.
The swap transactions and collar are used to hedge $130,000,000 of the
Company's variable interest rate risk. Swap 1 sets a fixed rate of 5.82% for
the swap transaction with ABN Amro and 5.81% for the swap transaction with the
Chase Manhattan Bank. Swap 2 sets a fixed rate for both swap transactions at
6.14%. The total interest rate for the Company will include the fixed rate for
all swap transactions plus a margin as defined in the term loan agreement. The
counterparties to the contract will pay the Company based on USD-LIBOR-BBA at
the set date (February 13, 1997), and this will be reset each six months until
termination. The swap transactions can be canceled by the Company paying a
cancellation fee based upon prevailing market conditions and remaining life of
the agreement.
The $40,000,000 Collar Agreement requires the counterparty to pay the
Company if Libor exceeds 7.77% at each six month reset period. The payment due
the Company is calculated by multiplying the notional amount by the portion of
the rate which is greater than 7.77%. If Libor is less than 5.95%, the Company
pays the counterparty the notional amount multiplied by the amount the rate is
less than 5.95% at the six month reset period. This effectively establishes a
Libor ceiling at 7.77% on $40,000,000 of the Company's variable rate debt.
The Company contracts with investment grade counterparties to these
contracts and monitors overall credit risk and exposure related to all
counterparties. The Company does not anticipate non-performance by any
counterparties and exposure is generally limited to any unrealized gains in
the contracts. Gains and losses on interest cap and swap transactions are
recognized as a component of interest expense in the same period as the
underlying transactions.
The estimated fair value (obtained through independent confirmation) of the
swap and collar transactions at December 31, 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
1997
--------------
NOTIONAL CARRYING FAIR
COUNTERPARTY AMOUNT AMOUNT VALUE
------------ -------- -------- -----
<S> <C> <C> <C>
ABN AMRO......................................... $25,000 -- $ (48)
ABN AMRO......................................... $20,000 -- $(102)
CHASE BANK....................................... $25,000 -- $ (43)
CHASE BANK....................................... $20,000 -- (104)
ABN AMRO......................................... $40,000 -- $(233)
</TABLE>
F-16
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total debt includes $9,982,104 of promissory notes to former owners of
businesses acquired who remain employed by the Company.
The Credit Agreement restricts the Company from paying dividends on its
capital stock until all mandatory prepayments have been made from excess cash
flow (as defined in the Credit Agreement) and the total funded debt to capital
ratio (as defined in the Credit Agreement) is not greater than 40%. The
Company's total funded debt to capital ratio (calculated as defined under the
agreement) was 42.5% at December 31, 1997. The credit agreement also contains
financial covenants with respect to interest coverage ratio, total funded debt
to capital ratio, and a minimum net worth. The Company believes it is in
compliance with all covenants in the credit agreement at December 31, 1997.
Subsequent to December 31, 1997, the Company reached an agreement in
principle to amend the Credit Agreement with a group of participating lenders.
The Credit Agreement, as amended, will rank pari passu with all existing and
future senior unsecured obligations of the Company. The agreement, as amended,
will include a $130,000,000 advance/term loan facility due over six years, a
$100,000,000 revolving credit facility due over five years and a $5,000,000
swingline facility due over five years. The Credit Agreement, as amended, will
be guaranteed by the Company's material United States subsidiaries. All
outstanding stock pledges of the Company's subsidiaries under the Credit
Agreement will be released in connection with the amendment to the Credit
Agreement, although the participating lenders under the amended agreement will
be able to request stock pledges from material direct foreign subsidiaries.
Under the Credit Agreement, as amended, unlike the current Credit Agreement,
the Company will not be required to make mandatory prepayments out of excess
cash flow.
7. COMMON STOCKHOLDERS' EQUITY
A stockholder approved stock option plan reserves and authorizes the grant
of options to purchase up to 3,990,952 shares of common stock to officers and
key employees of the Company and 200,000 shares for non- employee members of
the Board of Directors. Prior to January 1, 1997, options granted were
generally exercisable in installments over five year periods. The options
granted in 1997 are exercisable in installments over three year periods
starting one year from the date of grant and generally expire ten years from
the date of grant.
F-17
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following summarizes options activity:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Shares under option at beginning of
year................................ 2,200,670 1,505,624 1,325,653
Drexel Merger grants................. -- 962,915 --
Granted.............................. 363,306 183,200 245,000
Canceled............................. (47,398) (3,339) (55,096)
Exercised............................ (748,732) (447,730) (9,933)
----------- ----------- -----------
Shares under option at end of year... 1,767,846 2,200,670 1,505,624
----------- ----------- -----------
Average price of outstanding options. $ 7.35 $ 5.71 $ 6.45
=========== =========== ===========
Price range of options outstanding... $.32-$28.75 $.32-$12.75 $.32-$6.875
=========== =========== ===========
Exercisable at end of year........... 887,171 1,412,732 772,374
=========== =========== ===========
Options available for grant at end of
year................................ 1,188,222 1,504,130 455,333
=========== =========== ===========
</TABLE>
Substantially all outstanding options were priced between $3.55 and $14.00
per share at December 31, 1997. The weighted average of the remaining
contractual life for the outstanding options at December 31, 1997 was 5.7
years. The weighted average fair value of options granted during 1997 and 1996
was $5.32 and $2.83, respectively. Assuming that the Company had accounted for
its stock-based employee compensation plans using the alternative fair value
method of accounting under SFAS No. 123, "Accounting for Stock-Based
Compensation" and amortized the fair value to expense over the options'
respective vesting periods, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Net Income (loss):
As reported............................................. $53,104 $(49,599)
======= ========
Pro forma SFAS 123...................................... $52,663 $(49,909)
======= ========
Diluted Earnings (loss) per share:
As reported............................................. $ 1.14 $ (1.35)
======= ========
Pro forma SFAS 123...................................... $ 1.13 $ (1.36)
======= ========
</TABLE>
The fair value of each option grant was estimated on the date of grant using
a Black Scholes option pricing model with the following assumptions for 1997
and 1996, respectively; risk free interest rates of 5.5% for both years;
expected lives of contracts of 3 and 5 years; and volatility of 48.1 percent
and 47.1 percent.
At the 1993 Annual Meeting of Stockholders, the stockholders approved a
qualified stock purchase plan within the meaning of Section 423(b) of the
Internal Revenue Code of 1986. As part of such plan, a maximum of 100,000
shares of the Company's common stock was authorized to be sold. The plan was
activated in 1994, and 41,288, 20,042, and 24,179, shares were issued at an
average price of $11.58 per share, $6.37 per share, and $5.16 per share in
1997, 1996, and 1995, respectively.
In 1997 the Company established the Executive Stock Match Program (SMP) for
certain executive and key employees. Based on certain formulas, the Company
agreed to match stock ownership of these employees as of
F-18
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
June 30, 1997. The total shares to be matched were 342,327 shares with a value
of $6,805,461. This compensation cost is being amortized over the vesting life
associated with the plan of ten years. All matched stock will be held by the
Company until the earlier of 100% vesting by the employee, the expiration of
the SMP, or termination of employment from the Company. The matched stock will
also vest 100% due to a change in control of the Company.
8. RETIREMENT AND OTHER BENEFIT PLANS
On May 13, 1988, TVI adopted a defined contribution retirement plan, which
covers substantially all domestic employees. Employees may voluntarily
contribute up to 20% of compensation, as defined, to the plan. The
participants' contributions are matched in common stock by the Company up to a
maximum of 1 1/2% of compensation. Contributions were approximately $676,000
(31,915 shares at an average transfer price of $21.17), $229,000 (20,537
shares at an average transfer price of $11.13), and $239,000 (36,680 shares at
an average transfer price of $6.51) for 1997, 1996, and 1995 respectively.
The Company has two defined benefit pension plans in Germany covering
substantially all full-time employees. Plan benefits are based on years of
service and employee compensation for the last three years of service. The
plans are unfunded and benefit payments are made directly by the Company.
Pension expense includes the following components for the fiscal years ending
December 31, 1997, 1996, and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Service cost............................................ $ 225 $ 260 $ 292
Interest cost........................................... 522 561 564
Net amortization........................................ (352) (485) (315)
----- ----- -----
Pension expense....................................... $ 395 $ 336 $ 541
===== ===== =====
</TABLE>
The following table sets forth the amounts recognized in the Company's
consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested...................................................... $6,689 $7,162
Non-Vested.................................................. 268 296
------ ------
Accumulated benefit obligation................................ 6,957 7,458
Additional amounts related to projected pay increases......... 507 556
------ ------
Total projected benefit obligations........................... 7,464 8,014
Unrecognized net gain......................................... 1,609 1,961
------ ------
Pension liability............................................. 9,073 9,975
Less--amount included in current liabilities.................. 157 129
------ ------
Noncurrent portion of pension liability....................... $8,916 $9,846
====== ======
</TABLE>
The rate of increase in future compensation levels used in determining the
projected benefit obligations was 2% for December 31, 1997 and 1996, and 3%
for December 31, 1995. The discount rate was 7% for December 31, 1997, 1996,
and 1995. The unrecognized net gain from the change in projected compensation
levels is being amortized over ten years.
F-19
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings for events which arise in the
ordinary course of its business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the results of
operations or financial position of the Company.
The Company leases certain facilities and equipment under operating leases
that expire at various dates through 2049. These leases generally contain
renewal options and require the lessee to pay maintenance, insurance, taxes
and other operating expenses in addition to the minimum annual rentals.
Rental expense related to operating leases approximated $15,437,000,
$12,940,000, and $8,258,000 in 1997, 1996, and 1995, respectively.
Future minimum lease commitments under noncancelable operating leases with
initial or remaining terms of one year or more at December 31, 1997 are
payable as follows (in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 9,721
1999................................................................ 7,000
2000................................................................ 5,926
2001................................................................ 4,722
2002................................................................ 3,406
Thereafter.......................................................... 9,259
-------
Total future lease commitments.................................... $40,034
=======
</TABLE>
10. CONSOLIDATED STATEMENT OF CASH FLOWS
During 1997 the Company issued 124,766 shares of common stock to retire
approximately $1,871,000 of outstanding notes related to the acquisition of
SSR. During 1996 the Company issued 1,500,000 shares of common stock and
warrants to purchase 1,250,000 shares of common stock at an exercise price of
$10.00 per share in exchange for all of the Company's 100,000 shares of Series
A Convertible Preferred Stock, par value $.01 per share. Dividends accrued on
preferred stock were $175,000 in 1995.
Supplemental disclosure of cash flow information (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash paid during the period for:
Interest.......................................... $12,876 $14,836 $12,978
======= ======= =======
Taxes (net of refunds)............................ $13,629 $ 9,749 $ 3,306
======= ======= =======
</TABLE>
F-20
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
Information about the Company's operations in various geographic areas is
presented below. The Company's areas of operation outside the United States
are grouped into six geographic areas, representative of the major markets
served. Revenue from unaffiliated customers represents total net revenue from
the respective areas after elimination of inter-geographic transactions. U.S.
exports are shown with the corresponding destination of the product or
service. Operating profit (loss) represents revenue less operating costs and
expenses corresponding to the specific geographic areas. Identifiable assets
are those assets used in the geographic areas listed and reflect eliminations
of inter-geographic balances.
<TABLE>
<CAPTION>
UNITED FAR MIDDLE LATIN OTHER
STATES CANADA EUROPE EAST EAST AMERICA INTERNATIONAL CONSOLIDATED
-------- ------- -------- ------- ------- ------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED 12/31/97:
Total revenue:
Unaffiliated
customers............ $276,651 $49,146 $ 85,144 $23,586 $21,259 $67,190 $ 2,255 $525,231
U.S. export sales..... (80,647) 11,008 18,084 8,213 4,851 27,899 10,592 --
-------- ------- -------- ------- ------- ------- ------- --------
TOTAL................... $196,004 $60,154 $103,228 $31,799 $26,110 $95,089 $12,847 $525,231
======== ======= ======== ======= ======= ======= ======= ========
Operating profit........ $ 17,719 $21,257 $ 20,825 $ 8,080 $ 4,395 $26,447 $ 2,202 $100,925
======== ======= ======== ======= ======= ======= ======= ========
Identifiable assets..... $448,916 $57,042 $ 85,687 $21,122 $10,498 $62,802 $ 100 $686,167
======== ======= ======== ======= ======= ======= ======= ========
YEAR ENDED 12/31/96:
Total revenue:
Unaffiliated
customers............ $167,826 $26,013 $ 70,703 $19,061 $15,830 $41,636 $ 362 $341,431
U.S. export sales..... (48,451) 3,052 11,253 4,530 5,867 10,610 13,139 --
-------- ------- -------- ------- ------- ------- ------- --------
TOTAL................... $119,375 $29,065 $ 81,956 $23,591 $21,697 $52,246 $13,501 $341,431
======== ======= ======== ======= ======= ======= ======= ========
Operating profit........ $(29,699) $ 9,394 $ (4,639) $(3,097) $(6,879) $11,470 $ 2,169 $(21,281)
======== ======= ======== ======= ======= ======= ======= ========
Identifiable assets..... $243,594 $43,108 $111,049 $27,018 $17,272 $58,100 $ 5,024 $505,165
======== ======= ======== ======= ======= ======= ======= ========
YEAR ENDED 12/31/95:
Total revenue:
Unaffiliated
customers............ $ 92,928 $13,664 $ 47,722 $15,785 $13,613 $ 5,795 $ 508 $190,015
U.S. export sales..... (12,481) 14 1,111 2,920 30 4,110 4,296 --
-------- ------- -------- ------- ------- ------- ------- --------
TOTAL................... $ 80,447 $13,678 $ 48,833 $18,705 $13,643 $ 9,905 $ 4,804 $190,015
======== ======= ======== ======= ======= ======= ======= ========
Operating profit........ $ 3,463 $ 5,383 $ 7,764 $ 4,939 $ 1,721 $ 3,294 $ 896 $ 27,460
======== ======= ======== ======= ======= ======= ======= ========
Identifiable assets..... $156,733 $12,356 $ 90,567 $27,881 $ 9,892 $ 8,510 $ 740 $306,679
======== ======= ======== ======= ======= ======= ======= ========
</TABLE>
F-21
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
BASIC DILUTIVE
EARNINGS EARNINGS
(LOSS) (LOSS)
OPERATING NET PER PER
PROFIT INCOME COMMON COMMON
REVENUE (LOSS) (LOSS) SHARE SHARE
-------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1997
First Quarter................... $105,501 $ 18,174 $ 8,599 $ 0.20 $ 0.19
Second Quarter.................. 125,995 25,154 12,947 0.30 0.28
Third Quarter................... 141,411 27,780 15,037 0.34 0.32
Fourth Quarter.................. 152,324 29,817 16,521 0.37 0.34
-------- -------- -------- ------ ------
Total Year.................... $525,231 $100,925 $ 53,104 $ 1.22 $ 1.14
======== ======== ======== ====== ======
1996
First Quarter................... $ 47,018 $(57,244) $(55,589) $(2.97) $(2.97)
Second Quarter.................. 94,643 4,910 (1,187) (0.02) (0.02)
Third Quarter................... 94,672 15,405 6,796 0.16 0.16
Fourth Quarter.................. 105,098 15,648 381 0.01 0.01
-------- -------- -------- ------ ------
Total Year.................... $341,431 $(21,281) $(49,599) $(1.35) $(1.35)
======== ======== ======== ====== ======
1995
First Quarter................... $ 43,686 $ 4,661 $ 1,042 $ 0.05 $ 0.05
Second Quarter.................. 45,652 5,784 1,872 0.09 0.09
Third Quarter................... 47,067 7,012 2,002 0.10 0.10
Fourth Quarter.................. 53,610 10,003 3,903 0.20 0.20
-------- -------- -------- ------ ------
Total Year.................... $190,015 $ 27,460 $ 8,819 $ 0.44 $ 0.44
======== ======== ======== ====== ======
</TABLE>
The first three quarters of 1997, 1996, and 1995 per share amounts have been
restated to comply with SFAS No. 128 (See Note 2).
The fourth quarter 1996 results included an extraordinary charge of
$6,373,000 (net of $3,431,000 tax benefit) related to the early retirement of
the Company's $75,000,000 Senior Subordinated Notes. In addition, the fourth
quarter 1996 results included a $2,234,000 write-off of Italian assets. The
second quarter 1996 results included $11,206,000 of Drexel transaction costs
related primarily to severance costs for former executive officers of the
Company and consolidation costs associated with the Tuboscope operations. The
first quarter 1996 results included the write-off of long-term assets of
$63,061,000 associated with the adoption of SFAS No. 121 and the decision by
management to sell certain assets.
13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On February 25, 1998, the Company issued $100.0 million of 7 1/2% Senior
Notes due 2008 ("Notes"). The Notes are fully and unconditionally guaranteed,
on a joint and several basis, by certain wholly-owned subsidiaries of the
Company (collectively "Guarantor Subsidiaries" and individually "Guarantor").
Each of the guarantees is an unsecured obligation of the Guarantor and ranks
pari passu with the guarantees provided by and the obligations of such
Guarantor Subsidiaries under the Bank Credit Facility and with all existing
and future unsecured indebtedness of such Guarantor for borrowed money that is
not, by its terms, expressly subordinated
F-22
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in right of payment to such guarantee. A portion of the net proceeds from the
issuance of the Notes was used by the Company to repay indebtedness
outstanding under the Company's Credit Agreement. The remaining net proceeds
will be used to finance future acquisitions, working capital and general
corporate purposes. The following condensed consolidating balance sheets as of
December 31, 1997 and 1996 and the related condensed consolidating statements
of operations and cash flows for each of the three years in the period ended
December 31, 1997 should be read in conjunction with the notes to these
consolidated financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------
NON-
TUBOSCOPE GUARANTOR GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CONDENSED CONSOLIDATING
BALANCE SHEET
Current assets:
Cash and cash
equivalents.......... $ -- $ (876) $ 13,469 $ -- $ 12,593
Accounts receivable,
net.................. 522 98,863 168,007 (123,325) 144,067
Inventory, net........ -- 47,731 30,586 -- 78,317
Other current assets.. -- 7,519 5,220 -- 12,739
-------- -------- -------- --------- --------
Total current
assets............. 522 153,237 217,282 (123,325) 247,716
Investment in
subsidiaries........... 317,955 202,672 -- (520,627) --
Property and equipment,
net.................... -- 133,414 77,147 -- 210,561
Identified intangibles,
net.................... -- 23,315 -- -- 23,315
Goodwill, net........... -- 97,049 105,252 -- 202,301
Other assets, net....... -- 1,249 1,025 -- 2,274
-------- -------- -------- --------- --------
Total assets........ $318,477 $610,936 $400,706 $(643,952) $686,167
======== ======== ======== ========= ========
Current liabilities:
Accounts payable...... $ 8,647 $ 23,157 $134,871 $(123,325) $ 43,350
Accrued liabilities... 9,797 41,228 25,571 -- 76,596
Income taxes payable.. -- 9,268 6,634 -- 15,902
Current portion of
long-term debt....... -- 27,853 2,721 -- 30,574
-------- -------- -------- --------- --------
Total current
liabilities........ 18,444 101,506 169,797 (123,325) 166,422
Long-term debt.......... -- 184,018 3,785 -- 187,803
Pension liabilities..... -- -- 8,916 -- 8,916
Deferred taxes payable.. -- 4,725 17,514 -- 22,239
Other liabilities....... -- -- 754 -- 754
-------- -------- -------- --------- --------
Total liabilities... 18,444 290,249 200,766 (123,325) 386,134
Common stock............ 442 -- -- -- 442
Paid in capital......... 294,402 304,196 170,006 (474,202) 294,402
Retained earnings
(deficit).............. 10,155 16,491 34,900 (51,391) 10,155
Cumulative translation
adjustment............. (4,966) -- (4,966) 4,966 (4,966)
-------- -------- -------- --------- --------
Total common
stockholders'
equity............. 300,033 320,687 199,940 (520,627) 300,033
-------- -------- -------- --------- --------
Total liabilities
and equity......... $318,477 $610,936 $400,706 $(643,952) $686,167
======== ======== ======== ========= ========
</TABLE>
F-23
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
TUBOSCOPE GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONDENSED CONSOLIDATING
BALANCE SHEET
Current assets:
Cash and cash
equivalents.......... $ 9 $ 637 $ 9,761 $ -- $ 10,407
Accounts receivable,
net.................. 17 141,162 119,508 (164,604) 96,083
Inventory, net........ -- 31,215 15,955 -- 47,170
Other current assets.. -- 5,262 7,311 -- 12,573
-------- -------- -------- --------- --------
Total current
assets............. 26 178,276 152,535 (164,604) 166,233
Investment in
subsidiaries........... 228,502 159,545 -- (388,047) --
Property and equipment,
net.................... -- 87,867 93,513 -- 181,380
Identified intangibles,
net.................... -- 22,583 -- -- 22,583
Goodwill, net........... -- 46,370 85,755 -- 132,125
Other assets, net....... -- 1,836 1,008 -- 2,844
-------- -------- -------- --------- --------
Total assets........ $228,528 $496,477 $332,811 $(552,651) $505,165
======== ======== ======== ========= ========
Current liabilities:
Accounts payable...... $ 7,068 $ 59,201 $127,231 $(164,604) $ 28,896
Accrued liabilities... 45 22,735 18,774 -- 41,554
Income taxes ......... -- (1,996) 6,872 -- 4,876
Current portion of
long-term debt....... -- 13,397 3,117 -- 16,514
-------- -------- -------- --------- --------
Total current
liabilities........ 7,113 93,337 155,994 (164,604) 91,840
Long-term debt.......... 2,513 165,716 -- -- 168,229
Pension liabilities..... -- -- 9,846 -- 9,846
Deferred taxes payable.. -- 2,668 12,696 -- 15,364
Other liabilities....... -- 105 879 -- 984
-------- -------- -------- --------- --------
Total liabilities... 9,626 261,826 179,415 (164,604) 286,263
Common stock............ 416 -- -- -- 416
Paid in capital......... 261,932 282,577 141,577 (424,154) 261,932
Retained earnings
(deficit).............. (42,949) (47,926) 12,316 35,610 (42,949)
Cumulative translation
adjustment............. (497) -- (497) 497 (497)
-------- -------- -------- --------- --------
Total common
stockholders'
equity............. 218,902 234,651 153,396 (388,047) 218,902
-------- -------- -------- --------- --------
Total liabilities
and equity......... $228,528 $496,477 $332,811 $(552,651) $505,165
======== ======== ======== ========= ========
</TABLE>
F-24
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------
TUBOSCOPE GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONDENSED CONSOLIDATING
STATEMENT OF OPERATIONS
Revenue................. $ -- $291,236 $279,130 $(45,135) $525,231
Operating costs......... 120 246,564 211,521 (33,899) 424,306
-------- -------- -------- -------- --------
Operating profit (loss). (120) 44,672 67,609 (11,236) 100,925
Other expenses (income). (43) (27,795) 29,358 -- 1,520
Interest expense........ -- 13,704 752 -- 14,456
-------- -------- -------- -------- --------
Income (loss) before
taxes.................. (77) 58,763 37,499 (11,236) 84,949
Provision for taxes..... -- 16,930 14,915 -- 31,845
Equity in net income
(loss) of subsidiaries. 53,181 22,584 -- (75,765) --
-------- -------- -------- -------- --------
Net income (loss)....... $ 53,104 $ 64,417 $ 22,584 $(87,001) $ 53,104
======== ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
TUBOSCOPE GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONDENSED CONSOLIDATING
STATEMENT OF OPERATIONS
Revenue................. $ -- $197,165 $167,579 $(23,313) $341,431
Operating costs......... 57 216,879 165,749 (19,973) 362,712
-------- -------- -------- -------- --------
Operating profit (loss). (57) (19,714) 1,830 (3,340) (21,281)
Other expenses (income). 171 4,378 (4,256) -- 293
Interest expense........ 45 12,257 1,112 -- 13,414
-------- -------- -------- -------- --------
Income (loss) before
taxes.................. (273) (36,349) 4,974 (3,340) (34,988)
Provision (benefit) for
taxes.................. -- (1,458) 9,696 -- 8,238
Extraordinary loss, net
of income tax benefits. -- 6,373 -- -- 6,373
Equity in net income
(loss) of subsidiaries. (49,326) (4,722) -- 54,048 --
-------- -------- -------- -------- --------
Net income (loss)....... $(49,599) $(45,986) $ (4,722) $ 50,708 $(49,599)
======== ======== ======== ======== ========
</TABLE>
F-25
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------
TUBOSCOPE GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONDENSED CONSOLIDATING
STATEMENT OF OPERATIONS
Revenue................. $ -- $ 97,486 $ 96,760 $ (4,231) $190,015
Operating costs......... 55 82,433 82,552 (2,485) 162,555
-------- -------- -------- -------- --------
Operating profit (loss). (55) 15,053 14,208 (1,746) 27,460
Other expenses (income). -- (3,001) 6,956 (4,028) (73)
Interest expense........ -- 11,292 1,036 -- 12,328
-------- -------- -------- -------- --------
Income (loss) before
taxes.................. (55) 6,762 6,216 2,282 15,205
Provision (benefit) for
taxes.................. -- (302) 6,688 -- 6,386
Equity in net income
(loss) of subsidiaries. 8,874 (472) -- (8,402) --
-------- -------- -------- -------- --------
Net income (loss)....... $ 8,819 $ 6,592 $ (472) $ (6,120) $ 8,819
======== ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------
TUBOSCOPE GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONDENSED CONSOLIDATING
STATEMENT OF CASH FLOWS
Net cash provided by
(used in) operating
activities............. $ 11,425 $ 2,829 $ 48,300 $(16,264) $ 46,290
Cash flows provided by
(used for) investing
activities:
Capital expenditures.. -- (14,313) (20,877) -- (35,190)
Business acquisitions,
net of cash acquired. -- (10,507) (26,349) -- (36,856)
Investments in
subsidiaries......... (16,264) -- -- 16,264 --
Other................. -- -- (963) -- (963)
-------- -------- -------- -------- --------
Net cash provided by
(used for) investing
activities........... (16,264) (24,820) (48,189) 16,264 (73,009)
Cash flows provided by
financing activities:
Net borrowings under
financing agreements. -- 20,478 3,661 -- 24,139
Issuance of common
stock under employee
stock plan........... 479 -- -- -- 479
Net proceeds from sale
of common stock...... 4,351 -- -- -- 4,351
-------- -------- -------- -------- --------
Net cash provided by
financing activities. 4,830 20,478 3,661 -- 28,969
Effect of exchange
rate changes on cash. -- -- (64) -- (64)
Net increase in cash
and cash equivalents. (9) (1,513) 3,708 -- 2,186
Cash and cash
equivalents:
Beginning of period... 9 637 9,761 -- 10,407
-------- -------- -------- -------- --------
End of period......... $ -- $ (876) $ 13,469 $ -- $ 12,593
======== ======== ======== ======== ========
</TABLE>
F-26
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
TUBOSCOPE GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONDENSED CONSOLIDATING
STATEMENT OF CASH FLOWS
Net cash provided by
(used in) operating
activities............. $ 6,163 $ (5,061) $ 46,927 $(37,466) $ 10,563
Cash flows provided by
(used for) investing
activities:
Capital expenditures.. -- (11,189) (7,492) -- (18,681)
Proceeds from sale-
leaseback
transactions......... -- 2,973 -- -- 2,973
Business acquisitions,
net of cash acquired. -- (8,824) (34,412) -- (43,236)
Investments in
subsidiaries......... (37,466) -- -- 37,466 --
Other................. -- -- (1,513) -- (1,513)
-------- -------- -------- -------- --------
Net cash provided by
(used for) investing
activities........... (37,466) (17,040) (43,417) 37,466 (60,457)
Cash flows provided by
(used for) financing
activities:
Net borrowings
(payments) under
financing agreements. -- 21,212 (3,366) -- 17,846
Cash received in
Drexel merger........ -- 2,101 -- -- 2,101
Debt issuance costs... -- (785) -- -- (785)
Dividends paid on
Redeemable Series A
convertible Preferred
Stock................ (175) -- -- -- (175)
Issuance of common
stock under employee
stock plan........... 128 -- -- -- 128
Net proceeds from sale
of common stock...... 31,350 -- -- -- 31,350
-------- -------- -------- -------- --------
Net cash provided by
(used for) financing
activities........... 31,303 22,528 (3,366) -- 50,465
Effect of exchange
rate changes on cash. -- -- 442 -- 442
Net increase in cash
and cash equivalents. -- 427 586 -- 1,013
Cash and cash
equivalents:
Beginning of period. 9 210 9,175 -- 9,394
-------- -------- -------- -------- --------
End of period....... $ 9 $ 637 $ 9,761 $ -- $ 10,407
======== ======== ======== ======== ========
</TABLE>
F-27
<PAGE>
TUBOSCOPE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------
TUBOSCOPE GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONDENSED CONSOLIDATING
STATEMENT OF CASH FLOWS
Net cash provided by
operating activities... $ 541 $ 9,317 $11,723 $-- $ 21,581
Cash flows provided by
(used for) investing
activities:
Capital expenditures.. -- (5,268) (2,377) -- (7,645)
Proceeds from sale-
leaseback
transactions......... -- 12,500 -- -- 12,500
Business acquisitions,
net of cash acquired. -- -- (5,373) -- (5,373)
Other................. -- -- (566) -- (566)
----- -------- ------- ---- --------
Net cash provided by
(used for) investing
activities........... -- 7,232 (8,316) -- (1,084)
Cash flows used for
financing activities:
Net payments under
financing agreements. -- (17,045) (1,936) -- (18,981)
Debt issuance costs... -- (95) -- -- (95)
Purchase of foreign
currency options..... -- (258) -- -- (258)
Dividends paid on
Redeemable Series A
convertible Preferred
Stock................ (700) -- -- -- (700)
Issuance of common
stock under employee
stock plan........... 125 -- -- -- 125
Net proceeds from sale
of common stock...... 34 -- -- -- 34
----- -------- ------- ---- --------
Net cash used for
financing activities. (541) (17,398) (1,936) -- (19,875)
Effect of exchange
rate changes on cash. -- -- 241 -- 241
Net increase in cash
and cash equivalents. -- (849) 1,712 -- 863
Cash and cash
equivalents:
Beginning of period.. 9 1,059 7,463 -- 8,531
----- -------- ------- ---- --------
End of period........ $ 9 $ 210 $ 9,175 $-- $ 9,394
===== ======== ======= ==== ========
</TABLE>
F-28
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS OR THAT THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL NOR OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements................................................ ii
Available Information..................................................... ii
Incorporation Of Certain Documents By Reference........................... iii
Summary................................................................... 1
Risk Factors.............................................................. 9
The Exchange Offer........................................................ 13
Use Of Proceeds........................................................... 22
Capitalization............................................................ 23
Selected Historical Consolidated Financial Data........................... 24
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations............................................................... 25
Business.................................................................. 34
Management................................................................ 44
Description Of Certain Indebtedness....................................... 57
Certain United States Federal Income Tax Considerations................... 57
Plan Of Distribution...................................................... 58
Legal Matters............................................................. 59
Experts................................................................... 59
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OFFER TO EXCHANGE
7 1/2 SENIOR NOTES DUE 2008
FOR ALL OUTSTANDING
7 1/2 SENIOR NOTES DUE 2008
OF
[LOGO OF TUBOSCOPE]
-----------------
PROSPECTUS
-----------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Set forth below is a description of certain provisions of the articles of
incorporation and bylaws of the Company and the Guarantors. These descriptions
are intended as a summary only and are qualified in their entirety to the
appropriate articles, bylaws and state law.
(a) The Company's Certificate of Incorporation provides, consistent with the
provisions of the Delaware General Corporation Law, that no director of the
Company will be personally liable to the Company or any of its stockholders
for monetary damages arising from the director's breach of fiduciary duty as a
director. This does not apply, however, with respect to any action for
unlawful payments of dividends, stock purchases or redemptions, nor does it
apply if the director (i) has breached his duty of loyalty to the Company and
its stockholders; (ii) does not act or, in failing to act, has not acted in
good faith; (iii) has acted in a manner involving intentional misconduct or a
knowing violation of law or, in failing to act, has acted in a manner
involving intentional misconduct or a knowing violation of law; or (iv) has
derived an improper personal benefit. The provisions of the Certificate of
Incorporation eliminating liability of directors for monetary damages do not
affect the standard of conduct to which directors must adhere, nor do such
provisions affect the availability of equitable relief. In addition, such
limitations on personal liability do not affect the availability of monetary
damages under claims based on federal law.
The Company's Bylaws provide for indemnification of its officers and
directors to the fullest extent permitted by the Delaware General Corporation
Law.
(b) The Guarantors
The Certificate of Incorporation of each of Environmental Procedures Inc.,
Fiber Glass Holdings Inc., Tubo-FGS Inc., Tuboscope (Holdings U.S.) Inc. and
Tuboscope I/P Inc. (the "Delaware Guarantors") provide, consistent with the
provisions of the Delaware General Corporation Law, that no director of the
Delaware Guarantors will be personally liable to the respective Delaware
Guarantor or any of their respective stockholders for monetary damages arising
from the director's breach of fiduciary duty as a director. This does not
apply, however, with respect to any action for unlawful payments of dividends,
stock purchases or redemptions, nor does it apply if the director (i) has
breached his duty of loyalty to the respective Delaware Guarantor and its
respective stockholders; (ii) does not act or, in failing to act, has not
acted in good faith; (iii) has acted in a manner involving intentional
misconduct or a knowing violation of law or, in failing to act, has acted in a
manner involving intentional misconduct or a knowing violation of law; or (iv)
has derived an improper personal benefit. The provisions of the Certificate of
Incorporation eliminating liability of directors for monetary damages do not
affect the standard of conduct to which directors must adhere, nor do such
provisions affect the availability of equitable relief. In addition, such
limitations on personal liability do not affect the availability of monetary
damages under claims based on federal law.
The Bylaws of each of the Delaware Guarantors provide for indemnification of
its officers and directors to the fullest extent permitted by the Delaware
General Corporation Law.
The Articles of Incorporation, as amended to date (the "Articles of
Incorporation"), of Tuboscope Pipeline Services, Inc. and Tuboscope Vetco
International Inc. (the "Texas Guarantors"), together with their respective
Bylaws, provide that each of the Texas Guarantors shall indemnify its
respective officers and directors, and may indemnify its respective other
employees and agents, to the fullest extent permitted by law. The laws of the
State of Texas permit, and in some cases require, corporations to indemnify
officers, directors, agents and employees who are or have been a party to or
are threatened to be made a party to litigation against judgements, fines,
settlements and reasonable expenses under certain circumstances.
II-1
<PAGE>
The Texas Guarantors have also adopted provisions in their respective
Articles of Incorporation that limit the liability of its directors to the
fullest extent permitted by the laws of the State of Texas. Under the Texas
Guarantors' Articles of Incorporation, and as permitted by the laws of the
State of Texas, a director is not liable to the respective Texas Guarantor or
its shareholders for breach of fiduciary duty. Such limitation does not affect
liability for: (i) a breach of the director's duty of loyalty to the
respective Texas Guarantor or its shareholders or members; (ii) an act or
omission not in good faith that constitutes a breach of duty of the director
to the respective Texas Guarantor or an act or omission that involves
intentional misconduct or a knowing violation of the law; (iii) a transaction
from which the director received an improper benefit, whether or not the
benefit resulted from an action taken within the scope of the director's
office; or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION NOTE NO.
- ------- ----------- ---------
<C> <S> <C>
2(a) Agreement and Plan of Merger, dated as of January 3, 1996, among Tuboscope Vetco (Note 12)
International Corporation, Grow Acquisition Limited and D.O.S. Ltd.
2(b) Share Purchase Agreement dated as of May 31, 1996 between TVI Wadeco Inc., J & S (Note 14)
Hokanson Investments Ltd., John Hokanson, Douglass Bell, Robert Russell, Richard
Rutherford and Wadeco Oilfield Services Ltd.
2(c) Stock Purchase and Sale Agreement dated as of September 6, 1996 by and among (Note 15)
Tuboscope Pipeline Services, Inc., Vetco Pipeline Services, Inc., Rauma USA, Inc. and
Rauma Corporation
2(d) Addendum No. 1 to Stock Purchase and Sale Agreement dated as of September 20, 1996 (Note 15)
by and among Tuboscope Pipeline Services, Inc., Vetco Pipeline Services, Inc., Rauma
USA, Inc. and Rauma Corporation
2(e) Addendum No. 2 to Stock Purchase and Sale Agreement dated as of September 20, 1996 (Note 15)
by and among Tuboscope Pipeline Services, Inc., Vetco Pipeline Services, Inc., Rauma
USA, Inc. and Rauma Corporation
3(a) Restated Certificate of Incorporation, dated March 12, 1990. (Note 7)
3(b) Amended and Restated Bylaws. (Note 2)
3(c) Certificate of Designation of Series A Convertible Preferred Stock, dated October 22, 1997. (Note 3)
3(d) Certificate of Amendment to Restated Certificate of Incorporation dated May 12, 1992. (Note 10)
3(e) Certificate of Amendment to Restated Certificate of Incorporation dated May 10, 1994. (Note 11)
3(f) Certificate of Amendment to Restated Certificate of Incorporation dated April 24, 1996 (Note 20)
3(g) Certificate of Amendment to Restated Certificate of Incorporation dated June 3, 1997 (Note 21)
4(a) Stockholders' Agreement, dated May 13, 1988, between the Company, Brentwood, Hub, (Note 1)
the Management Investors, the Other Investors, and the Institutional Investors, including
the Common Stock Registration Rights Agreement attached thereto as Exhibit A.
4(b) Indenture (including the form of Note), dated as of April 1, 1993, among Tuboscope Vetco (Note 4)
International Inc., the Company and Norwest Bank Minnesota, National Association, as
Trustee, regarding the 10 3/4% Senior Subordinated Notes due 2003 of Tuboscope Vetco
International Inc.
4(c) Supplemental Indenture dated as of December 18, 1996, among Tuboscope Vetco (Note 18)
International Inc., the Company and Norwest Bank Minnesota, National Association, as
Trustee, regarding the 10 3/4% Senior Subordinated Notes due 2003 of Tuboscope Vetco
International Inc.
4(d) Various documentation relating to $1,000,000 Alaska Industrial Revenue Bond financing.
(Not filed herewith pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company hereby
agrees to furnish copies of relevant documentation to the Securities and Exchange
Commission upon request).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION NOTE NO.
- ------- ----------- --------
<S> <C> <C>
4(e) Various documentation relating to $1,000,000 Wyoming Industrial Revenue Bond
financing. (Not filed herewith pursuant to Item 601(b)(4)(iii) of Regulation S-K. The
Company hereby agrees to furnish copies of relevant documentation to the Securities
and Exchange Commission upon request).
4(f) Various promissory notes in the aggregate principal amount of $4,000,000 relating to
the acquisition of Sound Optics Systems, Inc., dba South Optical Systems, Inc. (Not
filed herewith pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company hereby
agrees to furnish copies of the relevant documentation to the Securities and Exchange
Commission upon request).
4(g) Amended and Restated Secured Credit Agreement, dated as of February 9, 1998, between
Tuboscope Inc., and Chase Bank of Texas, National Association, ABN Amro Bank N.V.,
Houston Agency, and the other Lenders Party Thereto, and ABN Amro Bank N.V.,
Houston Agency as Administrative Agent.
4(h) Indenture, dated as of February 25, 1998, between Tuboscope Inc., the Guarantors
named therein and The Bank of New York Trust Company of Florida, as trustee,
relating to $100,000,000 aggregate principal amount of 7 1/2% Senior Notes due 2008.
4(i) Registration Rights Agreement, dated as of February 25, 1998, between Tuboscope Inc.,
Credit Suisse First Boston Corporation, ABN AMRO Incorporated, Chase Securities Inc.
and Salomon Brothers Inc
4(j) Specimen Certificate of 7 1/2% Senior Notes due 2008 (the "Private Notes") (included in
Exhibit 4.1 hereto).
4(k) Specimen Certificate of 7 1/2% Senior Notes due 2008 (the "Exchange Notes") (included in
Exhibit 4.1 hereto).
5(a) Opinion of James F. Maroney, III, Esq. regarding the validity of the Exchange Notes.
10(a) Savings Investment Plan, dated May 13, 1988, as amended by First Amendment to (Note 1)
Savings Investment Plan.
10(b) Second, Third and Fourth Amendments to Savings Investment Plan. (Note 4)
10(c) Fifth, Sixth and Seventh Amendments to Savings Investment Plan. (Note 8)
10(d) Supplementary Agreement Fixed Rental Scheme, dated May 19, 1989, between Jurong (Note 1)
Town Corporation and AMF Far East Pte. Ltd.
10(e) Description of Life Insurance Plan. (Note 1)
10(f) Amended and Restated Stock Option Plan for Key Employees of Tuboscope Vetco (Note 5)
International Corporation.
10(g) Form of Revised Incentive Stock Option Agreement. (Note 5)
10(h) Form of Revised Non-Qualified Stock Option Agreement. (Note 5)
10(i) Stock Option Plan for Non-Employee Directors of Tuboscope Vetco International (Note 6)
Corporation.
10(j) Amendment to Stock Option Plan for Non-Employee Directors of Tuboscope Vetco (Note 6)
International Corporation.
10(k) Form of Non-Qualified Stock Option Agreement. (Note 6)
10(l) Employee Qualified Stock Purchase Plan (Note 8)
10(m) Purchase Agreement, dated as of September 30, 1991, between the Company and BHI (Note 3)
relating to the Vetco Services Acquisition.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION NOTE NO.
- ------- ----------- ---------
<S> <C> <C>
10(o) Technology Transfer Agreement, dated as of October 29, 1991, between Tuboscope Inc. (Note 3)
and BHI.
10(p) Lease Agreement with respect to Celle, Germany facility. (Note 3)
10(q) Building Agreement for Land at Jurong, dated May 5, 1983, between Jurong Town (Note 3)
Corporation and Vetco International, Inc.
10(r) Lease between J.G.B. Properties Limited and Vetco Inspection GmbH. (Note 3)
10(s) Eighth and Ninth Amendment to Savings Investment Plan. (Note 9)
10(t) Subscription Agreement, dated as of January 3, 1996, by and between Tuboscope Vetco (Note 12)
International Corporation and SCF-III, L.P.
10(u) Exchange Agreement, dated as of January 3, 1996, among Tuboscope Vetco International (Note 13)
Corporation and Baker Hughes Incorporated.
10(v) Voting Agreement, dated as of January 3, 1996, among Tuboscope Vetco International (Note 12)
Corporation, D.O.S. Ltd., D.O.S. Partners, L.P., Panmell (Holdings), Ltd. and Zink
Industries Limited.
10(w) Voting Agreement, dated as of January 3, 1996, among D.O.S. Ltd., Brentwood (Note 12)
Associates IV, L.P. and Baker Hughes Incorporated.
10(x) Form of Amended and Restated Executive Agreement. (Note 13)
10(y) Master Lease Agreement, dated December 18, 1995, between the Company and Heller (Note 13)
Financial Leasing, Inc.
10(z) 1996 Equity Participation Plan. (Note 16)
10(aa) D.O.S. Ltd. 1993 Stock Option Plan. (Note 17)
10(bb) Agreement and Plan of Merger dated as of March 7, 1997 by and among Tuboscope (Note 19)
Vetco International Corporation, FGS Acquisition Corp. and Fiber Glass Systems, Inc.
10(cc) Purchase Agreement, dated as of February 19, 1998, between Tuboscope Inc., Credit
Suisse First Boston Corporation, ABN AMRO Incorporated, Chase Securities Inc. and
Salomon Brothers Inc
12(a) Statement of Computation of Ratio of Earnings to Fixed Charges.
21(a) Subsidiaries of Tuboscope Inc. (Note 22)
23(a) Consent of James F. Maroney, III, Esq. (included in his opinion filed as Exhibit 5.1).
23(b) Consent of Ernst & Young LLP.
24(a) Power of Attorney of Tuboscope Inc. and each of the Guarantors (included on signature
page to this Registration Statement on Form S-4).
25(a) Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of
1939 of The Bank of New York Trust Company of Florida (bound separately).
27(a) Financial Data Schedule. (Note 22)
99(a) Form of Letter of Transmittal and related documents to be used in conjunction with the
Exchange Offer.
99(b) Forms of Notices of Guaranteed Delivery.
</TABLE>
- --------
Note 1 Previously filed by the Registrant in Registration No. 33-31102 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 2 Previously filed by the Registrant in Registration No. 33-33248 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
II-4
<PAGE>
Note 3 Previously filed by the Registrant in File No. 33-43525 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 4 Previously filed by the Registrant in Registration No. 33-56182 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 5 Previously filed by the Registrant in Registration No. 33-72150 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 6 Previously filed by the Registrant in Registration No. 33-72072 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 7 Previously filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 and incorporated by reference
herein pursuant to Rule 12b-32 of the Exchange Act.
Note 8 Previously filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated by reference
herein pursuant to Rule 12b-32 of the Exchange Act.
Note 9 Previously filed in the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994 and incorporated by reference herein pursuant to
Rule 12b-32 of the Exchange Act.
Note 10 Previously filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 and incorporated by reference
herein pursuant to Rule 12b-32 of the Exchange Act.
Note 11 Previously filed in the Company's Proxy Statement for the 1994 Annual
Meeting of Stockholders and incorporated by reference herein pursuant
to Rule 12b-32 of the Exchange Act.
Note 12 Previously filed in the Company's Current Report on Form 8-K filed on
January 16, 1996 and incorporated by reference herein pursuant to
Rule 12b-32 of the Exchange Act.
Note 13 Previously filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 and incorporated by reference
herein pursuant to Rule 12b-32 of the Exchange Act.
Note 14 Previously filed in the Company's Current Report on Form 8-K filed on
June 14, 1996, as amended by Amendment No. 1 on Form 8-K/A filed on
August 2, 1996, and incorporated by reference herein pursuant to Rule
12b-32 of the Exchange Act.
Note 15 Previously filed in the Company's Current Report on Form 8-K filed on
October 7, 1996, as amended by Amendment No. 1 filed on November 12,
1996, and incorporated by reference herein pursuant to Rule 12b-32 of
the Exchange Act.
Note 16 Previously filed by the Company in Registration No. 333-05233 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 17 Previously filed by the Company in Registration No. 333-05237 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 18 Previously filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 and incorporated by reference
herein pursuant to Rule 12b-32 of the Exchange Act.
Note 19 Previously filed in the Company's current report on Form 8-K filed on
March 19, 1997, as amended by Amendment No. 1 filed on May 7, 1997,
and incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 20 Previously filed by the Company as Appendix E in Registration No.
333-01869 and incorporated by reference herein pursuant to Rule 12b-
32 of the Exchange Act.
Note 21 Previously filed in the Company's Proxy Statement for the 1997 Annual
Meeting of Stockholders and incorporated by reference herein pursuant
to Rule 12b-32 of the Exchange Act.
Note 22 Previously filed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and incorporated by reference
herein pursuant to Rule 12b-32 of the Exchange Act.
(b) Financial Statement Schedules:
Schedule I. Condensed Financial Information of Registrant.
Schedule II. Valuation and Qualifying Accounts.
II-5
<PAGE>
SCHEDULES OMITTED
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required
by such omitted schedules is set forth in the financial statements or the
notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Sections 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of a registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-6
<PAGE>
(d) The undersigned registrants hereby undertake to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section 305(b)(2)
of the Act.
(e) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the Registrants
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas
on April 24, 1998.
TUBOSCOPE INC.
/s/ Joseph C. Winkler
By:
----------------------------------
Joseph C. Winkler
Executive Vice President, Chief
Financial Officer and Treasurer
of Tuboscope Inc.
ENVIRONMENTAL PROCEDURES, INC.
/s/ Joseph C. Winkler
By:
----------------------------------
Joseph C. Winkler
Executive Vice President, Chief
Financial Officer and Treasurer
of Environmental Procedures, Inc.
TUBO-FGS INC.
/s/ Joseph C. Winkler
By:
----------------------------------
Joseph C. Winkler
Vice President and Treasurer of
Tubo-FGS Inc.
FIBER GLASS SYSTEMS HOLDINGS INC.
/s/ Joseph C. Winkler
By:
----------------------------------
Joseph C. Winkler
Vice President, and Treasurer of
Fiber Glass Holdings Inc.
TUBOSCOPE (HOLDING U.S.) INC.
/s/ Joseph C. Winkler
By:
----------------------------------
Joseph C. Winkler
Vice President and Treasurer of
Tuboscope (Holding U.S.) Inc.
TUBOSCOPE I/P INC.
/s/ Joseph C. Winkler
By:
----------------------------------
Joseph C. Winkler
Vice President and Treasurer of
Tuboscope I/P Inc.
II-8
<PAGE>
TUBOSCOPE PIPELINE SERVICES, INC.
/s/ Joseph C. Winkler
By:
----------------------------------
Joseph C. Winkler
Vice President and Treasurer of
Tuboscope Pipeline Services Inc.
TUBOSCOPE VETCO INTERNATIONAL INC.
/s/ Joseph C. Winkler
By:
----------------------------------
Joseph C. Winkler
Executive Vice President, Chief
Financial Officer and Treasurer
of Tuboscope Vetco International
Inc.
II-9
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
John F. Lauletta and Joseph C. Winkler as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments and any Registration Statement pursuant to Rule 462(b)) to this
Registration Statement on Form S-4 and to file the same with all exhibits
thereto and any other documents in connection therewith, with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ L.E. Simmons Chairman of the Board of April 24, 1998
- ------------------------------------- Tuboscope Inc.
L.E. Simmons
/s/ John F. Lauletta Director, President and April 24, 1998
- ------------------------------------- Chief Executive Officer
John F. Lauletta of Tuboscope Inc.
/s/ Joseph C. Winkler Executive Vice April 24, 1998
- ------------------------------------- President, Chief
Joseph C. Winkler Financial Officer and
Treasurer of Tuboscope
Inc.
/s/ Jerome R. Baier Director of Tuboscope April 24, 1998
- ------------------------------------- Inc.
Jerome R. Baier
/s/ Eric L. Mattson Director of Tuboscope April 24, 1998
- ------------------------------------- Inc.
Eric L. Mattson
/s/ Douglas E. Swanson Director of Tuboscope April 24, 1998
- ------------------------------------- Inc.
Douglas E. Swanson
/s/ Jeffery A. Smisek Director of Tuboscope April 24, 1998
- ------------------------------------- Inc.
Jeffery A. Smisek
ENVIRONMENTAL PROCEDURES INC.
/s/ John F. Lauletta Director of April 24, 1998
- ------------------------------------- Environmental
John F. Lauletta Procedures Inc.
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Joseph C. Winkler Director, Executive Vice President, April 24, 1998
- --------------------------------- Chief Financial Officer and Treasurer
Joseph C. Winkler of Environmental Procedures Inc.
/s/ James F. Maroney, III Director of Environmental Procedures April 24, 1998
- --------------------------------- Inc.
James F. Maroney, III
TUBO-FGS INC.
/s/ John F. Lauletta Director of Tubo-FGS Inc. April 24, 1998
- ---------------------------------
John F. Lauletta
/s/ Joseph C. Winkler Director, Vice President and Treasurer April 24, 1998
- --------------------------------- of Tubo-FGS Inc.
Joseph C. Winkler
/s/ James F. Maroney, III Director of Tubo-FGS Inc. April 24, 1998
- ---------------------------------
James F. Maroney, III
FIBER GLASS SYSTEMS HOLDINGS INC.
/s/ John F. Lauletta Director of Fiber Glass Systems April 24, 1998
- --------------------------------- Holdings Inc.
John F. Lauletta
/s/ Joseph C. Winkler Director, Vice President and Treasurer April 24, 1998
- --------------------------------- of Fiber Glass Systems Holdings Inc.
Joseph C. Winkler
/s/ James F. Maroney, III Director of Fiber Glass Systems April 24, 1998
- --------------------------------- Holdings Inc.
James F. Maroney, III
TUBOSCOPE (HOLDING U.S.) INC.
/s/ John F. Lauletta Director of Tuboscope (Holding U.S.) Inc. April 24, 1998
- ---------------------------------
John F. Lauletta
/s/ Joseph C. Winkler Director, Vice President and Treasurer April 24, 1998
- --------------------------------- of Tuboscope (Holding U.S.) Inc.
Joseph C. Winkler
/s/ James F. Maroney, III Director of Tuboscope (Holding U.S.) Inc. April 24, 1998
- ---------------------------------
James F. Maroney, III
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
TUBOSCOPE I/P INC.
/s/ John F. Lauletta Director of Tuboscope April 24, 1998
- ------------------------------------- I/P Inc.
John F. Lauletta
/s/ Joseph C. Winkler Director, Vice President April 24, 1998
- ------------------------------------- and Treasurer of
Joseph C. Winkler Tuboscope I/P Inc.
/s/ James F. Maroney, III Director of Tuboscope April 24, 1998
- ------------------------------------- I/P Inc.
James F. Maroney, III
TUBOSCOPE PIPELINE SERVICES, INC.
/s/ John F. Lauletta Director of Tuboscope April 24, 1998
- ------------------------------------- Pipeline Services, Inc.
John F. Lauletta
/s/ Joseph C. Winkler Director, Vice President April 24, 1998
- ------------------------------------- and Treasurer of
Joseph C. Winkler Tuboscope Pipeline
Services, Inc.
/s/ James F. Maroney, III
- ------------------------------------- Director of Tuboscope April 24, 1998
James F. Maroney, III Pipeline Services, Inc.
TUBOSCOPE VETCO INTERNATIONAL INC.
/s/ L. E. Simmons Chairman of the Board of April 24, 1998
- ------------------------------------- Tuboscope Vetco
L. E. Simmons International Inc.
/s/ John F. Lauletta Director of Tuboscope April 24, 1998
- ------------------------------------- Vetco International
John F. Lauletta Inc.
/s/ Joseph C. Winkler Director, Executive Vice April 24, 1998
- ------------------------------------- President, Chief
Joseph C. Winkler Financial Officer and
Treasurer of Tuboscope
Vetco International
Inc.
/s/ Jerome R. Baier Director of Tuboscope April 24, 1998
- ------------------------------------- Vetco International
Jerome R. Baier Inc.
/s/ Eric L. Mattson
- ------------------------------------- Director of Tuboscope April 24, 1998
Eric L. Mattson Vetco International
Inc.
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Douglas E. Swanson Director of Tuboscope Vetco April 24, 1998
- ---------------------------------- International Inc.
Douglas E. Swanson
/s/ Jeffery A. Smisek Director of Tuboscope Vetco April 24, 1998
- ---------------------------------- International Inc.
Jeffery A. Smisek
</TABLE>
II-13
<PAGE>
SCHEDULE I
TUBOSCOPE INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(PARENT COMPANY ONLY)
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
ASSETS 1997 1996
------ -------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash....................................................... $ -- $ 9
Accounts receivable........................................ 522 17
Investment in subsidiaries................................. 317,955 228,502
-------- --------
Total assets........................................... $318,477 $228,528
======== ========
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C>
Accrued liabilities........................................ $ 9,797 $ --
Amounts due to affiliates.................................. 8,647 7,068
Interest payable........................................... -- 45
Notes payable.............................................. -- 2,513
Common stockholders' equity:
Common stock, $.01 par value 60,000,000 shares
authorized, 44,235,591 shares issued and outstanding
(41,612,495 at December 31, 1996)....................... 442 416
Paid-in capital.......................................... 294,402 261,932
Retained earnings (deficit).............................. 10,155 (42,949)
Cumulative translation adjustment........................ (4,966) (497)
-------- --------
Total common stockholders' equity...................... 300,033 218,902
-------- --------
Total liabilities and equity........................... $318,477 $228,528
======== ========
</TABLE>
See notes to condensed financial statements.
S-1
<PAGE>
SCHEDULE I
TUBOSCOPE INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(PARENT COMPANY ONLY)
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996 1995
------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Equity in net earnings (loss) of subsidiaries........ $53,181 $(49,326) $8,874
Interest expense..................................... -- (45) --
Foreign exchange gain (loss)......................... 43 (171) --
State franchise tax and other........................ (120) (57) (55)
------- -------- ------
Net income (loss).................................... 53,104 (49,599) 8,819
Dividends applicable to redeemable preferred stock... -- -- 700
------- -------- ------
Net income (loss) applicable to common stock......... $53,104 $(49,599) $8,119
======= ======== ======
</TABLE>
See notes to condensed financial statements.
S-2
<PAGE>
SCHEDULE I
TUBOSCOPE INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT COMPANY ONLY)
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ 53,104 $(49,599) $ 8,819
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Equity in net (earnings) loss of subsidiaries. (53,181) 49,326 (8,874)
Changes in current assets and liabilities:
Accounts receivable......................... (505) (17) --
Accrued liabilities......................... 9,797 -- --
Interest payable............................ (45) 45 --
Amounts due to affiliates................... 1,579 6,179 357
-------- -------- -------
Net cash provided by operating activities....... 10,749 5,934 302
-------- -------- -------
Cash flows used for investing activities:
Investment in subsidiaries...................... (16,264) (37,466) --
-------- -------- -------
Cash flows provided by (used for) financing activ-
ities:
Proceeds from sale of common stock.............. 5,506 31,707 398
Dividends paid on Redeemable Series A
Convertible Preferred Stock.................... -- (175) (700)
-------- -------- -------
Net cash provided by (used for) financing
activities..................................... 5,506 31,532 (302)
-------- -------- -------
Net change in cash and cash equivalents........... (9) -- --
Cash and cash equivalents:
Beginning of the year........................... 9 9 9
-------- -------- -------
End of the year................................. $ -- $ 9 $ 9
======== ======== =======
</TABLE>
See notes to condensed financial statements.
S-3
<PAGE>
SCHEDULE I
TUBOSCOPE INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
No cash dividends were paid to Tuboscope Vetco International Corporation.
For information concerning restrictions pertaining to the common stock and
commitments and contingencies, see Notes 7 and 9 of notes to consolidated
financial statements of Tuboscope Vetco International Corporation.
S-4
<PAGE>
SCHEDULE II
TUBOSCOPE INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
ADDITIONS
(DEDUCTIONS) CHARGE
BALANCE CHARGED TO OFFS BALANCE
BEGINNING COSTS AND AND END OF
OF YEAR EXPENSES OTHER YEAR
--------- ------------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
1997................................ $2,382 $2,421 $(1,243) $3,560
1996................................ $ 955 $ 628 $ 799 $2,382
1995................................ $1,599 $ (272) $ (372) $ 955
Allowance for inventory reserves:
1997................................ $8,994 $1,996 $(2,469) $8,521
1996................................ $5,988 $ 329 $ 2,677 $8,994
1995................................ $6,272 $ (275) $ (9) $5,988
Valuation allowance for deferred
income taxes:
1997................................ $1,171 $ 480 $ -- $1,651
1996................................ $3,404 $ -- $(2,233) $1,171
1995................................ $1,310 $2,119 $ (25) $3,404
</TABLE>
S-5
<PAGE>
EXHIBIT 4(g)
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of
February 9, 1998
Among
TUBOSCOPE INC., AS BORROWER
AND
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
ABN AMRO BANK N.V., HOUSTON AGENCY,
AND THE OTHER LENDERS PARTY HERETO,
AND
ABN AMRO BANK N.V., HOUSTON AGENCY,
AS ADMINISTRATIVE AGENT
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. DEFINITIONS; INTERPRETATION.............................................. 1
Section 1.1. Definitions................................................ 1
Section 1.2. Interpretation............................................. 16
SECTION 2. THE CREDIT FACILITIES.................................................... 16
Section 2.1. Borrowings of Revolving Loans.............................. 16
Section 2.2. Letters of Credit.......................................... 17
Section 2.3. Term Loans................................................. 20
Section 2.4. Types of Loans and Minimum Borrowing Amounts............... 21
Section 2.5. Manner of Borrowing........................................ 21
Section 2.6. Interest Periods........................................... 23
Section 2.7. Maturity of Loans.......................................... 24
Section 2.8. Applicable Interest Rates.................................. 27
Section 2.9. Default Rate............................................... 28
Section 2.10. Optional Prepayments....................................... 29
Section 2.11. Mandatory Prepayments of Loans............................. 30
Section 2.12. The Notes.................................................. 30
Section 2.13. Breakage Fees.............................................. 31
Section 2.14. Commitment Terminations.................................... 31
Section 2.15. Acknowledgment............................................. 32
SECTION 3. FEES AND PAYMENTS........................................................ 32
Section 3.1. Fees....................................................... 32
Section 3.2. Place and Application of Payments.......................... 34
Section 3.3. Withholding Taxes.......................................... 34
SECTION 4. CONDITIONS............................................................... 36
Section 4.1. Conditions Precedent to all Borrowings..................... 36
SECTION 5. REPRESENTATIONS AND WARRANTIES........................................... 38
Section 5.1. Corporate Organization..................................... 38
Section 5.2. Corporate Power and Authority; Validity.................... 38
Section 5.3. No Violation............................................... 38
Section 5.4. Litigation................................................. 39
Section 5.5. Use of Proceeds; Margin Regulations........................ 39
Section 5.6. Investment Company Act..................................... 39
Section 5.7. Public Utility Holding Company Act......................... 39
Section 5.8. True and Complete Disclosure............................... 39
Section 5.9. Financial Statements....................................... 40
Section 5.10. No Material Adverse Change................................. 40
Section 5.11. Labor Controversies........................................ 40
Section 5.12. Taxes...................................................... 40
Section 5.13. ERISA...................................................... 40
Section 5.14. Consents................................................... 40
Section 5.15. Capitalization............................................. 41
Section 5.16. Intellectual Property...................................... 41
Section 5.17. Ownership of Property...................................... 41
Section 5.18. Compliance with Statutes, Etc.............................. 41
Section 5.19. Environmental Matters...................................... 41
Section 5.20. Existing Indebtedness...................................... 42
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 6. COVENANTS................................................................ 42
Section 6.1. Corporate Existence........................................ 42
Section 6.2. Maintenance................................................ 42
Section 6.3. Taxes...................................................... 42
Section 6.4. ERISA...................................................... 43
Section 6.5. Burdensome Restrictions, Etc............................... 43
Section 6.6. Insurance.................................................. 43
Section 6.7. Financial Reports and Other Information.................... 44
Section 6.8. Lender Inspection Rights................................... 46
Section 6.9. Conduct of Business........................................ 46
Section 6.10. Interest Rate Protection................................... 47
Section 6.11. New Subsidiaries; Foreign Subsidiaries..................... 47
Section 6.12. Limitation on Certain Restrictions on Subsidiaries;
Dividends; Negative Pledges................................ 47
Section 6.13. Restrictions on Fundamental Changes........................ 48
Section 6.14. Environmental Laws......................................... 49
Section 6.15. Liens...................................................... 49
Section 6.16. Indebtedness............................................... 52
Section 6.17. Advances, Investments and Loans............................ 53
Section 6.18. Modifications of Corporate Documents....................... 54
Section 6.19. Transfer of Assets......................................... 54
Section 6.20. Transactions with Affiliates............................... 55
Section 6.21. Compliance with Laws....................................... 55
Section 6.22. Interest Coverage Ratio.................................... 55
Section 6.23. Total Funded Debt to Total Capital Ratio................... 56
Section 6.24. Minimum Consolidated Net Worth............................. 56
SECTION 7. EVENTS OF DEFAULT AND REMEDIES........................................... 56
Section 7.1. Events of Default.......................................... 56
Section 7.2. Non-Bankruptcy Defaults.................................... 58
Section 7.3. Bankruptcy Defaults........................................ 58
Section 7.4. Collateral for Undrawn Letters of Credit................... 59
Section 7.5. Notice of Default.......................................... 59
Section 7.6. Expenses................................................... 59
Section 7.7. Distribution and Application of Proceeds from.............. 60
Collateral
SECTION 8. CHANGE IN CIRCUMSTANCES.................................................. 61
Section 8.1. Change of Law.............................................. 61
Section 8.2. Unavailability of Deposits or Inability to................. 61
Ascertain LIBOR Rate
Section 8.3. Increased Cost and Reduced Return.......................... 61
Section 8.4. Lending Offices............................................ 63
Section 8.5. Discretion of Lender as to Manner of Funding............... 63
Section 8.6. Substitution of Lender..................................... 63
SECTION 9. THE AGENT................................................................ 64
Section 9.1. Appointment and Authorization of Agent..................... 64
Section 9.2. Rights and Powers.......................................... 64
Section 9.3. Action by Agent............................................ 64
Section 9.4. Consultation with Experts.................................. 65
Section 9.5. Indemnification Provisions................................. 65
Section 9.6. Indemnity.................................................. 66
Section 9.7. Resignation of Agent and Successor Agent................... 66
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 10. MISCELLANEOUS............................................................ 66
Section 10.1. Reallocation of Commitments................................ 66
Section 10.2. Effectiveness.............................................. 67
Section 10.3. No Waiver of Rights........................................ 68
Section 10.4. Non-Business Day........................................... 68
Section 10.5. Documentary Taxes.......................................... 68
Section 10.6. Survival of Representations................................ 69
Section 10.7. Survival of Indemnities.................................... 69
Section 10.8. Setoff..................................................... 69
Section 10.9. Notices.................................................... 69
Section 10.10. Counterparts............................................... 70
Section 10.11. Successors and Assigns..................................... 70
Section 10.12. Sales and Transfers of Borrowings and Notes;
Participations in Borrowings and Notes..................... 70
Section 10.13. Amendments................................................. 73
Section 10.14. Headings................................................... 73
Section 10.15. Legal Fees, Other Costs and Indemnification................ 73
Section 10.16. Governing Law; Submission to Jurisdiction; Waiver of
Jury Trial................................................. 74
Section 10.17. Confidentiality............................................ 75
Section 10.18. Severability............................................... 75
Section 10.19. Currency Conversion........................................ 75
Section 10.20. Dollar Equivalent Combinations............................. 76
Section 10.21. Change in Accounting Principles or Tax Laws................ 76
Section 10.22. Notice..................................................... 76
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(Continued) Page
----
-iv-
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
2.2A - Form of Borrowing Request
2.2B - Form of Application for Letter of Credit
2.12A - Form of Revolving Note (U.S. Dollars)
2.12B - Form of Revolving Note (British Pounds Sterling)
2.12C - Form of Revolving Note (Canadian Dollars)
2.12D - Form of Term Note
2.12E - Form of Agent Note
6.7 - Form of Compliance Certificate
6.13 - Form of Acquisition Report
10.2A - Form of Subsidiary Guaranty
10.2B - Form of Opinions of Counsel
10.12 - Form of Assignment Agreement
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
2.1 - List of Prior Indebtedness and Reallocations
2.7 - Term Loan Repayment Schedule
5.1 - List of Subsidiaries
5.4 - List of Litigation
5.13 - ERISA Disclosure
5.15 - Stock Disclosure
5.16 - Intellectual Property
5.19 - List of Environmental Claims
5.20 - List of Existing Indebtedness
6.15 - List of Existing Liens
</TABLE>
-vi-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of February 9, 1998, among
Tuboscope Inc., a Delaware corporation (the "Borrower") Chase Bank of Texas,
National Association ("Chase"), ABN AMRO Bank N.V. ("ABN AMRO"), a Netherlands
chartered bank acting through its Houston agency, and the other lenders from
time to time parties hereto (each a "Lender" and collectively, the "Lenders"),
and ABN AMRO as administrative agent for the Lenders (in such capacity, the
"Agent").
WITNESSETH:
WHEREAS, Tuboscope Vetco International Inc., a Texas corporation
("Tuboscope Vetco"), and Drexel Holdings, Inc., a Delaware corporation ("Drexel
Holdings"), the Lenders and the Agent have previously entered into that certain
Secured Credit Agreement dated as of August 6, 1996, as amended by that certain
First Amendment to Secured Credit Agreement dated as of March 7, 1997, and that
certain Second Amendment to Secured Credit Agreement dated as of November 26,
1997 (such agreement, as so amended, the "Prior Credit Agreement");
WHEREAS, Drexel Holdings has merged into Tuboscope Vetco effective as of
July 31, 1997, and Tuboscope Vetco is a wholly owned subsidiary of the Borrower;
WHEREAS, the Borrower desires to assume all of the obligations of Tuboscope
Vetco under the Prior Credit Agreement, and the parties to the Prior Credit
Agreement desire to amend and restate such agreement in its entirety as provided
herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION.
Section 1.1. Definitions. Unless otherwise defined herein, the following
-----------
terms shall have the following meanings, which meanings shall be equally
applicable to both the singular and plural form of such terms:
"Accepting Lenders" shall have the meaning ascribed to such term in Section
2.7(b).
"Acquisition" means a direct or indirect purchase by the Borrower or any of
its Subsidiaries after the date hereof for cash, stock or other securities or
other property, whether in one or more related transactions, of all or
substantially all of the assets or voting securities or other equity interests
of a Person or a business unit, division or group of a Person.
"Adjusted LIBOR Rate" means, for any Borrowing of Eurodollar Loans, a rate
per annum determined in accordance with the following formula:
Adjusted LIBOR Rate = LIBOR Rate
----------------------
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1.00 - Eurodollar Reserve Percentage
"Affiliate" means for any Person, (i) any other Person that directly or
indirectly through one or more intermediaries controls, or is under common
control with, or is controlled by, such Person, and (ii) any other Person owning
beneficially or controlling ten percent (10%) or more of the equity interests in
such Person. As used in this definition, "control" means the power, directly or
indirectly, to direct or cause the direction of management or policies of a
Person (through ownership of voting securities or other equity interests, by
contract or otherwise).
"Agent" means ABN AMRO acting in its capacity as administrative agent for
the Lenders, and any successor agent appointed hereunder pursuant to Section
9.7.
"Agent Commitment Amount" means $5,000,000, as such amount may be reduced
from time to time pursuant to the terms of this Agreement.
"Agent Commitment Termination Date" means the earliest of (i) August 6,
2001; (ii) the date on which the Agent Credit Commitment is terminated in full
or reduced to zero pursuant to Section 2.14; or (iii) the occurrence of any
Event of Default described in Sections 7.1(g) or (h) with respect to the
Borrower or the occurrence and continuance of any other Event of Default and
either (x) the declaration of the Agent Loans to be due and payable pursuant to
Section 7.2, or (y) in the absence of such declaration, the giving of written
notice by ABN AMRO to the Borrower pursuant to Section 7.2 that the Agent Credit
Commitment has been terminated.
"Agent Credit Commitment" means the Agent's obligations to make Agent Loans
and issue Agent Letters of Credit pursuant to Sections 2.1(b) and 2.2(b).
"Agent L/C Obligations" means the undrawn face amounts of all outstanding
Agent Letters of Credit and all unpaid Agent Reimbursement Obligations.
"Agent Letter of Credit" means any of the letters of credit, each in an
initial face amount of less than $300,000, to be issued by the Agent on its own
behalf for the account of the Borrower pursuant to Section 2.2(b).
"Agent Note" means that certain promissory note of the Borrower as defined
in Section 2.12.
"Agent Reimbursement Obligation" means the obligations of the Borrower to
reimburse the Agent for each drawing under an Agent Letter of Credit as
described in Section 2.2(d).
"Agent Revolving Loans" means the revolving loans by the Agent described in
Section 2.1(b).
"Agent Revolving Obligations" means the sum of the principal amount of all
Agent Revolving Loans and Agent L/C Obligations outstanding.
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"Agent Swing Line" means the credit facility for making Agent Revolving
Loans and issuing Agent Letters of Credit described in Sections 2.1(b) and
2.2(b).
"Agreement" means this Amended and Restated Credit Agreement, as amended,
restated or supplemented from time to time.
"Amortization Date" means a scheduled repayment date of the Term Loans as
set forth in Section 2.7 and Schedule 2.7.
"Applicable Margin" means, for any day, at such times as the relevant Total
Funded Debt to Total Capital Ratio is in one of the following ranges, the
percentage per annum set forth opposite such Total Funded Debt to Total Capital
Ratio:
<TABLE>
<CAPTION>
Total Funded Debt to Total Capital Ratio Percentage
---------------------------------------- ----------
<S> <C>
Less than 30% 0.450%
Equal to or greater than 30% 0.500%
but less than 35%
Equal to or greater than 35% 0.575%
but less than 37.5%
Equal to or greater than 37.5% 0.625%
but less than 40%
Equal to or greater than 40% 0.750%
but less than 45%
Equal to or greater than 45% 0.875%
</TABLE>
For the period from the Effective Date through the date the Borrower is to
provide the Agent with the financial statements for the fiscal year ending
December 31, 1997, as required by Section 6.7(a)(ii), the Applicable Margin
shall be 0.750% per annum. The Borrower shall give written notice to the Agent
of any change to the Total Funded Debt to Total Capital Ratio affecting the
Applicable Margin within three (3) Business Days thereof and any change to the
Applicable Margin shall be effective one (1) day thereafter.
"Application" means an application for a Letter of Credit or an Agent
Letter of Credit as defined in Section 2.2(c).
"Assignment Agreement" means an agreement in substantially the form of
Exhibit 10.12 whereby a Lender conveys part or all of its Commitments, Loans and
participations in Letters of Credit to another Person that thereupon becomes a
Lender, or that increases its Commitments, outstanding Loans and outstanding
participations in Letters of Credit pursuant to Section 10.12.
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<PAGE>
"Assumed Agent Letters of Credit" means the assumed Agent Letters of Credit
defined in Section 2.2(b).
"Assumed Agent Revolving Loans" means the assumed Agent Revolving Loans
defined in Section 2.1(b).
"Assumed Letters of Credit" means the assumed Letters of Credit defined in
Section 2.2(a).
"Assumed Revolving Loans" means the assumed Revolving Loans defined in
Section 2.1(a).
"Assumed Term Loans" means the assumed Term Loans defined in Section 2.3.
"Base Rate" means, for any day, the greater of:
(i) the fluctuating commercial loan rate announced by the Lender which
is the Agent from time to time at its Chicago, Illinois office as its base
rate for U.S. Dollar loans in the United States of America in effect on
such day (which base rate may not be the lowest rate charged by such Lender
on loans to any of its customers), with any change in the Base Rate
resulting from a change in such announced rate to be effective on the date
of the relevant change; and
(ii) the sum of (x) the rate per annum (rounded upwards, if necessary,
to the nearest 1/16th of 1%) equal to the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the next Business Day, provided that
(A) if such day is not a Business Day, the rate on such transactions on the
immediately preceding Business Day as so published on the next Business Day
shall apply, and (B) if no such rate is published on such next Business
Day, the rate for such day shall be the average of the offered rates quoted
to the Agent by two (2) federal funds brokers of recognized standing on
such day for such transactions as selected by the Agent, plus (y) one-half
of one percent (0.50%) per annum.
"Base Rate Loan" means a Loan bearing interest prior to maturity at the
rate specified in Section 2.8(a).
"Borrower" means Tuboscope Inc., a Delaware corporation.
"Borrowing" means any extension of credit made by the Lenders by way of
Revolving Loans, Term Loans, Agent Revolving Loans, Letters of Credit or Agent
Letters of Credit, including any Borrowings advanced, continued or converted. A
Borrowing is "advanced" on the day the Lenders or ABN AMRO advance funds
comprising such Borrowing to the Borrower or a Letter of Credit or Agent Letter
of Credit is issued, is "continued" (in the case of Eurodollar Loans) on the
date a new Interest Period commences for such Borrowing and is "converted" when
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<PAGE>
such Borrowing is changed from one type of Loan to the other, all as requested
by the Borrower pursuant to Section 2.5(a).
"Borrowing Request" means each Borrowing Request as defined in Section
2.2(c).
"Business Day" means any day other than a Saturday or Sunday on which banks
are not authorized or required to close in Houston, Texas, or New York, New York
and, if the applicable Business Day relates to the advance or continuation of,
conversion into or payment on a Eurodollar Loan, on which banks are dealing in
Dollar, Pounds or Canadian Dollar deposits, as applicable, in the applicable
interbank eurocurrency market in London, England.
"Canadian Dollar" means lawful money of the Commonwealth of Canada.
"Capitalized Lease Obligations" means, for any Person, the amount of such
Person's liabilities under all leases of real or personal property (or any
interest therein) which is required to be capitalized on the balance sheet of
such Person as determined in accordance with GAAP.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof having maturities of not more than twelve (12) months
from the date of acquisition; (ii) U.S. Dollar denominated time deposits and
certificates of deposit maturing within one (1) year from the date of
acquisition thereof with any Lender, or any other financial institution whose
short-term senior unsecured debt rating is at least A-1 from S&P or P-1 from
Moody's; (iii) LIBOR denominated time deposits and certificates of deposit
maturing within six (6) months from the date of acquisition thereof with any
Lender, or any other financial institution whose short-term senior unsecured
debt rating is at least A-1 from S&P or P-1 from Moody's; (iv) commercial paper
or Eurocommercial paper with a rating of at least A-1 from S&P or P-1 from
Moody's, with maturities of not more than twelve (12) months from the date of
acquisition; (v) repurchase obligations entered into with any Lender or any
other financial institution whose short-term senior unsecured debt rating is at
least A-1 from S&P or P-1 from Moody's, which are secured by a fully perfected
security interest in any obligation of the type described in (i) above and has a
market value of the time such repurchase is entered into of not less than 100%
of the repurchase obligation of such Lender or such other Person thereunder;
(vi) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within twelve (12) months from the date of
acquisition thereof or providing for the resetting of the interest rate
applicable thereto not less often than annually and, at the time of acquisition,
having one of the two highest ratings obtainable from either S&P or Moody's; and
(vii) money market funds which have at least $1,000,000,000 in assets and which
invest primarily in securities of the types described in clauses (i) through
(vi) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Account" means the cash collateral account for outstanding
undrawn Letters of Credit or Agent Letters of Credit defined in Section 7.4(b).
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<PAGE>
"Collateral Agent" means ABN AMRO acting in its capacity as collateral
agent for the Lenders, and any successor collateral agent appointed hereunder
pursuant to Section 9.7.
"Commitment" means, relative to any Lender, such Lender's obligations to
make Loans pursuant to Sections 2.1 and 2.3 in the percentage set forth opposite
its signature hereto or pursuant to Section 10.12, as such commitment may be
reduced from time to time pursuant to the terms of this Agreement, and each
Lender's L/C Commitment.
"Compliance Certificate" means a certificate in the form of Exhibit 6.7.
"Consolidated Interest Expense" means, for any period, total interest
expense of the Borrower and its Subsidiaries on a consolidated basis for such
period in connection with Indebtedness, determined in accordance with GAAP.
"Consolidated Interest Income" means, for any period, total interest income
of the Borrower and its Subsidiaries on a consolidated basis for such period,
determined in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income (or loss),
after provision for taxes, of the Borrower and its Subsidiaries on a
consolidated basis for such period, determined in accordance with GAAP.
"Consolidated Net Worth" means, (i) as of any date of determination, the
Borrower's consolidated stockholders equity determined in accordance with GAAP,
excluding (x) the effects of any Unrestricted Subsidiaries except for the
aggregate equity investments therein, (y) treasury stock and any capital stock
subject to mandatory redemption before the Maturity Date of the Term Loans, or
if the Term Loans are prepaid, the Maturity Date of the Revolving Loans, and (z)
currency translation adjustments provided, and only to the extent that, the
amount of such currency translation adjustments as of such date is up to
$5,000,000 greater or less than the amount of the currency translation
adjustment reflected on the Borrower's unaudited balance sheet as of September
30, 1997; plus (ii) for purposes of Section 6.13(a) and 6.24(iv) and to the
extent not included in (i) above, for any entity acquired in an Acquisition,
such entity's stockholders equity determined in accordance with GAAP.
"Credit" means the credit facilities for making Loans and issuing Letters
of Credit described in Sections 2.1, 2.2 and 2.3.
"Credit Documents" means this Agreement, the Notes, the Subsidiary
Guaranties, the Borrowing Requests, the Applications, the Stock Pledge
Agreements, if any, and any other documents or instruments executed by a Credit
Party in connection with this Agreement.
"Credit Party" means the Borrower, each Guarantor and any other Person
which is a party to any Credit Document.
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<PAGE>
"Declining Lender" shall have the meaning ascribed to such term in Section
2.7(b).
"Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event of
Default.
"Designated Commitment" means, relative to any Lender, the lesser of (i)
such Lender's Commitment to make Revolving Loans and (ii) from and after the
Election Effective Date, the amount specified by such Lender in the most recent
notice provided by such Lender pursuant to Section 2.7(a) and resulting from the
Borrower's election in Section 2.7(b).
"Dollar" and "U.S. Dollar" and the sign "$" means lawful money of the
United States of America.
"EBITDA" means, for any period, the sum of (i) Consolidated Net Income
before (a) Consolidated Interest Expense, (b) Consolidated Interest Income, (c)
provisions for taxes based on income or revenues, and (d) any extraordinary,
unusual or nonrecurring gains or losses; (ii) the amount of all depreciation,
amortization expense and other non-cash charges deducted in determining
Consolidated Net Income, all calculated on a consolidated basis for the Borrower
and its Subsidiaries and as determined in accordance with GAAP; plus (iii) all
cash dividends or distributions paid any Subsidiary of the Borrower from any
Unrestricted Subsidiaries.
"Effective Date" means the date this Agreement shall become effective as
defined in Section 10.2.
"Election Effective Date" means the date specified in the Election Notice
as the date on which Commitments of any of the Lenders are to terminate or
reduce as a result of the Borrower's election in Section 2.7(b).
"Election Notice" shall have the meaning ascribed to such term in Section
2.7(b).
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of non-
compliance or violations, investigations or proceedings relating to any
Environmental Law ("Claims") or any permit issued under any Environmental Law,
including, without limitation, (i) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (ii)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to health
or safety in relation to the environment.
"Environmental Law" means any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now or hereafter in
effect, including any judicial
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<PAGE>
or administrative order, consent, decree or judgment relating to (i) the
environment, (ii) health or safety in relation to the environment or (iii)
Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eurodollar Loan" means a Loan bearing interest before maturity at the rate
specified in Section 2.8(b).
"Eurodollar Reserve Percentage" means, with respect to each Interest Period
for a Eurodollar Loan, a percentage (expressed as a decimal) equal to the daily
average during such Interest Period of the percentages in effect on each day of
such Interest Period, if any, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor thereto), for determining the maximum
reserve requirements (including, without limitation, any supplemental, marginal
and emergency reserves) applicable to "Eurocurrency Liabilities" pursuant to
Regulation D of the Board of Governors of the Federal Reserve System or any
other then applicable regulation of the Board of Governors which prescribes
reserve requirements applicable to "Eurocurrency Liabilities" as presently
defined in Regulation D.
"Event of Default" means any of the events or circumstances specified in
Section 7.1.
"Fee Letters" means those certain letter agreements dated July 3, 1996, by
and between each of the Agent and the Syndication Agent and Tuboscope Vetco
International Corporation.
"Foreign Plan" means any pension, profit sharing, deferred compensation, or
other employee benefit plan, program or arrangement maintained by any foreign
Subsidiary of the Borrower which, under applicable local law, is required to be
funded through a trust or other funding vehicle, but shall not include any
benefit provided by a foreign government or its agencies.
"GAAP" means generally accepted accounting principles from time to time in
effect as set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the statements and pronouncements of the Financial Accounting Standards Board or
in such other statements, opinions and pronouncements by such other entity as
may be approved by a significant segment of the U.S. accounting profession.
"Guarantor" means each of Tuboscope I/P, Inc., a Delaware corporation,
Tuboscope Vetco International Inc., a Texas corporation, Tubo-FGS, Inc., a
Delaware corporation, Fiber Glass Systems Holdings, Inc., a Delaware
corporation, Tuboscope (Holding U.S.) Inc., a Delaware corporation,
Environmental Procedures, Inc., a Delaware corporation, Tuboscope Pipeline
Services Inc., a Texas corporation, and any other Material Subsidiary required
to become a Guarantor pursuant to Section 6.11.
"Guaranty" by any Person means all obligations (other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guarantying or in effect guarantying any
Indebtedness, dividend or other obligation (including, without limitation,
obligations in connection with sales of any property) of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without
8
<PAGE>
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation, or
to purchase any property or assets constituting security therefor, primarily for
the purpose of assuring the owner of such Indebtedness or obligations of the
ability of the primary obligor to make payment of the Indebtedness or
obligation; or (ii) to advance or supply funds (x) for the purchase or payment
of such Indebtedness or obligation, or (y) to maintain working capital or other
balance sheet condition, or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness or obligation, in each case primarily
for the purpose of assuring the owner of such Indebtedness or obligation of the
ability of the primary obligor to make payment of the Indebtedness or
obligation; or (iii) to lease property or to purchase securities or other
property or services of the primary obligor primarily for the purpose of
assuring the owner of such Indebtedness or obligation of the ability of the
primary obligor to make payment of the Indebtedness or obligation; or (iv)
otherwise to assure the owner of the Indebtedness or obligation of the primary
obligor against loss in respect thereof. For the purpose of all computations
made under this Agreement, the amount of a Guaranty in respect of any obligation
shall be deemed to be equal to the amount that would apply if such obligation
were the direct obligation of such Person rather than the primary obligor or, if
less, the maximum aggregate potential liability of such Person under the terms
of the Guaranty.
"Hazardous Material" shall have the meaning assigned to that term in the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Acts of 1986, and shall
also include petroleum, including crude oil or any fraction thereof, or any
other substance defined as "hazardous" or "toxic" or words used in place thereof
under any Environmental Law applicable to the Borrower or any of its
Subsidiaries.
"Highest Lawful Rate" means the maximum nonusurious interest rate, if any,
that any time or from time to time may be contracted for, taken, reserved,
charged or received on the Loans, the Agent Loans, the Reimbursement Obligations
or the Agent Reimbursement Obligations, or under laws applicable to any of the
Lenders or ABN AMRO, as applicable, which are presently in effect or, to the
extent allowed by applicable law, under such laws which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow. Determination of the rate of interest for the
purpose of determining whether the Loans or Reimbursement Obligations are
usurious under all applicable laws shall be made by amortizing, prorating,
allocating, and spreading, in equal parts during the period of the full stated
term of the Loans, all interest at any time contracted for, taken, reserved,
charged or received from the Borrower in connection with the Loans, the Agent
Loans, the Reimbursement Obligations or the Agent Reimbursement Obligations, as
applicable.
"Indebtedness" means, for any Person, the following obligations of such
Person, without duplication: (i) obligations of such Person for borrowed money;
(ii) obligations of such Person representing the deferred purchase price of
property or services other than accounts payable arising in the ordinary course
of business and other than amounts which are being contested in
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<PAGE>
good faith and for which reserves in conformity with GAAP have been provided;
(iii) obligations of such Person evidenced by bonds, notes, bankers acceptances,
debentures or other similar instruments of such Person or reimbursement
obligations or other obligations with respect to letters of credit issued for
such Person's account or letters of credit issued pursuant to such Person's
application therefor; (iv) obligations of other Persons, whether or not assumed,
secured by Liens upon property or payable out of the proceeds or production from
property now or hereafter owned or acquired by such Person, but only to the
extent of such property's fair market value; (v) Capitalized Lease Obligations
of such Person; (vi) obligations under (x) Interest Rate Protection Agreements,
(y) commodity hedge, swap, exchange, forward, future, collar or cap
arrangements, fixed price agreements and all other agreements or arrangements
designed to protect against fluctuations in commodity prices, and (z) futures
agreements, arrangements or options designed to protect against fluctuations in
currency exchange rates; and (vii) obligations of such Person pursuant to a
Guaranty of any of the foregoing of another Person. For purposes of this
Agreement, the Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture to the extent such Indebtedness has recourse to
such Person.
"Indemnified Taxes" shall have the meaning ascribed to such term in Section
3.3.
"Interest Coverage Ratio" means, as of the end of any fiscal quarter, the
ratio of (i) EBITDA for the four fiscal quarter period then ended, minus all
non-acquisition related capital expenditures and all cash income taxes paid
during such four fiscal quarter period by the Borrower and its Subsidiaries, to
(ii) Consolidated Interest Expense plus all dividends paid by the Borrower as
permitted by Section 6.12(b) for the four fiscal quarter period then ended.
"Interest Payment Date" means (i) for a Base Rate Loan, the last Business
Day of each calendar quarter such Loan is outstanding commencing March 31, 1998,
and (ii) for a Eurodollar Loan, the last Business Day of each Interest Period
for such Loan and, during any Interest Period of six (6) months, the next
Business Day occurring three (3) months after the commencement of such Interest
Period.
"Interest Period" means the period commencing on the date that a Borrowing
of Eurodollar Loans is advanced, continued or created by conversion and, subject
to Section 2.6, ending on the date 1, 2, 3 or 6 months thereafter as selected by
the Borrower pursuant to the terms of this Agreement.
"Interest Rate Protection Agreement" shall mean any interest rate swap,
interest rate cap, interest rate collar, or other interest rate hedging
agreement or arrangement designed to protect against fluctuations in interest
rates.
"Investments" shall have the meaning ascribed to such term in Section 6.17.
"L/C Commitments" means, relative to any Lender, such Lender's obligation
to participate in Letters of Credit pursuant to Section 2.2 in the percentage
set forth opposite its signature hereto or pursuant to Section 10.12, as such
commitments may be reduced from time to time pursuant to the terms of this
Agreement.
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<PAGE>
"L/C Commitment Amount" means $20,000,000, as such amount may be reduced
from time to time pursuant to the terms of this Agreement.
"L/C Documents" means this Agreement, the Letters of Credit, the Agent
Letters of Credit, any Borrowing Requests and Applications with respect thereto
and any draft or other document presented in connection with a drawing
thereunder.
"L/C Obligations" means the undrawn face amounts of all outstanding Letters
of Credit and all unpaid Reimbursement Obligations with respect to Letters of
Credit.
"Lender" is defined in the preamble.
"Lending Office" means the branch, office or affiliate of a Lender
specified on the appropriate signature page hereof or designated pursuant to
Sections 8.4 or 10.12.
"Letter of Credit" means any of the letters of credit issued by the Agent
on behalf of the Lenders for the account of the Borrower pursuant to Section
2.2(a).
"LIBOR Rate" means, relative to any Interest Period for each Eurodollar
Loan comprising part of the same Borrowing, a rate of interest per annum
(rounded upwards, if necessary, to the nearest whole multiple of 1/16 of 1%),
equal to the arithmetic average of the quotation by each of the Reference Banks
(notified to the Agent by such Reference Bank) of the rate of interest per annum
at which deposits in U.S. Dollars, Canadian Dollars or Pounds, as the case may
be, in immediately available and freely transferable funds are offered to such
Reference Bank two (2) Business Days before the commencement of such Interest
Period by major banks in the London interbank market as at or about 10:00 a.m.
(New York, New York time) for a period approximately equal to such Interest
Period and in an amount equal or comparable to the aggregate principal amount of
the Eurodollar Loan to which such Interest Period relates scheduled to be made,
continued or converted pursuant to the terms hereof, as applicable, by such
Reference Bank as part of such Borrowing. If on any occasion any Reference Bank
is unable, or for any reason fails, to so notify the Agent by 10:00 a.m. (New
York, New York time) two (2) Business Days before the first day of such Interest
Period, the applicable LIBOR rate shall be determined on the basis of each
quotation furnished by those of the Reference Banks which so notify the Agent at
or prior to such time.
"Lien" means any interest in any property or asset in favor of a Person
other than the owner of the property or asset and securing an obligation owed to
such Person, whether such interest is based on the common law, statute or
contract, including, but not limited to, the security interest lien arising from
a mortgage, encumbrance, pledge, conditional sale, security agreement or trust
receipt, or a lease, consignment or bailment for security purposes.
"Loan" mean a Base Rate Loan or Eurodollar Loan, each of which is a "type"
of Loan hereunder, outstanding as a Revolving Loan, a Term Loan or an Agent
Loan.
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"Majority Lenders" means, at any time, the Lenders then holding in the
aggregate at least sixty-six and two-thirds percent (66 2/3%) of the aggregate
of the Commitments and the Agent Credit Commitment, or if any such commitments
have terminated pursuant to the terms hereof, the aggregate Revolving
Obligations or Agent Revolving Obligations with respect thereto. The percentage
set forth opposite each Lender's name and the line "Voting Percentage" on the
signature page hereto reflects the initial voting percentage of each Lender
hereunder on the Effective Date.
"Material Adverse Effect" means an effect that results in a material
adverse change since September 30, 1997, in (i) the business, properties, assets
or financial condition of the Borrower or of the Borrower and its Subsidiaries
taken as a whole, or (ii) in the ability of the Borrower or of the Borrower and
the other Credit Parties taken as a whole to perform their Obligations under
this Agreement, the Notes or the other Credit Documents to which they are a
party.
"Material Subsidiary" means each of the Guarantors and each other
Subsidiary of the Borrower that has assets having a fair market value of at
least $10,000,000 or, if a Subsidiary is acquired after the Effective Date,
having an acquisition cost of at least $10,000,000.
"Maturity Date" means (i) in the case of the Revolving Loans, August 6,
2001, or such later date as the Maturity Date is extended pursuant to the terms
of Section 2.7(a), (ii) in the case of the Agent Loans, August 6, 2001, and
(iii) in the case of the Term Loans, August 6, 2002, or such earlier date as a
result of any prepayment of the Term Loans pursuant to the terms of Sections
2.10 or 2.11.
"Moody's" means Moody's Investors Service, Inc., or any successor thereto.
"Multicurrency Funding Limit" means $40,000,000, as such amount may be
reduced pursuant to the terms of this Agreement.
"Net Cash Proceeds" means, for any Transfer, the cash proceeds (including
any cash payments actually received as a deferred payment of principal pursuant
to a note, installment receivable, purchase price adjustment receivable or
otherwise) of such Transfer net of (x) all legal fees, accountant fees,
investment banking fees, brokerage fees, finders fees, survey costs, title
insurance premiums, required debt payments (other than of Obligations) and other
customary fees, costs and expenses actually incurred or paid in connection
therewith, and (y) taxes or other governmental fees or charges paid or payable
as a result thereof.
"Note" means any of the promissory notes of the Borrower defined in Section
2.12.
"Obligations" means all joint and several obligations of the Borrower and
any other Credit Parties to pay fees, costs and expenses hereunder, to pay
principal or interest on Loans and Reimbursement Obligations, to pay fees, costs
and expenses pursuant to the terms of the Fee Letters and to pay any other
obligations to the Agent or any Lender arising under or in relation to any
Credit Document.
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"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Percentage" means, for each Lender, the percentage of the Commitments
represented by such Lender's Commitment; provided that, if the Commitments are
terminated, each Lender's Percentage shall be calculated based on its Commitment
in effect immediately before such termination, subject to any assignments by
such Lender of Obligations pursuant to Section 10.12.
"Permitted Business" means any business described in Section 6.9.
"Permitted Liens" means the Liens described in Section 6.15.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization or any other entity or
organization, including a government or any agency or political subdivision
thereof.
"Plan" means an employee pension benefit plan covered by Title IV of ERISA
or subject to the minimum funding standards under Section 412 of the Code that
is either (i) maintained by the Borrower or any of its Subsidiaries, or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
the Borrower or any of its Subsidiaries is then making or accruing an obligation
to make contributions or has within the preceding five (5) plan years made or
had an obligation to make contributions.
"Pounds" means British Pounds Sterling.
"Public Debt Issue" means a public offering of debt securities of the
Borrower in an aggregate principal amount of not more than $200,000,000, which
debt securities will have a tenor of no less than ten (10) years, have no
required principal payments thereof before the maturity date thereof, contain
typical investment grade covenants no more onerous than the covenants contained
in this Agreement and rank pari passu with the Obligations hereunder.
"Reduced Declining Lender" shall have the meaning ascribed to such term in
Section 2.7(a).
"Reference Banks" means ABN AMRO, Chase and the Arab Banking Corporation
(B.S.C.).
"Reimbursement Obligation" means the obligations of the Borrower to
reimburse the Agent for each drawing under a Letter of Credit or an Agent Letter
of Credit as described in Section 2.2(d).
"Revolving Commitment Termination Date" means the earliest of (i) August 6,
2001, or such date as the Revolving Commitment Termination Date is extended
pursuant to the terms of Section 2.7; (ii) the date on which the Revolving
Credit Commitments are terminated in full or reduced to zero pursuant to Section
2.14; or (iii) the occurrence of any Event of Default described
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in Sections 7.1(g) or (h) with respect to the Borrower or the occurrence and
continuance of any other Event of Default and either (x) the declaration of the
Loans to be due and payable pursuant to Section 7.2, or (y) in the absence of
such declaration, the giving of written notice by the Agent, acting at the
direction of the Majority Lenders, to the Borrower pursuant to Section 7.2 that
the Revolving Credit Commitments have been terminated.
"Revolving Credit" means the credit facility for making Revolving Loans and
issuing Letters of Credit described in Sections 2.1 and 2.2.
"Revolving Credit Commitment" means, relative to any Lender, such Lender's
obligations to make Revolving Loans and participate in Letters of Credit
pursuant to Sections 2.1 and 2.2.
"Revolving Credit Commitment Amount" means an amount equal to $100,000,000,
as such amount may be reduced from time to time pursuant to the terms of this
Agreement.
"Revolving Loans" means the revolving loans by the Lenders defined in
Section 2.1(a).
"Revolving Notes" means the revolving promissory notes of the Borrower as
defined in Section 2.12.
"Revolving Obligations" means the sum of the principal amount of all
Revolving Loans and L/C Obligations outstanding.
"SEC" means the Securities and Exchange Commission.
"S&P" means Standard & Poor's Rating Group or any successor thereto.
"Stock Pledge Agreements" means any Stock Pledge Agreements in
substantially the form as provided under the Prior Credit Agreement (provided
that the Public Debt Issue shall be equally and ratably secured thereby)
executed and delivered by the Borrower or any other Credit Party if required
pursuant to the terms of this Agreement, as any of same may be amended,
supplemented or otherwise modified from time to time.
"Subsidiary" means, for any Person, any corporation or other entity
(excluding Unrestricted Subsidiaries) of which more than fifty percent (50%) of
the outstanding stock or comparable equity interests having ordinary voting
power for the election of the board of directors of such corporation, any
managers of such limited liability company or similar governing body
(irrespective of whether or not, at the time, stock or other equity interests of
any other class or classes of such corporation or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned by such Person, as applicable, or by one or
more of its Subsidiaries.
"Subsidiary Guaranty" means any Guaranty by any Subsidiary delivered
pursuant to the terms of this Agreement.
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"Syndication Agent" means Chase Securities Inc.
"Taxes" shall have the meaning ascribed to such term in Section 5.12.
"Term Loans" means the term loans defined in Section 2.3.
"Term Notes" means the term promissory notes of the Borrower as defined in
Section 2.12.
"Total Capital" means, as of any date of determination, the sum of Total
Funded Debt plus Consolidated Net Worth as of such date.
"Total Commitment Amount" means the lesser of (i) the Revolving Credit
Commitment Amount, and (ii) the aggregate of the Designated Commitments.
"Total Funded Debt" means, as of any date of determination, the sum of (i)
Indebtedness for borrowed money, all obligations evidenced by bonds, debentures,
notes or similar instruments, and obligations to pay the deferred purchase price
of property which in accordance with GAAP would be shown on a consolidated
balance sheet as a liability, (ii) all reimbursement obligations or other
obligations due and payable with respect to letters of credit and bankers
acceptances issued and outstanding and (iii) all obligations as lessee under
Capitalized Lease Obligations (excluding any obligation to purchase any asset at
the end of a lease term until such asset is so purchased), all calculated on a
consolidated basis for the Borrower and its Subsidiaries.
"Total Funded Debt to Total Capital Ratio" means, as of any date, the
ratio, expressed as a percentage, of Total Funded Debt to Total Capital. For
purposes of this ratio, each of Consolidated Net Worth and the aggregate amount
of overdrafts permitted pursuant to Section 6.16(j) shall be fixed for each
fiscal quarter on the date of the delivery of the relevant financial statement
pursuant to Section 6.7 based on the determination of Consolidated Net Worth and
the aggregate amount of such overdrafts as of the end of the preceding fiscal
quarter.
"Transfer" means a sale, transfer, conveyance, assignment or other
disposition (or a series of related dispositions), including, without
limitation, any transfer pursuant to an option to purchase, any sale or
assignment (with or without recourse) of any accounts receivable and any sale
and leaseback of assets, of an asset having a net book value as established in
accordance with GAAP in excess of $500,000, but excluding any involuntary
transfer by operation of law and any transfers of an asset pursuant to any
casualty or theft with respect to such asset.
"Unfunded Vested Liabilities" means, for any Plan at any time, the amount
(if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, determined as of the then most recent valuation date
for such Plan, but only to the extent that such excess represents a potential
liability of the Borrower or any of its Subsidiaries to the PBGC or such Plan.
"Unrestricted Subsidiary" means any Subsidiary that is not a Guarantor that
is designated by the Borrower as an Unrestricted Subsidiary with the consent of
the Agent (which consent shall
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not be unreasonably withheld), except that the Borrower may designate up to one
(1) such Person that but for such designation would have been required to become
a Guarantor pursuant to the terms of Section 6.11 and that is not a Guarantor on
the Effective Date, and provided that the Borrower shall not designate as an
Unrestricted Subsidiary any Person that but for its designation as an
Unrestricted Subsidiary would be a Subsidiary that owns, directly or indirectly,
any Material Subsidiary or Guarantor or that is any direct Subsidiary of the
Borrower. The Borrower may elect to treat any Subsidiary as an Unrestricted
Subsidiary, and may rescind any such prior election, so long as no Default or
Event of Default shall have occurred and be continuing, by giving written notice
thereof to the Agent specifying the name of such Subsidiary and the effective
date of such election, which shall be a date within sixty (60) days after the
date such notice is given, and obtaining the consent of the Agent as provided
herein. The election to treat a particular Subsidiary as an Unrestricted
Subsidiary may only be made once.
Section 1.2. Interpretation. The foregoing definitions shall be equally
--------------
applicable to the singular and plural forms of the terms defined. All
references to times of day in this Agreement shall be references to New York,
New York time unless otherwise specifically provided.
SECTION 2. THE CREDIT FACILITIES.
Section 2.1. Borrowings of Revolving Loans. (a) Syndicated Revolving
----------------------------- --------------------
Loans. As of the Effective Date, Tuboscope Vetco has the aggregate principal
- -----
amount of Revolving Loans (as defined in the Prior Credit Agreement)
outstanding under the Prior Credit Agreement, together with accrued and unpaid
interest thereon, listed on Schedule 2.1 (the "Assumed Revolving Loans"). The
Borrower hereby assumes, as its direct and primary obligation, the payment of
such Assumed Revolving Loans evidenced by the Revolving Notes (as defined in the
Prior Credit Agreement). Subject to the terms and conditions hereof, each Lender
severally and not jointly agrees to make one or more additional loans (each such
loan, together with the Assumed Revolving Loans of such Lender, a "Revolving
Loan") to the Borrower, from time to time before the Revolving Commitment
Termination Date on a revolving basis in an aggregate principal amount
(including the Assumed Revolving Loans of such Lender) not to exceed at any time
outstanding an amount equal to its Percentage of the Revolving Credit Commitment
Amount (for each Lender, its "Revolving Credit Commitment"), subject to any
reductions thereof pursuant to the terms of this Agreement. No Lender shall be
permitted or required to make any Revolving Loan if, after giving effect
thereto, (i) the aggregate principal amount of the Revolving Loans of all
Lenders and other Revolving Obligations outstanding of the Borrower would
thereby exceed the Revolving Credit Commitment Amount then in effect; or (ii)
all Revolving Loans of such Lender and its participating interest in all Letters
of Credit would thereby exceed the Percentage of such Lender of the Revolving
Credit Commitment Amount then in effect. Each Borrowing of Revolving Loans
shall be made ratably from the Lenders in proportion to their respective
Percentages. Revolving Loans may be repaid, in whole or in part, and all or any
portion of the principal amount thereof reborrowed, before the Revolving
Commitment Termination Date, subject to the terms and conditions hereof.
Funding of any Revolving Loans shall be in any combination of Dollars, Pounds or
Canadian Dollars as specified by the Borrower as set forth in Section 2.2(c) or
2.5, as applicable; provided that the Dollar equivalent amount of outstanding
Revolving Loans funded and
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Letters of Credit issued in Pounds and Canadian Dollars, determined on the date
each such Revolving Loan is advanced, continued or converted or such Letter of
Credit is so issued in accordance with Section 10.20, as applicable, shall not
exceed the Multicurrency Funding Limit.
(b) Agent Revolving Loans. As of the Effective Date, Tuboscope Vetco has
---------------------
the aggregate principal amount of Agent Revolving Loans (as defined in the Prior
Credit Agreement) outstanding under the Prior Credit Agreement, together with
accrued and unpaid interest thereon, listed on Schedule 2.1 (the "Assumed Agent
Revolving Loans"). The Borrower hereby assumes, as its direct and primary
obligation, the payment of such Assumed Agent Revolving Loans evidenced by the
Agent Note (as defined in the Prior Credit Agreement). Subject to the terms and
conditions hereof, the Agent agrees to make one or more additional loans (each
such loan, together with the Assumed Agent Loans, an "Agent Revolving Loan") to
the Borrower, from time to time before the Agent Commitment Termination Date on
a revolving basis in an aggregate principal amount (including the Assumed Agent
Loans) not to exceed at any time outstanding the Agent Commitment Amount,
subject to any reductions thereof pursuant to the terms of this Agreement. The
Agent shall not be permitted or required to make any Agent Revolving Loan if,
after giving effect thereto, the aggregate principal amount of the Agent
Revolving Loans and other Agent Revolving Obligations outstanding of the
Borrower would thereby exceed the Agent Commitment Amount then in effect. Agent
Revolving Loans may be repaid, in whole or in part, and all or any portion of
the principal amount thereof reborrowed, before the Revolving Commitment
Termination Date, subject to the terms and conditions hereof. Funding of the
Agent Loans shall be in Dollars.
Section 2.2. Letters of Credit. (a) Syndicated Letters of Credit. As of
----------------- ----------------------------
the Effective Date, the Agent has issued the Letters of Credit (as defined in
the Prior Credit Agreement) under the Prior Credit Agreement listed on Schedule
2.1 (the "Assumed Letters of Credit"). The Borrower hereby assumes, as its
direct and primary obligation, all Reimbursement Obligations (as defined in the
Prior Credit Agreement) in connection with the Assumed Letters of Credit.
Subject to the terms and conditions hereof, the Agent agrees to issue, from time
to time prior to the Revolving Commitment Termination Date, at the request of
the Borrower and on behalf of the Lenders and in reliance on their obligations
under this Section 2.2, one or more additional letters of credit (each such
letter of credit, together with the Assumed Letters of Credit, a "Letter of
Credit") for the Borrower's account in a face amount of at least $300,000 and in
an aggregate undrawn face amount (including the face amount of the Assumed
Letters of Credit) at any time outstanding not to exceed the L/C Commitment
Amount; provided that the Agent shall have no obligation to issue a Letter of
Credit if, after the issuance thereof, (i) the outstanding Revolving Obligations
would thereby exceed the Revolving Credit Commitment Amount then in effect, (ii)
the outstanding L/C Obligations would thereby exceed the L/C Commitment Amount
then in effect, or (z) the issuance of such Letter of Credit would violate any
legal or regulatory restriction then applicable to the Agent or any Lender as
notified by such Lender to the Agent before the date of issuance of such Letter
of Credit. Letters of Credit and any renewals thereof hereunder, may be issued
in face amounts of either Dollars, Pounds or Canadian Dollars; provided further
that the Dollar equivalent amount of outstanding Revolving Loans funded and
Letters of Credit issued in Pounds and Canadian Dollars, determined on the date
each such Revolving Loan is advanced,
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continued or converted or such Letter of Credit is so issued in accordance with
Section 10.19, as applicable, shall not exceed the Multicurrency Funding Limit.
(b) Agent Letters of Credit. As of the Effective Date, the Agent has
-----------------------
issued the Agent Letters of Credit (as defined in the Prior Credit Agreement)
under the Prior Credit Agreement listed on Schedule 2.1 (the "Assumed Agent
Letters of Credit"). The Borrower hereby assumes, as its direct and primary
obligation, all Agent Reimbursement Obligations (as defined in the Prior Credit
Agreement) in connection with the Assumed Agent Letters of Credit. Subject to
the terms and conditions hereof, the Agent agrees to issue, on its behalf only,
one or more additional letters of credit (each such letter of credit, together
with the Assumed Agent Letters of Credit, an "Agent Letter of Credit") for the
Borrower's account, jointly and severally, each in an initial face amount of
less than $300,000 and in an aggregate undrawn face amount (including the face
amount of the Assumed Agent Letters of Credit) at any time outstanding not to
exceed the Agent Commitment Amount; provided, that the Agent shall have no
obligation to issue an Agent Letter of Credit if (i) the outstanding Agent
Revolving Obligations would thereby exceed the Agent Commitment Amount then in
effect, or (ii) the issuance of such Agent Letter of Credit would conflict with
any legal or regulatory restriction then applicable to the Agent. All Agent
Letters of Credit shall be issued in face amounts of Dollars.
(c) Issuance Procedure. To request that the Agent issue a Letter of Credit
------------------
or an Agent Letter of Credit, the Borrower shall deliver to the Agent (with a
duplicate copy to an operations employee of the Agent as designated by the Agent
from time to time) a duly executed Borrowing Request in the form of Exhibit 2.2A
(each a "Borrowing Request"), together with a duly executed application for the
relevant Letter of Credit or Agent Letter of Credit substantially in the form of
Exhibit 2.2B (each an "Application"), or such other computerized issuance or
application procedure, instituted from time to time by the Agent and agreed to
by the Borrower, completed to the reasonable satisfaction of the Agent, and such
other documentation and information as the Agent may reasonably request. In the
event of any irreconcilable difference or inconsistency between this Agreement
and an Application, the provisions of this Agreement shall govern. Upon receipt
of a properly completed and executed Application and any other reasonably
requested documents or information at least three (3) Business Days prior to any
requested issuance date, the Agent will process such Application in accordance
with its customary procedures and issue the requested Letter of Credit or Agent
Letter of Credit on the requested issuance date. The Borrower may cancel any
requested issuance of a Letter of Credit or Agent Letter of Credit prior to the
issuance thereof. The Agent will notify each Lender of the amount and
expiration date of each Letter of Credit it issues promptly upon issuance
thereof. Each Letter of Credit and Agent Letter of Credit shall have an
expiration date no later than four (4) Business Days before the Maturity Date
for Revolving Loans or Agent Loans, as applicable. If the Agent issues any
Letters of Credit or Agent Letters of Credit with expiration dates that
automatically extend unless the Agent gives notice that the expiration date will
not so extend, the Agent will give such notice of non-renewal before the time
necessary to prevent such automatic extension if before such required notice
date (w) the expiration date of such Letter of Credit or Agent Letter of Credit
if so extended would be later than four (4) Business Days before the Maturity
Date for Revolving Loans or Agent Loans, as applicable, (x) the Revolving
Commitment Termination Date or the Agent Commitment
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Termination Date, as applicable, shall have occurred, (y) an Event of Default
has occurred and is continuing, or (z) the Agent is so directed by the Borrower.
The Agent agrees to issue amendments to any Letter of Credit or Agent Letter of
Credit increasing its amount, or extending its expiration date, at the request
of the Borrower subject to the conditions precedent for all Loans of Section 4.1
and the other terms and conditions of this Section 2.2.
(d) The Borrower's Reimbursement Obligations.
----------------------------------------
(i) The Borrower hereby irrevocably and unconditionally agree to
reimburse the Agent for each payment or disbursement made by the Agent to settle
its obligations under any draft drawn under a Letter of Credit (including the
Assumed Letters of Credit) or an Agent Letter of Credit (including the Assumed
Agent Letters of Credit) (each, a "Reimbursement Obligation") within two (2)
Business Days from when such draft is paid with either funds not borrowed
hereunder or with a Borrowing subject to Section 2.5 and the other terms and
conditions contained in this Agreement. The Reimbursement Obligation shall bear
interest (which the Borrower hereby promises to pay) from and after the date
such draft is paid until (but excluding the date) the Reimbursement Obligation
is paid at the lesser of the Highest Lawful Rate or the Base Rate so long as the
Reimbursement Obligation shall not be past due, and thereafter at the default
rate per annum as set forth in Section 2.9(c), whether or not the Maturity Date
for the Revolving Credit or the Agent Swing Line, as applicable, shall have
occurred. If any such payment or disbursement is reimbursed to the Agent on the
date such payment or disbursement is made by the Agent, interest shall be paid
on the reimbursable amount for one (1) day. The Agent shall give the Borrower
notice of any drawing on a Letter of Credit or an Agent Letter of Credit within
one (1) Business Day after such drawing is paid.
(ii) The Borrower agrees for the benefit of the Agent and each Lender
that, notwithstanding any provision of any Application, the obligations of the
Borrower under this Section 2.2(d) and each applicable Application shall be
absolute, unconditional and irrevocable (subject to Section 2.2(c)) and shall be
performed strictly in accordance with the terms of this Agreement and each
applicable Application under all circumstances whatsoever (other than the
defense of payment in accordance with this Agreement or a defense based on the
gross negligence or willful misconduct of the Agent or any Lender), including,
without limitation, the following circumstances (subject in all cases to the
defense of payment in accordance with this Agreement or a defense based on the
gross negligence or willful misconduct of the Agent or any Lender):
(1) any lack of validity or enforceability of any of the L/C
Documents;
(2) any amendment or waiver of or any consent to depart from all
or any of the provisions of any of the L/C Documents;
(3) the existence of any claim, setoff, defense or other right
the Borrower may have at any time against a beneficiary of a Letter of
Credit or an Agent Letter of Credit (or any Person for whom a
beneficiary may be acting),
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the Agent, any Lender or any other Person, whether in connection with
this Agreement, another L/C Document or any unrelated transaction;
(4) any statement or any other document presented under a Letter
of Credit or an Agent Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
(5) payment by the Agent under a Letter of Credit or an Agent
Letter of Credit against presentation to the Agent of a draft or
certificate that does not comply with the terms of the Letter of
Credit or the Agent letter of Credit, provided that the Agent's
determination that documents presented under the Letter of Credit or
the Agent Letter of Credit comply with the terms thereof did not
constitute gross negligence or willful misconduct of the Agent; or
(6) any other act or omission to act or delay of any kind by the
Agent, any Lender or any other Person or any other event or
circumstance whatsoever that might, but for the provisions of this
Section 2.2(d), constitute a legal or equitable discharge of the
Borrower's obligations hereunder or under any L/C Document, provided
that such act or omission of the Agent did not constitute gross
negligence or willful misconduct of the Agent.
(d) The Participating Interests. Each Lender severally and not jointly
---------------------------
agrees to purchase from the Agent, and the Agent hereby agrees to sell to each
Lender, an undivided percentage participating interest, to the extent of its
Percentage, in each Letter of Credit (including Assumed Letters of Credit)
issued by, and Reimbursement Obligation owed to, the Agent in connection with a
Letter of Credit. Upon any failure by the Borrower to pay any Reimbursement
Obligation in connection with a Letter of Credit at the time required in
Sections 2.2(d) and 2.5(b), or if the Agent is required at any time to return to
the Borrower or to a trustee, receiver, liquidator, custodian or other Person
any portion of any payment by the Borrower of any Reimbursement Obligation in
connection with a Letter of Credit, the Agent shall promptly give notice of same
to each Lender, and the Agent shall have the right to require each Lender to
fund its participation in such Reimbursement Obligation. Each Lender (except
the Agent to the extent it is also a Lender) shall pay to the Agent an amount
equal to each Lender's Percentage of such unpaid or recaptured Reimbursement
Obligation not later than the Business Day it receives notice from the Agent to
such effect, if such notice is received before 2:00 p.m., or not later than the
following Business Day if such notice is received after such time. If a Lender
fails to pay timely such amount to the Agent, it shall also pay to the Agent
interest on such amount accrued from the date payment of such amount was made by
the Agent to the date of such payment by the Lender at a rate per annum equal to
the Base Rate in effect for each such day, and only after such payment shall
such Lender be entitled to receive its Percentage of each payment received on
the relevant Reimbursement Obligation and of interest paid thereon. If any such
Lender fails to pay such amount to the Agent, any payments made by the Borrower
with respect to the relevant Reimbursement Obligation shall first be applied by
the Agent to the unfunded participation in such
20
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Reimbursement Obligation before any other Lenders receive any payments or
proceeds. The several obligations of the Lenders to the Agent under this Section
2.2(d) shall be absolute, irrevocable and unconditional under any and all
circumstances whatsoever and shall not be subject to any setoff, counterclaim or
defense to payment any Lender may have or have had against the Borrower, any
Guarantor, the Agent, any other Lender or any other Person whatsoever including,
but not limited to, any defense based on the failure of the demand for payment
under the Letter of Credit to conform to the terms of such Letter of Credit or
the legality, validity, regularity or enforceability of such Letter of Credit
and INCLUDING, BUT NOT LIMITED TO, THOSE RESULTING FROM THE AGENT'S OWN SIMPLE
OR CONTRIBUTORY NEGLIGENCE. Without limiting the generality of the foregoing,
such obligations shall not be affected by any Default or Event of Default or by
any subsequent reduction or termination of any Commitment of a Lender, and each
payment by a Lender under Section 2.2 shall be made without any offset,
abatement, withholding or reduction whatsoever.
Section 2.3. Term Loans. As of the Effective Date, Tuboscope Vetco has
----------
the aggregate principal amount of Term Loans (as defined in the Prior Credit
Agreement) outstanding under the Prior Credit Agreement, together with accrued
and unpaid interest thereon, listed on Schedule 2.1 (the "Assumed Term Loans").
The Borrower hereby assumes, as its direct and primary obligation, the payment
of all Assumed Term Loans evidenced by the Term Notes (as defined in the Prior
Credit Agreement) (each such loan, a "Term Loan").
Section 2.4. Types of Loans and Minimum Borrowing Amounts. Borrowings of
--------------------------------------------
both Revolving Loans, Term Loans and Agent Loans may be outstanding as either
Base Rate Loans or Eurodollar Loans, as selected by the Borrower pursuant to
Section 2.5; provided, however, that any Revolving Loans funded in Pounds or
Canadian Dollars may only be outstanding as Eurodollar Loans. Each Borrowing of
Base Rate Loans shall be in an amount of not less than $300,000 (except with
respect to Agent Loans) and each Borrowing of Eurodollar Loans shall be in an
amount of not less than $3,000,000 (except with respect to Agent Loans) (or the
equivalent thereof in Pounds or Canadian Dollars as applicable and as determined
in accordance with Section 10.19). Each Borrowing of an Agent Loan as a Base
Rate Loan shall be in an amount of less than $300,000, and each Borrowing of an
Agent Loan as a Eurodollar Loan shall be in an amount of less than $3,000,000.
Section 2.5. Manner of Borrowing. (a) Notice to the Agent. The Borrower
------------------- -------------------
shall give notice to the Agent by no later than 12:00 p.m. (i) at least three
(3) Business Days before the date on which the Borrower requests the Lenders to
advance a Borrowing of Eurodollar Loans to be funded in Dollars and at least
four (4) Business Days before the date on which the Borrower requests the
Lenders to advance a Borrowing of Eurodollar Loans in Canadian Dollars or
Pounds, and (ii) on the date the Borrower requests the Lenders to advance a
Borrowing of Base Rate Loans pursuant to a duly executed Borrowing Request. The
Borrower may select multiple Interest Periods for the Term Loans, for the Agent
Loans and for the Revolving Loans constituting any particular Borrowing,
provided that at no time shall the number of different Interest Periods for
outstanding Eurodollar Loans exceed eight (8) (it being understood for such
purposes that (x) Interest Periods of the same duration, but commencing on
different dates, shall be counted as
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different Interest Periods and (y) all Interest Periods commencing on the same
date and of the same duration shall be counted as different Interest Periods if
Revolving Loans, Agent Loans and Term Loans are involved. The Loans included in
each Borrowing shall bear interest initially at the type of rate specified in
such new Borrowing Request with respect to such Borrowing. Thereafter, the
Borrower may from time to time elect to change or continue the type of interest
rate borne by each Borrowing or, subject to Section 2.4's minimum amount
requirement for each outstanding Borrowing, a portion thereof, as follows: (i)
if such Borrowing is of Eurodollar Loans, the Borrower may continue part or all
of such Borrowing as Eurodollar Loans for an Interest Period specified by the
Borrower or convert part or all of such Borrowing into Base Rate Loans on the
last day of the Interest Period applicable thereto, or the Borrower may earlier
convert part or all of such Borrowing into Base Rate Loans so long as they pay
the breakage fees and funding losses provided in Section 2.13, and (ii) if such
Borrowing is of Base Rate Loans, the Borrower may convert all or part of such
Borrowing into Eurodollar Loans for an Interest Period specified by the Borrower
on any Business Day. Notices of the continuation of a Borrowing of Eurodollar
Loans for an additional Interest Period or of the conversion of part or all of a
Borrowing of Eurodollar Loans into Base Rate Loans or of Base Rate Loans into
Eurodollar Loans must be given by no later than 12:00 p.m. at least three (3)
Business Days with respect to Eurodollar Loans funded in Dollars and four (4)
Business Days before such Borrowing with respect to Eurodollar Loans funded in
Canadian Dollars or Pounds, before the date of the requested continuation or
conversion. The Borrower shall give such notices concerning the advance,
continuation, or conversion of a Borrowing by telephone or facsimile (which
notice shall be irrevocable once given and, if by telephone, shall be promptly
confirmed in writing) pursuant to a Borrowing Request which shall specify the
date of the requested advance, continuation or conversion (which shall be a
Business Day), the amount and currency of the requested Borrowing, whether any
portion the requested Borrowing shall be used for funding any acquisition
pursuant to the provisions of Sections 5.5 and 6.13, the Credit under which the
Borrowing is to be advanced, continued, or converted, the type of Loans to
comprise such new, continued or converted Borrowing and, if such Borrowing is to
be comprised of Eurodollar Loans, the Interest Period applicable thereto. The
Borrower agrees that the Agent may rely on any such telephonic or facsimile
notice given by any person it in good faith believes is an authorized
representative of the Borrower without the necessity of independent
investigation and that, if any such notice by telephone conflicts with any
written confirmation, such telephonic notice shall govern if the Agent has acted
in reliance thereon. The Agent shall give prompt telephonic, telex or facsimile
notice to each Lender of any notice received pursuant to Section 2.5(a) relating
to a Borrowing under such Credit.
(b) Borrower's Failure to Notify. If the Borrower fails to give notice
----------------------------
pursuant to Section 2.5(a) of (i) the continuation or conversion of any
outstanding principal amount of a Borrowing of Eurodollar Loans or of (ii) a
Borrowing of Loans to pay outstanding Reimbursement Obligations, and has not
notified the Agent by 12:00 p.m. at least three (3) Business Days before the
last day of the Interest Period for such Borrowing of Eurodollar Loans funded in
Dollars or at least four (4) Business Days before the last day of the Interest
Period for such Borrowing of Eurodollar Loans funded in Canadian Dollars or
Pounds or the day such Reimbursement Obligation becomes due that it intends to
repay such Borrowing or such Reimbursement Obligation with funds not borrowed
hereunder, the Borrower shall be deemed to have requested, as
22
<PAGE>
applicable, (x) the continuation of such Borrowing as a Eurodollar Loan with an
Interest Period of one (1) month, (y) the advance of a new Borrowing of Base
Rate Loans under the Revolving Credit (after converting, if necessary, the
Reimbursement Obligation into Dollars as provided in Section 10.19) on such day
in the amount of the Reimbursement Obligation then due, or (z) with respect to
Agent Loans or Agent Letters of Credit, the advance of a new Borrowing of an
Agent Loan as a Base Rate Loan under the Agent Swing Line on such day in the
amount of the Agent Reimbursement Obligation then due, which Borrowing shall be
deemed to have been funded on such day to pay the Reimbursement Obligation or
Agent Reimbursement Obligation, as the case may be, then due, in each case so
long as no Default or Event of Default shall have occurred and be continuing or
would occur as a result of such Borrowing but otherwise disregarding the
conditions to Borrowing set forth in Section 4.1. Upon the occurrence and during
the continuance of any Event of Default, (i) each Eurodollar Loan will
automatically, on the last day of the then existing Interest Period therefor,
convert into a Base Rate Loan and (ii) the obligation of the Lenders to fund
loans in Canadian Dollars or Pounds and make, continue or convert Loans into
Eurodollar Loans shall be suspended.
(c) Disbursement of Loans. Not later than 12:00 p.m. on the date of any
---------------------
requested advance of a new Borrowing of Loans, each Lender under the relevant
Credit, subject to all other provisions hereof, shall make available its Loan
comprising its ratable share of such Borrowing in funds immediately available in
New York, New York for the benefit of the Agent and according to the
disbursement instructions of the Agent. The Agent shall make the proceeds of
each such Borrowing available in immediately available funds to the Borrower on
such date. No Lender shall be responsible to the Borrower for any failure by
another Lender to fund its portion of a Borrowing, and no such failure by a
Lender shall relieve any other Lender from its obligation, if any, to fund its
portion of a Borrowing.
(d) Agent Reliance on Lender Funding. Unless the Agent shall have been
--------------------------------
notified by a Lender before the date on which such Lender is scheduled to make
payment to the Agent of the proceeds of a Loan (which notice shall be effective
upon receipt) that such Lender does not intend to make such payment, the Agent
may assume that such Lender has made such payment when due and in reliance upon
such assumption may (but shall not be required to) make available to the
Borrower the proceeds of the Loan to be made by such Lender and, if any Lender
has not in fact made such payment to the Agent, such Lender shall, on demand,
pay to the Agent the amount made available to the Borrower attributable to such
Lender together with interest thereon for each day during the period commencing
on the date such amount was made available to the Borrower and ending on (but
excluding) the date such Lender pays such amount to the Agent at a rate per
annum equal to the interest rate attributable to the relevant Loan. If such
corresponding amount is not in fact made available to the Agent by such Lender
on the date of the Borrowing, the Agent shall be entitled to recover such
corresponding amount on demand from such Lender, together with interest at its
cost of funds. If such amount is not received from such Lender by the Agent
immediately upon demand, the Borrower will, on demand, repay to the Agent the
proceeds of the Loan attributable to such Lender with interest thereon at a rate
per annum equal to the interest rate applicable to the relevant Loan.
23
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Section 2.6. Interest Periods. As provided in Section 2.5(a), at the
----------------
time of each request for the advance or continuation of, or conversion into, a
Borrowing of Eurodollar Loans, the Borrower shall select an Interest Period
applicable to such Loans from among the available options subject to the
limitations in Section 2.5(a); provided, however, that:
(i) the Borrower may not select an Interest Period for a Borrowing
of Revolving Loans or Agent Loans that extend beyond the applicable
Maturity Date for Revolving Loans or Agent Loans, as the case may be;
(ii) the Borrower may not select an Interest Period for a Borrowing
of Term Loans that would end after an Amortization Date if, as a result,
the aggregate principal amount of Term Loans scheduled to be outstanding
with Interest Periods ending after such Amortization Date would exceed the
principal amount of Term Loans permitted to be outstanding after such
Amortization Date;
(iii) whenever the last day of any Interest Period would otherwise be
a day that is not a Business Day, the last day of such Interest Period
shall either be (i) extended to the next succeeding Business Day, or (ii)
reduced to the immediately preceding Business Day if the next succeeding
Business Day is in the next calendar month; and
(iv) for purposes of determining an Interest Period, a month means a
period starting on one day in a calendar month and ending on the
numerically corresponding day in the next calendar month; provided,
however, that if there is no such numerically corresponding day in the
month in which an Interest Period is to end or if an Interest Period begins
on the last Business Day of a calendar month, then such Interest Period
shall end on the last Business Day of the calendar month in which such
Interest Period is to end.
Section 2.7. Maturity of Loans. (a) Revolving Loans. Each Revolving
----------------- ---------------
Loan shall mature and become due and payable by the Borrower on the applicable
Maturity Date for Revolving Loans. Each Agent Loan shall mature and become due
and payable by the Borrower on the applicable Maturity Date for the Agent Loans.
At least ninety (90) days prior to August 6, 2000, the Borrower may provide the
Agent with a written notice requesting the Lenders to extend the Revolving
Commitment Termination Date and the Maturity Date for Revolving Loans for an
additional one (1) year period. If the Borrower shall request the Revolving
Commitment Termination Date and the Maturity Date for Revolving Loans to be
extended for an additional one (1) year period, then the Agent shall promptly
notify each Lender of such request and each Lender shall notify the Agent, not
fewer than thirty (30) days prior to the Revolving Commitment Termination Date
and the Maturity Date for the Revolving Loans, whether, in the exercise of its
sole discretion, it will extend the Revolving Commitment Termination Date and
the Maturity Date for Revolving Loans for an additional one (1) year period and,
in the event such Lender commits to such extensions but only at a lower
Commitment (each such Lender, a "Reduced Declining Lender"), such notice will
specify a proposed Total Commitment Amount and its proposed Designated
Commitment. Any Lender which shall not timely notify the Agent whether it will
extend the Revolving Commitment Termination Date and the Maturity Date for
Revolving Loans
24
<PAGE>
shall be deemed to not have agreed to such extensions. No Lender shall have any
obligation whatsoever to extend the Revolving Commitment Termination Date and
the Maturity Date for Revolving Loans.
(b) Extension of Maturity Date for Revolving Loans. If the Lenders notify
----------------------------------------------
the Agent pursuant to Section 2.7(a) of their agreement to extend the Revolving
Commitment Termination Date and the Maturity Date for Revolving Loans (each such
Lender, an "Accepting Lender"), then the Agent shall so notify each Lender and
the Borrower, and such extensions shall be effective without other or further
action by any party hereto for such additional one-year period. If any one or
more of the Lenders shall notify or be deemed to have notified the Agent that it
will not extend the Revolving Commitment Termination Date and the Maturity Date
for Revolving Loans at the then current Total Commitment Amount (each such
Lender, a "Declining Lender"), then (i) the Agent shall promptly so notify the
Borrower and the Accepting Lenders; (ii) the Accepting Lenders shall, upon the
Borrower's election to extend the Revolving Commitment Termination Date and the
Maturity Date for Revolving Loans in accordance with clause (w), (x) or (y)
below, extend the Revolving Commitment Termination Date and the Maturity Date
for Revolving Loans; and (iii) the Borrower shall, pursuant to a notice (an
"Election Notice") delivered to the Agent, the Accepting Lenders and the
Declining Lenders not fewer than ten (10) Business Days prior to the Election
Effective Date, either:
(w) elect to extend the Revolving Commitment Termination Date and the
Maturity Date for Revolving Loans with respect to the Accepting Lenders and
direct the Declining Lenders to terminate their Commitments, which
termination shall become effective on the Election Effective Date. On such
Election Effective Date (A) the Borrower shall deliver notice of the
effectiveness of such termination to the Declining Lenders and to the
Agent, (B) the Borrower shall pay in full in immediately available funds
all Obligations of the Borrower hereunder including, without limitation,
all breakage fees provided for in Section 2.13 and all other costs, fees
and expenses payable and owing to each such Declining Lender hereunder and
otherwise cause the Declining Lenders no longer to have any liability or
obligation under or with respect to any Letter of Credit issued hereunder,
whether by termination, cancellation, expiration or amendment of all such
Letters of Credit, replacement of such Letters of Credit or otherwise, and
upon the events described in this clause (x), the Declining Lenders shall
cease to be a "Lender" hereunder for all purposes, other than for purposes
of Sections 2.13, 3.3, 8.3 and 10.15 and shall cease to have any
obligations or any Commitment hereunder, other than to the Agent pursuant
to Section 9.6 and to the Borrower pursuant to Section 10.17, and the Agent
shall promptly notify the Accepting Lenders and the Borrower of the new
Total Commitment Amount and the respective Percentages of each Accepting
Lender. So long as (A) no Default or Event of Default has occurred and is
continuing, and (B) the aggregate principal amount of the Revolving Loans
of all Lenders and other Revolving Obligations outstanding of the Borrower
do not exceed the new Revolving Credit Commitment Amount, the Agent shall
reallocate the Percentage of each Lender in the Letters of Credit issued
hereunder at such time; or
25
<PAGE>
(x) elect to extend the Revolving Commitment Termination Date and the
Maturity Date for Revolving Loans with respect to (x) the Accepting Lenders
and (y) all of the Reduced Declining Lenders and direct any Declining
Lenders to terminate their respective Commitments, which termination shall
become effective on the Election Effective Date; provided that effective on
the Election Effective Date, the Total Commitment Amount shall be reduced
to the lower of (A) the lowest Total Commitment Amount proposed by a
Reduced Declining Lender in the notice provided pursuant to Section 2.7(a)
and (B) the aggregate of the Designated Commitments of all Accepting
Lenders and all Reduced Declining Lenders and each remaining Lender's
Percentage shall be adjusted to equal the quotient of (1) such Lender's
Designated Commitment divided by (2) the reduced Total Commitment Amount.
On such Election Effective Date, the Borrower shall pay in full, in
immediately available funds, all Obligations of the Borrower hereunder
including, without limitation, all breakage fees provided for in Section
2.13 and all other costs, fees and expenses payable to each Declining
Lender hereunder and otherwise cause such Declining Lenders no longer to
have any liability or obligation under or with respect to any Letter of
Credit issued hereunder, whether by termination, cancellation, expiration
or amendment of all such Letters of Credit, replacement of such Letters of
Credit or otherwise and pay to the Reduced Declining Lenders and the
Accepting Lenders such amounts as are necessary to cause the amounts owing
to the Reduced Declining Lenders and the Accepting Lenders to reflect their
reduced Commitments and their new Percentages thereafter; each Declining
Lender as is terminating its respective Commitments shall cease to be a
"Lender" hereunder for all purposes, other than for purposes of Sections
2.13, 3.3, 8.3 and 10.15 and shall cease to have any obligations or any
Commitment hereunder, other than to the Agent pursuant to Section 9.6 and
to the Borrower pursuant to Section 10.17; and the Agent shall promptly
notify the Accepting Lenders, the Reduced Declining Lenders and the
Borrower of the new Total Commitment Amount and the respective Percentages
of each Lender. So long as (A) no Default or Event of Default has occurred
and is continuing, and (B) the aggregate principal amount of the Revolving
Loans of all Lenders and other Revolving Obligations outstanding of the
Borrower do not exceed the new Revolving Credit Commitment Amount, the
Agent shall reallocate the Percentage of each Lender in the Letters of
Credit issued hereunder at such time; or
(y) elect to extend the Revolving Commitment Termination Date and the
Maturity Date for Revolving Loans with respect to the Accepting Lenders and
the Reduced Declining Lenders, and to replace one or more of the Reduced
Declining Lenders or the Declining Lenders effective on the Election
Effective Date, with one or more banks reasonably acceptable to the Agent;
provided that (A) if one or more Lenders shall be a Reduced Declining
Lender that is not being replaced, then effective on the Election Effective
Date, the Total Commitment Amount shall be reduced to the lower of (1) the
lowest Total Commitment Amount proposed by a Reduced Declining Lender that
is not being replaced and (2) the aggregate of the Designated Commitments
of all Accepting Lenders and the Reduced Declining Lenders that are not
being replaced; (B) on such date the Borrower shall pay in immediately
available funds to such Reduced Declining Lenders
26
<PAGE>
that are not being replaced and to the Accepting Lenders such amounts as
are necessary to cause amounts owing to such Reduced Declining Lenders and
the Accepting Lenders to reflect their reduced Commitments and their new
Percentages thereafter; (C) the replacement banks shall purchase the Note
or Notes of the Declining Lender or Lenders being replaced and such
Declining Lender's or Lenders' rights hereunder, without recourse or
expense to, or warranty by, such Declining Lender or Lenders being replaced
for a purchase price equal to the sum of the aggregate outstanding
principal amount of the Note or Notes payable to the Declining Lender or
Lenders, such Declining Lender's or Lenders' respective Percentage of any
outstanding Reimbursement Obligations, any accrued but unpaid interest on
such Note or Notes and such Reimbursement Obligations, and any accrued but
unpaid fees in respect of such Declining Lender's or Lenders' outstanding
Borrowings and percentage of Commitments hereunder, and such replacement
banks shall assume such Declining Lender's or Lenders' respective
Percentage with respect to any outstanding Letters of Credit hereunder; (D)
all Obligations of the Borrower owing under or in connection with this
Agreement and the Credit Documents to the Declining Lender or Lenders being
replaced (including, without limitation, all breakage fees provided for in
Section 2.13 and all other costs, fees and expenses payable to each
Declining Lender hereunder) shall be paid by the Borrower in full in
immediately available funds to such Declining Lender or Lenders being
replaced concurrently with such replacement; and (E) upon the payment of
such amounts, the replacement banks shall each constitute a "Lender"
hereunder and the Declining Lenders or Lenders being replaced shall no
longer constitute a "Lender" hereunder (other than for purposes of Sections
2.13, 3.3, 8.3 and 10.17) and shall no longer have any obligations
hereunder, other than to the Agent pursuant to Section 9.6 and to the
Borrower pursuant to Section 10.17. So long as (A) no Default or Event of
Default has occurred and is continuing, and (B) the aggregate principal
amount of the Revolving Loans of all Lenders and other Revolving
Obligations outstanding of the Borrower do not exceed the new Revolving
Credit Commitment Amount, the Agent shall reallocate the Percentage of each
Lender in the Letters of Credit issued hereunder at such time; or
(z) elect to revoke and cancel the written notice requesting the
Lenders to extend the Revolving Commitment Termination Date and the
Maturity Date for Revolving Loans for an additional one (1) year period by
giving written notice of such revocation and cancellation to the Agent
(which shall promptly notify the Lenders thereof) at least ten (10)
Business Days prior to the Revolving Commitment Termination Date and the
Maturity Date for Revolving Loans.
If the Borrower fails to provide an Election Notice on or prior to the tenth
(10th) Business Day preceding the Revolving Commitment Termination Date and the
Maturity Date for Revolving Loans, the Borrower shall be deemed to have revoked
and cancelled its written notice requesting the Lenders to extend the Revolving
Commitment Termination Date and the Maturity Date for Revolving Loans for an
additional one (1) year period. Upon the election by the Borrower described in
Section 2.7(c), the Borrower shall give prompt notice to the Agent of such
election.
27
<PAGE>
(c) Term Loans. The Borrower shall repay a portion of the Term Loans on
----------
the last Business Day of each calendar quarter (except with respect to the last
payment date which day shall be the applicable Maturity Date for Term Loans),
commencing on March 31, 1998 ("Amortization Date"), in the amount set forth
opposite such period on Schedule 2.7 (or, if less, the aggregate principal
amount of Term Loans then outstanding). The Borrower shall repay in full the
unpaid principal amount of the Term Loans on the applicable Maturity Date for
Term Loans.
Section 2.8. Applicable Interest Rates. (a) Base Rate Loans. Each Base
------------------------- ---------------
Rate Loan shall bear interest (computed on the basis of a 360-day year and
actual days elapsed excluding the date of repayment) on the unpaid principal
amount thereof from the date such Loan is made until maturity (whether by
acceleration or otherwise) or conversion to a Eurodollar Loan, at a rate per
annum equal to the lesser of (i) the Highest Lawful Rate, or (ii) the Base Rate
from time to time in effect, payable on each Interest Payment Date for such Loan
and at maturity (whether by acceleration or otherwise).
(b) Eurodollar Loans. Each Eurodollar Loan shall bear interest (computed
----------------
on the basis of a 360-day year and actual days elapsed, except with respect to
Eurodollar Loans funded in Pounds, in which case interest will be computed on
the basis of a 365-day year and actual days elapsed, in each case excluding the
date of repayment) on the unpaid principal amount thereof from the date such
Loan is made until maturity (whether by acceleration or otherwise) or conversion
to a Base Rate Loan at a rate per annum equal to the lesser of (i) the Highest
Lawful Rate, or (ii) the sum of Adjusted LIBOR Rate plus the Applicable Margin,
payable on each Interest Payment Date for such Loan and at maturity (whether by
acceleration or otherwise) or conversion to a Base Rate Loan.
(c) Rate Determinations. The Agent shall determine each interest rate
-------------------
applicable to the Loans and Reimbursement Obligations hereunder and such
determination shall be conclusive and binding except in the case of the Agent's
manifest error or willful misconduct. The Agent shall give prompt telephonic,
telex or facsimile notice to the Borrower and each Lender of the interest rate
applicable to each Loan or Reimbursement Obligation (but, if such notice is
given by telephone, the Agent shall confirm such rate in writing) promptly after
the Agent has made such determination.
Section 2.9. Default Rate. If any payment of principal on any Loan is
------------
not made when due after the expiration of the grace period therefor provided in
Section 7.1(a) (whether by acceleration or otherwise), such Loan shall bear
interest (computed on the basis of a year of 360, 365 or 366 days, as
applicable, and actual days elapsed) from the date such payment was due until
such principal then due is paid in full, payable on demand, at a rate per annum
equal to:
(a) for any Base Rate Loan the lesser of (i) the Highest Lawful Rate, or
(ii) the sum of two percent (2%) per annum plus the Base Rate from time to time
in effect (but not less than the Base Rate in effect at maturity);
28
<PAGE>
(b) for any Eurodollar Loan the lesser of (i) the Highest Lawful Rate, or
(ii) the sum of two percent (2%) per annum plus the rate of interest in effect
thereon at the time of such default until the end of the Interest Period for
such Loan and, thereafter, at a rate per annum equal to the sum of two percent
(2%) per annum plus the Base Rate from time to time in effect (but not less than
the Base Rate in effect at maturity); and
(c) for any unpaid Reimbursement Obligations with respect to Letters of
Credit or Agent Letters of Credit, the lesser of (i) the Highest Lawful Rate, or
(ii) the sum of two percent (2%) per annum plus the Base Rate from time to time
in effect (but not less than the Base Rate in effect at maturity).
It is the intention of the Agent and the Lenders to conform strictly to usury
laws applicable to them. Accordingly, if the transactions contemplated hereby
or the Loans would be usurious as to any of the Lenders or ABN AMRO under laws
applicable to it (including the laws of the United States of America and the
State of New York or any other jurisdiction whose laws may be mandatorily
applicable to such Lender notwithstanding the other provisions of this
Agreement, the Notes or any other Credit Document), then, in that event,
notwithstanding anything to the contrary in this Agreement, the Notes or any
other Credit Document, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under laws applicable to the Lender or
ABN AMRO that is contracted for, taken, reserved, charged or received by such
Lender under this Agreement, the Notes or any other Credit Document or otherwise
shall under no circumstances exceed the Highest Lawful Rate, and any excess
shall be credited by such Lender on the principal amount of the Notes or to the
Reimbursement Obligations (or, if the principal amount of the Notes and all
Reimbursement Obligations shall have been paid in full, refunded by such Lender
or ABN AMRO to the Borrower); and (ii) in the event that the maturity of the
Notes is accelerated by reason of an election of the holder or holders thereof
resulting from any Event of Default hereunder or otherwise, or in the event of
any required or permitted prepayment, then such consideration that constitutes
interest under laws applicable to the Lender may never include more than the
Highest Lawful Rate, and excess interest, if any, provided for in this
Agreement, the Notes, any other Credit Document or otherwise shall be
automatically canceled by such Lender or ABN AMRO as of the date of such
acceleration or prepayment and, if theretofore paid, shall be credited by the
Lender or ABN AMRO on the principal amount of the Notes or to the Reimbursement
Obligations (or if the principal amount of the Notes and all Reimbursement
Obligations shall have been paid in full, refunded by such Lender or ABN AMRO to
the Borrower). The Agent and the Lenders hereby elect to determine the
applicable rate ceiling under Article 5069-1D.001 to 1D.013 of the Texas Credit
Revised Civil Statutes by the weekly rate ceiling from time to time in effect,
subject to the Agent's and the Lenders' rights subsequently to change such
method in accordance with applicable law. In the event the Loans and all
Reimbursement Obligations are paid in full by the Borrower prior to the full
stated term of the Loans and the interest received for the actual period of the
existence of the Loans exceeds the Highest Lawful Rate, the Lenders or ABN AMRO
shall refund to the Borrower the amount of the excess or shall credit the amount
of the excess against amounts owing under the Loans and none of ABN AMRO or the
Lenders shall be subject to any of the penalties provided by law for contracting
for, taking, reserving, charging or receiving interest in excess of the Highest
Lawful
29
<PAGE>
Rate. The provisions of Chapter 346 of Tex. Finance Code Ann. (Vernon 1998),
regulating certain revolving credit accounts shall not apply to this Agreement
or any of the Notes.
Section 2.10. Optional Prepayments. The Borrower shall have the privilege
--------------------
of prepaying Base Rate Loans without premium or penalty at any time in whole or
at any time and from time to time in part (but, if in part, then in an amount
which is equal to or greater than $300,000), provided, however, that the
Borrower shall have given notice of such prepayment to the Agent no later than
12:00 p.m. on the date of such prepayment. The Borrower shall have the
privilege of prepaying Eurodollar Loans (a) without premium or penalty in whole
or in part (but, if in part, then in an amount which is equal to or greater than
$3,000,000 (or the equivalent thereof in Pounds or Canadian Dollars, as
applicable and as determined in accordance with Section 10.19)) only on the last
Business Day of an Interest Period for such Loan, and (b) at any other time so
long as the breakage fees and funding losses provided for in Section 2.13 are
paid; provided, however, that the Borrower shall have given notice of such
prepayment to the Agent no later than 12:00 p.m. at least three (3) Business
Days before the last Business Day of such Interest Period or the proposed
prepayment date. Any such prepayments shall be made by the payment of the
principal amount to be prepaid and accrued and unpaid interest thereon to the
date of such prepayment. Optional prepayments shall be applied as selected by
the Borrower to the Term Loans, the Revolving Loans and the Agent Loans. Any
optional prepayments of the Term Loans shall be applied in inverse order of
maturity and amounts prepaid under the Term Loans may not be reborrowed. Any
optional prepayments of the Revolving Loans shall be applied to the Revolving
Loans, then pro rata to the Reimbursement Obligations with respect to Letters of
Credit. Any optional prepayments of the Agent Loans shall be applied to Agent
Loans, then pro rata to the Agent Reimbursement Obligations with respect to
Agent Letters of Credit. The Borrower may direct the application of any
optional prepayment hereunder to the Base Rate Loans or Eurodollar Loans
outstanding of the type of Loans being prepaid.
Section 2.11. Mandatory Prepayments of Loans. (a) If the aggregate
------------------------------
principal amount of outstanding Revolving Loans and L/C Obligations shall at any
time for any reason exceed the Revolving Credit Commitment Amount then in
effect, the Borrower shall, immediately and without notice or demand, pay the
amount of such excess to the Agent for the ratable benefit of the Lenders as a
prepayment of the Revolving Loans and, if all Revolving Loans have been paid, a
pre-funding of Letters of Credit. If the aggregate principal amount of
outstanding Agent Loans and Agent L/C Obligations shall at any time for any
reason exceed the Agent Commitment Amount then in effect, the Borrower shall,
immediately and without notice or demand, pay the amount of such excess to the
Agent for the benefit of the Agent, as a prepayment of the Agent Loans and, if
all Agent Loans have been paid, a pre-funding of Agent Letters of Credit. Any
mandatory prepayment of Loans pursuant hereto shall not be limited by the notice
provision for prepayments set forth in Section 2.10, but immediately upon
determining the need to make any such prepayment, the Borrower shall notify the
Agent of such required prepayment. Each such prepayment shall be accompanied by
a payment of all accrued and unpaid interest on the Loans prepaid and any
applicable breakage fees and funding losses pursuant to Section 2.13.
(b) (i) Within ten (10) Business Days after receipt by the Borrower or any
of its Subsidiaries of Net Cash Proceeds from any Transfer of an asset or group
of assets (except
30
<PAGE>
Transfers permitted by Section 6.19) with cumulative proceeds in excess of
$10,000,000 in any fiscal year, the Borrower shall make a mandatory prepayment
of the Term Loans, which mandatory prepayment shall be applied in inverse order
of maturity, in an amount equal to the Net Cash Proceeds from such Transfer, and
(ii) within ten (10) Business Days after receipt by the Borrower or any of its
Subsidiaries of the proceeds of insurance on or condemnation of any property,
the Borrower shall make a mandatory prepayment of the Term Loans of such funds,
which mandatory prepayment shall be applied in inverse order of maturity, unless
such proceeds are segregated in a special account denoted as insurance or
condemnation proceeds and used promptly for replacement or reconstruction of
such property; provided, however, the Borrower shall not be required to make the
mandatory prepayments required in (i) or (ii) above to the extent such proceeds
are reinvested in a Permitted Business within six (6) months of the receipt of
such proceeds. Amounts prepaid under the Term Loans may not be reborrowed. After
the Term Loans have been paid in full, the Borrower shall not be required to
make any further mandatory prepayments pursuant to this Section 2.11(b).
Section 2.12. The Notes. (a) The Revolving Loans outstanding to the
---------
Borrower from each Lender shall be evidenced by three promissory notes of the
Borrower payable to such Lender in the forms of Exhibits 2.12A (Dollars), 2.12B
(Pounds) and 2.12C (Canadian Dollars), respectively (each a "Revolving Note").
The Term Loans outstanding to the Borrower from each Lender shall be evidenced
by a single promissory note of the Borrower payable to such Lender in the form
of Exhibit 2.12D (each a "Term Note"). The Agent Revolving Loans outstanding to
the Borrower from ABN AMRO shall be evidenced by a single promissory note of the
Borrower payable to ABN AMRO in the form of Exhibit 2.12E (the "Agent Note").
(b) Each holder of a Note shall record on its books and records or on a
schedule to its appropriate Note the amount of each Loan outstanding from it to
the Borrower, all payments of principal and interest and the principal balance
from time to time outstanding thereon, the type of such Loan and, if a
Eurodollar Loan, the Interest Period and interest rate applicable thereto. Such
record, whether shown on the books and records of a holder of a Note or on a
schedule to its Note, shall be prima facie evidence as to all such matters;
provided, however, that the failure of any holder to record any of the foregoing
or any error in any such record shall not limit or otherwise affect the
obligation of the Borrower to repay all Loans outstanding to it hereunder
together with accrued interest thereon. At the request of any holder of a Note
and upon such holder tendering to the Borrower the Note to be replaced, the
Borrower shall furnish a new Note to such holder to replace any outstanding Note
and at such time the first notation appearing on the schedule on the reverse
side of, or attached to, such new Note shall set forth the aggregate unpaid
principal amount of all Loans, if any, then outstanding thereon.
Section 2.13. Breakage Fees. If any Lender incurs any loss, cost or
-------------
expense (including, without limitation, any loss, cost, expense or premium
incurred by reason of the liquidation or re-employment of deposits or other
funds acquired by such Lender to fund or maintain any Eurodollar Loan or the
relending or reinvesting of such deposits or amounts paid or prepaid to such
Lender) as a result of any of the following events other than any such
occurrence as a result of a change of circumstance described in Sections 8.1 or
8.2:
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<PAGE>
(i) any payment, prepayment or conversion of a Eurodollar Loan on a date
other than the last day of its Interest Period (whether by acceleration,
mandatory prepayment or otherwise);
(ii) any failure to make a principal payment of a Eurodollar Loan on the
due date therefor; or
(iii) any failure by the Borrower to borrow, continue, prepay or
convert to a Eurodollar Loan on the date specified in a notice given pursuant to
Section 2.5(a),
then the Borrower shall pay to such Lender such amount as will reimburse such
Lender for such loss, cost or expense. If any Lender makes such a claim for
compensation, it shall provide to the Borrower a certificate executed by an
officer of such Lender setting forth the amount of such loss, cost or expense in
reasonable detail (including an explanation of the basis for and the computation
of such loss, cost or expense), and the amounts shown on such certificate shall
be conclusive and binding absent manifest error. Within ten (10) days of
receipt of such certificate, the Borrower shall pay directly to such Lender such
amount as will compensate such Lender for such loss, cost or expense as provided
herein.
Section 2.14. Commitment Terminations. The Borrower shall have the right
-----------------------
at any time and from time to time, upon five (5) Business Days' prior and
irrevocable written notice to the Agent, to terminate or reduce the Revolving
Credit Commitments (including the Multicurrency Funding Limit) without premium
or penalty, in whole or in part, any partial termination to be (i) in an amount
not less than $5,000,000 as determined by the Borrower and in integral multiples
of $5,000,000, and (ii) allocated ratably among the Lenders in proportion to
their respective Revolving Credit Commitments; provided that the Revolving
Credit Commitment Amount may not be reduced to an amount less than the sum of
the aggregate principal amount of outstanding Revolving Loans plus the aggregate
undrawn face amount of outstanding Letters of Credit plus any unpaid
Reimbursement Obligations with respect to Letters of Credit, and the L/C
Commitment Amount may not be reduced to an amount less than the aggregate
undrawn face amount of outstanding Letters of Credit plus any unpaid
Reimbursement Obligations with respect to Letters of Credit, in each case after
converting, if necessary, any such outstanding Obligations to Dollars in
accordance with Section 10.19 and after giving effect to payments on such
proposed termination or reduction date, unless the Borrower provide to the Agent
cash collateral in an amount sufficient to cover such shortage or back to back
letters of credit from a bank whose long-term senior unsecured debt rating is
rated A or above from either S&P or Moody's or such other bank satisfactory to
the Majority Lenders in an amount equal to the undrawn face amount of any
applicable outstanding Letters of Credit with an expiration date of at least
five (5) days after the expiration date of any applicable Letter of Credit and
which provide that the Agent may make a drawing thereunder in the event that it
pays a drawing under such Letter of Credit. The Agent shall give prompt notice
to each Lender of any such termination of the Revolving Credit Commitments. Any
termination of Revolving Credit Commitments pursuant to this Section 2.14 is
permanent and may not be reinstated. The Borrower shall have the right at any
time and from time to time, upon five (5) Business Days' prior and irrevocable
written notice to ABN AMRO, to terminate or reduce the Agent Credit Commitment
without premium or penalty, in whole or in part; provided that the Agent
Commitment Amount may not be reduced to an amount less than the
32
<PAGE>
sum of the aggregate principal amount of outstanding Agent Loans plus the
aggregate undrawn face amount of outstanding Agent Letters of Credit plus any
unpaid Agent Reimbursement Obligations with respect to Agent Letters of Credit.
Any termination of Agent Credit Commitment pursuant to this Section 2.14 is
permanent and may not be reinstated.
Section 2.15. Acknowledgment. The Borrower and the Lenders acknowledge
--------------
and agree that the Obligations under this Agreement shall be pari passu and of
equal rank and preference in any proceeding to the Indebtedness related to the
Public Debt Issue.
SECTION 3. FEES AND PAYMENTS.
Section 3.1. Fees. (a) Commitment Fee. For the period from the
---- --------------
Effective Date to and including the Revolving Commitment Termination Date with
respect to the Revolving Credit Commitment Amount, the Borrower shall pay (i) to
the Agent for the ratable account of the Lenders, a commitment fee (computed on
a basis of a 360-day year and actual days elapsed) on an amount equal to the
average daily difference between the Revolving Credit Commitment Amount and the
outstanding Revolving Obligations, and (ii) to ABN AMRO for its own account, a
commitment fee (computed on a basis of 360-day year and actual days elapsed) on
an amount equal to the average daily difference between the Agent Commitment
Amount and the outstanding Agent Revolving Obligations, such commitment fees to
be calculated, for any day, at such times as the relevant Total Funded Debt to
Total Capital Ratio is in one of the following ranges, based upon the percentage
per annum set forth opposite such Total Funded Debt to Total Capital Ratio set
forth below times such amount:
<TABLE>
<CAPTION>
Total Funded Debt to Total Capital Ratio Commitment Fee
---------------------------------------- --------------
<S> <C>
Less than 30% 0.175%
Equal to or greater than 30% 0.200%
but less than 35%
Equal to or greater than 35% 0.250%
but less than 37.5%
Equal to or greater than 37.5% 0.250%
but less than 40%
Equal to or greater than 40% 0.250%
but less than 45%
Equal to or greater than 45% 0.375%
</TABLE>
For the period from the Effective Date through the date the Borrower is to
provide the Agent with the financial statements for the fiscal year ending
December 31, 1997, as required by Section 6.7(a)(ii), the commitment fees shall
be calculated as provided above based upon a commitment fee percentage of 0.250%
per annum. Such fees shall be payable in arrears commencing on March 31, 1998,
and on the last Business Day of each calendar quarter thereafter and on the
Maturity Date for Revolving Loans and the Maturity Date for Agent Loans, as
applicable, unless the Revolving Credit Commitment or the Agent Credit
Commitment, as the case may be, is terminated in whole on an earlier date, in
which event the commitment fee with respect thereto for the period
33
<PAGE>
to but not including the date of such termination shall be paid in whole on the
date of such termination. Any change to the commitment fee as a result of a
change in the Total Funded Debt to Total Capital Ratio shall be effective as of
the date provided in the definition of Applicable Margin.
(b) Letter of Credit Fees. Commencing upon the date of issuance or
---------------------
extension of any Letter of Credit or Agent Letter of Credit, the Borrower shall
pay to the Agent quarterly in advance (pro rated, if necessary for any portion
of such quarter) (i) for the ratable account of the Lenders and (ii) to the
Agent for its own account, as the case may be, a non-refundable fee equal to the
greater of (x) $500, or (y) the face amount of such Letter of Credit or Agent
Letter of Credit times the Applicable Margin, calculated in each case on the
basis of a 360-day year and actual days elapsed and based on the then scheduled
expiration date of the Letter of Credit or the Agent Letter of Credit, as the
case may be. Thereafter, such fees shall be payable by the Borrower in advance
on the last Business Day of each calendar quarter of each year commencing with
the next succeeding calendar quarter, with the last such payment on the date any
such Letter of Credit or Agent Letter of Credit expires. The fees paid
quarterly in advance for Assumed Letters of Credit and Assumed Agent Letters of
Credit under the Prior Credit Agreement shall be carried forward under this
Agreement, such that the first such fees payable by the Borrower under this
Agreement for such Assumed Letters of Credit and Assumed Agent Letters of Credit
shall be on March 31, 1998. For any Letter of Credit issued with a face amount
in Pounds or Canadian Dollars, the fees shall be converted into Dollars in
accordance with Section 10.19 as of two (2) days before the issuance date
thereof, and thereafter five (5) days before any fee with respect thereto shall
be due and payable hereunder. In addition, the Borrower shall pay to the Agent
solely for the Agent's account, in connection with each Letter of Credit or
Agent Letter of Credit, administrative and amendment fees and expenses for
letters of credit established by the Agent from time to time and as agreed
between the Agent and the Borrower.
(c) Agent Fees. The Borrower shall pay to each of the Agent and the
----------
Syndication Agent the fees agreed to between the Agent and the Borrower and the
Syndication Agent and the Borrower pursuant to the Fee Letters, and any other
fees from time to time agreed to by the Borrower and the Agent or the
Syndication Agent.
Section 3.2. Place and Application of Payments. (a) All payments of
---------------------------------
principal of and interest on the Loans, the Reimbursement Obligations, and all
other amounts payable by the Borrower under the Credit Documents shall be made
by the Borrower to the Agent by no later than 1:30 p.m. on the due date thereof
at the office of the Agent in New York, New York (or such other location as the
Agent may designate to the Borrower) for the benefit of the Lenders entitled to
such payments. Any payments received by the Agent from the Borrower after 1:30
p.m. shall be deemed to have been received on the next Business Day. If the
Borrower does not, or is unable for any reason to, effect payment of a Revolving
Loan or Reimbursement Obligation to the Lenders in the applicable currency or if
the Borrower shall default in the payment when due of any payment in such
currency, the Lenders may, at their option, require such payment to be made to
the Lenders in the Dollar equivalent of such currency determined in accordance
with Section 10.20. With respect to any amount due and payable in Pounds or
Canadian Dollars, the Borrower agrees to hold the Lenders harmless from any
losses incurred by the Lenders arising from any
34
<PAGE>
change in the value of Dollars in relation to such currency between the date
such payment became due and the date of payment thereof. The Agent will, on the
same day each payment is received, cause to be distributed like funds in like
currency to each Lender owed an Obligation for which such payment was received,
pro rata based on the respective amounts of such type of Obligation then owing
to each Lender.
(b) If any payment received by the Agent under any Credit Document
(including from the proceeds of Collateral) is insufficient to pay in full all
amounts then due and payable to the Agent and the Lenders under the Credit
Documents, such payment shall be distributed by the Agent and applied by the
Agent and the Lenders in the order set forth in Section 7.7. In calculating the
amount of Obligations owing each Lender other than for principal and interest on
Loans and Reimbursement Obligations and fees under Section 3.1, the Agent shall
only be required to include such other Obligations that Lenders have certified
to the Agent in writing are due to such Lenders.
Section 3.3. Withholding Taxes. (a) Payments Free of Withholding.
----------------- ----------------------------
Except as otherwise required by law and subject to Section 3.3(b), each payment
by the Borrower or any Guarantor to the Agent or any Lender under this Agreement
or any other Credit Document shall be made without withholding for or on account
of any present or future taxes (other than overall net income taxes on the
recipient) imposed by or within the jurisdiction in which the Borrower or such
Guarantor is domiciled, any jurisdiction from which the Borrower or such
Guarantor makes any payment, or (in each case) any political subdivision or
taxing authority thereof or therein, excluding, in the case of each Lender and
the Agent, taxes, assessments or other governmental charges:
(i) imposed on, based upon, or measured by its income, and branch profits,
franchise and similar taxes imposed on it, by any jurisdiction in which the
Agent or such Lender, as the case may be, is incorporated or maintains its
principal place of business or Lending Office or which subjects the Agent
or such Lender to tax by reason of a connection between the taxing
jurisdiction and the Agent or such Lender (other than a connection
resulting from the transactions contemplated by this Agreement);
(ii) imposed as a result of a connection between the taxing jurisdiction
and the Agent or such Lender, as the case may be, other than a connection
resulting from the transactions contemplated by this Agreement;
(iii) imposed as a result of the transfer by such Lender of its interest
in this Agreement or any other Credit Document or a designation by such
Lender (other than pursuant to Section 3.3(d) hereof) of a new Lending
Office (other than taxes imposed as a result of any change in treaty, law
or regulation after such transfer of the Lender's interest in this
Agreement or any Credit Document or designation of a new Lending Office);
(iv) imposed by the United States of America upon a Lender organized under
the laws of a jurisdiction outside of the United States, except to the
extent that such tax is imposed or increased as a result of any change in
applicable law, regulation or treaty (other than any addition of or change
in any "anti-treaty shopping," "limitation of benefits," or similar
35
<PAGE>
provision applicable to a treaty) after the date hereof, in the case of
each Lender originally a party hereto or, in the case of any Purchasing
Lender (as defined in Section 10.12), after the date on which it becomes a
Lender;
(v) which would not have been imposed but for (a) the failure of the Agent
or any Lender, as the case may be, to provide (x) an Internal Revenue
Service Form 1001 or 4224, as the case may be, or any substitute or
successor form prescribed by the Internal Revenue Service pursuant to
Section 3.3(b) below, or (y) any other certification, documentation or
proof which is reasonably requested by the Borrower, or (b) a determination
by a taxing authority or a court of competent jurisdiction that a
certification, documentation or other proof provided by such Lender or the
Agent to establish an exemption from such tax, assessment or other
governmental charge is false
(all such non-excluded taxes, assessments or other governmental charges and
liabilities being hereinafter referred to as "Indemnified Taxes"). If any such
withholding is so required, the Borrower or such Guarantor, as applicable, shall
make the withholding, pay the amount withheld to the appropriate governmental
authority before penalties attach thereto or interest accrues thereon and
forthwith pay such additional amount as may be necessary to ensure that the net
amount actually received by the Agent and each Lender is free and clear of such
Indemnified Taxes (including Indemnified Taxes on such additional amount) and is
equal to the amount that the Agent or such Lender (as the case may be) would
have received had such withholding not been made. If the Agent or any Lender
pays any amount in respect of any Indemnified Taxes, penalties or interest, the
Borrower or such Guarantor, as applicable, shall reimburse the Agent or that
Lender for the payment on demand in the currency in which such payment was made.
If the Borrower or such Guarantor pays any Indemnified Taxes, penalties or
interest, it shall deliver official tax receipts evidencing the payment or
certified copies thereof, or other satisfactory evidence of payment if such tax
receipts have not yet been received by the Borrower or such Guarantor (with such
tax receipts to be promptly delivered when actually received), to the Agent or
the Lender on whose account such withholding was made (with a copy to the Agent
if not the recipient of the original) within fifteen (15) days of such payment.
(b) U.S. Withholding Tax Exemptions. Each Lender that is not a United
-------------------------------
States person (as such term is defined in Section 7701(a)(30) of the Code) shall
submit to the Borrower and the Agent on or before the Effective Date, two duly
completed and signed copies of either Form 1001 (entitling such Lender to a
complete exemption from withholding under the Code on all amounts to be received
by such Lender, including fees, pursuant to the Credit Documents) or Form 4224
(relating to all amounts to be received by such Lender, including fees, pursuant
to the Credit Documents) of the Internal Revenue Service. Thereafter and from
time to time, each Lender shall submit to the Borrower and the Agent such
additional duly completed and signed copies of one or the other of such forms
(or such successor forms as shall be adopted from time to time by the relevant
United States taxing authorities) as may be (i) notified by the Borrower,
directly or through the Agent, to such Lender, and (ii) required under then-
current United States law or regulations to avoid United States withholding
taxes on payments in respect of all amounts to be received by such Lender,
including fees, pursuant to the Credit Documents. Upon the request of
36
<PAGE>
the Borrower, each Lender that is a United States person shall submit to the
Borrower a certificate to the effect that it is such a United States person.
(c) Inability of Lender to Submit Forms. If any Lender determines, as a
-----------------------------------
result of any change in applicable law, regulation or treaty, or in any official
application or interpretation thereof, that it is unable to submit to the
Borrower or the Agent any form or certificate that such Lender is obligated to
submit pursuant to Section 3.3(b) or that such Lender is required to withdraw or
cancel any such form or certificate previously submitted or any such form or
certificate otherwise becomes ineffective or inaccurate, such Lender shall
promptly notify the Borrower and the Agent of such fact and the Lender shall to
that extent not be obligated to provide any such form or certificate and will be
entitled to withdraw or cancel any affected form or certificate, as applicable.
(d) Refund of Taxes. If any Lender or the Agent receives a refund of any
---------------
Indemnified Tax or any tax referred to in Section 10.3 with respect to which the
Borrower or any Guarantor has paid any amount pursuant to this Section 3.3 or
Section 10.3, such Lender or the Agent shall pay the amount of such refund
(including any interest received with respect thereto) to the Borrower or such
Guarantor.
SECTION 4. CONDITIONS.
Section 4.1. Conditions Precedent to all Borrowings. In the case of each
--------------------------------------
advance of a Borrowing hereunder (including the issuance of, increase in the
amount of, or extension of the expiration date of, a Letter of Credit or Agent
Letter of Credit:
(a) Notices. In the case of a Borrowing, the Agent shall have received the
-------
Borrowing Request required by Section 2.5, and in the case of the issuance,
extension or increase of Letter of Credit or Agent Letter of Credit, the Agent
shall have received a duly completed Borrowing Request and Application for such
Letter of Credit or Agent Letter of Credit, as the case may be, meeting the
requirements of Section 2.2;
(b) Warranties True and Correct. Each of the representations and
---------------------------
warranties of the Borrower and its Subsidiaries set forth herein and in the
Credit Documents shall be true and correct in all material respects as of the
time of such new Borrowing, except as a result of the transactions expressly
permitted hereunder or thereunder and except to the extent that any such
representation or warranty relates solely to an earlier date, in which case it
shall have been true and correct in all material respects as of such earlier
date;
(c) No Default. No Default or Event of Default shall have occurred and be
----------
continuing or would occur as a result of such Borrowing;
(d) New Litigation and Changes in Pending Litigation. Except as set forth
------------------------------------------------
in Schedule 5.4, no litigation (including, without limitation, derivative
actions), arbitration proceedings or governmental proceedings shall be pending
or known to be threatened against the Borrower or any of its Subsidiaries or any
Unrestricted Subsidiary, which could reasonably be expected to have a
37
<PAGE>
Material Adverse Effect; and no material development (whether or not disclosed)
shall have occurred in any litigation (including, without limitation, derivative
actions), arbitration proceedings or governmental proceedings so disclosed,
which could reasonably be expected to have a Material Adverse Effect;
(e) Regulation U; Other Laws. The Borrowings to be made by the Borrower
------------------------
shall not result in the Borrower or any Lender being in non-compliance with or
in violation of Regulation U and shall not be prohibited by any other legal
requirement (including Regulations G, T and X) imposed by the banking laws of
the United States of America, and shall not otherwise subject the Lenders to a
penalty or other onerous conditions under or pursuant to any legal requirement;
and
(f) Material Adverse Change. There has occurred no event or effect that
-----------------------
has had or could reasonably be expected to have a Material Adverse Effect.
Each request for the advance of a Borrowing and each request for the issuance
of, increase in the amount of, or extension of the expiration date of, a Letter
of Credit or an Agent Letter of Credit shall be deemed to be a representation
and warranty by the Borrower on the date of such Borrowing, or issuance of,
increase in the amount of, or extension of the expiration date of, such Letter
of Credit or Agent Letter of Credit, as the case may be, (a) that all conditions
precedent to such Borrowing have been satisfied or fulfilled unless the Borrower
give to the Lenders written notice to the contrary, in which case none of the
Lenders shall be required to fund such advances and the Agent shall not be
required to issue, increase the amount of or extend the expiration date of such
Letter of Credit unless the Majority Lenders shall have previously waived in
writing such non-compliance. In the event that any of the conditions specified
in Section 4.1(c) are not satisfied, the Borrower may not convert any Base Rate
Loan into a Eurodollar Loan or continue any Eurodollar Loan and may only convert
or continue any Eurodollar Loan into or as a Base Rate Loan, subject to the
applicability of the provisions of Section 2.8 regarding default rates of
interest. Further, in such case, any Eurodollar Loan which has not been
accelerated pursuant to the terms hereof shall automatically convert into a Base
Rate Loan at the end of the applicable Interest Period unless prior to time, the
conditions specified in Section 4.1(c) shall have been satisfied or waived
pursuant to the terms hereof.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to each Lender and the Agent as
follows:
Section 5.1. Corporate Organization. (a) The Borrower and each of its
----------------------
Material Subsidiaries: (i) is a duly organized and existing corporation (or
other Person) in good standing under the laws of the jurisdiction of its
organization; (ii) has all necessary corporate power (or comparable power, in
the case of a Material Subsidiary that is not a corporation) to own the property
and assets it uses in its business and otherwise to carry on its present
business and the business it currently proposes to transact; and (iii) is duly
licensed or qualified and in good standing in each jurisdiction in which the
nature of the business transacted by it or the nature of the property owned or
leased by it makes such licensing or qualification necessary except where
38
<PAGE>
the failure to be so licensed or qualified or to be in good standing, as the
case may be, could not reasonably be expected to have a Material Adverse Effect.
(b) As of the Effective Date, the Borrower has no Subsidiaries other than
the Subsidiaries listed on Schedule 5.1. Schedule 5.1 correctly sets forth, as
of the Effective Date, the percentage ownership (direct and indirect) of the
Borrower in each class of capital stock of each of its Subsidiaries and also
identifies the direct owner thereof.
Section 5.2. Corporate Power and Authority; Validity. Each Credit Party
---------------------------------------
has the corporate power and authority to execute, deliver and carry out the
terms and provisions of the Credit Documents to which it is a party and has
taken all necessary corporate action (or comparable action, in the case of a
Credit Party that is not a corporation) to authorize the execution, delivery and
performance of such Credit Documents. Each Credit Party has duly executed and
delivered each Credit Document to which it is a party and each such Credit
Document constitutes the legal, valid and binding obligation of such Credit
Party enforceable in accordance with its terms, subject as to enforcement only
to bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally.
Section 5.3. No Violation. Neither the execution, delivery nor
------------
performance (to the best of their knowledge) by any Credit Party of the Credit
Documents to which it is a party nor compliance by it with the terms and
provisions thereof, nor the consummation by it of the transactions contemplated
herein or therein, will (i) contravene any applicable provision of any law,
statute, rule or regulation, or any applicable order, writ, injunction or decree
of any court or governmental instrumentality, (ii) conflict with or result in
any breach of any term, covenant, condition or other provision of, or constitute
a default under, or result in the creation or imposition of (or the obligation
to create or impose) any Lien other than any Permitted Lien upon any of the
property or assets of the Borrower or any of its Subsidiaries under the terms of
any contractual obligation to which the Borrower or any of its Subsidiaries is a
party or by which they or any of their properties or assets are bound or to
which they may be subject, or (iii) violate or conflict with any provision of
the Certificate or Articles of Incorporation or By-laws of the Borrower or any
of its Subsidiaries.
Section 5.4. Litigation. There are no actions, suits or proceedings
----------
(including, without limitation, derivative or injunctive actions) pending or, to
the best knowledge of the Borrower, threatened, involving the Borrower or any of
its Subsidiaries that could reasonably be expected to have a Material Adverse
Effect, except as set forth in Schedule 5.4.
Section 5.5. Use of Proceeds; Margin Regulations. (a) The proceeds of
-----------------------------------
the Revolving Credit and the Agent Swing Line may be used to (i) provide working
capital, including the issuance of Letters of Credit and Agent Letters of
Credit, and otherwise for general corporate purposes, and (ii) for Acquisitions
as provided herein.
(b) Neither the Borrower, nor any of its Subsidiaries is engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock. No proceeds of any Loan
39
<PAGE>
will be used to purchase or carry any "margin stock" (as defined in Regulation U
of the Board of Governors of the Federal Reserve System), to extend credit for
the purpose of purchasing or carrying any "margin stock," or for a purpose which
violates Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System.
Section 5.6. Investment Company Act. Neither the Borrower nor any of its
----------------------
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 5.7. Public Utility Holding Company Act. Neither the Borrower
----------------------------------
nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 5.8. True and Complete Disclosure. All factual information
----------------------------
heretofore or contemporaneously furnished by the Borrower or any of its Material
Subsidiaries in writing to the Agent or any Lender in connection with any Credit
Document or any transaction contemplated therein is, and all other such factual
information hereafter furnished by any such Persons in writing to the Agent or
any Lender in connection herewith, any of the other Credit Documents, the Loans
or the Collateral will be, true and accurate in all material respects, taken as
a whole, on the date of such information and not incomplete by omitting to state
any material fact necessary to make the information therein not misleading at
such time in light of the circumstances under which such information was
provided. The Agent and each Lender acknowledges that the projections
heretofore or hereafter furnished by the Borrower or any of its Material
Subsidiaries in writing to the Agent or any Lender will be accurate and correct,
to the best of such entity's knowledge, without guaranteeing the results of such
projections.
Section 5.9. Financial Statements. The financial statements heretofore
--------------------
delivered to the Lenders for the Borrower's fiscal year ending December 31,
1996, and the Borrower's fiscal quarters ending March 31, June 30, and September
30, 1997, have been prepared in accordance with GAAP applied on a basis
consistent, except as otherwise noted therein, with that of such entity for the
previous fiscal year, and (ii) for periods ending on or after December 31, 1997,
will be prepared in accordance with GAAP applied on a basis consistent with the
Borrower's financial statements for the previous fiscal quarter or year, as the
case may be, except as otherwise noted therein. Each of such annual and
quarterly financial statements fairly presents on a consolidated basis the
financial position of the Borrower as of the dates thereof, and the results of
operations for the periods covered thereby, subject in the case of interim
financial statements, to normal year-end audit adjustments and omission of
certain footnotes as permitted by the SEC. The Borrower and its Subsidiaries,
taken as a whole, have no material contingent liabilities or Indebtedness other
than those disclosed in the financial statements referred to in this Section
5.9.
Section 5.10. No Material Adverse Change. There has occurred no event or
--------------------------
effect that has had, or to the best knowledge of the Borrower could reasonably
be expected to have, a Material Adverse Effect.
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Section 5.11. Labor Controversies. There are no labor controversies
-------------------
pending or, to the best knowledge of the Borrower, threatened against the
Borrower or any of its Subsidiaries that could reasonably be foreseen to have a
Material Adverse Effect.
Section 5.12. Taxes. The Borrower and its Subsidiaries have filed all
-----
United States federal tax returns and all other tax returns required to be
filed, whether in the United States or in any foreign jurisdiction, and have
paid all governmental taxes, rates, assessments, fees, charges and levies
(collectively, "Taxes") except such Taxes, if any, as are being contested in
good faith and for which reserves have been provided in accordance with GAAP.
No tax liens have been filed and no claims are being asserted for Taxes, which
liens or claims could reasonably be foreseen to have a Material Adverse Effect.
The charges, accruals and reserves on the books of the Borrower and its
Subsidiaries for Taxes and other governmental charges have been determined in
accordance with GAAP.
Section 5.13. ERISA. With respect to each Plan, the Borrower and its
-----
Subsidiaries have fulfilled their obligations under the minimum funding
standards of, and are in compliance in all material respects with, ERISA and
with the Code to the extent applicable to it, and have not incurred any
liability under Title IV of ERISA to the PBGC or a Plan other than a liability
to the PBGC for premiums under Section 4007 of ERISA except as described in
reasonable detail in Schedule 5.13. Neither the Borrower nor any of its
Subsidiaries has any contingent liability with respect to any post-retirement
benefits under a welfare plan as defined in ERISA, other than liability for
continuation coverage described in Part 6 of Title I of ERISA and as disclosed
in the financial statements of the Borrower for the fiscal quarter ending
September 30, 1997, described in Section 5.9.
Section 5.14. Consents. At the time of consummation thereof, all consents
--------
and approvals of, and filings and registrations with, and all other actions of,
all governmental agencies, authorities or instrumentalities required to
consummate the Borrowings hereunder have been obtained or made and are or will
be in full force and effect.
Section 5.15. Capitalization. Except as disclosed on Schedule 5.15, all
--------------
outstanding shares of the Borrower and its Material Subsidiaries have been duly
and validly issued, are fully paid and nonassessable. Except as disclosed on
Schedule 5.15, neither the Borrower nor any Material Subsidiary has outstanding
any securities convertible into or exchangeable for its capital stock or
outstanding any rights to subscribe for or to purchase, or any options for the
purchase of, or any agreement providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
its capital stock.
Section 5.16. Intellectual Property. Except as disclosed on Schedule
---------------------
5.16, the Borrower and its Material Subsidiaries own or hold valid licenses to
use all the material patents, trademarks, permits, service marks, and trade
names free of any burdensome restrictions, that are necessary to the operation
of the business of the Borrower and its Material Subsidiaries as presently
conducted.
41
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Section 5.17. Ownership of Property. The Borrower and each domestic
---------------------
Material Subsidiary has good and marketable title to or a valid leasehold
interest in all of its property and good title to, or a valid leasehold interest
in, all of its other property, and each foreign Material Subsidiary owns or has
a valid leasehold interest in all of its property and owns or has a valid
leasehold interest in, all of its other properties, in each case, except to the
extent, in the aggregate, no Material Adverse Effect could reasonably be
expected to result therefrom, subject to no Liens except Permitted Liens.
Section 5.18. Compliance with Statutes, Etc. The Borrower and its
-----------------------------
Subsidiaries are in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic and foreign, with respect to the conduct of their businesses and the
ownership of their properties, except for such instances of non-compliance as
could not reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect.
Section 5.19. Environmental Matters. (a) Except as described in Schedule
---------------------
5.19, the Borrower and its Subsidiaries have complied in all material respects
with, and on the date of each Borrowing will be in compliance in all material
respects with, all applicable Environmental Laws and the requirements of any
permits issued under such Environmental Laws. To the best knowledge of the
Borrower, there are no pending, past or threatened Environmental Claims against
the Borrower or any of its Subsidiaries or any property owned or operated by the
Borrower or any of its Subsidiaries except as described in Schedule 5.19. To
the best knowledge of the Borrower, except as disclosed on Schedule 5.19, there
are no conditions or occurrences on any property owned or operated by the
Borrower or any of its Subsidiaries or on any property adjoining or in the
vicinity of any such property that could reasonably be expected (i) to form the
basis of an Environmental Claim against the Borrower or any of its Subsidiaries
or any property owned or operated by the Borrower or any of its Subsidiaries
that individually or in the aggregate could reasonably be expected to have a
Material Adverse Effect, or (ii) to cause any such property to be subject to any
material restrictions on the ownership, occupancy, use or transferability of
such property by the Borrower or any of its Subsidiaries under any applicable
Environmental Law.
(b) Except as disclosed on Schedule 5.19 and except as could not reasonably
be expected to have a Material Adverse Effect or to materially impair the
ability of the Borrower or any of the Guarantors to perform their respective
Obligations under this Agreement, the Notes, or the Credit Documents to which
they are a party, to the best knowledge of the Borrower (i) Hazardous Materials
have not at any time been generated, used, treated or stored on, or transported
to or from, any property owned or operated by the Borrower or any of its
Subsidiaries in a manner that has violated or could reasonably be expected to
violate any Environmental Law, and (ii) Hazardous Materials have not at any time
been released on or from any property owned or operated by the Borrower or any
of its Subsidiaries.
Section 5.20. Existing Indebtedness. Schedule 5.20 contains a complete
---------------------
list of all Indebtedness (other than the Obligations hereunder and Indebtedness
permitted by Section 6.16(c) through (m)) of the Borrower and its Subsidiaries
on the Effective Date in each case showing the aggregate principal amount
thereof, the name of the respective borrower and any other entity
42
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which directly or indirectly guaranteed such Indebtedness and the scheduled
payments of such Indebtedness.
SECTION 6. COVENANTS.
The Borrower covenants and agrees that, so long as any Note, Letter of
Credit, Agent Letter of Credit, Reimbursement Obligation or any other Obligation
is outstanding or any Commitment or Agent Credit Commitment is outstanding
hereunder:
Section 6.1. Corporate Existence. The Borrower and its Material
-------------------
Subsidiaries will preserve and maintain their existence except (i) for the
dissolution of any Material Subsidiaries whose assets are transferred to the
Borrower or any of its Material Subsidiaries, (ii) as otherwise expressly
permitted herein, and (iii) that any Subsidiary which is not a Guarantor or a
direct foreign Subsidiary of the Borrower may be dissolved and/or liquidated.
Section 6.2. Maintenance. The Borrower and its Material Subsidiaries
-----------
will maintain, preserve and keep its plants, properties and equipment necessary
to the proper conduct of its business in reasonably good repair, working order
and condition (normal wear and tear excepted) and will from time to time make
all reasonably necessary repairs, renewals, replacements, additions and
betterments thereto so that at all times such plants, properties and equipment
are reasonably preserved and maintained; provided, however, that nothing in this
Section 6.2 shall prevent the Borrower or any of its Subsidiaries from
discontinuing the operation or maintenance of any such plants, properties or
equipment if such discontinuance is, in the judgment of the Borrower or any of
its Subsidiaries, as applicable, desirable in the conduct of their businesses
and not materially disadvantageous to the Lenders.
Section 6.3. Taxes. The Borrower and its Material Subsidiaries will duly
-----
pay and discharge all Taxes upon or against it or its properties before payment
is delinquent and before penalties accrue thereon, unless and to the extent that
the same is being contested in good faith and by appropriate proceedings and
reserves have been established in conformity with GAAP.
Section 6.4. ERISA. The Borrower and its Subsidiaries will promptly pay
-----
and discharge all obligations and liabilities arising under ERISA or otherwise
with respect to each Plan of a character which if unpaid or unperformed might
result in the imposition of a material Lien against any properties or assets of
the Borrower and its Subsidiaries and will promptly notify the Agent of (i) the
occurrence of any reportable event (as defined in ERISA) relating to a Plan
(other than a multi-employer plan, as defined in ERISA, so long as the event
thereunder cannot reasonably be foreseen to have a Material Adverse Effect on
the Borrower or any of its Subsidiaries), other than any such event with respect
to which the PBGC has waived notice by regulation; (ii) receipt of any notice
from PBGC of its intention to seek termination of any Plan or appointment of a
trustee therefor; (iii) the Borrower's or any of its Subsidiaries' intention to
terminate or withdraw from any Plan; and (iv) the occurrence of any event that
could result in the incurrence of any material liability, fine or penalty, or
any material increase in the contingent liability of the Borrower or any of its
Subsidiaries, in connection with any post-retirement benefit under a welfare
plan benefit (as defined in ERISA). The Borrower will also promptly notify the
Agent of (i) any
43
<PAGE>
material contributions to any Foreign Plan that have not been made by the
required due date for such contribution if such default could reasonably be
expected to have a Material Adverse Effect; (ii) any Foreign Plan that is not
funded to the extent required by the law of the jurisdiction whose law governs
such Foreign Plan based on the actuarial assumptions reasonably used at any time
if such underfunding (together with any penalties likely to result) could
reasonably be expected to have a Material Adverse Effect; and (iii) any material
change anticipated to any Foreign Plan that could reasonably be expected to have
a Material Adverse Effect.
Section 6.5. Burdensome Restrictions, Etc. Promptly upon the existence
-----------------------------
or occurrence thereof, the Borrower shall give to the Agent written notice of
the existence or occurrence of (i) any contractual obligation or the adoption of
any new requirement of law which could reasonably be expected to have a Material
Adverse Effect, and (ii) the existence or occurrence of any strike, slow down or
work stoppage which could reasonably be expected to have a Material Adverse
Effect.
Section 6.6. Insurance. The Borrower and its Material Subsidiaries will
---------
maintain or cause to be maintained with responsible insurance companies,
insurance against any loss or damage to all insurable property and assets owned
by it, such insurance to be of a character and in or in excess of such amounts
as are customarily maintained by well-insured companies similarly situated and
operating like property or assets (subject to self-insured retentions), all of
which policies shall provide that no policy shall terminate without at least
thirty (30) days' advance written notice to the Agent and be reasonably
acceptable to the Agent. The Borrower and its Material Subsidiaries will also
insure employers' and public and product liability risks with responsible
insurance companies, all as reasonably acceptable to the Agent. The Borrower
will on or before March 31st of each calendar year and upon the request of the
Agent, furnish a certificate from an officer of the Borrower setting forth the
nature and extent of the insurance maintained pursuant to this Section 6.6.
Section 6.7. Financial Reports and Other Information. (a) The Borrower
---------------------------------------
and its Subsidiaries and the Unrestricted Subsidiaries will maintain a system of
accounting in such manner as will enable preparation of financial statements in
accordance with GAAP and will furnish to the Lenders and their respective
authorized representatives such information about the business and financial
condition of the Borrower and its Subsidiaries and the Unrestricted Subsidiaries
as any Lender may reasonably request; and, without any request, will furnish to
the Agent:
(i) within forty-five (45) days after the end of each of the first
three (3) fiscal quarters of each fiscal year of the Borrower, the
consolidated and consolidating balance sheet of the Borrower and its
Subsidiaries as at the end of such fiscal quarter and the related
consolidated and consolidating statements of income and retained earnings
and of cash flows for such fiscal quarter and for the portion of the fiscal
year ended with the last day of such fiscal quarter, all of which shall be
in reasonable detail and in the case of consolidated statements in the form
filed with the SEC, and certified by the chief financial officer of the
Borrower that they fairly present the financial condition of the Borrower
and its Subsidiaries as of the dates indicated and the results of their
operations and changes in their cash flows for the periods indicated and
that they have been prepared in accordance
44
<PAGE>
with GAAP, in each case, subject to normal year-end audit adjustments and
omission of any footnotes as permitted by the SEC;
(ii) within ninety (90) days after the end of each fiscal year of the
Borrower, the consolidated and consolidating balance sheets of the Borrower
and its Subsidiaries as at the end of such fiscal year and the related
consolidated and consolidating statements of income and retained earnings
and of cash flows for such fiscal year and setting forth consolidated
comparative figures for the preceding fiscal year and comparable budgeted
figures for such fiscal year and certified by the chief financial officer
of the Borrower, to the effect that such statements fairly present the
financial condition of the Borrower and its Subsidiaries as of the dates
indicated and the results of their operations and changes in their cash
flows, and in the case of the consolidated statements, audited by an
independent nationally-recognized accounting firm acceptable to the Agent
and in the form filed with the SEC;
(iii) promptly after presentation to the Board of Directors of the
Borrower, a projection for such year or the next year, as applicable, of
the Borrower's and its Subsidiaries' consolidated balance sheet and
consolidated income, retained earnings and cash flows showing such
projected budget for each fiscal quarter of the Borrower and its
Subsidiaries ending during such year or the next year, as applicable, and
for the Borrower's and its Subsidiaries' fiscal year-to-date at the end of
each fiscal quarter; and
(iv) within ten (10) days after the sending or filing thereof, copies
of all financial statements, projections, documents and other
communications that the Borrower sends to its stockholders or files with
the SEC or any similar governmental authority.
The Agent will forward promptly to the Lenders the information provided by the
Borrower pursuant to (i) through (iv) above.
(b) Each financial statement furnished to the Lenders pursuant to
subsections (i) and (ii) of Section 6.7(a) shall be in a form which shall
contain calculations (i) excluding the effects of any Unrestricted Subsidiaries,
(ii) separately stating all information required by such subsections for all
Unrestricted Subsidiaries, (iii) separately stating any eliminations used in
order to calculate the consolidated balance sheet, and (iv) stating aggregated
figures matching the consolidated statements of the Borrower in the form filed
with the SEC. Each such financial statement shall also be accompanied by (i) a
written certificate signed by the Borrower's chief financial officer, in his
capacity as such, to the effect that (x) no Default or Event of Default has
occurred during the period covered by such statements or, if any such Default or
Event of Default has occurred during such period, setting forth a description of
such Default or Event of Default and specifying the action, if any, taken by the
Borrower to remedy the same, and (y) the representations and warranties
contained herein are true and correct in all material respects as though made on
the date of such certificate, except to the extent that any such representation
or warranty relates solely to an earlier date, in which case it was true and
correct as of such earlier date and except as otherwise described therein, as a
result of the transactions expressly permitted hereunder or as previously
disclosed to the Lenders, and (ii) a Compliance Certificate in the form of
Exhibit 6.7 showing the Borrower's compliance with the covenants set forth
herein. Together
45
<PAGE>
with the financial statements required pursuant to subsections (i) and (ii) of
Section 6.7(a), the Borrower shall furnish to the Lenders a certificate of the
chief financial officer of the Borrower reporting all Transfers of assets
effected by the Borrower and its Subsidiaries during the fiscal year covered by
such financial statements, including the asset value of such assets and the
amounts received by the Borrower and its Subsidiaries with respect to such
Transfers, and such other information regarding such transactions as the Agent
may reasonably request.
(c) Each projection furnished to the Lenders pursuant to subsection (iii)
of Section 6.7(a) shall be accompanied by a written certificate signed by the
Borrower's chief financial officer, in his capacity as such, to the effect that
(i) it has been prepared on the basis of the Borrower's historical financial
statements and records, and (ii) it reflects the reasonable assumptions of the
Borrower's management as to the matters set forth therein.
(d) Promptly upon receipt thereof, the Borrower will provide the Agent with
a copy of each report or "management letter" submitted to the Borrower, any of
its Material Subsidiaries or any Unrestricted Subsidiary by its independent
accountants or auditors in connection with any annual, interim or special audit
made by them of the books and records of the Borrower, any of its Material
Subsidiaries or any Unrestricted Subsidiary.
(e) Promptly after obtaining knowledge of any of the following, the
Borrower will provide the Agent with written notice in reasonable detail of:
(i) any pending or threatened material Environmental Claim against the
Borrower, any of its Subsidiaries or any Unrestricted Subsidiary or any
property owned or operated by the Borrower, any of its Subsidiaries or any
Unrestricted Subsidiary;
(ii) any condition or occurrence on any property owned or operated by
the Borrower, any of its Subsidiaries or any Unrestricted Subsidiary that
results in material noncompliance by the Borrower, any of its Subsidiaries
or any Unrestricted Subsidiary with any Environmental Law;
(iii) the taking of any material removal or remedial action in
response to the actual or alleged presence of any Hazardous Material on any
property owned or operated by the Borrower, any of its Subsidiaries or any
Unrestricted Subsidiary.
In addition, the Borrower shall provide the Agent with copies of all
Environmental Claims and responses thereto by the Borrower, any of its
Subsidiaries or any Unrestricted Subsidiary and any reports or data submitted to
any governmental agency relating to an Environmental Claim, and such detailed
reports of and material communications with any Person concerning any
Environmental Claim as may reasonably be requested by the Agent.
(f) The Borrower will promptly and in any event, within five (5) days after
an officer of the Borrower has knowledge thereof, give written notice to the
Agent of (who will in turn provide notice to the Lenders thereof): (i) any
pending or threatened litigation against the Borrower, any of its Subsidiaries
or any Unrestricted Subsidiary asserting any claim or claims
46
<PAGE>
against any of same in excess of $5,000,000 in the aggregate; (ii) the
occurrence of any mandatory prepayment event, Default, Event of Default or
default or event of default under the Subordinated Indenture; (iii) any
litigation or governmental proceeding of the type described in Section 5.4; (iv)
any circumstance that has had or reasonably threatens a Material Adverse Effect;
and (v) any event which would result in a breach of, or reasonably threatens a
breach of, Sections 6.22, 6.23 or 6.24.
Section 6.8. Lender Inspection Rights. Upon reasonable notice from the
------------------------
Agent or any Lender, the Borrower will permit the Agent or any Lender (and such
Persons as the Agent or such Lender may designate) during normal business hours
following reasonable notice to visit and inspect any of the properties of the
Borrower, any of its Subsidiaries or any Unrestricted Subsidiary, to examine all
of their books and records, to make copies and extracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
officers, employees and independent public accountants (and by this provision
the Borrower each authorize such accountants to discuss with the Agent and any
Lender (and such Persons as the Agent or such Lender may designate) the affairs,
finances and accounts of the Borrower and its Subsidiaries), all at such
reasonable times and as often as may be reasonably requested. Any such
inspection shall be at the expense of the Borrower up to one (1) time a year,
and if conducted any more frequently, at the expense of the Agent or the Lender
conducting such inspection unless a Default or Event of Default shall have
occurred and be continuing, in which event such inspection shall be at the
expense of the Borrower.
Section 6.9. Conduct of Business. Except as expressly permitted herein,
-------------------
the Borrower and its Material Subsidiaries will not engage in any line of
business other than the oilfield services and oilfield equipment manufacturing
businesses and except for the application of acquired, existing and developed
technologies to industries and markets outside of such business (each, a
"Permitted Business").
Section 6.10. Interest Rate Protection. The Borrower will maintain
------------------------
protection against increases in interest rates pursuant to one or more Interest
Rate Protection Agreements on at least fifty percent (50%) of the outstanding
balance of the Term Loans until August 6, 1999. If ABN AMRO or a Lender is the
counterparty to an Interest Rate Protection Agreement, any obligations of the
Borrower thereunder shall be secured pari passu by the Stock Pledge Agreements,
if any, and cross defaulted.
Section 6.11. New Subsidiaries; Foreign Subsidiaries. (a) The Borrower
--------------------------------------
will cause any direct or indirect domestic Subsidiary of the Borrower (i) which
Subsidiary is formed or acquired after the Effective Date and which is a
Material Subsidiary, or (ii) which Subsidiary becomes a Material Subsidiary
after the Effective Date, to become a Guarantor with respect to, and jointly and
severally liable with all other Guarantors for, all of the obligations under
this Agreement and the Notes within thirty (30) days following such formation or
acquisition pursuant to a Subsidiary Guaranty substantially in the form of
Exhibit 10.2A hereto. The Borrower will cause the capital stock of any foreign
Material Subsidiary to be owned at all times directly by it or by a domestic
Subsidiary of the Borrower which shall be a Guarantor hereunder. The Borrower
shall pledge all of the capital stock owned by it of, but in no event more than
sixty-six percent (66%) of the capital
47
<PAGE>
stock, of any foreign Subsidiary which is a direct Material Subsidiary or which
becomes a direct Material Subsidiary of the Borrower after the Effective Date
pursuant to a Stock Pledge Agreement, and any certificates representing such
stock, together with stock powers duly executed in blank, or such other
documentation as necessary to perfect the pledge of such stock shall be
delivered to the Agent within thirty (30) days following such formation or
acquisition.
Section 6.12. Limitation on Certain Restrictions on Subsidiaries;
---------------------------------------------------
Dividends; Negative Pledges. (a) The Borrower and its Subsidiaries will not,
- ---------------------------
directly or indirectly, create or otherwise permit to exist or become effective
any restriction on the ability of any of their Subsidiaries to (i) pay dividends
or make any other distributions on its capital stock, or any other interest or
participation in its profits, owned by the Borrower or pay any Indebtedness owed
to the Borrower, or (ii) make loans or advances to the Borrower or any of its
Subsidiaries, except in either case for restrictions existing under or by reason
of applicable law, this Agreement and the other Credit Documents or in the
Public Debt Issue documents and except for any restrictions existing in
connection with any Subsidiary acquired by the Borrower after the Effective
Date, in which case the Borrower shall either promptly cause the removal or
release of any such restrictions or not advance the proceeds of any Loan to such
Subsidiary even if otherwise permitted by this Agreement.
(b) The Borrower and it Subsidiaries shall not redeem, purchase or
otherwise acquire any shares of its capital stock other than as permitted
herein, or declare or pay any dividends on its capital stock, make any
distribution or payment to stockholders, or set aside any funds for such
purpose, except: (i) the Borrower may redeem, purchase or otherwise acquire its
capital stock or declare and pay dividends on its capital stock so long as it
maintains (after giving effect to any such redemption, purchase or acquisition
or the payment of any such distribution or dividend) a ratio of Total Funded
Debt to Total Capital of no greater than 40%, provided that the Borrower may
redeem, purchase or otherwise acquire its capital stock in an aggregate amount
of up to $15,000,000 during the period from January 1, 1998, through December
31, 1998; (ii) any Subsidiary of the Borrowers may declare and pay dividends or
make distributions to the Borrowers and make payments to the Borrowers on any
obligations or liabilities, including Indebtedness, owing to any of the
Borrowers; (iii) scheduled interest payments may be made on the Public Debt
Issue; (iv) any Subsidiary of the Borrower may make payments to the Borrower for
all reasonable amounts owing to the Borrower in the ordinary course of business
for the Borrower's and their Subsidiaries' pro rata share of such ordinary
course items as insurance, taxes and professional fees and expenses, provided
that such ordinary course items are incurred in compliance with the arm's length
requirements of Section 6.20 and (v) capital stock of the Borrower may be
purchased (or the purchase thereof funded) or otherwise acquired by the Borrower
or its Subsidiaries for any Code Section 401(K) plan, Code Section 423 plan or
Plan of the Borrower or any of its Subsidiaries; in each case so long as no
Default or Event of Default shall have occurred and be continuing or would occur
as a result of such redemption, purchase, acquisition or payment.
(c) The Borrower and its Subsidiaries shall not enter into any agreement
other than this Agreement, the Credit Documents and the Public Debt Issue
documents prohibiting the creation or assumption of any Lien upon its
properties, revenues or assets, whether now owned or hereafter acquired (except
in connection with any Permitted Liens described in Section 6.15(e), (f) or (g),
48
<PAGE>
or prohibiting or restricting the ability of the Borrower or any of its
Subsidiaries to amend or otherwise modify this Agreement or any Credit Document.
Section 6.13. Restrictions on Fundamental Changes. Neither the Borrower
-----------------------------------
nor any of its Subsidiaries shall be a party to any merger into or consolidation
with, or purchase or otherwise acquire all or substantially all of the assets or
stock of, any other Person, or sell all or substantially all of its assets or
stock, except:
(a) the Borrower or any of its Subsidiaries may merge into or consolidate
with, or purchase or otherwise acquire all or substantially all of the assets or
stock of any other Person if upon the consummation of any such merger,
consolidation, purchase or acquisition, (i) the Borrower or such Subsidiary is
the surviving corporation to any such merger or consolidation (or the other
Person will thereby become a Subsidiary); (ii) Sections 6.11 and 6.12(a) are
complied with to the extent applicable; (iii) the Borrower or such Subsidiary
has the power and authority under the pertinent agreement and under applicable
law to subject the assets of such acquired Person to the provisions of this
Agreement and such assets are so subjected to the provisions of this Agreement;
(iv) the nature of the business of such acquired Person is a Permitted Business;
(v) such merger, consolidation, purchase or Acquisition is non-hostile in
nature; (vi) the Borrower shall have delivered to the Agent within ten (10)
Business Days prior to the consummation of any Acquisition a report signed by an
executive officer of the Borrower in the form of Exhibit 6.13 which shall
contain a certification that the purchase price of such Acquisition does not
exceed $40,000,000 and which shall contain calculations demonstrating on a pro
forma basis (x) the Borrower's compliance with Section 6.23 (such calculation to
include pro forma Indebtedness incurred or assumed in connection with such
Acquisition) and Section 6.24 and (y) that the ratio of EBITDA to Consolidated
Interest Expense plus all dividends paid by the Borrower as permitted herein
shall not be less than 3:0 to 1:0 immediately after the consummation of such
Acquisition (such calculations to use historical EBITDA and dividends paid for
the prior twelve (12)-month period except for (i) the normalization of
dividends, distributions or bonuses to any prior owner and of corporate overhead
costs that will not recur after the Acquisition date, and (2) any appropriate
adjustments for non-GAAP reporting and such calculations to include pro forma
interest expense for the following twelve (12)-month period with respect to any
Indebtedness incurred or assumed in connection with such Acquisition) all as
reasonably satisfactory to the Agent; and (vii) no Default or Event of Default
shall have occurred and be continuing or would otherwise be existing as a result
of such merger, consolidation, purchase or acquisition;
(b) the Borrower may purchase or otherwise acquire all or substantially all
of the stock or assets of, or otherwise acquire by merger or consolidation, any
Subsidiary; and any Subsidiary may merge into, or consolidate with, or purchase
or otherwise acquire all or substantially all of the assets or stock of or sell
all or substantially all of their assets or stock to, any other Subsidiary or
the Borrower; in each case so long as (i) if the transaction is with the
Borrower, the Borrower shall be the surviving entity to any such merger or
consolidation, (ii) Sections 6.11 and 6.12(a) are complied with to the extent
applicable, and (iii) no Default or Event of Default shall have occurred and be
continuing or would otherwise be existing after or result from such merger,
consolidation, purchase or acquisition; provided however (x) no domestic
Material Subsidiary may sell all or substantially all of its assets to a foreign
Subsidiary, or merge into or consolidate with
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any foreign Subsidiary unless the domestic Material Subsidiary shall be the
surviving corporation; and (y) no direct foreign Material Subsidiary may sell
all or substantially all of its assets to an indirect foreign Subsidiary, or
merge into or consolidate with any indirect foreign Subsidiary, unless the
direct foreign Material Subsidiary shall be the surviving corporation or unless
the aggregate amount of all such sales, or the assets of any such direct foreign
Material Subsidiaries so merged or consolidated into an indirect foreign
Subsidiary, as the case may be, during the term of this Agreement shall not
exceed $20,000,000 (in each case valued at fair market value as determined by
the Borrower with the consent of the Agent, which consent shall not be
unreasonably withheld); and
(c) any majority ownership of the Borrower or any of its Subsidiaries in a
foreign joint venture or foreign Subsidiary may decrease to a minority ownership
as necessary to comply with any foreign law or other requirements to doing
business in such foreign jurisdiction; and
(d) any other Transfers permitted hereunder.
Except as otherwise permitted in this Section 6.13, (i) the Borrower shall not
issue, sell or dispose of any capital stock of any Material Subsidiaries and
(ii) neither the Borrower nor any of its Subsidiaries shall issue, sell or
dispose of any capital stock of any other Subsidiary unless the Net Cash
Proceeds are made as a prepayment of the Term Loans pursuant to Section 2.11.
Section 6.14. Environmental Laws. The Borrower and its Subsidiaries shall
------------------
comply with all Environmental Laws applicable to or affecting the properties or
business operations of the Borrower or any of its Subsidiaries except as could
not reasonably be expected to have a Material Adverse Effect.
Section 6.15. Liens. The Borrower shall not create, incur, assume or
-----
suffer to exist any Lien of any kind on any property or asset of any kind of the
Borrower or any of its Subsidiaries, except the following (collectively, the
"Permitted Liens"):
(a) Liens arising in the ordinary course of business by operation of law in
connection with workers' compensation, unemployment insurance, old age benefits,
social security obligations, taxes, assessments, statutory obligations or other
similar charges, good faith deposits, pledges or other Liens in connection with
(or to obtain letters of credit in connection with) bids, performance bonds,
contracts or leases to which the Borrower or its Subsidiaries are a party or
other deposits required to be made in the ordinary course of business; provided
that in each case the obligation secured is not for Indebtedness and is not
overdue or, if overdue, is being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP have been provided therefor;
(b) mechanics', workmen, materialmen, landlords', carriers' or other
similar Liens arising in the ordinary course of business (or deposits to obtain
the release of such Liens) related to obligations not due or, if due, that are
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP have been provided therefor;
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(c) Inchoate Liens under ERISA and liens for Taxes not yet due or which are
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP have been provided therefor;
(d) Liens arising out of judgments or awards against the Borrower or any of
its Subsidiaries, or in connection with surety or appeal bonds or the like in
connection with bonding such judgments or awards, the time for appeal from which
or petition for rehearing of which shall not have expired or for which the
Borrower or such Subsidiary shall be prosecuting on appeal or proceeding for
review, and for which it shall have obtained a stay of execution or the like
pending such appeal or proceeding for review; provided that the aggregate amount
of uninsured or underinsured liabilities (including interest, costs, fees and
penalties, if any) of the Borrower and its Subsidiaries secured by such Liens
shall not exceed $5,000,000 at any one time outstanding and provided further
that there is adequate assurance, in the sole discretion of the Majority Lenders
that the insurance proceeds attributable thereto shall be paid promptly upon the
expiration of such time period or resolution of such proceeding if necessary to
remove such Liens;
(e) Liens securing Indebtedness permitted by Sections 6.16(f);
(f) Liens securing indebtedness permitted by Section 6.16(n) and to the
extent included in Section 6.16(n), Section 6.16(l), up to an aggregate amount
of $20,000,000, provided that such Liens do not encumber cash, deposit accounts,
Cash Equivalents, accounts receivable, stock or interests in the Borrower or any
of its Subsidiaries (including, without limitation, Collateral), or any other
Investments permitted hereunder;
(g) Liens existing on the date hereof and listed on Schedule 6.15;
(h) any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part of any Lien referred to in the
foregoing subsections (e) through (g), provided, however, that the principal
amount of Indebtedness secured thereby does not exceed the principal amount
secured at the time of such extension, renewal or replacement and such
extension, renewal or replacement is limited to the property already subject to
the Lien so extended, renewed or replaced;
(i) Liens on property (other than Collateral) securing Indebtedness
aggregating no greater than $1,000,000, with no one Lien securing Indebtedness
in an amount greater than $500,000, provided the Borrower causes the release or
bonding around of any such Liens within thirty (30) days of the attachment of
any such Lien;
(j) Liens created by any Credit Documents;
(k) rights reserved to or vested in any municipality or governmental,
statutory or public authority by the terms of any right, power, franchise,
grant, license or permit, or by any provision of law, to terminate such right,
power, franchise, grant, license or permit or to purchase, condemn, expropriate
or recapture or to designate a purchaser of any of the property of a Person;
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(l) rights reserved to or vested in any municipality or governmental,
statutory or public authority to control, regulate or use any property of a
Person;
(m) rights of a common owner of any interest in property held by a Person
and such common owner as tenants in common or through other common ownership;
(n) encumbrances (other than to secure the payment of Indebtedness),
easements, restrictions, servitudes, permits, conditions, covenants, exceptions
or reservations in any property or rights-of-way of a Person for the purpose of
roads, pipelines, transmission lines, transportation lines, distribution lines,
removal of gas, oil, coal, metals, steam, minerals, timber or other natural
resources, and other like purposes, or for the joint or common use of real
property, rights-of-way, facilities or equipment, or defects, irregularity and
deficiencies in title of any property or rights-of-way;
(o) zoning, planning and Environmental Laws and ordinances and municipal
regulations;
(p) financing statements filed by lessors of property (but only with
respect to the property so leased) and Liens under any conditional sale or title
retention agreements entered into in the ordinary course of business;
(q) Liens of no greater than $500,000 in the aggregate on the assets (other
than Collateral) of any Subsidiary;
(r) rights of lessees of equipment owned by the Borrower or any of its
Subsidiaries; and
(s) Liens on the stock or assets of Unrestricted Subsidiaries.
Section 6.16. Indebtedness. The Borrower and its Subsidiaries shall not
------------
contract, assume or suffer to exist any Indebtedness, except:
(a) Indebtedness under the Credit Documents;
(b) existing Indebtedness outstanding on the Effective Date and listed on
Schedule 5.20, and any subsequent extensions, renewals or refinancings thereof
so long as such Indebtedness is not increased in amount, the maturity date
thereof is not made earlier in time, the interest rate per annum applicable
thereto is not increased, any amortization of principal thereunder is not
shortened and the payments thereunder are not increased;
(c) Indebtedness under any Interest Rate Protection Agreements entered into
to protect the Borrower against fluctuations in interest rates on Obligations
under the Loans;
(d) Indebtedness incurred in connection with the Liens permitted by Section
6.15 (other than Section 6.15(f));
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(e) Capitalized Lease Obligations;
(f) purchase money Indebtedness on assets acquired, but only if such
Indebtedness does not exceed eighty percent (80%) of the purchase price of such
assets and the aggregate amount of such Indebtedness does not exceed $2,000,000
at any one time outstanding;
(g) unsecured intercompany loans and advances from the Borrower to any of
its Subsidiaries or from any of its Subsidiaries to the Borrower or any other
such Subsidiaries except as expressly restricted hereunder;
(h) Indebtedness under unsecured foreign exchange futures agreements,
arrangements or options designed to protect against fluctuations in currency
exchange rates from time to time entered into not for speculative purposes and
in accordance with customary industry practice;
(i) Indebtedness under unsecured overdraft lines of credit; provided that
the aggregate amount of such Indebtedness shall not exceed $10,000,000 at any
time outstanding;
(j) Indebtedness of Unrestricted Subsidiaries, provided that, the obligee
thereof has no recourse of any nature (including, but not limited to, as a
result of a performance or payment Guaranty) to the Borrower or any of its
Subsidiaries;
(k) unsecured Indebtedness assumed or seller financing incurred in
connection with an Acquisition; provided that such Indebtedness is subordinated
to the Obligations hereunder on terms and conditions reasonably satisfactory to
the Agent; and provided further that such seller financing may be secured
provided that such secured seller financing shall be included as other
Indebtedness under Section 6.16(m) and not this Section 6.16(k);
(l) Indebtedness under the Public Debt Issue and any unsecured Guaranties
of such Indebtedness by any Guarantor, provided that no optional redemptions or
other prepayments can be made thereof prior to the repayment of all Obligations,
the expiration of all Letters of Credit and the termination of all Commitments,
the payment of such Indebtedness may not be guaranteed by any Subsidiary of the
Borrower which is not a Guarantor hereunder and the terms and provisions of any
Guaranties of such Indebtedness shall be no more onerous than the terms and
provisions of the Subsidiary Guaranties; and
(m) other Indebtedness not otherwise covered by this Section 6.16 not to
exceed $20,000,000 at any time outstanding; provided that the terms and
conditions of such Indebtedness are no more onerous than the terms and
conditions of the Obligations hereunder and no payments or prepayments can be
made thereon so long as a Default or Event of Default shall have occurred and be
continuing hereunder.
Section 6.17. Advances, Investments and Loans. The Borrower and its
-------------------------------
Subsidiaries shall not lend money or make advances to any Person, or purchase or
acquire any stock, indebtedness, obligations or securities of, or any other
interest in, or make any capital contribution to, any Person (any of the
foregoing, an "Investment") except:
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(a) Investments in Cash Equivalents and deposit accounts;
(b) receivables owing to the Borrower or its Subsidiaries created or
acquired in the ordinary course of business and payable on customary trade terms
of the Borrower or such Subsidiary and in compliance with the arm's-length
requirements of Section 6.20;
(c) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the
ordinary course of business;
(d) Interest Rate Protection Agreements entered into in compliance with
Section 6.16(d);
(e) deposits made in the ordinary course of business consistent with past
practices to secure the performance of leases;
(f) unsecured intercompany loans, advances and capital contributions from
the Borrower to any of its Subsidiaries from any of its Subsidiaries to the
Borrower or any other such Subsidiaries except as expressly restricted
hereunder;
(g) loans and advances by the Borrower and its Subsidiaries to employees of
the Borrower and its Subsidiaries for (i) short-term loans in an aggregate
amount of no greater than $500,000 at any one time outstanding and in an amount
no greater than $50,000 for any Person, (ii) moving and travel expenses and
other similar expenses; in each case incurred in the ordinary course of
business, and (iii) loans in an aggregate amount of no greater than $2,500,000
for purchases of stock of the Borrower by officers of the Borrower or its
Subsidiaries;
(h) joint ventures between any foreign Subsidiary of the Borrower and any
other Person;
(i) the purchase of stock in, or an investment by a foreign Subsidiary of
the Borrower in, an insurance company for the purpose of obtaining credit and
political risk insurance for export sales;
(j) the purchase or acquisition of stock in the Borrower for a Code Section
401K plan, Code Section 423 plan or Plan of the Borrower or any of its
Subsidiaries;
(k) as permitted by Sections 6.12 or 6.13; and
(l) Investments in Unrestricted Subsidiaries and Investments in minority
interests in entities engaged primarily in a Permitted Business, provided that
none of the Borrower or its Subsidiaries shall be liable for any Indebtedness or
other obligations of any of such Unrestricted Subsidiaries or entities and all
such Investments (including any future required capital contributions) do not
exceed in the aggregate $10,000,000 at any time outstanding, the value of such
Investments if not made in cash to be agreed upon by the Borrower and the Agent
at the time of such Investment, or, if required by the Agent, to be determined
by a third party appraiser to
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be agreed upon by the Borrower and the Agent (or selected by the Agent if such
agreement is not reached).
Section 6.18. Modifications of Corporate Documents. The Borrower nor any
------------------------------------
of its Subsidiaries shall amend, modify or change in any way materially adverse
to the interests of the Lenders, its Certificate or Articles of Incorporation or
By-laws or other comparable corporate governance documents or any agreement
entered into by it related to its capital stock (including any shareholders'
agreement), or enter into any new agreement related to its capital stock;
provided that the Borrower may adopt poison pill provisions in the exercise of
its business judgment. The Borrower shall not amend or modify, or permit the
amendment or modification of, any provision of the Public Debt Issue or any
Guaranty of the Public Debt Issue in any way adverse to the interests of the
Lenders.
Section 6.19. Transfer of Assets. The Borrower and its Subsidiaries shall
------------------
not permit any Transfer of an asset of the Borrower or any of its Subsidiaries
except:
(a) Transfers of inventory and mill equipment and other assets in the
ordinary course of business;
(b) the discounting and sale of trade accounts receivable of foreign
account debtors of the Borrower and such Subsidiaries consistent with the
Borrower's and such Subsidiaries' past practice and in the ordinary course of
their businesses;
(c) the retirement or replacement of assets in the ordinary course of
business;
(d) Transfers of any assets among the Borrower or any of its Subsidiaries,
provided that, except as otherwise permitted hereunder (i) a domestic Subsidiary
may not Transfer any assets to a foreign Subsidiary, except for any obsolete
assets or assets not used by such domestic Subsidiary and which assets shall be
used by the foreign Subsidiary in the ordinary course of its business; and (ii)
a domestic Material Subsidiary may not Transfer any assets to a foreign
Subsidiary which is not a direct Material Subsidiary of the Borrower, except for
any assets to be used by such indirect foreign Subsidiary in the ordinary course
of its business and as advisable to perform a contract or services in a
particular geographical area and except as provided in Section 6.13(b);
(e) any Transfers permitted by Sections 6.12 or 6.13;
(f) the Transfers of any assets not otherwise covered by this Section 6.19
(including the sale and leaseback of assets) generating Net Cash Proceeds of up
to an aggregate of $1,000,000 per fiscal year; provided that Transfers of assets
generating Net Cash Proceeds of an aggregate amount greater than $1,000,000 per
fiscal year may be made so long as a mandatory prepayment of such Net Cash
Proceeds is made pursuant to the provisions of Section 2.11;
(g) the Liens permitted by Section 6.15; and
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(h) the sale and license back of licenses, patents or other intellectual
property.
Section 6.20. Transactions with Affiliates. Except as otherwise
----------------------------
specifically permitted herein, the Borrower and its Subsidiaries shall not enter
into or be a party to any material transaction or arrangement or series of
related transactions or arrangements which in the aggregate would be material
with any Affiliate of such Person, including without limitation, the purchase
from, sale to or exchange of property with, any merger or consolidation with or
into, or the rendering of any service by or for, any Affiliate, except pursuant
to the reasonable requirements of such entity's business and upon fair and
reasonable terms no less favorable to such entity than would be able to be
obtained in a comparable arm's-length transaction with a Person other than an
Affiliate.
Section 6.21. Compliance with Laws. Without limiting any of the other
--------------------
covenants of the Borrower and its Subsidiaries in this Section 6, the Borrower
and its Subsidiaries shall conduct their businesses and otherwise be, in
compliance with all applicable laws, regulations, ordinances and orders of any
governmental or judicial authorities; provided, however, that this Section 6.21
shall not require the Borrower or any of its Subsidiaries to comply with any
such law, regulation, ordinance or order if (i) it shall be contesting such law,
regulation, ordinance or order in good faith by appropriate proceedings and
reserves in conformity with GAAP have been provided therefor, or (ii) the
failure to comply therewith could not reasonably be expected to have a Material
Adverse Effect.
Section 6.22. Interest Coverage Ratio. The Borrower will not permit the
-----------------------
Interest Coverage Ratio at any time to be less than 2:5 to 1:0.
Section 6.23. Total Funded Debt to Total Capital Ratio. The Borrower will
----------------------------------------
maintain a ratio of Total Funded Debt to Total Capital of (i) no greater than
50% during the period from the Effective Date through December 31, 1997, (ii) no
greater than 45% during the period from January 1, 1998 through December 31,
1998, and (iii) no greater than 40% during the period from January 1, 1999,
until the final Maturity Date for all Loans.
Section 6.24. Minimum Consolidated Net Worth. The Borrower will maintain
------------------------------
a minimum Consolidated Net Worth of not less than the Minimum Amount. The term
"Minimum Amount" means, as of any date of determination, an amount equal to the
sum of (i) $191,992,000 plus (ii) for each full fiscal year ended prior to (but
not on) such date of determination, commencing for the fiscal year ended on
December 31, 1997, an amount equal to 50% of Consolidated Net Income for such
full fiscal year, if positive, plus (iii) for the fiscal year during which such
date of determination falls, an amount equal to 75% of the amount of any equity
issuance by the Borrower, including a secondary offering or where equity is used
to acquire another entity in an Acquisition, plus (iv) 80% of the stockholders
equity of any entity acquired in an Acquisition for which the Borrower uses the
pooling of interest method of accounting in accordance with GAAP.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES.
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Section 7.1. Events of Default. Any one or more of the following shall
-----------------
constitute an Event of Default:
(a) default by the Borrower in the payment of the principal amount of any
Loan, any Reimbursement Obligation, any interest thereon or any fees payable
hereunder within five (5) days following the date when due;
(b) default by the Borrower in the observance or performance of any
covenant set forth in Sections 6.12, 6.13, 6.19, 6.22, 6.23 or 6.24;
(c) default by any Credit Party in the observance or performance of any
provision hereof or of any other Credit Document not mentioned in (a) or (b)
above, which is not remedied within thirty (30) days after notice thereof to the
Borrower by the Agent;
(d) any representation or warranty made herein or in any other Credit
Document by the Borrower or any of its Subsidiaries proves untrue in any
material respect as of the date of the issuance or making, or deemed issuance or
making thereof;
(e) default occurs in the payment when due (after any applicable grace
period) of Indebtedness in an aggregate principal amount of $5,000,000 or more
of the Borrower or any of its Subsidiaries, default occurs in the payment when
due (after any applicable grace period) of the Public Debt Issue, or the
occurrence of any other default, which with the passage of time or notice would
permit the holder or beneficiary of such Indebtedness, or a trustee therefor, to
cause the acceleration of the maturity of any such Indebtedness or any mandatory
unscheduled prepayment, purchase, or other early funding thereof;
(f) the Borrower or any of its Material Subsidiaries (i) has entered
involuntarily against it an order for relief under the United States Bankruptcy
Code or a comparable action is taken under any bankruptcy or insolvency law of
another country or political subdivision of such country, (ii) generally does
not pay, or admits its inability generally to pay, its debts as they become due,
(iii) makes a general assignment for the benefit of creditors, (iv) applies for,
seeks, consents to, or acquiesces in, the appointment of a receiver, custodian,
trustee, examiner, liquidator or similar official for it or any substantial part
of its property, (v) institutes any proceeding seeking to have entered against
it an order for relief under the United States Bankruptcy Code or any comparable
law, to adjudicate it insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, adjustment or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors or fails to file an answer or other pleading denying the
material allegations of any such proceeding filed against it, (vi) makes any
board of directors resolution in direct furtherance of any matter described in
clauses (i)-(v) above, or (vii) fails to contest in good faith any appointment
or proceeding described in Section 7.1(g);
(g) a custodian, receiver, trustee, examiner, liquidator or similar
official is appointed for the Borrower or any of its Subsidiaries or any
substantial part of its property, or a proceeding described in Section 7.1(f)(v)
is instituted against the Borrower or any of its Material Subsidiaries,
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and such appointment continues undischarged or such proceeding continues
undismissed or unstayed for a period of sixty (60) days;
(h) the Borrower or any of its Subsidiaries fails within thirty (30) days
(or such earlier date as any steps to execute on such judgment or order take
place) to pay, bond or otherwise discharge, or to obtain an indemnity against on
terms and conditions satisfactory to the Majority Lenders in their sole
discretion, any judgment or order for the payment of money in excess of
$5,000,000 which is uninsured or underinsured by at least such amount (provided
that there is adequate assurance, in the sole discretion of the Majority
Lenders, that the insurance proceeds attributable thereto shall be paid promptly
upon the expiration of such time period or resolution of such proceeding), which
is not stayed on appeal or otherwise being appropriately contested in good faith
in a manner that stays execution;
(i) the Borrower or any of its Subsidiaries fails to pay when due an amount
aggregating in excess of $5,000,000 that it is liable to pay to the PBGC or to a
Plan under Title IV of ERISA; or a notice of intent to terminate a Plan having
Unfunded Vested Liabilities of the Borrower or any of its Subsidiaries in excess
of $5,000,000 (a "Material Plan") is filed under Title IV of ERISA; or the PBGC
institutes proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any Material Plan; or a proceeding is
instituted by a fiduciary of any Material Plan against the Borrower or any of
its Subsidiaries to collect any liability under Section 515 or 4219(c)(5) of
ERISA and such proceeding is not dismissed within thirty (30) days thereafter;
or a condition exists by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated;
(j) any Credit Party, any Person acting on behalf of a Credit Party, or any
governmental authority challenges the validity of any Credit Document or such
Credit Party's obligations thereunder or any Credit Document ceases to be in
full force and effect or ceases to give to the Agent and the Lenders the rights
and powers purported to be granted in their favor thereby;
(k) any event of default or default described in any Interest Rate
Protection Agreement or futures agreement permitted pursuant to Section 6.16(i)
with any Lender shall occur after any applicable grace period therefor; or
(l) any Person or two or more Persons acting in concert, other than (a)
L.E. Simmons, (b) SCF-III L.P., (c) D.O.S. Partners, Ltd., (d) Kadoorie McAulay
International Ltd., (e) Actinium Holding Corporation, (f) Baker Hughes
Incorporated or (g) any Affiliates of the Persons listed in (a) - (f), shall
acquire beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934), directly or indirectly, of securities of the Borrower (or
other securities convertible into such securities) representing fifty percent
(50%) or more of the combined voting power of all outstanding securities of the
Borrower entitled to vote in the election of directors, other than securities
having such power only by reason of the happening of a contingency.
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Section 7.2. Non-Bankruptcy Defaults. When any Event of Default other
-----------------------
than those described in subsections (f) or (g) of Section 7.1 has occurred and
is continuing, the Agent shall, by notice to the Borrower: (a) if so directed by
the Majority Lenders, terminate the remaining Commitments and Agent Credit
Commitment and all other obligations of the Lenders hereunder on the date stated
in such notice (which may be the date thereof); (b) if so directed by the
Majority Lenders, declare the principal of and the accrued interest on all
outstanding Notes to be forthwith due and payable and thereupon all outstanding
Notes, including both principal and interest thereon, shall be and become
immediately due and payable together with all other amounts payable under the
Credit Documents without further demand, presentment, protest or notice of any
kind, including, but not limited to, notice of intent to accelerate and notice
of acceleration, each of which is expressly waived by the Borrower; (c) if so
directed by the Majority Lenders, demand that the Borrower immediately pay to
the Agent (to be held by the Agent pursuant to Section 7.4) the full amount then
available for drawing under each or any outstanding Letter of Credit; and (d) if
so elected by the Agent, demand that the Borrower immediately pay to the Agent
the full amount then available for drawing under each or any outstanding Agent
Letter of Credit; and the Borrower agrees to immediately make such payment and
acknowledges and agrees that the Lenders would not have an adequate remedy at
law for failure by the Borrower to honor any such demand and that the Agent, for
the benefit of the Lenders (or on its own behalf with respect to Agent Letters
of Credit), shall have the right to require the Borrower to specifically perform
such undertaking whether or not any drawings or other demands for payment have
been made under any Letter of Credit or Agent Letter of Credit. The Agent,
after giving notice to the Borrower pursuant to Section 7.1(c) or (d) or this
Section 7.2, shall also promptly send a copy of such notice to the other
Lenders, but the failure to do so shall not impair or annul the effect of such
notice.
Section 7.3. Bankruptcy Defaults. When any Event of Default described in
-------------------
subsections (f) or (g) of Section 7.1 has occurred and is continuing with
respect to the Borrower, then all outstanding Notes shall immediately become due
and payable together with all other amounts payable under the Credit Documents
without presentment, demand, protest or notice of any kind, each of which is
expressly waived by the Borrower; and all obligations of the Lenders to extend
further Credit pursuant to any of the terms hereof shall immediately terminate,
and the Borrower shall immediately pay to the Agent (to be held by the Agent
pursuant to Section 7.4) the full amount then available for drawing under all
outstanding Letters of Credit and Agent Letters of Credit, the Borrower
acknowledging that the Lenders and the Agent would not have an adequate remedy
at law for failure by the Borrower to honor any such demand and that the Lenders
and the Agent shall have the right to require the Borrower to specifically
perform such undertaking whether or not any drawings or other demands for
payment have been made under any of the Letters of Credit or Agent Letters of
Credit.
Section 7.4. Collateral for Undrawn Letters of Credit. (a) If the
----------------------------------------
prepayment of the amount available for drawing under any or all outstanding
Letters of Credit or Agent Letters of Credit is required under Section 7.2 or
7.3, the Borrower shall forthwith pay the amount required to be so prepaid, to
be held by the Agent as provided in subsection (b) below.
(b) All amounts prepaid pursuant to subsection (a) above shall be held by
the Agent in a separate collateral account (such account, and the credit
balances, properties and any investments
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from time to time held therein, and any substitutions for such account, any
certificate of deposit or other instrument evidencing any of the foregoing and
all proceeds of and earnings on any of the foregoing being collectively called
the "Collateral Account") as security for, and for application by the Agent (to
the extent available) to, the reimbursement of any drawing under any Letter of
Credit and Agent Letter of Credit then or thereafter made by the Agent, and to
the payment of the unpaid balance of any Loans and all other due and unpaid
Obligations (collectively, the "Collateralized Obligations"). The Collateral
Account shall be held in the name of and subject to the exclusive dominion and
control of the Agent, for the benefit of the Agent and the Lenders, as pledgee
hereunder. If and when requested by the Borrower, the Agent shall invest and
reinvest funds held in the Collateral Account from time to time in Cash
Equivalents specified from time to time by the Borrower, provided that the Agent
is irrevocably authorized to sell investments held in the Collateral Account
when and as required to make payments out of the Collateral Account for
application to Collateralized Obligations due and owing from the Borrower to the
Agent or Lenders. When and if (i) the Borrower shall have made payment of all
Collateralized Obligations then due and payable, (ii) all relevant preference or
other disgorgement periods relating to the receipt of such payments have passed,
and (iii) no Letters of Credit, Agent Letters of Credit, Commitments, Agent
Credit Commitment, Loans, Reimbursement Obligations or other Obligations remain
outstanding hereunder, the Agent shall repay to the Borrower any remaining
amounts held in the Collateral Account.
Section 7.5. Notice of Default. The Agent shall give notice to the
-----------------
Borrower under Section 7.1(c) and (d) and 7.2 promptly upon being requested to
do so by the Majority Lenders and shall thereupon notify all the Lenders
thereof.
Section 7.6. Expenses. The Borrower agrees to pay to the Agent and each
--------
Lender all reasonable fully documented expenses incurred or paid by the Agent or
such Lender, including reasonable attorneys' fees and court costs, in connection
with any Default or Event of Default by the Borrower hereunder or in connection
with the enforcement of any of the Credit Documents.
Section 7.7. Distribution and Application of Proceeds from Collateral.
--------------------------------------------------------
After the occurrence of and during the continuance of an Event of Default, any
payment to the Agent or any Lender hereunder or under any Subsidiary Guaranty or
from the proceeds of any collateral shall be paid to the Agent to be distributed
and applied as follows (unless otherwise agreed by the Agent and all Lenders):
(a) First, to the payment of any and all reasonable and out-of-pocket costs
and expenses of the Agent, including, without limitation, reasonable attorneys'
fees and out of pocket costs and expenses as provided for by this Agreement or
by any other Credit Document, incurred in connection with the collection of such
payment or in respect of the enforcement of any rights of the Agreement or the
Lenders under this Agreement or any other Credit Document;
(b) Second, to the payment of any and all reasonable costs and expenses of
the Lenders or any Lender, including, without limitation, reasonable attorneys'
fees and out-of-pocket costs and expenses as provided for by this Agreement or
by any other Credit Document, incurred in connection with the collection of such
payment or in respect of the enforcement of any rights of
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the Lenders under this Agreement or any other Credit Document; pro rata in the
--- ----
proportion in which the amount of such costs and expenses unpaid to each such
Lender bears to the aggregate amount of the costs and expenses unpaid to all
Lenders collectively, until all such fees, costs and expenses have been paid in
full;
(c) Third, to the payment of any due and unpaid fees to the Agent or any
Lender as provided for by this Agreement or any other Credit Document, pro rata
--- ----
in the proportion in which the amount of such fees due and unpaid to the Agent
and each such Lender bears to the aggregate amount of the fees due and unpaid to
the Agent and all Lenders collectively, until all such fees have been paid in
full;
(d) Fourth, to the payment of accrued and unpaid interest on the Notes or
the Reimbursement Obligations to the date of such application, pro rata in the
--- ----
proportion in which the amount of such interest, accrued and unpaid to each such
Lender bears to the aggregate amount of such interest accrued and unpaid to all
Lenders collectively, until all such accrued and unpaid interest has been paid
in full;
(e) Fifth, to the payment of the outstanding due and payable principal
amount of each of the Notes and the amount of the outstanding Reimbursement
Obligations (reserving cash collateral for all undrawn face amounts of any
outstanding Letters of Credit or Agent Letters of Credit (if Section 7.4(a) has
not been complied with), pro rata in the proportion in which the outstanding
--- ----
principal amount of such Notes and the amount of such outstanding Reimbursement
Obligations owing to each such Lender, together (if Section 7.4(a) has not been
complied with) with the undrawn face amounts of such outstanding Letters of
Credit or Agent Letters of Credit, bears to the aggregate amount of all
outstanding Notes, outstanding Reimbursement Obligations and (if Section 7.4(a)
has not been complied with) the undrawn face amounts of all outstanding Letters
of Credit or Agent Letters of Credit. In the event that any such Letters of
Credit or Agent Letters of Credit, or any portions thereof, expire without being
drawn, any cash collateral therefore shall be distributed pro rata by the Agent
--- ----
until the principal amount of all Notes and Reimbursement Obligations shall have
been paid in full;
(f) Sixth, to the payment of any other outstanding Obligations then due and
payable, pro rata in the proportion in which the outstanding Obligations owing
--- ----
to each such Lender bears to the aggregate amount of such Obligations until all
Obligations have been paid in full; and
(g) Seventh, to the Borrower or as the Borrower may direct.
SECTION 8. CHANGE IN CIRCUMSTANCES.
Section 8.1. Change of Law. Notwithstanding any other provisions of this
-------------
Agreement or any Note, if at any time any change in applicable law or regulation
or in the interpretation thereof makes it unlawful for any Lender to make or
continue to maintain Eurodollar Loans or to give effect to its obligations as
contemplated hereby, such Lender shall promptly give notice thereof to the
Borrower and such Lender's obligations to fund loans in Canadian Dollars or
Pounds and make, continue or convert Loans into Eurodollar Loans under this
Agreement shall
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be suspended until it is no longer unlawful for such Lender to make or maintain
Eurodollar Loans. The Borrower shall prepay on demand the outstanding principal
amount of any such affected Eurodollar Loans, together with all interest accrued
thereon and all other amounts then due and payable to such Lender under this
Agreement; provided, however, subject to all of the terms and conditions of this
Agreement, the Borrower may then elect to borrow the principal amount of the
affected Eurodollar Loans from such Lender by means of Base Rate Loans from such
Lender that shall not be made ratably by the Lenders but only by such affected
Lender.
Section 8.2. Unavailability of Deposits or Inability to Ascertain LIBOR
----------------------------------------------------------
Rate. If on or before the first day of any Interest Period for any Borrowing of
- ----
Eurodollar Loans the Agent determines (after consultation with other Lenders)
that, due to changes in circumstances since the date hereof, adequate and fair
means do not exist for determining the Adjusted LIBOR Rate or such rate will not
accurately reflect the cost to the Majority Lenders of funding Eurodollar Loans
for such Interest Period, the Agent shall give notice of such determination to
the Borrower and the Lenders, whereupon until the Agent notifies the Borrower
and Lenders that the circumstances giving rise to such suspension no longer
exist, the obligations of the Lenders to fund loans in Canadian Dollars or
Pounds and make, continue or convert Loans into Eurodollar Loans shall be
suspended.
Section 8.3. Increased Cost and Reduced Return. (a) If, on or after the
---------------------------------
date hereof, the adoption of or any change in any applicable law, rule or
regulation, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
Lending Office), including the Agent in its capacity as the issuer of Letters of
Credit, with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:
(i) subjects any Lender of that type (or its Lending Office) to any
tax, duty or other charge related to any Eurodollar Loan, Letter of Credit,
Agent Letter of Credit, or Reimbursement Obligation, or its participation
in any thereof, or its obligation to advance or maintain Eurodollar Loans,
issue Letters of Credit, issue Agent Letters of Credit or to participate
therein, or shall change the basis of taxation of payments to any Lender
(or its Lending Office) of the principal of or interest on its Eurodollar
Loans, Letters of Credit, Agent Letters of Credit or participations
therein, or any other amounts due under this Agreement related to its
Eurodollar Loans, Letters of Credit, Agent Letters of Credit, Reimbursement
Obligations, or participations therein, or its obligation to make
Eurodollar Loans, issue Letters of Credit, issue Agent Letters of Credit or
acquire participations therein (except for changes in the rate of tax on
the overall net income of such Lender or its Lending Office imposed by the
jurisdiction in which such Lender's principal executive office or Lending
Office is located); or
(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System) against assets of, deposits with or for the account of, or credit
extended by, any Lender of that type (or its Lending Office) or imposes on
any Lender of that type (or its Lending Office) or on the interbank market
any
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other condition affecting its Eurodollar Loans, its Letters of Credit, its
Agent Letters of Credit, any Reimbursement Obligation owed to it, or its
participation in any thereof, or its obligation to advance or maintain
Eurodollar Loans, issue Letters of Credit, issue Agent Letters of Credit or
to participate in any thereof;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Lending Office) of advancing or maintaining any Eurodollar Loan, issuing
or maintaining a Letter of Credit or participation therein, or issuing or
maintaining an Agent Letter of Credit, or to reduce the amount of any sum
received or receivable by such Lender (or its Lending Office) in connection
therewith under this Agreement or its Note(s), by an amount deemed by such
Lender to be material, then, within fifteen (15) days after demand in reasonable
detail by such Lender (with a copy to the Agent), the Borrower shall be
obligated to pay to such Lender such additional amount or amounts as will
compensate such Lender for such increased cost or reduction.
(b) If, after the date hereof, the Agent or any Lender shall have
determined that the adoption after the date hereof of any applicable law, rule
or regulation regarding capital adequacy, or any change therein (including,
without limitation, any revision in the Final Risk-Based Capital Guidelines of
the Board of Governors of the Federal Reserve System (12 CFR Part 208, Appendix
A; 12 CFR Part 225, Appendix A) or of the Office of the Comptroller of the
Currency (12 CFR Part 3, Appendix A), or in any other applicable capital
adequacy rules heretofore adopted and issued by any governmental authority), or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Agent or any Lender (or its Lending
Office) with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on such
Lender's capital, or on the capital of any corporation controlling such Lender,
as a consequence of its obligations hereunder to a level below that which such
Lender could have achieved but for such adoption, change or compliance (taking
into consideration such Lender's policies with respect to capital adequacy) by
an amount deemed by such Lender to be material, then from time to time, within
fifteen (15) days after demand in reasonable detail by such Lender (with a copy
to the Agent), the Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction.
(c) The Agent and each Lender that determines to seek compensation under
this Section 8.3 shall notify the Borrower and, in the case of a Lender other
than the Agent, the Agent of the circumstances that entitle the Agent or Lender
to such compensation and will designate a different Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the sole judgment of such Lender, be otherwise disadvantageous
to it; provided that, the foregoing shall not in any way affect the rights of
any Lender or the obligations of the Borrower under this Section 8.3, and
provided further that no Lender shall be obligated to make its Eurodollar Loans
hereunder at any office located in the United States. A certificate of any
Lender claiming compensation under this Section 8.3 and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount, such Lender may use
any reasonable averaging and attribution methods.
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Section 8.4. Lending Offices. The Agent and each Lender may, at its
---------------
option, elect to make its Loans hereunder at the Lending Office for each type of
Loan available hereunder or at such other of its branches, offices or Affiliates
as it may from time to time elect and designate in a written notice to the
Borrower and the Agent subject to Section 8.3(c).
Section 8.5. Discretion of Lender as to Manner of Funding.
--------------------------------------------
Notwithstanding any other provision of this Agreement, each Lender shall be
entitled to fund and maintain its funding of all or any part of its Loans in any
manner it sees fit, it being understood, however, that for the purposes of this
Agreement all determinations hereunder shall be made as if each Lender had
actually funded and maintained each Eurodollar Loan through the purchase of
deposits in the eurodollar interbank market having a maturity corresponding to
such Loan's Interest Period and bearing an interest rate equal to LIBOR for such
Interest Period.
Section 8.6. Substitution of Lender. If (i) any Lender has demanded
----------------------
compensation or given notice of its intention to demand compensation under
Section 8.3, or (ii) the Borrower is required to pay any additional amount to
any Lender under Section 2.13, the Borrower shall have the right, with the
assistance of the Agent, to seek a substitute lender or lenders reasonably
satisfactory to the Agent (which may be one or more of the Lenders) to replace
such Lender under this Agreement. The Lender to be so replaced shall cooperate
with the Borrower and substitute lender to accomplish such substitution on the
terms of Section 10.12, as applicable, provided that all such Lender's
Commitments are replaced and such Lender is paid any amounts which it is owed
pursuant to Sections 2.13, 3.3, 7.6, 8.3 and 10.15. Any such replaced Lender
shall retain the benefit of Sections 3.3 and 10.15.
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SECTION 9. THE AGENT.
Section 9.1. Appointment and Authorization of Agent. Each Lender hereby
--------------------------------------
appoints ABN AMRO Bank N.V. as the Agent and the Collateral Agent under the
Credit Documents and hereby authorizes the Agent and the Collateral Agent to
take such action as Agent or the Collateral Agent on its behalf and to exercise
such powers under the Credit Documents as are delegated to the Agent and the
Collateral Agent by the terms thereof, together with such powers as are
reasonably incidental thereto.
Section 9.2. Rights and Powers. The Agent and the Collateral Agent shall
-----------------
have the same rights and powers under the Credit Documents as any other Lender
and may exercise or refrain from exercising such rights and power as though it
were not the Agent or the Collateral Agent, and the Agent, the Collateral Agent
and its Affiliates may accept deposits from, lend money to, and generally engage
in any kind of business with the Borrower or any of its Subsidiaries or
Affiliates as if it were not the Agent or the Collateral Agent under the Credit
Documents. The term Lender as used in all Credit Documents, unless the context
otherwise clearly requires, includes the Agent and the Collateral Agent in its
individual capacity as a Lender, including its capacity as a Lender under the
Agent Swing Line. References herein to the Agent's and the Collateral Agent's
Loans, or to the amount owing to the Agent and the Collateral Agent for which an
interest rate is being determined, refer to the Agent and the Collateral Agent
in its individual capacity as a Lender.
Section 9.3. Action by Agent. The obligations of the Agent and the
---------------
Collateral Agent under the Credit Documents are only those expressly set forth
therein. Without limiting the generality of the foregoing, the Agent shall not
be required to take any action concerning any Default or Event of Default,
except as expressly provided in Sections 7.2 and 7.5. Upon the occurrence of an
Event of Default, the Agent and the Collateral Agent shall take such action to
enforce its Lien on the Collateral and to preserve and protect the Collateral as
may be directed by the Majority Lenders. Unless and until the Majority Lenders
give such direction, the Agent and the Collateral Agent may take or refrain from
taking such actions as it deems appropriate and in the best interest of all the
Lenders. In no event, however, shall the Agent and the Collateral Agent be
required to take any action in violation of applicable law or of any provision
of any Credit Document, and the Agent and the Collateral Agent shall in all
cases be fully justified in failing or refusing to act hereunder or under any
other Credit Document unless it first receives any further assurances of its
indemnification from the Lenders that it may require, including prepayment of
any related expenses and any other protection it requires against any and all
costs, expenses, and liabilities it may incur in taking or continuing to take
any such action. The Agent and the Collateral Agent shall be entitled to assume
that no Default or Event of Default exists unless notified in writing to the
contrary by a Lender or the Borrower. In all cases in which the Credit
Documents do not require the Agent or the Collateral Agent to take specific
action, as applicable, the Agent and the Collateral Agent shall be fully
justified in using its discretion in failing to take or in taking any action
thereunder. Any instructions of the Majority Lenders, or of any other group of
Lenders called for under specific provisions of the Credit Documents, shall be
binding on all the Lenders and holders of Notes.
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Section 9.4. Consultation with Experts. The Agent and the Collateral
-------------------------
Agent may consult with legal counsel, independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
Section 9.5. Indemnification Provisions. Neither the Agent nor the
--------------------------
Collateral Agent nor any of their directors, officers, agents, or employees
shall be liable for any action taken or not taken by it in connection with the
Credit Documents (i) with the consent or at the request of the Majority Lenders
or (ii) in the absence of its own gross negligence or willful misconduct.
Neither the Agent nor the Collateral Agent nor any of their directors, officers,
agents or employees shall be responsible for or have any duty to ascertain,
inquire into or verify (i) any statement, warranty or representation made in
connection with this Agreement, any other Credit Document or any Borrowing; (ii)
the performance or observance of any of the covenants or agreements of the
Borrower or any of its Subsidiaries contained herein or in any other Credit
Document; (iii) the satisfaction of any condition specified in Section 4 hereof,
except receipt of items required to be delivered to the Agent; or (iv) the
validity, effectiveness, genuineness, enforceability, perfection, value, worth
or collectability hereof or of any other Credit Document or of the Liens
provided for by the Stock Pledge Agreements, if any, or of any other documents
or writing furnished in connection with any Credit Document or of any
collateral; and the Agent and the Collateral Agent makes no representation of
any kind or character with respect to any such matters mentioned in this
sentence. The Agent and the Collateral Agent may execute any of its duties
under any of the Credit Documents by or through employees, agents, and
attorneys-in-fact and shall not be answerable to the Lenders or any other Person
for the default or misconduct of any such agents or attorneys-in-fact selected
with reasonable care. The Agent and the Collateral Agent shall not incur any
liability by acting in reliance upon any notice, consent, certificate, other
document or statement (whether written or oral) believed by it to be genuine or
to be sent by the proper party or parties. In particular and without limiting
any of the foregoing, the Agent and the Collateral Agent shall have no
responsibility for confirming the existence or worth of any collateral or the
accuracy of any Compliance Certificate or other document or instrument received
by it under the Credit Documents. The Agent and the Collateral Agent may treat
the payee of any Note as the holder thereof until written notice of transfer
shall have been filed with the Agent and the Collateral Agent signed by such
owner in form satisfactory to the Agent and the Collateral Agent. Each Lender
acknowledges that it has independently and without reliance on the Agent and the
Collateral Agent or any other Lender obtained such information and made such
investigations and inquiries regarding the Borrower and its Subsidiaries as it
deems important, and based upon such information, investigations and inquiries
made its own credit analysis and decision to extend credit to the Borrower in
the manner set forth in the Credit Documents. It shall be the responsibility of
each Lender to keep itself informed about the creditworthiness and business
properties, assets, liabilities, condition (financial or otherwise) and
prospects of the Borrower and its Subsidiaries, the creditworthiness of all
account debtors of the Borrower and its Subsidiaries, and the Agent and the
Collateral Agent shall have no liability whatsoever to any Lender for such
matters. The Agent and the Collateral Agent shall have no duty to disclose to
the Lenders information that is not required by any Credit Document to be
furnished by the Borrower or any of its Subsidiaries to the Agent and the
Collateral Agent at such time, but is voluntarily furnished to the Agent and the
Collateral Agent (either in its capacity as Agent or Collateral Agent or in its
individual capacity).
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Section 9.6. Indemnity. The Lenders shall ratably, in accordance with
---------
their Percentages, indemnify and hold the Agent and the Collateral Agent, and
its directors, officers, employees, agents and representatives harmless from and
against any liabilities, losses, costs or expenses suffered or incurred by it or
by any security trustee under any Credit Document or in connection with the
transactions contemplated thereby, regardless of when asserted or arising,
except to the extent they are promptly reimbursed for the same by the Borrower
or out of the proceeds of any collateral and except to the extent that any event
giving rise to a claim was caused by the gross negligence or willful misconduct
of the party seeking to be indemnified. The obligations of the Lenders under
this Section 9.6 shall survive termination of this Agreement.
Section 9.7. Resignation of Agent and Successor Agent. The Agent and the
----------------------------------------
Collateral Agent may resign at any time upon at least thirty (30) days' prior
written notice to the Lenders and the Borrower. Upon any such resignation of
the Agent or the Collateral Agent, the Majority Lenders, with the consent of the
Borrower (which consent shall not be unreasonably withheld) shall have the right
to appoint a successor Agent or Collateral Agent, as the case may be. If no
successor Agent or Collateral Agent, as the case may be, shall have been so
appointed by the Majority Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Agent's or Collateral Agent's giving
of notice of resignation, then the retiring Agent or Collateral Agent, as the
case may be, may, on behalf of the Lenders, appoint a successor Agent or
Collateral Agent, as the case may be, which shall be any Lender hereunder or any
commercial bank organized under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of its appointment as the Agent or the
Collateral Agent hereunder, such successor Agent or Collateral Agent, as the
case may be, shall thereupon succeed to and become vested with all the rights
and duties of the retiring Agent or Collateral Agent, as the case may be, under
the Credit Documents, and the retiring Agent or Collateral Agent, as the case
may be, shall be discharged from its duties and obligations thereunder. After
any retiring Agent's or Collateral Agent's resignation hereunder as Agent or
Collateral Agent, as the case may be, the provisions of this Section 9 and all
protective provisions of the other Credit Documents shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent or
Collateral Agent, as the case may be.
SECTION 10. MISCELLANEOUS.
Section 10.1. Reallocation of Commitments. The Lenders hereby sell,
---------------------------
assign, transfer and convey, and the Lenders hereby purchase and accept so much
of the Assumed Revolving Loans, the Assumed Letters of Credit and the Assumed
Term Loans (collectively, the "Prior Indebtedness") and all of the rights,
titles, benefits, interests, privileges, claims, liens, security interests, and
obligations existing and to exist (collectively the "Interests") such that each
Lender's Percentage of the outstanding Revolving Loans, Letters of Credit and
Term Loans and the Revolving Credit Commitments under this Agreement shall be as
set forth in Schedule 2.1 hereto as of the Effective Date. The foregoing
assignment, transfer and conveyance are without recourse to the Lenders and
without any warranties whatsoever as to title, enforceability, collectability,
documentation or freedom from liens or encumbrances, in whole or in part, other
than the warranty by each Lender that it has not sold, transferred, conveyed or
encumbered such Interests. If as a result thereof, a Lender's Percentage of the
outstanding Revolving Loans, Letters of Credit
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and Term Loans under this Agreement is less than its outstanding Revolving Loans
and Term Loans and participations in Letters of Credit under this Agreement, the
difference set forth in the last column of Schedule 2.1 shall be remitted to
such Lender by the Agent upon receipt of funds from the other Lenders shown in
the last column of Schedule 2.1 on the Effective Date. Each Lender so acquiring
a part of such outstanding Prior Indebtedness assumes its Percentage of the
outstanding Prior Indebtedness and Revolving Credit Commitments, and rights,
titles, interests, privileges, claims, liens, security interests, benefits and
obligations under this Agreement. The Lenders are proportionately released from
the obligations assumed by the Lenders so acquiring such obligations and, to
that extent, the Lenders so released shall have no further obligation under this
Agreement. The Borrower hereby represents and warrants that it has no defenses,
offsets or counterclaims to the Prior Indebtedness or its obligations or rights
under this Agreement, including, without limitation, the Interests being
assigned pursuant to this Section 10.1. The Interest Periods with respect to any
Loans outstanding under this Agreement on the Effective Date bearing interest at
an Adjusted LIBOR Rate shall be broken by the Borrower on the Effective Date,
the Borrower shall pay any breakage fees as provided in Section 2.13 in
connection therewith, and the Borrower shall elect new Interest Periods with
respect thereto after giving the required notice to the Agent in connection
therewith. As a condition to the effectiveness of this Agreement, the Borrower
shall also prepay the portion of the Assumed Revolving Loans and the Assumed
Term Loans set forth in Schedule 2.1, which amounts may not be reborrowed under
the Agreement.
Section 10.2. Effectiveness. This Agreement shall become effective on
-------------
February 13, 1998 (the "Effective Date") provided that (a) the Agent has
received each of the following, duly executed as of the Effective Date, and in
sufficient number of signed counterparts to provide one for each Lender (except
for the Notes, of which only one original shall be signed for each Lender):
(i) Notes. The duly executed Notes of the Borrower;
-----
(ii) Guaranties. The duly executed Subsidiary Guaranty of each
----------
Guarantor in substantially the form of Exhibit 10.2A;
(iii) Opinions of Counsel. The opinions of Vinson & Elkins and James
-------------------
F. Maroney, III, legal counsel to the Credit Parties, in substantially the
forms attached as Exhibit 10.2B, as applicable, and covering such
additional matters as the Lenders may reasonably require;
(iv) Certificates of Officers of Credit Parties. Certificates of the
------------------------------------------
Secretary or Assistant Secretary and the President or Vice President of
each Credit Party containing specimen signatures of the persons authorized
to execute Credit Documents on each Credit Party's behalf or any other
documents provided for herein, together with (x) copies of resolutions of
the Board of Directors or other appropriate body of each Credit Party
authorizing the execution and delivery of the Credit Documents to which it
is a party and of all other legal documents or proceedings taken by the
Credit Parties in connection with the execution and delivery of the Credit
Documents, (y) copies of each Credit Party's Certificate or Articles of
Incorporation and Bylaws or other governing documents, certified
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by the Secretary of State or other applicable entity of such Credit Party's
jurisdiction of organization, to the extent such corporate governance
documents have been amended since August 6, 1996, and (z) a certificate of
existence and good standing from the appropriate governing agency of such
Credit Party's jurisdiction of organization and of all jurisdictions where
such Credit Party is authorized to do business;
(v) Consents. Certified copies of all documents evidencing any
--------
necessary corporate action, consents and governmental approvals (if any)
taken or obtained by any Credit Party with respect to the Credit Documents;
(vi) Fees. Payment of all fees and expenses incurred through the
----
Effective Date then due and owing to the Agent and the Syndication Agent
pursuant to this Agreement and the Fee Letters;
(vii) Prepayment. Payment of the portion of the Assumed Revolving
----------
Loans and the Assumed Term Loans set forth in Schedule 2.1 as provided in
Section 10.1; and
(viii) Other Documents. Such other documents as the Agent may
---------------
reasonably request.
(b) All legal matters incident to the execution and delivery of the Credit
Documents shall be reasonably satisfactory to the Agent and the Agent shall have
received counterpart signature pages hereto from all parties hereto.
Section 10.3. No Waiver of Rights. No delay or failure on the part of the
-------------------
Agent or any Lender, or on the part of the holder or holders of any Notes, in
the exercise of any power, right or remedy under any Credit Document shall
operate as a waiver thereof or as an acquiescence in any default, nor shall any
single or partial exercise thereof preclude any other or further exercise of any
other power, right or remedy. To the fullest extent permitted by applicable
law, the powers, rights and remedies under the Credit Documents of the Agent,
the Collateral Agent, the Lenders and the holder or holders of any Notes are
cumulative to, and not exclusive of, any rights or remedies any of them would
otherwise have.
Section 10.4. Non-Business Day. If any payment of principal or interest
----------------
on any Loan, Reimbursement Obligation or of any other Obligation shall fall due
on a day which is not a Business Day, interest or fees (as applicable) at the
rate, if any, such Loan or other Obligation bears for the period prior to
maturity shall continue to accrue in the manner set forth herein on such
Obligation from the stated due date thereof to and including the next succeeding
Business Day, on which the same shall be payable.
Section 10.5. Documentary Taxes. The Borrower agrees that they will pay
-----------------
any documentary, stamp or similar taxes payable with respect to any Credit
Document, including interest and penalties, in the event any such taxes are
assessed irrespective of when such assessment is made and regardless whether any
credit is then in use or available hereunder.
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<PAGE>
Section 10.6. Survival of Representations. All representations and
---------------------------
warranties made herein or in certificates given pursuant hereto shall survive
the execution and delivery of this Agreement and the other Credit Documents, and
shall continue in full force and effect with respect to the date as of which
they were made as long as the Borrower have any Obligation hereunder or any
Commitment or Agent Credit Commitment hereunder is in effect.
Section 10.7. Survival of Indemnities. All indemnities and all other
-----------------------
provisions relative to reimbursement to the Lenders of amounts sufficient to
protect the yield of the Lenders with respect to the Loans, including, but not
limited to, Section 2.13, Section 3.3, Section 7.6, Section 8.3 and Section
10.17 hereof, shall survive the termination of this Agreement and the other
Credit Documents and the payment of the Loans and all other Obligations for a
period of one (1) year.
Section 10.8. Setoff. In addition to any rights now or hereafter granted
------
under applicable law and not by way of limitation of any such rights, upon the
occurrence of, and throughout the continuance of, any Default or Event of
Default, each Lender and each subsequent holder of any Note is hereby authorized
by the Borrower at any time or from time to time, without notice to the
Borrower, to any Guarantor or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, Indebtedness
evidenced by certificates of deposit, whether matured or unmatured, but not
including trust accounts, and in whatever currency denominated) and any other
Indebtedness at any time held or owing by that Lender or that subsequent holder
to or for the credit or the account of the Borrower, whether or not matured,
against and on account of the obligations and liabilities of the Borrower to
that Lender or that subsequent holder under the Credit Documents, including, but
not limited to, all claims of any nature or description arising out of or
connected with the Credit Documents, irrespective of whether or not (i) that
Lender or that subsequent holder shall have made any demand hereunder or (ii)
the principal of or the interest on the Loans or Notes and other amounts due
hereunder shall have become due and payable hereunder and although said
obligations and liabilities, or any of them, may be contingent or unmatured.
Each Lender agrees with each other Lender a party hereto that if such Lender
receives and retains any payment, whether by setoff or application of deposit
balances or otherwise, on any of the Loans or L/C Obligations in excess of its
ratable share of payments on all such Obligations then owed to the Lenders
hereunder, then such Lender shall purchase for cash at face value, but without
recourse, ratably from each of the other Lenders such amount of the Loans or L/C
Obligations, or participations therein, held by each such other Lenders (or
interest therein) as shall be necessary to cause such Lender to share such
excess payment ratably with all the other Lenders; provided, however, that if
any such purchase is made by any Lender, and if such excess payment or part
thereof is thereafter recovered from such purchasing Lender, the related
purchases from the other Lenders shall be rescinded ratably and the purchase
price restored as to the portion of such excess payment so recovered, but
without interest.
Section 10.9. Notices. Except as otherwise specified herein, all notices
-------
under the Credit Documents shall be in writing (including cable, telecopy or
telex) and shall be given to a party hereunder at its address, telecopier number
or telex numbers set forth below or such other address, telecopier number or
telex as such party may hereafter specify by notice to the Agent and the
Borrower, given by courier, by United States certified or registered mail, by
telegram or by other
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<PAGE>
telecommunication device capable of creating a written record of such notice and
its receipt. Notices under the Credit Documents to the Lenders and the Agent
shall be addressed to their respective addresses, telecopier, telex, or
telephone numbers set forth on the signature pages hereof or pursuant to Section
10.12, and to the Borrower (duplicate copies) as follows:
Tuboscope Inc.
2835 Holmes Road
P.O. Box 808 (77001)
Houston, TX 77051
Attention: Chief Financial Officer
and
Attention: General Counsel
Telephone: (713) 799-5100
Fax No. (713) 799-5183
Each such notice, request or other communication shall be effective (i) if
given by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section 10.9, on the signature pages hereof or pursuant to
Section 10.12 and a confirmation of receipt of such telecopy has been received
by the sender, (ii) if given by telex, when such telex is transmitted to the
telex number specified in this Section 10.9, on the signature pages hereof or
pursuant to Section 10.12 and the answerback is received by sender, (iii) if
given by courier, when delivered, (iv) if given by mail, five (5) days after
such communication is deposited in the mail, registered with return receipt
requested, addressed as aforesaid or (v) if given by any other means, when
delivered at the addresses specified in this Section 10.9, on the signature
pages hereof or pursuant to Section 10.12; provided that any notice given
pursuant to Section 2 shall be effective only upon receipt and, provided
further, that any notice that but for this provision would be effective after
the close of business on a Business Day or on a day that is not a Business Day
shall be effective at the opening of business on the next Business Day.
Section 10.10. Counterparts. This Agreement may be executed in any
------------
number of counterparts, and by the different parties on different counterpart
signature pages, each of which when executed shall be deemed an original but all
such counterparts taken together shall constitute one and the same Agreement.
Section 10.11. Successors and Assigns. This Agreement shall be
----------------------
binding upon the Borrower and its successors and assigns, and shall inure to the
benefit of each of the Lenders and their respective successors and assigns,
including any subsequent holder of any Note. Except as expressly permitted in
Section 6.13, the Borrower may not assign any of its rights or obligations under
any Credit Document without the written consent of all of the Lenders.
Section 10.12. Sales and Transfers of Borrowings and Notes; Participations
-----------------------------------------------------------
in Borrowings and Notes.
- -----------------------
(a) Any Lender may at any time sell to one or more banks ("Participants"),
participating interests in any Borrowing owing to such Lender, any Note held by
such Lender, any
71
<PAGE>
Commitment or Agent Credit Commitment of such Lender or any other interest of
such Lender hereunder, provided that no Lender may sell any participating
interests in any such Borrowing, Note, Commitment, Agent Credit Commitment or
other interest hereunder without also selling to such Participant the
appropriate pro rata share of its Borrowings, Notes, Commitments, Agent Credit
Commitments and other interests hereunder, and provided further that no Lender
shall transfer, grant or assign any participation under which the Participant
shall have rights to vote upon or consent to any matter to be decided by the
Lender or the Majority Lenders hereunder or under any Credit Document or approve
any amendment to or waiver of this Agreement or any other Credit Document except
to the extent such amendment or waiver would (i) increase the amount of such
Lender's Commitment or Agent Credit Commitment and such increase would affect
such Participant, (ii) reduce the principal of, or interest on, any of such
Lender's Borrowings, or any fees or other amounts payable to such Lender
hereunder and such reduction would affect such Participant, (iii) postpone any
date fixed for any scheduled payment of principal of, or interest on, any of
such Lender's Borrowings, or any fees or other amounts payable to such Lender
hereunder, or (iv) release all or substantially all collateral security for any
Obligation (including, without limitation, the Parent Company Guaranty or any
Subsidiary Guaranty), except as otherwise specifically provided in any Credit
Document. In the event of any such sale by a Lender of participating interests
to a Participant, such Lender's obligations under this Agreement to the other
parties to this Agreement shall remain unchanged, such Lender shall remain
solely responsible for the performance thereof, such Lender shall remain the
holder of any such Note for all purposes under this Agreement and the Borrower
and the Agent shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement. The
Borrower agrees that if amounts outstanding under this Agreement and the Notes
are due and unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement and any Note to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement or any Note, provided that such right of setoff shall be subject
to the obligation of such Participant to share with the Lenders, and the Lenders
agree to share with such Participant, as provided in Section 10.8. The Borrower
also agrees that each Participant shall be entitled to the benefits of Sections
2.13 and 8.3 with respect to its participation in the Commitments and the
Borrowings outstanding from time to time, provided that no Participant shall be
entitled to receive any greater amount pursuant to such Sections than the
transferor Lender would have been entitled to receive in respect of the amount
of the participation transferred.
(b) Any Lender may at any time sell to any Lender or any Affiliate thereof,
and, with the consent of the Agent and the Borrower (which shall not be
unreasonably withheld or delayed), to one or more banks (a "Purchasing Lender"),
all or any part of its rights and obligations under this Agreement and the
Notes, pursuant to an Assignment Agreement in the form attached as Exhibit 10.12
hereto, executed by such Purchasing Lender and such transferor Lender (and, in
the case of a Purchasing Lender which is not then a Lender or an Affiliate
thereof, by the Borrower and the Agent) and delivered to the Agent; provided
that, each such sale to a Purchasing Lender shall be in an amount of $10,000,000
or more, or if in a lesser amount, such sale shall be of all of the Lender's
rights and obligations under this Agreement and all of the Notes payable to it
to one eligible assignee. Notwithstanding the above, any Lender may sell to one
or more eligible
72
<PAGE>
assignees all or any part of their rights and obligations under this Agreement
and the Notes with only the consent of the Agent (which shall not be
unreasonably withheld) if an Event of Default shall have occurred and be
continuing. No Lender may sell any Loans to a Purchasing Lender without also
selling to such Purchasing Lender the appropriate pro rata share of its
Borrowings, Notes, Commitments and other interests hereunder, including
participations in Letters of Credit hereunder; provided that, the Agent shall
not be required to sell its Agent Revolving Obligations and its Agent Credit
Commitment at such time as it may sell any other portion of its Borrowings,
Notes, Commitments and other interests hereunder. Upon such execution, delivery,
acceptance and recording, from and after the effective date of the transfer
determined pursuant to such Assignment Agreement (x) the Purchasing Lender
thereunder shall be a party hereto and, to the extent provided in such
Assignment Agreement, have the rights and obligations of a Lender hereunder with
a Commitment as set forth therein and (y) the transferor Lender thereunder
shall, to the extent provided in such Assignment Agreement, be released from its
obligations under this Agreement (and, in the case of an Assignment Agreement
covering all or the remaining portion of a transferor Lender's rights and
obligations under this Agreement, such transferor Lender shall cease to be a
party hereto). Such Assignment Agreement shall be deemed to amend this Agreement
to the extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of Commitments and Percentages
arising from the purchase by such Purchasing Lender of all or a portion of the
rights and obligations of such transferor Lender under this Agreement, the Notes
and the other Credit Documents. On or prior to the effective date of the
transfer determined pursuant to such Assignment Agreement, the Borrower, at
their own expense, shall execute and deliver to the Agent in exchange for any
surrendered Notes, new Notes as appropriate to the order of such Purchasing
Lender in an amount equal to the Commitments assumed by it pursuant to such
Assignment Agreement, and, if the transferor Lender has retained a Commitment or
Borrowing hereunder, new Notes to the order of the transferor Lender in an
amount equal to the Commitments or Borrowings retained by it hereunder. Such new
Notes shall be dated the Effective Date and shall otherwise be in the form of
the Notes replaced thereby. The Notes surrendered by the transferor Lender shall
be returned by the Agent to the Borrower marked "canceled."
(c) Upon its receipt of an Assignment Agreement executed by a transferor
Lender, a Purchasing Lender and the Agent (and, in the case of a Purchasing
Lender that is not then a Lender or an Affiliate thereof, by the Borrower),
together with payment to the Agent hereunder of a registration and processing
fee of $3,500, the Agent shall (i) promptly accept such Assignment Agreement,
and (ii) on the effective date of the transfer determined pursuant thereto give
notice of such acceptance and recordation to the Lenders and the Borrower.
(d) The provisions of the foregoing clauses (b) and (c) shall not apply to
or restrict, or require the consent of or any notice to any Person to
effectuate, the pledge or assignment by any Lender of its rights under this
Agreement and its Notes to any Federal Reserve Bank.
(e) If, pursuant to this Section 10.12 any interest in this Agreement or
any Note is transferred to any transferee which is organized under the laws of
any jurisdiction other than the United States of America or any State thereof,
the transferor Lender shall cause such transferee, concurrently with the
effectiveness of such transfer, (i) to represent to the transferor Lender (for
73
<PAGE>
the benefit of the transferor Lender, the Agent and the Borrower) that under
applicable law and treaties no taxes will be required to be withheld by the
Agent, the Borrower or the transferor Lender with respect to any payments to be
made to such transferee in respect of the Loans or the L/C Obligations, (ii) to
furnish to the transferor Lender (and, in the case of any Purchasing Lender, the
Agent and the Borrower) either U.S. Internal Revenue Service Form 4224 or U.S.
Internal Revenue Service Form 1001 or such successor forms as shall be adopted
from time to time by the relevant United States taxing authorities (wherein such
transferee claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments hereunder), and (iii) to agree (for the
benefit of the transferor Lender, the Agent and the Borrower) to provide the
transferor Lender (and, in the case of any Purchasing Lender, the Agent and the
Borrower) a new Form 4224 or Form 1001 upon the expiration or obsolescence of
any previously delivered form and comparable statements in accordance with
applicable U.S. laws and regulations and amendments dully executed and completed
by such Transferee, and to comply from time to time with all applicable U.S.
laws and regulations with regard to such withholding tax exemption.
Section 10.13. Amendments. Any provision of the Credit Documents may be
----------
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by (a) the Borrower, (b) the Majority Lenders, and (c) if the rights or
duties of the Agent are affected thereby, the Agent; provided that:
(i) no amendment or waiver shall (A) increase the Revolving Credit
Commitment Amount, the Total Commitment Amount or the Agent Commitment Amount
without the consent of all Lenders or increase any Commitment of any Lender
without the consent of such Lender, (B) postpone any Maturity Date without the
consent of all Lenders (or ABN AMRO in the case of Agent Revolving Loans) or
reduce the amount of or postpone the date for any scheduled payment of any
principal of or interest on any Loan or Reimbursement Obligation or of any fee
payable hereunder without the consent of each Lender owed such Obligation or (C)
release any Stock Pledge Agreement or any other collateral or any Subsidiary
Guaranty without the consent of all the Lenders, provided that the Lenders
hereby consent to the release and hereby release all capital stock pledged under
the Prior Credit Agreement on the Effective Date and direct the Agent to execute
such documents in order to effectuate such release; and
(ii) no amendment or waiver shall, unless signed by each Lender, change the
provisions of this Section 10.13 or the definition of Majority Lenders or affect
the number of Lenders required to take any action under any other provision of
the Credit Documents.
Section 10.14. Headings. Section headings used in this Agreement are for
--------
reference only and shall not affect the construction of this Agreement.
Section 10.15. Legal Fees, Other Costs and Indemnification. The Borrower,
-------------------------------------------
upon demand by the Agent, agrees to pay the reasonable fees and disbursements of
legal counsel to the Agent in connection with the preparation and execution of
the Credit Documents, and any amendment, waiver or consent related thereto,
whether or not the transactions contemplated therein are consummated (provided
that the Borrower shall be obligated hereunder to pay such fees and
disbursements for only one (1) law firm and any local counsel), and all
reasonable recording,
74
<PAGE>
filing, or other fees, costs and taxes incident to perfecting a Lien upon the
Collateral described in the Security Documents. The Borrower further agrees to
indemnify each Lender, the Agent, the Collateral Agent, the Syndication Agent,
and their respective directors, officers, employees and attorneys (collectively,
the "Indemnified Parties"), against all losses, claims, damages, penalties,
judgments, liabilities and expenses (including, without limitation, all
reasonable attorneys' fees and other reasonable expenses of litigation or
preparation therefor, whether or not the indemnified Person is a party thereto)
which any of them may pay or incur arising out of or relating to (a) any Credit
Document, the Loans or the application or proposed application by the Borrower
of the proceeds of any Loan, REGARDLESS OF WHETHER SUCH CLAIMS OR ACTIONS ARE
FOUNDED IN WHOLE OR IN PART UPON THE ALLEGED SIMPLE OR CONTRIBUTORY NEGLIGENCE
OF ANY OF THE INDEMNIFIED PARTIES AND/OR ANY OF THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES OR ATTORNEYS, (b) any investigation of any third party or
any governmental authority involving any Lender (as a lender hereunder), the
Agent (in such capacity hereunder), the Collateral Agent (in such capacity
hereunder), or the Syndication Agent (in such capacity hereunder) and related to
any use made or proposed to be made by the Borrower of the proceeds of the
Borrowings, or any transaction financed or to be financed in whole or in part,
directly or indirectly with the proceeds of any Borrowing, and (c) any
investigation of any third party or any governmental authority, litigation or
proceeding, related to any environmental cleanup, audit, compliance or other
matter relating to any Environmental Law or the presence of any Hazardous
Material (including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under any Environmental
Law) with respect to the Borrower or any of its Subsidiaries, regardless of
whether caused by, or within the control of, the Borrower or any of its
Subsidiaries; provided, however, that the Borrower shall not be obligated to
indemnify any Indemnified Party for any of the foregoing arising out of such
Indemnified Party's gross negligence or willful misconduct. The Borrower, upon
demand by the Agent, the Collateral Agent, the Syndication Agent or a Lender at
any time, shall reimburse the Agent, the Collateral Agent, the Syndication Agent
or such Lender for (i) any legal or other expenses incurred in connection with
investigating or defending against any of the foregoing except if the same is
excluded from indemnification pursuant to the provisions of the foregoing
sentence and (ii) if an Event of Default has occurred and is continuing,
reasonable fees of legal counsel (including the allocated costs of in-house
counsel) in connection with the Agent's, the Collateral Agent's, the Syndication
Agent's or such Lender's enforcement of their rights and remedies in the Credit
Documents.
Section 10.16. Governing Law; Submission to Jurisdiction; Waiver of Jury
---------------------------------------------------------
Trial. This Agreement and the other Credit Documents, and the rights and duties
- -----
of the parties thereto, shall be construed in accordance with and governed by
the internal laws of the State of New York. The Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York State court sitting in the City of New
York for purposes of all legal proceedings arising out of or relating to this
Agreement, any other Credit Document or the transactions contemplated thereby.
The Borrower irrevocably waives, to the fullest extent permitted by law, any
objection they may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. EACH PARTY
TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL
<PAGE>
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
ANY CREDIT DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY.
Section 10.17. Confidentiality. Each Lender agrees it will not disclose
---------------
without the Borrower's consent (other than to its employees, auditors, counsel
or other professional advisors, to its Affiliates or to another Lender) any
information concerning the Borrower or any of its Subsidiaries furnished
pursuant to any of the Credit Documents; provided that any Lender may disclose
any such information (i) that has become generally available to the public other
than through the Lenders, (ii) if required or appropriate in any examination or
audit or any report, statement or testimony submitted to any federal or state
regulatory body having or claiming to have jurisdiction over such Lender, (iii)
if required or appropriate in response to any summons or subpoena or in
connection with any litigation, (iv) in order to comply with any law, order,
regulation or ruling applicable to such Lender, (v) to any prospective or actual
permitted transferee in connection with any contemplated or actual permitted
transfer of any of the Notes or any interest therein by such Lender, and (vi) in
connection with the exercise of any remedies by the Agent or any Lender;
provided that such actual or prospective transferee executes an agreement with
such Lender containing provisions substantially identical to those contained in
this Section 10.17 prior to such transferee's receipt of any such information.
Section 10.18. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 10.19. Currency Conversion. All payments of Obligations under
-------------------
this Agreement, the Notes or any other Credit Document shall be made in Dollars,
except for Revolving Loans funded, or Reimbursement Obligations with respect to
Letters of Credit issued, in Pounds or Canadian Dollars, which shall be repaid,
including interest thereon, in the applicable currency. If any payment of any
Obligation, except for Revolving Loans funded in Pounds or Canadian Dollars or
any Reimbursement Obligation with respect to Letters of Credit issued in Pounds
or Canadian Dollars, whether through payment by the Borrower, any Guarantor or
the proceeds of any collateral, if any exists, shall be made in a currency other
than Dollars, such amount shall be converted into Dollars at the official rate
for the purchase of Dollars with the applicable currency as quoted by the Agent
in accordance with the methods customarily used by the Agent for such purposes
as of the close of business on the date of determination. If for the purposes
of obtaining any judgment or award it becomes necessary to convert from either
Pounds or Canadian Dollars into Dollars any amount in connection with the
Obligations, then the conversion shall be made as provided above on the Business
Day before the day on which the judgment or award is given. In the event that
there is a change in the rate of exchange prevailing between the Business Day
before the day on which the judgment or award is given and the date of payment,
the Borrower will pay to the Agent such additional amounts (if any) as may be
necessary, and the Agent will pay to the Borrower such excess amounts (if any)
as result from such change in the rate of exchange, to assure that the amount
paid on such date is the amount in Pounds or Canadian Dollars, as
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<PAGE>
applicable, which when converted at the rate of exchange described herein on the
date of payment, is the amount then due in Dollars. Any amount due from the
Borrower under this Section 10.19 shall be due as a separate debt and shall not
be affected by judgment or award being obtained for any other sum due. For the
avoidance of doubt, the parties affirm and agree that neither the fixation of
the conversion rate of Pounds against the Euro as a single currency, in
accordance with the Treaty Establishing the European Economic Community, as
amended by the Treaty on the European Union (The Maastricht Treaty), nor the
conversion of the Obligations under this Agreement from Pounds into Euro will be
a reason for early termination or revision of this Agreement or prepayment of
any amount due under this Agreement or create any liability of any party towards
any other party for any direct or consequential loss arising from any of these
events. As of the date that Pounds are no longer the lawful currency of the
United Kingdom, all funding and payment Obligations to be made in such currency
under this Agreement will have to be satisfied in Euro.
Section 10.20. Dollar Equivalent Combinations. Unless otherwise provided
------------------------------
herein, to the extent that the determination of compliance with any requirement
of this Agreement requires the conversion to Dollars of foreign currency
amounts, such Dollar amount shall be computed using the Dollar equivalent of the
amount of such foreign currency at the time such item is to be calculated or is
incurred, created, transferred or sold for purposes of this Agreement. The
Dollar equivalent shall be determined by converting such currency involved in
such computation into Dollars at the spot rate for the purchase of Dollars with
the applicable currency as quoted by the Agent in accordance with the methods
customarily used by the Agent for such purposes as of the close of business on
the date of determination thereof specified herein or, if the date of
determination thereof is not otherwise specified herein, on the date two (2)
applicable Business Days prior to such determination.
Section 10.21. Change in Accounting Principles or Tax Laws. If (i) any
-------------------------------------------
change in accounting principles from those used in the preparation of the
financial statements of the Borrower referred to in Section 5.9 is hereafter
occasioned by the promulgation of rules, regulations, pronouncements and
opinions by or required by the Financial Accounting Standards Board or the
American Institute of Certified Public Accounts (or successors thereto or
agencies with similar functions) and such change materially affects the
calculation of any component of any financial covenant, standard or term found
in this Agreement, or (ii) there is a material change in federal or foreign tax
laws which materially affects the Borrower ability to comply with the financial
covenants, standards or terms found in this Agreement, the Borrower and the
Majority Lenders agree to enter into negotiations in order to amend such
provisions so as to equitably reflect such changes with the desired result that
the criteria for evaluating the Borrower's and its Subsidiaries' consolidated
financial condition shall be the same after such changes as if such changes had
not been made. Unless and until such provisions have been so amended, the
provisions of this Agreement shall govern.
Section 10.22. Notice. The Credit Documents constitute the entire
------
understanding among the Borrower, the Lenders, and the Agent and supersede all
earlier or contemporaneous agreements, whether written or oral, concerning the
subject matter of the Credit Documents. THIS WRITTEN AGREEMENT TOGETHER WITH THE
OTHER CREDIT DOCUMENTS
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<PAGE>
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the day and
year first above written.
BORROWER:
--------
TUBOSCOPE INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
<PAGE>
LENDERS:
-------
Percentage of Revolving ABN AMRO BANK N.V., Houston Agency,
- -----------------------
Credit Commitment as Administrative Agent and as a Lender
- -----------------
and Term Credit
- ---------------
Commitment: _________________________________%
- ----------
Voting Percentage: _________________________%
- -----------------
By:
---------------------------------
Cheryl I. Lipshutz
Group Vice President and Director
Address:
- -------
ABN AMRO Bank, N.V. By:
Houston Agency ---------------------------------
Three Riverway, Suite 1700 Charles W. Randall
Houston, TX 77056 Senior Vice President and Managing Director
Telephone: (713) 964-3351
Fax No.: (713) 621-5801
<PAGE>
Percentage of Revolving CHASE BANK OF TEXAS,
- ----------------------- NATIONAL ASSOCIATION
Credit Commitment
- -----------------
and Term Credit
- ---------------
Commitment: % By:
- ---------- ----------------- -----------------------
Name:
---------------------
Voting Percentage: % Title:
- ----------------- ---------- --------------------
Address:
- -------
Chase Bank of Texas, National Association
Attention: Ms. Mona Foch
707 Travis
5-TCBN-86
Houston, TX 77002
Telephone: (713) 216-4913
Fax No.: (713) 216-2339
<PAGE>
Percentage of Revolving ARAB BANKING CORPORATION (B.S.C.)
- -----------------------
Credit Commitment
- -----------------
and Term Credit
- ---------------
Commitment: % By:
- ---------- ------------------ ---------------------------------
Name:
-------------------------------
Voting Percentage: % Title:
- ----------------- ----------- ------------------------------
Address:
- -------
Arab Banking Corporation (B.S.C.)
Attn: Loan Administration
277 Park Avenue
New York, New York 10172-3299
Telephone: (212) 583-4720
Fax No.: (212) 583-0921
with a copy to:
Arab Banking Corporation (B.S.C.)
Attn: Mr. Stephen Plauche
600 Travis, Suite 1900
Houston, TX 77002
Telephone: (713) 227-8444
Fax No.: (713) 227-6507
<PAGE>
Percentage of Revolving BANK OF AMERICA NATIONAL TRUST AND SAVINGS
- ----------------------- ASSOCIATION
Credit Commitment
- -----------------
and Term Credit
- ---------------
Commitment: % By:
- ---------- ------------------- ----------------------------------------
Name:
--------------------------------------
Voting Percentage: % Title:
- ----------------- ------------ -------------------------------------
Address:
- -------
Bank of America National Trust
and Savings Association
Attn: Ms. Claire Liu
Three Allen Center
333 Clay, Suite 4550
Houston, TX 77002-4103
Telephone: (713) 651-4855
Fax No.: (713) 651-4807
with copy to:
Bank of America National Trust
and Savings Association
Attn: Ms. Laurie Warner
1850 Gateway Blvd.
Concord, CA 94520
Telephone: (510) 675-7148
Fax No.: (510) 603-7243
<PAGE>
Percentage of Revolving THE BANK OF NOVA SCOTIA, ATLANTA
- ----------------------- AGENCY
Credit Commitment
- -----------------
and Term Credit
- ---------------
Commitment: %
- ---------- ------------------
By:
-------------------------------
Name:
-----------------------------
Voting Percentage: % Title:
- ----------------- ----------- ----------------------------
Address:
- -------
The Bank of Nova Scotia,
Atlanta Agency
Attn: Ms. Phyllis Walker
600 Peachtree Street NE, Suite 2700
Atlanta, GA 30308
Telephone: (404) 877-1500
Fax No.: (404) 888-8998
with a copy to:
The Bank of Nova Scotia
Attn: Mr. Donovan Broussard
1100 Louisiana, Suite 3000
Houston, TX 77002
Telephone: (713) 759-3445
Fax No.: (713) 752-2425
<PAGE>
Percentage of Revolving WELLS FARGO BANK (TEXAS), NATIONAL
- ----------------------- ASSOCIATION
Credit Commitment
- -----------------
and Term Credit
- ---------------
Commitment: %
- ---------- -----------------
By:
------------------------------
Name:
----------------------------
Voting Percentage: % Title:
- ----------------- ---------- ---------------------------
Address:
- -------
Wells Fargo Bank (Texas), National Association
Attn: Mr. Frank Schageman
1000 Louisiana
Houston, TX 77002
Telephone: (713) 250-4352
Fax No.: (713) 250-7912
<PAGE>
Percentage of Revolving CREDIT LYONNAIS NEW YORK BRANCH
- -----------------------
Credit Commitment
- -----------------
and Term Credit
- ---------------
Commitment: %
- ---------- -------------------
By:
--------------------------
Name:
------------------------
Voting Percentage: % Title:
- ----------------- ------------ -----------------------
Address:
- -------
Credit Lyonnais
Houston Representative Office
Attn: Mr. Page Dillehunt
1000 Louisiana, Suite 5360
Houston, TX 77002
Telephone: (713) 753-8719
Fax No.: (713) 751-0307/0420
with a copy to:
Credit Lyonnais New York Branch
Attn: Mr. Ronald N. Finn
Legal Department
1301 Avenue of the Americas
New York, NY 10019
Telephone: (212) 261-7050
<PAGE>
Percentage of Revolving FIRST NATIONAL BANK OF COMMERCE
- -----------------------
Credit Commitment
- -----------------
and Term Credit
- ---------------
Commitment: %
- ---------- ------------------
By:
---------------------------
Name:
-------------------------
Voting Percentage: % Title:
- ----------------- ----------- ------------------------
Address:
- -------
First National Bank of Commerce
Attn: Mr. J. Charles Freel, Jr.
201 St. Charles Ave., 28/th/ Floor
New Orleans, LA 70170
Telephone: (504) 623-1638
Fax No.: (504) 623-1316
<PAGE>
Percentage of Revolving THE FUJI BANK, LIMITED
- -----------------------
Credit Commitment
- -----------------
and Term Credit
- ---------------
Commitment: %
- ---------- -----------------
By:
----------------------------
Name:
--------------------------
Voting Percentage: % Title:
- ----------------- ---------- -------------------------
Address:
- -------
The Fuji Bank, Limited
Attn: Mr. Mark E. Polasek
1221 McKinney Street, Suite 4100
Houston, TX 77010
Telephone: (713) 650-7863
FAX No.: (713) 759-0048
<PAGE>
Percentage of Revolving CREDIT SUISSE FIRST BOSTON
- -----------------------
Credit Commitment
- -----------------
and Term Credit
- ---------------
Commitment: %
- ---------- -----------------
By:
------------------------------
Name:
----------------------------
Voting Percentage: % Title:
- ----------------- ---------- ---------------------------
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Address:
- -------
Credit Suisse First Boston
Attn: Mr. Scott Karro
11 Madison Avenue
New York, NY 10010
Telephone: (212) 325-9206
Fax No.: (212) 325-8314
<PAGE>
Percentage of Revolving HIBERNIA NATIONAL BANK
- -----------------------
Credit Commitment
- -----------------
and Term Credit
- ---------------
Commitment: %
- ---------- ---------------
By:
-----------------------------
Name:
---------------------------
Voting Percentage: % Title:
- ----------------- -------- --------------------------
Address:
- -------
Hibernia National Bank
Attn: Mr. Bruce Ross
313 Carondelet Street
New Orleans, LA 70130
Telephone: (504) 533-5806
Fax No.: (504) 533-5434
<PAGE>
EXHIBIT 2.2A
FORM OF BORROWING REQUEST
<PAGE>
EXHIBIT 2.2B
FORM OF APPLICATION FOR LETTER OF CREDIT
<PAGE>
EXHIBIT 2.12A
FORM OF REVOLVING NOTE (U.S. DOLLARS)
<PAGE>
EXHIBIT 2.12B
FORM OF REVOLVING NOTE (BRITISH POUNDS STERLING)
<PAGE>
EXHIBIT 2.12C
FORM OF REVOLVING NOTE (CANADIAN DOLLARS)
<PAGE>
EXHIBIT 2.12D
FORM OF TERM NOTE
<PAGE>
EXHIBIT 2.12E
FORM OF AGENT NOTE
<PAGE>
EXHIBIT 6.7
FORM OF COMPLIANCE CERTIFICATE
<PAGE>
EXHIBIT 6.13
FORM OF ACQUISITION REPORT
<PAGE>
EXHIBIT 10.2A
FORM OF SUBSIDIARY GUARANTY
<PAGE>
EXHIBIT 10.2B
FORM OF OPINIONS OF COUNSEL
<PAGE>
EXHIBIT 10.12
FORM OF ASSIGNMENT AGREEMENT
<PAGE>
SCHEDULE 2.1
LIST OF PRIOR INDEBTEDNESS AND REALLOCATIONS
<PAGE>
SCHEDULE 2.7
TERM LOAN REPAYMENT SCHEDULE
<PAGE>
SCHEDULE 5.1
LIST OF SUBSIDIARIES
<PAGE>
SCHEDULE 5.4
LIST OF LITIGATION
<PAGE>
SCHEDULE 5.13
ERISA DISCLOSURE
<PAGE>
SCHEDULE 5.16
STOCK DISCLOSURE
<PAGE>
SCHEDULE 5.17
INTELLECTUAL PROPERTY
<PAGE>
SCHEDULE 5.20
LIST OF ENVIRONMENTAL CLAIMS
<PAGE>
SCHEDULE 5.21
LIST OF EXISTING INDEBTEDNESS
<PAGE>
SCHEDULE 6.16
LIST OF EXISTING LIENS
<PAGE>
SCHEDULE 2.7
TERM LOAN REPAYMENT SCHEDULE
- --------------
Principal Repayment
Period -------------------
------
March 31, 1998 [TO COME]
June 30, 1998
September 30, 1998
December 31, 1998
March 31, 1999
June 30, 1999
September 30, 1999
December 31, 1999
March 31, 2000
June 30, 2000
September 30, 2000
December 31, 2000
March 31, 2001
June 30, 2001
September 30, 2001
December 31, 2001
March 31, 2002
August 6, 2002
<PAGE>
SCHEDULE 5.1
LIST OF SUBSIDIARIES/1/
-----------------------
1. Tuboscope Vetco International Corporation's direct Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Tuboscope Vetco International Inc. Texas
CTI Inspection Services, Inc. California
Tuboscope Vetco Capital Corp. Nevada
Drexel Equipment (UK) Ltd United Kingdom
Drexel Holdings, Inc. Delaware
Drexel Equipment A/S Norway
Drexel Oilfield Services (S) PTE Ltd. Singapore
Drexel Oilfield Services BDN (49% Stock) Malaysia
Drexel Oilfield Services, Ltd. Bermuda
2. Tuboscope Vetco International Inc.'s direct Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Tuboscope Vetco Japan Ltd. Japan
Tuboscope Vetco (France) S.A. France
Linalog de Venezuela, Inc. Nevada
Tuboscope Vetco Export Sales Corporation Barbados
Tuboscope MECL (Trinidad) Ltd. (50% Stock) Trinidad
Tuboscope Pipeline Services Limited United Kingdom
Vetco Inspection Norge AS Norway
Tuboscope Vetco Canada Inc. Canada
TVI Inspecciones de Venezuela, C.A. Venezuela
Tuboscope Vetco De Argentina, S.A. Argentina
Vetco Enterprises A.G. Switzerland
Tuboscope Overseas Corp. S.A. Switzerland
Tuboscope Vetco Services (Panama) Inc. Panama
Tuboscope Vetco Moscow Ltd. Russia
Tuboscope Vetco (Thailand) Ltd. Thailand
Tuboscope Pipeline Services Inc. (79% Stock) Texas
Tuboscope Vetco do Brazil Equipamentos e Servicos Ltda. Brazil
Tube-Kote, Inc. d/b/a Tuboscope Vetco International
Oilfield Services Texas
- --------------------------
/1/Except to the extent shown, direct parent corporation listed owns 100%
of the stock of each Subsidiary listed.
<PAGE>
TVI Wadeco Inc. Canada
3. Tuboscope Vetco Capital Corp.'s direct Subsidiary:
Jurisdiction
of
Name of Subsidiary Organization
------------------ ------------
Tuboscope Vetco Capital Ltd. Scotland
4. Drexel Holdings, Inc.'s direct Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Drexel Oilfield Services, Inc. Texas
Hydra-Rig, Inc. Texas
The ONEA Corporation Texas
Environmental Procedures, Inc. Delaware
Hydra-Rig Tools (Dormant) Texas
5. Drexel Equipment (UK) Ltd's direct Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Environmental Procedures (UK) Limited United Kingdom
Winlersol s.r.l. (95%) Stock Italy
6. Tuboscope Pipeline Services Ltd.'s direct Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Tuboscope Vetco (UK) Ltd. United Kingdom
Linalog Limited United Kingdom
Tuboscope Pipeline Services Inc. (21% Stock) Texas
7. Tuboscope Vetco Canada Inc.'s direct Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Tuboscope Vetco Far East Pte Ltd. Singapore
Tuboscope Pipeline Services Canada Inc. Canada
Gloria s.r.l. (5% Stock) Italy
<PAGE>
8. Vetco Enterprises A.G.'s direct Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Tuboscope Vetco Osterreich GmbH Austria
Vetco Saudi Arabia Ltd. (45% Stock) Saudi Arabia
Tuboscope Vetco (Deutschland) GmbH Germany
9. Tuboscope Overseas Corp. S.A.'s direct Subsidiaries:
Jurisdiction
of
Name of Subsidiary Organization
------------------ ------------
Tuboscope OGI GmbH Germany
10. Tuboscope Vetco Services (Panama) Inc.'s direct Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Tuboscope Vetco (Nigeria) Ltd. (40% Stock) Nigeria
Gloria s.r.l. (95% Stock) Italy
Tuboscope Vetco (Italia) s.r.l. (95% Stock) Italy
11. TVI Wadeco Inc.'s direct Subsidiaries:
Jurisdiction
of
Name of Subsidiary Organization
------------------ ------------
Wadeco Oilfield Services Ltd. Canada
12. Drexel Oilfield Services Ltd.'s direct Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Drexel Oilfield Services, L.L.C. (49% Stock) Abu Dhabi
Brandt Company de Argentina S.A. Argentina
Venezuela Well Analysis, S.A. Venezuela
Screen Manufacturing Company, Ltd. Trinidad
Vernwell International, Inc. Texas
Windersol s.r.l. (95% Stock) Italy
<PAGE>
13. Environmental Procedures, Inc.'s Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Environmental Procedures P.T.E. Ltd. Singapore
Environmental Procedures Inc. Texas
14. ONEA Corporation's Subsidiaries:
Jurisdiction
of
Name of Subsidiary Organization
------------------ ------------
SOFG (50% Stock) Virgin Islands
15. Wadeco Oilfield Services Ltd.'s Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Lee's Oilfield Hauling Ltd. Canada
Polysep Chemicals, Inc. Canada
Wadeco Inc. North Dakota
16. Tuboscope Vetco Far East Pte Ltd.'s direct Subsidiary:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Pesaka Inspection Services SDN.BHD (49% Stock) Malaysia
Tuboscope Vetco (Italia) s.r.l. Italy
17. Tuboscope Vetco (Deutschland) GmbH's direct Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Vetco Coating GmbH Germany
Tuboscope Vetco Technology GmbH Germany
Gober Joint Stock Company (40% Stock) Belarussia
Tuboscope Vetco (Brunei) SDN.BDH (49% Stock) Brunei
18. Environmental Procedure Inc.'s Subsidiaries:
Jurisdiction
of
Name of Subsidiaries Organization
-------------------- ------------
Advanced Wirecloth, Inc. Louisiana
<PAGE>
Environmental Procedures, Inc. S.A. de CV. Mexico
SOFS (50% Stock) Virgin Islands
<PAGE>
SCHEDULE 5.4
LIST OF LITIGATION
[TO COME FROM BORROWER]
<PAGE>
SCHEDULE 5.13
ERISA DISCLOSURE
[TO COME FROM BORROWER]
<PAGE>
SCHEDULE 5.15
STOCK DISCLOSURE
Shares of the following Subsidiaries are not fully paid:
1. Vetco Enterprise AG (capitalization of 50,000 Sw. Fr., paid 20,000 Sw.
Fr.)
2. Tuboscope Vetco (Thailand) Ltd. (capitalization of 1,500,000 baht, paid
450,000 baht)
3. Gloria s.r.l. (capitalization of 20,000,000 Lire, paid 7,000,000 Lire)
Options and Warrants Outstanding:
1. Options and Warrants for Tuboscope Vetco International Corporation stock
(including the 1996 Equity Participation Plan) as described in the
Registration Statement of such Company filed with the Securities and
Exchange Commission on Form S-4 on March 21, 1996
2. (i) Options converted from the D.O.S. Ltd. 1993 Stock Option Plan and
(ii) options issued to employees and in connection with certain prior
acquisitions for 875,463 shares of Tuboscope Vetco International
Corporation common stock.
<PAGE>
SCHEDULE 5.16
INTELLECTUAL PROPERTY
[TO COME FROM BORROWER]
<PAGE>
SCHEDULE 5.19
LIST OF ENVIRONMENTAL CLAIMS
[TO COME FROM BORROWER]
<PAGE>
SCHEDULE 5.20
LIST OF EXISTING INDEBTEDNESS
[TO COME FROM BORROWER]
<PAGE>
SCHEDULE 6.16
LIST OF EXISTING LIENS
[TO COME FROM BORROWER]
<PAGE>
EXHIBIT 4(h)
TUBOSCOPE INC.
AS ISSUER,
THE GUARANTORS NAMED HEREIN,
AS GUARANTORS,
and
THE BANK OF NEW YORK
AS TRUSTEE
-----------------------------
INDENTURE
Dated as of February 25, 1998
-----------------------------
$100,000,000
SERIES A AND SERIES B
7 1/2% NOTES DUE 2008
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TRUST
INDENTURE ACT INDENTURE
SECTION SECTION
<S> <C>
310 (a)(1)..................................................... 6.10
(a)(2)..................................................... 6.10
(a)(3)..................................................... N.A.
(a)(4)..................................................... N.A.
(a)(5)..................................................... 6.10
(b)........................................................ 6.10; 7.01(b)
(c)........................................................ N.A.
311 (a)........................................................ 6.11
(b)........................................................ 6.11
(c)........................................................ N.A.
312 (a)........................................................ 2.05
(b)........................................................ 11.03
(c)........................................................ 11.03
313 (a)........................................................ 6.06
(b)........................................................ 6.06
(c)........................................................ 6.06
(d)........................................................ 6.06
314 (a)........................................................ 3.03
(b)........................................................ N.A.
(c)(1)..................................................... 11.04
(c)(2)..................................................... 11.04
(c)(3)..................................................... N.A.
(d)........................................................ N.A.
(e)........................................................ 11.05
(f)........................................................ N.A.
315 (a)........................................................ 6.01(b)
(b)........................................................ 6.05
(c)........................................................ 6.01(a)
(d)........................................................ 6.01(c)
(e)........................................................ 5.11
316 (a)(last sentence)......................................... 2.09
(a)(1)(A).................................................. 5.05
(a)(1)(B).................................................. 5.04
(a)(2)..................................................... N.A.
(b)........................................................ 5.07
(c)........................................................ 8.04
317 (a)(1)..................................................... 5.08
(a)(2)..................................................... 5.09
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(b)........................................................ 2.04
318 (a)........................................................ 10.01
318 (c)........................................................ 10.01
</TABLE>
N.A. means not applicable
* This Cross-Reference Table is not part of this Indenture
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE......................... -1-
SECTION 1.01 Definitions.......................................... -1-
SECTION 1.02 Other Definitions.................................... -8-
SECTION 1.03 Incorporation by Reference of Trust Indenture Act.... -8-
SECTION 1.04 Rules of Construction................................ -9-
ARTICLE 2
THE SECURITIES..................................................... -9-
SECTION 2.01 Form and Dating...................................... -9-
SECTION 2.02 Execution and Authentication......................... -10-
SECTION 2.03 Registrar and Paying Agent........................... -10-
SECTION 2.04 Paying Agent to Hold Money in Trust.................. -11-
SECTION 2.05 Holder Lists......................................... -11-
SECTION 2.06 Transfer and Exchange................................ -11-
SECTION 2.07 Replacement Securities............................... -18-
SECTION 2.08 Outstanding Securities............................... -18-
SECTION 2.09 Treasury Securities.................................. -19-
SECTION 2.10 Temporary Securities................................. -19-
SECTION 2.11 Cancellation......................................... -19-
SECTION 2.12 Defaulted Interest................................... -19-
SECTION 2.13 Persons Deemed Owners................................ -19-
ARTICLE 3
COVENANTS.......................................................... -20-
SECTION 3.01 Payment of Securities................................ -20-
SECTION 3.02 Maintenance of Office or Agency...................... -20-
SECTION 3.03 SEC Reports; Financial Statements.................... -21-
SECTION 3.04 Compliance Certificate............................... -21-
SECTION 3.05 Corporate Existence.................................. -22-
SECTION 3.06 Maintenance of Properties............................ -22-
SECTION 3.07 Payment of Taxes and Other Claims.................... -22-
SECTION 3.08 Waiver of Stay, Extension or Usury Laws.............. -23-
SECTION 3.09 Limitation on Sale/Leaseback Transactions............ -23-
SECTION 3.10 Limitation on Liens.................................. -24-
SECTION 3.11 Registration Rights Agreement........................ -25-
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE 4
SUCCESSORS....................................................... -25-
SECTION 4.01 Limitations on Mergers and Consolidations.......... -25-
SECTION 4.02 Successor Corporation Substituted.................. -26-
ARTICLE 5
DEFAULTS AND REMEDIES............................................ -26-
SECTION 5.01 Events of Default.................................. -26-
SECTION 5.02 Acceleration....................................... -28-
SECTION 5.03 Other Remedies..................................... -28-
SECTION 5.04 Waiver of Existing Defaults........................ -28-
SECTION 5.05 Control by Majority................................ -29-
SECTION 5.06 Limitations on Suits............................... -29-
SECTION 5.07 Rights of Holders to Receive Payment............... -30-
SECTION 5.08 Collection Suit by Trustee......................... -30-
SECTION 5.09 Trustee May File Proofs of Claim................... -30-
SECTION 5.10 Priorities......................................... -31-
SECTION 5.11 Undertaking for Costs.............................. -31-
ARTICLE 6
TRUSTEE.......................................................... -31-
SECTION 6.01 Duties of Trustee.................................. -31-
SECTION 6.02 Rights of Trustee.................................. -32-
SECTION 6.03 Individual Rights of Trustee....................... -33-
SECTION 6.04 Trustee's Disclaimer............................... -33-
SECTION 6.05 Notice of Defaults................................. -33-
SECTION 6.06 Reports by Trustee to Holders...................... -33-
SECTION 6.07 Compensation and Indemnity......................... -34-
SECTION 6.08 Replacement of Trustee............................. -34-
SECTION 6.09 Successor Trustee by Merger, etc................... -35-
SECTION 6.10 Eligibility; Disqualification...................... -36-
SECTION 6.11 Preferential Collection of Claims Against Company.. -36-
ARTICLE 7
DISCHARGE OF INDENTURE........................................... -36-
SECTION 7.01 Termination of Company's Obligations............... -36-
SECTION 7.02 Application of Trust Money......................... -38-
SECTION 7.03 Repayment to Company............................... -39-
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 7.04 Reinstatement....................................... -39-
ARTICLE 8
AMENDMENTS........................................................ -39-
SECTION 8.01 Without Consent of Holders.......................... -39-
SECTION 8.02 With Consent of Holders............................. -40-
SECTION 8.03 Compliance with Trust Indenture Act................. -42-
SECTION 8.04 Revocation and Effect of Consents................... -42-
SECTION 8.05 Notation on or Exchange of Securities............... -42-
SECTION 8.06 Trustee to Sign Amendments, etc..................... -42-
ARTICLE 9
GUARANTEES OF SECURITIES.......................................... -43-
SECTION 9.01 Unconditional Guarantees............................ -43-
SECTION 9.02 Limitation of Guarantor's Liability................. -45-
SECTION 9.03 Contribution........................................ -45-
SECTION 9.04 Execution and Delivery of Guarantees................ -45-
SECTION 9.05 Addition of Guarantors.............................. -46-
SECTION 9.06 Release of Guarantee................................ -46-
SECTION 9.07 Consent to Jurisdiction and Service of Process...... -46-
SECTION 9.08 Waiver of Immunity.................................. -47-
SECTION 9.09 Judgment Currency................................... -47-
ARTICLE 10
REDEMPTION........................................................ -48-
SECTION 10.01 Notices to Trustee................................. -48-
SECTION 10.02 Selection of Securities to be Redeemed............. -48-
SECTION 10.03 Notices to Holders................................. -48-
SECTION 10.04 Effect of Notices of Redemption.................... -49-
SECTION 10.05 Deposit of Redemption Price........................ -49-
SECTION 10.06 Securities Redeemed in Part........................ -49-
SECTION 10.07 Optional Redemption................................ -50-
ARTICLE 11
MISCELLANEOUS..................................................... -50-
SECTION 11.01 Trust Indenture Act Controls....................... -50-
SECTION 11.02 Notices............................................ -50-
SECTION 11.03 Communication by Holders with Other Holders........ -51-
SECTION 11.04 Certificate and Opinion as to Conditions Precedent. -51-
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
SECTION 11.05 Statements Required in Certificate or Opinion....... -52-
SECTION 11.06 Rules by Trustee and Agents......................... -52-
SECTION 11.07 Legal Holidays...................................... -52-
SECTION 11.08 No Recourse Against Others.......................... -52-
SECTION 11.09 Governing Law....................................... -52-
SECTION 11.10 No Adverse Interpretation of Other Agreements....... -53-
SECTION 11.11 Successors.......................................... -53-
SECTION 11.12 Severability........................................ -53-
SECTION 11.13 Counterpart Originals............................... -53-
SECTION 11.14 Table of Contents, Headings, etc.................... -53-
</TABLE>
-iv-
<PAGE>
INDENTURE dated as of February 25, 1998 between Tuboscope Inc., a Delaware
corporation (the "Company"), the corporations listed on Schedule I hereto (each
a "Guarantor" and collectively, the "Guarantors") and The Bank of New York, a
New York banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other parties and for
the equal and ratable benefit of the Holders of the Company's 7 1/2% Series A
Notes due 2008 (the "Series A Securities") and the Company's 7 1/2% Series B
Notes due 2008 (the "Series B Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"Adjusted Net Assets" of a Guarantor at any date means the lesser of (x)
the amount by which the fair value of the property of such Guarantor at such
date exceeds the total amount of liabilities, including, without limitation, the
probable amount of contingent liabilities (after giving effect to all other
fixed and contingent liabilities incurred or assumed on such date) of such
Guarantor at such date, but excluding liabilities under the Guarantee of such
Guarantor, and (y) the amount by which the present fair saleable value of the
assets of such Guarantor at such date exceeds the amount that will be required
to pay the probable liability of such Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date and after giving effect to any collection from any Subsidiary of such
Guarantor in respect of any obligations of such Subsidiary under the Guarantee
of such Guarantor), excluding debt in respect of the Guarantee of such
Guarantor, as they become absolute and matured.
"Affiliate" of any specified Person means any Person directly or indirectly
controlling or controlled by, or under direct or indirect common control with,
such specified Person. For purposes of this definition, "control" of a Person
shall mean the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" shall have
meanings correlative to the foregoing. The Trustee may request and may
conclusively rely upon an Officers' Certificate to determine whether any Person
is an Affiliate of any specified Person.
"Agent" means any Registrar or Paying Agent.
"Attributable Indebtedness," when used with respect to any Sale/Leaseback
Transaction, means, as at the time of determination, the present value
(discounted at the rate set forth or implicit in the terms of the lease included
in such transaction) of the total obligations of the lessee for rental payments
(other than amounts required to be paid on account of property taxes,
maintenance, repairs, insurance, assessments, utilities, operating and labor
costs and other items which do not constitute payments for property rights)
during the remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease has been extended).
<PAGE>
"Bank Credit Facility" means Amended and Restated Credit Agreement dated as
of February 9, 1998 among the Company and Chase Bank of Texas, National
Association, ABN AMRO Bank N.V., Houston Agency and the Other Lenders Party
thereto and ABN AMRO Bank N.V., Houston Agency as Administrative Agent.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or
foreign law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized, with respect to any particular matter, to act
by or on behalf of the Board of Directors of the Company.
"Business Day" means any day that is not a Legal Holiday.
"Capital Stock" of any Person means and includes any and all shares,
interests, rights to purchase, warrants or options (whether or not currently
exercisable), participations or other equivalents of or interests in (however
designated) the equity (which includes, but is not limited to, common stock,
preferred stock and partnership and joint venture interests) of such Person
(excluding any debt securities that are convertible into, or exchangeable for,
such equity).
"Capitalized Lease Obligation" of any Person means any obligation of such
Person to pay rent or other amounts under a lease of property, real or personal,
that is required to be capitalized for financial reporting purposes in
accordance with GAAP; and the amount of such obligation shall be the capitalized
amount thereof determined in accordance with GAAP.
"Common Equity" of any Person means and includes all Capital Stock of such
Person that is generally entitled to (i) vote in the election of directors of
such Person, or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management and policies of such Person.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation; provided, however, that for purposes of any
provision contained herein which is required by the TIA, "Company" shall also
mean each Guarantor, if any.
"Consolidated Net Worth" of the Company means the consolidated
stockholders' equity of the Company and its Subsidiaries, as determined in
accordance with GAAP.
"Corporate Trust Office of the Trustee" means the office of the Trustee [in
the Borough of Manhattan, The City of New York] at which the corporate trust
business of the Trustee shall be principally administered, which office shall
initially be located at the address of the Trustee specified in Section 3.02
hereof and may be located at such other address as the Trustee may give notice
to the Company.
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"Default" means any event, act or condition that is, or after notice or the
passage of time or both would be, an Event of Default.
"Definitive Securities" means Securities that are in the form of Exhibit A
attached hereto (but without including the text referred to in footnotes 1 and 2
thereto and the Schedule of Exchanges of Securities).
"Depositary" means, with respect to the Securities issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
any successor statute.
"Exchange Offer" means the offer that may be made by the Company pursuant
to a Registration Rights Agreement to exchange Series B Notes for Series A
Notes.
"Exchange Offer Registration Statement" means a registration statement
under the Securities Act relating to an Exchange Offer, including the related
prospectus.
"Funded Indebtedness" means all Indebtedness (including Indebtedness
incurred under any revolving credit, letter of credit or working capital
facility) that matures by its terms, or that is renewable at the option of any
obligor thereon to a date, more than one year after the date on which such
Indebtedness is originally incurred.
"GAAP" means generally accepted accounting principles in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, as in effect from time to time.
"Global Security" means a Security that is issued in global form in the
name of Cede & Co. or such other name as may be requested by an authorized
representative of the Depositary, and that contains the text referred to in
footnotes 1 and 2 and the additional schedule referred to in the form of
Security attached hereto as Exhibit A.
"Guarantor" means (i) each Subsidiary of the Company listed on Schedule I
hereto executing this Indenture, (ii) each Subsidiary of the Company that
becomes a guarantor of the Securities pursuant to Section 9.05 hereof, (iii)
each Subsidiary of the Company that executes a supplemental indenture in which
such Subsidiary agrees to be bound by Article 9 hereof and (iv) any Subsidiary
of the Company that is a successor corporation of any Subsidiary of the Company
referred to in clauses (i) through (iii). The term "Guarantor" shall not
include any Subsidiary of the Company referred to in clauses (i) through (iv)
that shall have been released from its obligations under Article 9 pursuant to
Section 9.06 hereof.
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"Hedging Obligations" of any Person means the net obligations (not the
notional amount) of such Person pursuant to any interest rate swap agreement,
foreign currency exchange agreement, interest rate collar agreement, option or
futures contract or other similar agreement or arrangement relating to interest
rates or foreign exchange rates.
"Holder" means a Person in whose name a Security is registered.
"Indebtedness" of any Person at any date means, without duplication, (i)
all indebtedness of such Person for borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such Person or only to a portion
thereof), (ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments, (iii) all obligations of such Person in
respect of letters of credit or other similar instruments (or reimbursement
obligations with respect thereto), other than standby letters of credit and
performance bonds issued by such Person in the ordinary course of business, to
the extent not drawn or, to the extent drawn, if such drawing is reimbursed not
later than the third Business Day following demand for reimbursement, (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, except trade payables and accrued expenses incurred in the
ordinary course of business, (v) all Capitalized Lease Obligations of such
Person, (vi) all Indebtedness of others secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of others guaranteed by such Person to the extent of such guarantee
and (viii) all Hedging Obligations of such Person.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Independent Investment Banker" means an independent investment banking
institution of national standing appointed by the Company for purposes of
calculating any Make-Whole Premium, provided, that if the Company fails to make
such appointment at least 45 Business Days prior to the Redemption Date for any
Security to be redeemed, or if the institution so appointed is unwilling or
unable to make such calculation, such calculation will be made by Credit Suisse
First Boston Corporation or, if such firm is unwilling or unable to make such
calculation, by an independent investment banking institution of national
standing appointed by the Trustee.
"Initial Purchasers" means Credit Suisse First Boston Corporation, ABN AMRO
Incorporated, Chase Securities Inc. and Salomon Brothers Inc as initial
purchasers in the Offering.
"Interest Payment Date" shall have the meaning assigned to such term in the
Securities.
"Issue Date" means the first date on which the Series A Securities are
issued under this Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in any of The City of New York, Houston, Texas or a place of
payment are authorized or obligated by law, regulation or executive order to
remain closed.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise
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perfected under applicable law. For the purposes of this Indenture, the Company
or any Subsidiary of the Company shall be deemed to own subject to a Lien any
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, Capitalized Lease Obligation or
other title retention agreement relating to such asset.
"Make-Whole Premium" means, with respect to any Security (or portion
thereof) to be redeemed, an amount equal to the excess, if any, of:
(i) the sum of the present values, calculated as of the Redemption
Date, of:
(A) each interest payment that, but for such redemption, would
have been payable on the Security (or portion thereof) being redeemed on
each Interest Payment Date occurring after the Redemption Date (excluding
any accrued interest for the period prior to the Redemption Date); and
(B) the principal amount that, but for such redemption, would
have been payable at the final maturity of the Security (or portion
thereof) being redeemed;
over
(ii) the principal amount of the Security (or portion thereof) being
redeemed.
The present values of interest and principal payments referred to in clause (i)
above will be determined in accordance with generally accepted principles of
financial analysis. Such present values will be calculated by discounting the
amount of each payment of interest or principal from the date that each such
payment would have been payable, but for the redemption, to the Redemption Date
at a discount rate equal to the Treasury Yield plus 25 basis points. The Make-
Whole Premium will be calculated by an Independent Investment Banker.
For purposes of determining the Make-Whole Premium, "Treasury Yield" means
a rate of interest per annum equal to the weekly average yield to maturity of
United States Treasury Notes that have a constant maturity that corresponds to
the remaining term to maturity of the Securities, calculated to the nearest 1/12
of a year (the "Remaining Term"). The Treasury Yield will be determined as of
the third Business Day immediately preceding the applicable Redemption Date.
The weekly average yields of United States Treasury Notes will be
determined by reference to the most recent statistical release published by the
Federal Reserve Bank of New York and designated "H.15(519) Selected Interest
Rates" or any successor release (the "H.15 Statistical Release"). If the H.15
Statistical Release sets forth a weekly average yield for United States Treasury
Notes having a constant maturity that is the same as the Remaining Term, then
the Treasury Yield will be equal to such weekly average yield. In all other
cases, the Treasury Yield will be calculated by interpolation, on a straight-
line basis, between the weekly average yields on the United States Treasury
Notes that have a constant maturity closest to and greater than the Remaining
Term and the United States Treasury Notes that have a constant maturity closest
to and less than the Remaining Term (in each case as set forth in the H.15
Statistical Release). Any weekly average yields so calculated by interpolation
will be rounded to the nearest 1/100 of 1%, with any figure of
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1/200% or above being rounded upward. If weekly average yields for United States
Treasury Notes are not available in the H.15 Statistical Release or otherwise,
then the Treasury Yield will be calculated by interpolation of comparable rates
selected by the Independent Investment Banker.
"Net Proceeds" means, with respect to any Sale/Leaseback Transaction
entered into by the Company or any Subsidiary of the Company, the aggregate net
proceeds received by the Company or such Subsidiary from such Sale/Leaseback
Transaction after payment of expenses, taxes, commissions and similar amounts
incurred in connection therewith, whether such proceeds are in cash or in
property (valued at the fair market value thereof at the time of receipt, as
determined by the Board of Directors).
"Non-Recourse Indebtedness" means, at any date, the aggregate amount at
such date of Indebtedness of the Company or a Subsidiary of the Company in
respect of which the recourse of the holder of such Indebtedness, whether direct
or indirect and whether contingent or otherwise, is effectively limited to
specified assets, and with respect to which neither the Company nor any of its
Subsidiaries provides any credit support.
"Offering" means the offering of the Original Securities pursuant to the
Offering Circular.
"Offering Circular" means the Offering Circular of the Company, dated
February 19, 1998, relating to the Offering.
"Officer" means the Chairman of the Board, the President, any Vice Chairman
of the Board, any Vice President, the chief financial officer, the Treasurer,
any Assistant Treasurer, the Controller, the Secretary or any Assistant
Secretary of a Person.
"Officers' Certificate" means a certificate signed by two Officers of a
Person, one of whom must be the Person's chief executive officer, chief
financial officer or chief accounting officer.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. Such counsel may be an employee of or counsel to the
Company, a Guarantor or the Trustee.
"Original Securities" has the meaning set forth in Section 2.02 hereof.
"Pari Passu Indebtedness" means any Indebtedness of the Company, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall be subordinated in right of payment to the
Securities.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint-stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof or other entity of any kind.
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"Redemption Date," when used with respect to any security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" shall have the meaning assigned to such term in the
Securities.
"Registration Rights Agreement" means (a) that certain Registration Rights
Agreement, dated as of February 25, 1998, among the Company, the Guarantors
party thereto and the Initial Purchasers relating to the Original Securities and
(b) any similar agreements that the Company and the Guarantors may enter into in
relation to any other Series A Securities.
"Sale/Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company, for a
period of more than three years, of any real or tangible personal property,
which property has been or is to be sold or transferred by the Company or such
Subsidiary to such Person in contemplation of such leasing.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Series A Securities and the Series B Securities
treated as a single class of Securities. For purposes of this Indenture, the
term "Securities" shall, except where the context otherwise requires, include
the Guarantees.
"Securities Act" means the Securities Act of 1933, as amended, and any
successor statute.
"Security Custodian" means the Trustee, as custodian with respect to the
Securities in global form, or any successor entity thereto.
"Series A Securities" means the Company's 7 1/2% Series A Notes due 2008 to
be issued pursuant to this Indenture.
"Series B Securities" means the Company's 7 1/2% Series B Notes due 2008 to
be issued pursuant to this Indenture in the Exchange Offer.
"Subsidiary" of any Person means (i) any corporation of which at least a
majority of the aggregate voting power of all classes of the Common Equity is
owned by such Person directly or through one or more other Subsidiaries of such
Person, and (ii) any entity other than a corporation at least a majority of the
Common Equity of which is owned by such Person directly or through one or more
other Subsidiaries of such Person.
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C. Sections
77aaa-77bbbb), as in effect on the Issue Date.
"Transfer Restricted Securities" shall have the meaning assigned to such
term in the Registration Rights Agreement.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters.
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"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"U.S. Government Obligations" means direct obligations of the United States
of America for the payment of which the full faith and credit of the United
States of America is pledged.
SECTION 1.02 Other Definitions.
<TABLE>
<CAPTION>
Defined
Term in Section
---- ----------
<S> <C>
"Authorized Agent".............................. 9.07
"Custodian"..................................... 5.01
"DTC"........................................... 2.03
"Event of Default".............................. 5.01
"Funding Guarantor"............................. 9.03
"Guarantees".................................... 9.01(a)
"Judgement Currency"............................ 9.09
"Non-U.S. Guarantor"............................ 9.07
"Paying Agent".................................. 2.03
"Registrar"..................................... 2.03
"Significant Subsidiary"........................ 5.01
"Successor"..................................... 4.01
</TABLE>
SECTION 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and each Guarantor.
All terms used in this Indenture that are defined by the TIA, defined by a
TIA reference to another statute or defined by an SEC rule under the TIA have
the meanings so assigned to them.
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SECTION 1.04 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include the
singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES
SECTION 2.01 Form and Dating.
The Securities, the notations thereon relating to the Guarantees and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A to this Indenture, the terms of which are hereby incorporated into
this Indenture. The Securities may have notations, legends or endorsements
required by law, securities exchange rule, the Company's certificate of
incorporation or bylaws, agreements to which the Company is subject, if any, or
usage (provided that any such notation, legend or endorsement is in a form
acceptable to the Company). Each Security shall be dated the date of its
authentication. The Securities shall be in registered form without coupons and
only in denominations of $1,000 and any integral multiples thereof. The terms
and provisions contained in the Securities shall constitute, and are hereby
expressly made, a part of this Indenture and to the extent applicable, the
Company, the Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
The Securities will initially be issued in the form of one or more global
Securities, substantially in the form of Exhibit A attached hereto (including
footnotes 1 and 2 thereto). A Global Security shall represent such of the
outstanding Securities as shall be specified therein and shall provide that it
shall represent the aggregate amount of outstanding Securities from time to time
endorsed thereon and that the aggregate amount of outstanding Securities
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges, repurchases and redemptions. Any endorsement
of Global Securities to reflect the amount of any increase or decrease in the
amount of outstanding Securities represented thereby shall be made by the
Trustee in accordance with instructions given by the Holder thereof as required
by Section 2.06 hereof.
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SECTION 2.02 Execution and Authentication.
One Officer of the Company shall sign the Securities on behalf of the
Company, and one Officer of each Guarantor shall sign the notation on the
Securities relating to the Guarantees on behalf of such Guarantor, in each case
by manual or facsimile signature. The Company's seal may be impressed, affixed,
imprinted or reproduced on the Securities and may be in facsimile form.
If an Officer of the Company or any Guarantor whose signature is on a
Security no longer holds that office at the time the Security is authenticated,
the Security shall be valid nevertheless.
A Security shall not be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose until authenticated by the manual signature
of an authorized signatory of the Trustee, which signature shall be conclusive
evidence that the Security has been authenticated under this Indenture.
The Trustee shall authenticate (i) Series A Securities for original issue
on the Issue Date in the aggregate principal amount of $100,000,000 (the
"Original Securities"), (ii) additional Series A Securities for original issue
from time to time after the Issue Date in such principal amounts as may be set
forth in a written order of the Company described in this sentence and (iii)
Series B Securities for original issue, pursuant to an Exchange Offer for a like
principal amount of Series A Securities, in each case, upon a written order of
the Company signed by one Officer of the Company. Such order shall specify (a)
the amount of the Securities to be authenticated and the date of original issue
thereof, (b) to what extent, if any such Securities will be represented by a
Global Security and one or more Definitive Securities and (c) whether the
Securities are Series A Securities or Series B Securities. The aggregate
principal amount of Securities outstanding at any time may not exceed
$100,000,000 plus such additional principal amounts as may be issued pursuant to
clause (ii) of this paragraph, except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Securities. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Securities whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company, the Guarantors or an Affiliate of any of them.
The Series A Securities and the Series B Securities shall be considered
collectively to be a single class for all purposes of this Indenture, including,
without limitations waivers, amendments, redemptions and offers to purchase.
SECTION 2.03 Registrar and Paying Agent.
The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or exchange ("Registrar") and an office
or agency where Securities may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and
the term "Paying Agent" includes any additional paying agent.
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The Company shall enter into an appropriate agency agreement with any
Registrar or Paying Agent not a party to this Indenture. The agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Company shall notify the Trustee of the name and address of any Agent not a
party to this Indenture. The Company may change any Paying Agent or Registrar
without notice to any Holder. If the Company fails to appoint or maintain
another entity as Registrar or Paying Agent, the Trustee shall act as such. The
Company or any of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints the Trustee as Registrar and Paying Agent.
The Company initially appoints The Depository Trust Company ("DTC") to act
as Depositary with respect each Global Security.
SECTION 2.04 Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent will hold in trust for the benefit of Holders
or the Trustee all money held by the Paying Agent for the payment of principal
of or premium, if any, or interest on the Securities, whether such money shall
have been paid to it by the Company or any Guarantor, and will notify the
Trustee of any default by the Company or any Guarantor in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee and to account for any funds
disbursed. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed. Upon payment
over to the Trustee and upon accounting for any funds disbursed, the Paying
Agent (if other than the Company or a Subsidiary of the Company) shall have no
further liability for the money. If the Company or a Subsidiary of the Company
acts as Paying Agent, it shall segregate and hold in a separate trust fund for
the benefit of the Holders all money held by it as Paying Agent.
SECTION 2.05 Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each Interest Payment Date, and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, and the
Company shall otherwise comply with TIA Section 312(a).
SECTION 2.06 Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities. When Definitive
Securities are presented to the Registrar with the request:
(x) to register the transfer of the Definitive Securities, or
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(y) to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of the same series and other
authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirement for such transactions are met; provided, however, that the
Definitive Securities presented or surrendered for registration of transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by
the Holder thereof or by his attorney, duly authorized in writing;
and
(ii) in the case of Transfer Restricted Securities that are Definitive
Securities, shall be accompanied by the following additional
information and documents, as applicable, upon which the Registrar
may conclusively rely:
(A) if such Transfer Restricted Securities are being delivered to
the Registrar by a Holder for registration in the name of
such Holder, without transfer, a certification from such
Holder to that effect (in substantially the form of Exhibit B
hereto); or
(B) if such Transfer Restricted Securities are being transferred
(1) to a "qualified institutional buyer" (as defined in Rule
144A under the Securities Act) in accordance with Rule 144A
under the Securities Act or (2) pursuant to an exemption from
registration in accordance with Rule 144 under the Securities
Act (and based upon an opinion of counsel if the Company so
requests) or (3) pursuant to an effective registration
statement under the Securities Act, a certification to that
effect from such Holder (in substantially the form of Exhibit
B hereto); or
(C) if such Transfer Restricted Securities are being transferred
to an institutional "accredited investor," within the meaning
of Rule 501(a)(1), (2), (3) or (7) under the Securities Act
pursuant to a private placement exemption from the
registration requirements of the Securities Act (and based
upon an opinion of counsel if the Company so requests), a
certification to that effect from such Holder (in
substantially the form of Exhibit B hereto) and a
certification from the applicable transferee (in
substantially the form of Exhibit C hereto);
(D) if such Transfer Restricted Securities are being transferred
pursuant to an exemption from registration in accordance with
Rule 904 under the Securities Act (and based upon an opinion
of counsel if the Company so requests), certifications to
that effect from such Holder (in substantially the form of
Exhibits B and D hereto); or
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(E) if such Transfer Restricted Securities are being transferred
in reliance on another exemption from the registration
requirements of the Securities Act (and based upon an opinion
of counsel if the Company so requests), a certification to
that effect from such Holder (in substantially the form of
Exhibit B hereto).
(b) Restriction on Transfer of a Definitive Security for a Beneficial
Interest in a Global Security. A Definitive Security may not be exchanged for a
beneficial interest in a Global Security of the same series except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Trustee, together with:
(i) if such Definitive Security is a Transfer Restricted Security,
certification, substantially in the form of Exhibit B hereto,
upon which the Trustee may conclusively rely, that such
Definitive Security is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities
Act; or
(ii) if such Definitive Security is a Transfer Restricted Security and
is being transferred pursuant to an exemption from registration
in accordance with Rule 904 under the Securities Act (and based
upon an opinion of counsel if the Company so requests),
certifications to that effect from such Holder (in substantially
the form of Exhibits B and D hereto); and
(iii) whether or not such Definitive Security is a Transfer Restricted
Security, written instructions directing the Trustee to make, or
direct the Security Custodian to make, an endorsement on the
Global Security to reflect an increase in the aggregate principal
amount of the Securities represented by the Global Security;
then the Trustee shall cancel such Definitive Security in accordance with
Section 2.11 hereof and cause, or direct the Security Custodian to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Security Custodian, the aggregate principal amount of
Securities represented by the Global Security to be increased accordingly. If no
Global Securities are then outstanding, the Company shall issue and the Trustee
shall authenticate a new Global Security in the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and exchange
of Global Securities or beneficial interests therein shall be effected through
the Depositary, in accordance with this Indenture (including the restrictions on
transfer set forth herein) and the procedures of the Depositary therefor, which
shall include restrictions on transfer comparable to those set forth herein to
the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Security for a Definitive
Security.
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(i) Any Person having a beneficial interest in a Global Security may
upon request exchange such beneficial interest for a Definitive
Security of the same series. Upon receipt by the Trustee of
written instructions or such other form of instructions as is
customary for the Depositary, from the Depositary or its nominee
on behalf of any Person having a beneficial interest in a Global
Security, and in the case of a Transfer Restricted Security, the
following additional information and documents (all of which may
be submitted by facsimile), upon which the Trustee may
conclusively rely:
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the beneficial
owner, a certification from such Person to that effect (in
substantially the form of Exhibit B hereto); or
(B) if such beneficial interest is being transferred (1) to a
"qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A under
the Securities Act or (2) pursuant to an exemption from
registration in accordance with Rule 144 under the
Securities Act (and based upon an opinion of counsel if the
Company so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a
certification to that effect from the transferor (in
substantially the form of Exhibit B hereto); or
(C) if such beneficial interest is being transferred to an
institutional "accredited investor," within the meaning of
Rule 501(a)(1), (2), (3) or (7) under the Securities Act
pursuant to a private placement exemption from the
registration requirements of the Securities Act (and based
upon an opinion of counsel if the Company so requests), a
certification to that effect from such transferor (in
substantially the form of Exhibit B hereto) and a
certification from the applicable transferee (in
substantially the form of Exhibit C hereto); or
(D) if such beneficial interest is being transferred pursuant to
an exemption from registration in accordance with Rule 904
under the Securities Act (and based upon an opinion of
counsel if the Company so requests), certifications to that
effect from such transferor (in substantially the form of
Exhibits B and D hereto); or
(E) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of
the Securities Act (and based upon an opinion of counsel if
the Company so requests), a certification to that effect
from such transferor (in substantially the form of Exhibit B
hereto);
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then the Trustee or the Security Custodian, at the direction of the Trustee,
shall, in accordance with the standing instructions and procedures existing
between the Depositary and the Security Custodian, cause the aggregate principal
amount of Global Securities to be reduced accordingly and, following such
reduction, the Company shall execute and the Trustee shall authenticate and
deliver to the transferee a Definitive Security of the same series and in the
appropriate principal amount.
(ii) Definitive Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.06(d)
shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from
its direct or indirect participants or otherwise, shall instruct
the Trustee. The Trustee shall deliver such Definitive Securities
to the Persons in whose names such Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.06), a Global Security
may not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Securities in Absence of Depositary. If
at any time:
(i) the Depositary for the Securities notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for
the Global Securities and a successor Depositary for the Global
Securities is not appointed by the Company within 90 days after
delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of Definitive
Securities under this Indenture,
then the Company will execute, and the Trustee will authenticate and deliver
Definitive Securities of the same series as such Global Securities, in an
aggregate principal amount equal to the principal amount of the Global
Securities, in exchange for such Global Securities and registered in such names
as the Depositary shall instruct the Trustee or the Company in writing.
(g) Legends.
(i) Except as permitted by the following paragraph (ii), each
Security certificate evidencing the Global Securities and the
Definitive Securities (and all Securities issued in exchange
therefor or substitution thereof) shall bear a legend in
substantially the following form:
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (The
"SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH
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REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS
SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)
INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF
CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE."
Each Security certificate evidencing the Global Securities also shall bear
the paragraph referred to in footnote 2 in the form of Security attached hereto
as Exhibit A.
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act or
an effective registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Definitive Security, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Definitive Security that does not bear the legend set forth
in (i) above and rescind any restriction on the transfer of
such Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security represented
by a Global Security, such Transfer Restricted Security
shall not be required to bear the legend set forth in (i)
above if all other interests in such Global Security have
been or are concurrently being sold or transferred pursuant
to Rule 144 under the Securities Act or pursuant to an
effective registration statement under the Securities Act,
but such Transfer Restricted Security shall continue to be
subject to the provisions of Section 2.06(c) hereof;
provided, however, that with respect to any request for an
exchange of a Transfer Restricted Security that is
represented by a Global Security for a Definitive Security
that does not bear a legend set forth in (i) above, which
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request is made in reliance upon Rule 144 under the
Securities Act, the Holder thereof shall certify in writing
to the Registrar that such request is being made pursuant to
Rule 144 under the Securities Act (such certification to be
substantially in the form of Exhibit B hereto).
(iii) Notwithstanding the foregoing, upon consummation of the Exchange
Offer, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the
Trustee shall authenticate Series B Securities in exchange for
Series A Securities accepted for exchange in the Exchange Offer,
which Series B Securities shall not bear the legend set forth in (i)
above, and the Registrar shall rescind any restriction on the
transfer of such Securities, in each case unless the Holder of such
Series A Securities is either (A) a broker-dealer, (B) a Person
participating in the distribution of the Series A Securities or (C)
a Person who is an affiliate (as defined in Rule 144 under the
Securities Act) of the Company. The Company shall identify to the
Trustee such Holders of the Securities in a written certification
signed by an Officer of the Company and, absent certification from
the Company to such effect, the Trustee shall assume that there are
no such Holders.
(h) Cancellation and/or Adjustment of Global Security. At such time as all
beneficial interests in a Global Security have either been exchanged for
Definitive Securities, redeemed, repurchased or canceled, such Global Security
shall be returned to or retained and canceled by the Trustee. At any time prior
to such cancellation, if any beneficial interest in a Global Security is
exchanged for Definitive Securities, redeemed, repurchased or canceled, the
principal amount of Securities represented by such Global Security shall be
reduced and an endorsement shall be made on such Global Security, by the Trustee
or the Security Custodian, at the direction of the Trustee to reflect such
reduction.
(i) General Provisions with respect to Transfer and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's request.
(ii) No service charge shall be made to a Holder for any registration of
transfer or exchange (except as otherwise expressly permitted
herein), but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in
connection therewith (other than such transfer tax or similar
governmental charge payable upon exchanges pursuant to Section 8.05
hereof).
(iii) The Trustee shall authenticate Definitive Securities and Global
Securities in accordance with the provisions of Section 2.02
hereof.
(iv) Notwithstanding any other provisions of this Indenture to the
contrary, the Company shall not be required to register the
transfer or exchange of a
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Security between the record date and the next succeeding Interest
Payment Date.
(v) Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to, or payments
made on account of, Securities by the Depositary, or for
maintaining, supervising or reviewing any records of the Depositary
relating to such Securities. Neither the Company nor the Trustee
shall be liable for any delay by the related Global Security Holder
or the Depositary in identifying the beneficial owners of the
related Securities and each such Person may conclusively rely on,
and shall be protected in relying on, instructions from such Global
Security Holder or the Depositary for all purposes (including with
respect to the registration and delivery, and the respective
principal amounts, of the Securities to be issued).
SECTION 2.07 Replacement Securities.
If any mutilated Security is surrendered to the Trustee, or the Company
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Security, the Company shall issue and the Trustee shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee, the Company or any Guarantor, such Holder must furnish
an indemnity bond that is sufficient in the judgment of the Trustee, the Company
and the Guarantors to protect the Company, the Guarantors, the Trustee, any
Agent or any authenticating agent from any loss which any of them may suffer if
a Security is replaced. The Company, the Trustee and the Guarantors may charge
for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company and
the Guarantors.
SECTION 2.08 Outstanding Securities.
The Securities outstanding at any time are all the Securities authenticated
by the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Security effected by
the Trustee hereunder and those described in this Section 2.08 as not
outstanding.
If a Security is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under Section
3.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
A Security does not cease to be outstanding because the Company, a
Guarantor or an Affiliate of any of them holds the Security.
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SECTION 2.09 Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, any Guarantor or an Affiliate of any of them shall be
disregarded, except that for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee knows are so owned shall be so disregarded.
SECTION 2.10 Temporary Securities.
Until Definitive Securities are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Securities. Temporary Securities
shall be substantially in the form of Definitive Securities, but may have
variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities. Until
so exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
SECTION 2.11 Cancellation.
The Company or any Guarantor at any time may deliver Securities to the
Trustee for cancellation. The Registrar and the Paying Agent shall forward to
the Trustee any Securities surrendered to them for registration of transfer,
exchange or payment. The Trustee shall cancel all Securities surrendered for
registration of transfer, exchange, payment, replacement or cancellation. Unless
the Company shall direct that canceled Securities be returned to it, after
written notice to the Company all canceled Securities held by the Trustee shall
be disposed of in accordance with the usual disposal procedures of the Trustee,
and the Trustee shall maintain a record of their disposal. The Company may not
issue new Securities to replace Securities that have been paid or that have been
delivered to the Trustee for cancellation.
SECTION 2.12 Defaulted Interest.
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest on the defaulted interest, in each case at the rate provided in
the Securities and in Section 3.01 hereof. The Company may pay the defaulted
interest to the Persons who are Holders on a subsequent special record date. At
least 15 days before any special record date, the Company (or the Trustee, in
the name of and at the expense of the Company) shall mail to Holders a notice
that states the special record date, the related payment date and the amount of
such interest to be paid.
SECTION 2.13 Persons Deemed Owners.
The Company, the Trustee, any Agent and any authenticating agent may treat
the Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving payments of principal of or premium, if
any, or interest on such Security and for all other purposes.
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None of the Company, the Trustee, any Agent or any authenticating agent shall be
affected by any notice to the contrary.
ARTICLE 3
COVENANTS
SECTION 3.01 Payment of Securities.
The Company shall pay the principal of and premium, if any, and interest
(including additional interest required by the Registration Rights Agreement
referred to in Section 3.11 hereof) on the Securities on the dates and in the
manner provided in the Securities and in this Indenture. Principal, premium, if
any, and interest shall be considered paid on the date due if the Paying Agent,
other than the Company or a Subsidiary of the Company, holds by 11:00 a.m.,
Eastern time, on that date money deposited by the Company designated for and
sufficient to pay all principal, premium and interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal, and premium, if any,
at a rate equal to the then applicable interest rate on the Securities to the
extent lawful; and it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.
SECTION 3.02 Maintenance of Office or Agency.
The Company will maintain, in the Borough of Manhattan, The City of New
York, an office or agency (which may be an office of the Trustee, the Registrar
or the Paying Agent) where Securities may be presented for registration of
transfer or exchange, where Securities may be presented for payment and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. Unless otherwise designated by the Company by written
notice to the Trustee, such office or agency shall be the principal office of
the Trustee, in The City of New York which, on the date hereof, is located at
101 Darclay Floor 7E, New York, New York 10286. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency. The Company hereby
designates the Corporate Trust Office of the Trustee as one such office or
agency of the Company in accordance with Section 2.03 hereof.
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SECTION 3.03 SEC Reports; Financial Statements.
(a) The Company shall file with the Trustee, within 15 days after it files
the same with the SEC, copies of the annual reports and the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) that the Company is required
to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If
the Company is not subject to the requirements of such Section 13 or 15(d), the
Company shall file with the Trustee, within 15 days after it would have been
required to file the same with the SEC, financial statements, including any
notes thereto (and with respect to annual reports, an auditors' report by a firm
of established national reputation), and a "Management's Discussion and Analysis
of Financial Condition and Results of Operations," both comparable to that which
the Company would have been required to include in such annual reports,
information, documents or other reports if the Company had been subject to the
requirements of such Section 13 or 15(d). The Company shall also comply with
the provisions of TIA Section 314(a).
(b) If the Company is required to furnish annual or quarterly reports to
its stockholders pursuant to the Exchange Act, the Company shall cause any
annual report furnished to its stockholders generally and any quarterly or other
financial reports furnished by it to its stockholders generally to be filed with
the Trustee and mailed to the Holders at their addresses appearing in the
register of Securities maintained by the Registrar. If the Company is not
required to furnish annual or quarterly reports to its stockholders pursuant to
the Exchange Act, the Company shall cause its financial statements referred to
in Section 3.03(a) hereof, including any notes thereto (and with respect to
annual reports, an auditors' report by a firm of established national
reputation), and a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" to be so mailed to the Holders within 90 days after
the end of each of the Company's fiscal years and within 60 days after the end
of each of the Company's first three fiscal quarters.
(c) For so long as any Transfer Restricted Securities remain outstanding,
the Company shall furnish to all Holders and prospective purchasers of the
Securities designated by the Holders of Transfer Restricted Securities, promptly
upon their request, any information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
(d) The Company shall provide the Trustee with a sufficient number of
copies of all reports and other documents and information that the Trustee may
be required to deliver to Holders under this Section 3.03.
SECTION 3.04 Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company, a statement signed by two Officers of the
Company, which need not constitute an Officers' Certificate, complying with TIA
Section 314(a)(4) and stating that in the course of performance by the signing
Officers of the Company of their duties as such Officers of the Company they
would normally obtain knowledge of the keeping, observing, performing and
fulfilling by the Company of its obligations under this Indenture, and further
stating, as to each such Officer signing such statement, that to the best of his
knowledge the Company and each Guarantor has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
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default in the performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which such Officer may have
knowledge and what action the Company or such Guarantor, as the case may be, is
taking or proposes to take with respect thereto).
(b) The Company and the Guarantors shall, so long as any of the Securities
are outstanding, deliver to the Trustee, forthwith upon any Officer of the
Company or any Guarantor becoming aware of any Default or Event of Default under
this Indenture, an Officers' Certificate specifying such Default or Event of
Default and what action the Company or such Guarantor is taking or proposes to
take with respect thereto.
SECTION 3.05 Corporate Existence.
Subject to Article 4 hereof, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the corporate, partnership and other existence of each of its
Subsidiaries and all rights (charter and statutory) and franchises of the
Company and its Subsidiaries, provided that the Company shall not be required to
preserve the corporate existence of any Subsidiary of the Company or any such
right or franchise if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries taken as a whole and that the loss thereof
would not have a material adverse effect on the business, prospects, assets or
financial condition of the Company and its Subsidiaries taken as a whole and
would not have any material adverse effect on the payment and performance of the
obligations of the Company and the Guarantors under the Securities and this
Indenture.
SECTION 3.06 Maintenance of Properties.
The Company shall cause all material properties owned by or leased to the
Company or any Subsidiary of the Company or used or held for use in the conduct
of its business or the business of any such Subsidiary to be maintained and kept
in good condition, repair and working order (reasonable wear and tear excepted)
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly conducted at all times; provided that nothing in this Section 3.06
shall prevent the Company from discontinuing the operation or maintenance of any
of such properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any such Subsidiary
and not disadvantageous in any material respect to the Holders.
SECTION 3.07 Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (i) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries, and (ii) all material lawful claims for labor, materials and
supplies which, if unpaid, might by law become a Lien upon the property of the
Company or any of its Subsidiaries; provided that the Company shall not be
required to pay or discharge or cause to be paid or discharged
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any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith, and, if necessary, by appropriate
proceedings.
SECTION 3.08 Waiver of Stay, Extension or Usury Laws.
The Company and each Guarantor covenant (to the extent that they may
lawfully do so) that they will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive the
Company or any Guarantor from paying all or any portion of the principal of, or
premium, if any, or interest on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that they may
lawfully do so) the Company and each Guarantor hereby expressly waive all
benefit or advantage of any such law, and covenant that they will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 3.09 Limitation on Sale/Leaseback Transactions.
The Company shall not, and shall not permit any Subsidiary of the Company
to, enter into any Sale/Leaseback Transaction with any Person (other than the
Company or a Subsidiary of the Company) unless:
(a) the Company or such Subsidiary would be entitled to incur Indebtedness,
in a principal amount equal to the Attributable Indebtedness with respect to
such Sale/Leaseback Transaction, secured by a Lien on the property subject to
such Sale/Leaseback Transaction pursuant to Section 3.10 hereof without equally
and ratably securing the Securities pursuant to such Section;
(b) after the Issue Date and within a period commencing six months prior to
the consummation of such Sale/Leaseback Transaction and ending six months after
the consummation thereof, the Company or such Subsidiary shall have expended for
property used or to be used in the ordinary course of business of the Company
and its Subsidiaries an amount equal to all or a portion of the Net Proceeds of
such Sale/Leaseback Transaction and the Company shall have elected to designate
such amount as a credit against such Sale/Leaseback Transaction (with any such
amount not being so designated to be applied as set forth in clause (c) below);
or
(c) the Company, during the 12-month period after the effective date of
such Sale/Leaseback Transaction, shall have applied to the voluntary defeasance
or retirement of Securities or any Pari Passu Indebtedness an amount equal to
the greater of the Net Proceeds of the sale or transfer of the property leased
in such Sale/Leaseback Transaction and the fair value, as determined by the
Board of Directors, of such property at the time of entering into such
Sale/Leaseback Transaction (in either case adjusted to reflect the remaining
term of the lease and any amount expended by the Company as set forth in clause
(b) above), less an amount equal to the principal amount of Securities and Pari
Passu Indebtedness voluntarily defeased or retired by the Company within such
12-month period and not designated as a credit against any other Sale/Leaseback
Transaction entered into by the Company or any Subsidiary of the Company during
such period.
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SECTION 3.10 Limitation on Liens.
The Company shall not, and shall not permit any Subsidiary of the Company
to, issue, assume or guarantee any Indebtedness for borrowed money secured by
any Lien on any property or asset now owned or hereafter acquired by the Company
or such Subsidiary without making effective provision whereby any and all
Securities then or thereafter outstanding will be secured by a Lien equally and
ratably with any and all other obligations thereby secured for so long as any
such obligations shall be so secured. Notwithstanding the foregoing, the
Company or any Subsidiary of the Company may, without so securing the
Securities, issue, assume or guarantee Indebtedness for borrowed money secured
by the following Liens:
(a) Liens existing on the Issue Date or provided for under the terms of
agreements existing on the Issue Date (including, without limitation, the Lien
provided for pursuant to Section 6.07 hereof), excluding any Liens provided for
under the Bank Credit Facility;
(b) Liens on property securing (i) all or any portion of the cost of
acquiring, constructing, altering, improving or repairing any property or
assets, real or personal, or improvements used or to be used in connection with
such property or (ii) Indebtedness incurred by the Company or any Subsidiary of
the Company prior to or within one year after the later of the acquisition, the
completion of construction, alteration, improvement or repair or the
commencement of commercial operation thereof, which Indebtedness is incurred for
the purpose of financing all or any part of the purchase price thereof or
construction or improvements thereon;
(c) Liens securing Indebtedness owed by a Subsidiary of the Company to the
Company or to any other Subsidiary of the Company;
(d) Liens on the property of any Person existing at the time such Person
becomes a Subsidiary of the Company and not incurred as a result of (or in
connection with or in anticipation of) such Person becoming a Subsidiary of the
Company, provided that such Liens do not extend to or cover any property or
assets of the Company or any of its Subsidiaries other than the property
encumbered at the time such Person becomes a Subsidiary of the Company and do
not secure Indebtedness with a principal amount in excess of the principal
amount outstanding at such time;
(e) Liens on any property securing (i) Indebtedness incurred in connection
with the construction, installation or financing of pollution control or
abatement facilities or other forms of industrial revenue bond financing or (ii)
Indebtedness issued or guaranteed by the United States or any State thereof or
any department, agency or instrumentality of either;
(f) any Lien extending, renewing or replacing (or successive extensions,
renewals or replacements of) any Lien of any type permitted under clause (a),
(b), (d) or (e) above, provided that such Lien extends to or covers only the
property that is subject to the Lien being extended, renewed or replaced and
that the principal amount of the Indebtedness secured thereby shall not exceed
the principal amount of Indebtedness so secured at the time of such extension,
renewal or replacement; or
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(g) Liens (exclusive of any Lien of any type otherwise permitted under
clauses (a) through (f) above) securing Indebtedness for borrowed money of the
Company or any Subsidiary of the Company in an aggregate principal amount which,
together with the aggregate amount of Attributable Indebtedness deemed to be
outstanding in respect of all Sale/Leaseback Transactions entered into pursuant
to clause (a) of Section 3.09 hereof (exclusive of any such Sale/Leaseback
Transactions otherwise permitted under clauses (a) through (f) above), does not
at the time such Indebtedness is incurred exceed 10% of the Consolidated Net
Worth of the Company (as shown in the most recent audited consolidated balance
sheet of the Company and its Subsidiaries).
SECTION 3.11 Registration Rights Agreement.
The Company shall perform its obligations under the Registration Rights
Agreement and shall comply in all material respects with the terms and
conditions contained therein including, without limitation, the payment of
additional interest (as described in Section 6 of the Registration Rights
Agreement).
ARTICLE 4
SUCCESSORS
SECTION 4.01 Limitations on Mergers and Consolidations.
Neither the Company nor any Guarantor (other than any Guarantor that has
been released from its Guarantee pursuant to the provisions of Section 9.06
hereof) shall consolidate with or merge into any Person, or sell, lease, convey,
transfer or otherwise dispose of all or substantially all of its assets to any
Person, unless:
(i) the Person formed by or surviving such consolidation or merger
(if other than the Company or such Guarantor, as the case may
be), or to which such sale, lease, conveyance, transfer or other
disposition shall be made (collectively, the "Successor"), is a
corporation organized and existing under the laws of the United
States or any State thereof or the District of Columbia (or,
alternatively, in the case of a Guarantor organized under the
laws of a jurisdiction outside the United States, a corporation
organized and existing under the laws of such foreign
jurisdiction), and the Successor assumes by supplemental
indenture in a form satisfactory to the Trustee all of the
obligations of the Company or such Guarantor, as the case may
be, under this Indenture and the Securities;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; and
(iii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that the
transaction and such supplemental indenture comply with this
Indenture.
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SECTION 4.02 Successor Corporation Substituted.
Upon any consolidation or merger of the Company or any Guarantor, or any
sale, lease, conveyance, transfer or other disposition of all or substantially
all of the assets of the Company or any Guarantor in accordance with Section
4.01 hereof, the Successor formed by such consolidation or into or with which
the Company or such Guarantor is merged or to which such sale, lease,
conveyance, transfer or other disposition or assignment is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company or such Guarantor, as the case may be, under this Indenture and the
Securities with the same effect as if such Successor had been named as the
Company or such Guarantor herein and the predecessor Company or Guarantor, in
the case of a sale, conveyance, transfer or other disposition, shall be released
from all obligations under this Indenture and the Securities.
ARTICLE 5
DEFAULTS AND REMEDIES
SECTION 5.01 Events of Default.
An "Event of Default" occurs if:
(1) the Company or any Guarantor defaults in the payment of interest
on any Security when the same becomes due and payable and such default
continues for a period of 30 days;
(2) the Company or any Guarantor defaults in the payment of the
principal of or premium, if any, on any Security when the same becomes due
and payable at maturity, upon acceleration, upon redemption or otherwise;
(3) the Company or any Guarantor fails to comply with any of its other
agreements or covenants in, or provisions of, the Securities, the
Guarantees or this Indenture and such failure continues for the period and
after the notice specified in the last paragraph of this Section 5.01;
(4) any default shall occur which results in the acceleration of the
maturity of any Indebtedness of the Company or any Subsidiary of the
Company (other than the Securities or any Non-Recourse Indebtedness) having
an outstanding principal amount of $10 million or more individually or,
taken together with all other such Indebtedness that has been so
accelerated, in the aggregate; or any default shall occur in the payment of
any principal or interest in respect of any Indebtedness of the Company or
any Subsidiary of the Company (other than the Securities or any Non-
Recourse Indebtedness) having an outstanding principal amount of $10
million or more individually or, taken together with all other such
Indebtedness with respect to which any such payment has not been made, in
the aggregate and such default shall be continuing for a period of 30 days
without the Company or such Subsidiary, as the case may be, effecting a
cure of such default;
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(5) a judgment or order for the payment of money in excess of $10
million (net of applicable insurance coverage) shall be rendered against
the Company, any Guarantor or any other "significant subsidiary" (as such
term is defined in Regulation S-X under the Exchange Act; a "Significant
Subsidiary") of the Company and such judgment or order shall continue
unsatisfied and unstayed for a period of 30 days;
(6) the Company, any Guarantor or any other Significant Subsidiary of
the Company pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all
or for a substantial part of its property, or
(D) makes a general assignment for the benefit of its creditors;
or
(7) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that remains unstayed and in effect for 60 days and
that:
(A) is for relief against the Company, any Guarantor or any other
Significant Subsidiary of the Company as debtor in an
involuntary case,
(B) appoints a Custodian of the Company, any Guarantor or any
other Significant Subsidiary of the Company or a Custodian for
all or for a substantial part of the property of the Company,
any Guarantor or any other Significant Subsidiary of the
Company, or
(C) orders the liquidation of the Company, any Guarantor or any
other Significant Subsidiary of the Company.
The term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
The Trustee shall not be deemed to know of a Default unless a Trust Officer
at the Corporate Trust Office of the Trustee has actual knowledge of such
Default or the Trustee receives written notice at the Corporate Trust Office of
the Trustee of such Default with specific reference to such Default.
When a Default is cured, it ceases.
A Default under clause (3) of this Section is not an Event of Default until
the Trustee notifies the Company and, in the case of a Default by a Guarantor,
such Guarantor, or the Holders of at least
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25% in principal amount of the then outstanding Securities notify the Company,
such Guarantor (where applicable) and the Trustee, of the Default, and neither
the Company nor such Guarantor cures the Default within 60 days after receipt of
the notice. The notice must specify the Default, demand that it be remedied and
state that the notice is a "Notice of Default."
SECTION 5.02 Acceleration.
If an Event of Default (other than an Event of Default specified in clause
(6) or (7) of Section 5.01 hereof with respect to the Company or any Guarantor)
occurs and is continuing, the Trustee by notice to the Company, or the Holders
of at least 25% in principal amount of the then outstanding Securities by notice
to the Company and the Trustee, may declare the principal of and premium, if
any, and accrued and unpaid interest on all then outstanding Securities to be
due and payable immediately. Upon any such declaration the amounts due and
payable on the Securities, as determined in accordance with the next succeeding
paragraph, shall be due and payable immediately. If an Event of Default
specified in clause (6) or (7) of Section 5.01 hereof with respect to the
Company or any Guarantor occurs, such amounts shall ipso facto become and be
immediately due and payable without any declaration, notice or other act on the
part of the Trustee or any Holder. The Holders of a majority in principal
amount of the then outstanding Securities by written notice to the Trustee may
rescind an acceleration and its consequences (other than nonpayment of principal
of, or premium, if any, or interest on the Securities) if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived, except nonpayment of principal, or premium, if any,
or interest that has become due solely because of the acceleration.
In the event that the maturity of the Securities is accelerated pursuant to
this Section 5.02, 100% of the principal amount thereof shall become due and
payable plus, premium, if any, and accrued interest to the date of payment.
SECTION 5.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal of, or premium, if any, or
interest on the Securities or to enforce the performance of any provision of the
Securities, this Indenture or the Registration Rights Agreement.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies are cumulative
to the extent permitted by law.
SECTION 5.04 Waiver of Existing Defaults.
Subject to Sections 5.07 and 8.02 hereof, the Holders of a majority in
principal amount of the then outstanding Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences (including
waivers obtained in connection with a tender offer or
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exchange offer for Securities or a solicitation of consents in respect of
Securities, provided that in each case such offer or solicitation is made to all
Holders of then outstanding Securities on equal terms), except (1) a continuing
Default or Event of Default in the payment of the principal of, or premium, if
any, or interest on any Security or (2) a continued Default in respect of a
provision that under Section 8.02 hereof cannot be amended without the consent
of each Holder affected. Upon any such waiver, such Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereon.
SECTION 5.05 Control by Majority.
The Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it hereunder. However, the Trustee may refuse to follow any
direction that conflicts with applicable law or this Indenture, that the Trustee
determines may be unduly prejudicial to the rights of other Holders, or that may
involve the Trustee in personal liability; provided, however, that the Trustee
may take any other action deemed proper by the Trustee that is not inconsistent
with such direction. Prior to taking any action hereunder, the Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
SECTION 5.06 Limitations on Suits.
Subject to Section 5.07 hereof, a Holder may pursue a remedy with respect
to this Indenture (including the Guarantees) or the Securities only if:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity reasonably
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in principal
amount of the Securities do not give the Trustee a direction inconsistent
with the request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
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SECTION 5.07 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal of, and premium, if any,
and interest on the Security, on or after the respective due dates expressed in
the Security, or to bring suit for the enforcement of any such payment on or
after such respective dates, is absolute and unconditional and shall not be
impaired or affected without the consent of the Holder.
SECTION 5.08 Collection Suit by Trustee.
If an Event of Default specified in clause (1) or (2) of Section 5.01
hereof occurs and is continuing, the Trustee is authorized to recover judgment
in its own name and as trustee of an express trust against the Company and any
Guarantor for the amount of principal and premium, if any, and interest
remaining unpaid on the Securities, and interest on overdue principal and
premium, if any, and, to the extent lawful, interest on overdue interest, and
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 5.09 Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or
documents and to take such actions, including participating as a member, voting
or otherwise, of any committee of creditors, as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and the Holders allowed in any judicial proceedings relative to the
Company and any Guarantor or their respective creditors or properties and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any Custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 6.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 6.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties which the Holders of the
Securities may be entitled to receive in such proceeding whether in liquidation
or under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
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SECTION 5.10 Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee for amounts due under Section 6.07 hereof;
Second: to Holders for amounts due and unpaid on the Securities for
principal, premium, if any, and interest ratably, without preference or priority
of any kind, according to the amounts due and payable on the Securities for
principal, premium, if any, and interest, respectively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Article.
SECTION 5.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 5.07
hereof, or a suit by a Holder or Holders of more than 10% in principal amount of
the then outstanding Securities.
ARTICLE 6
TRUSTEE
SECTION 6.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in such exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties that are specifically
set forth in this Indenture and no others, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon
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certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine such
certificates and opinions to determine whether or not, on their face, they
appear to conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b) and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee may refuse to perform
any duty or exercise any right or power unless it receives indemnity reasonably
satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law. All money received by the Trustee shall, until applied
as herein provided, be held in trust for the payment of the principal of, and
premium if any, and interest on the Securities.
SECTION 6.02 Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
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(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company or any Guarantor shall be
sufficient if signed by an Officer of the Company or such Guarantor.
SECTION 6.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Company, the Guarantors or
any of their Affiliates with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 6.10 and 6.11 hereof.
SECTION 6.04 Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities, it shall not be accountable for the Company's use
of the proceeds from the Securities or any money paid to the Company or upon the
Company's direction under any provision hereof, it shall not be responsible for
the use or application of any money received by any Paying Agent other than the
Trustee and it shall not be responsible for any statement or recital herein or
any statement in the Securities other than its certificate of authentication.
SECTION 6.05 Notice of Defaults.
If a Default or Event of Default occurs and is continuing and it is known
to the Trustee, the Trustee shall mail to Holders a notice of the Default or
Event of Default within 90 days after it occurs. Except in the case of a
Default or Event of Default in payment of principal of, or premium, if any, or
interest on any Security, the Trustee may withhold the notice if and so long as
a committee of its Trust Officers in good faith determines that withholding the
notice is in the interests of Holders.
SECTION 6.06 Reports by Trustee to Holders.
Within 60 days after each January 31, beginning with January 31, 1999, and
in any event prior to March 31 in each year, the Trustee shall mail to Holders a
brief report dated as of such reporting date that complies with TIA Section
313(a); provided, however, that if no event described in TIA Section 313(a) has
occurred within the twelve months preceding the reporting date, no report need
be transmitted. The Trustee also shall comply with TIA Section 313(b). The
Trustee shall also transmit by mail all reports as required by TIA Sections
313(c) and 313(d).
A copy of each report at the time of its mailing to Holders shall be filed
with the SEC and each securities exchange, if any, on which the Securities are
listed. The Company shall notify the Trustee if and when the Securities are
listed on any stock exchange.
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SECTION 6.07 Compensation and Indemnity.
The Company and the Guarantors jointly and severally agree to pay to the
Trustee from time to time reasonable compensation for its acceptance of this
Indenture and services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company and the Guarantors jointly and severally agree to reimburse the Trustee
upon request for all reasonable disbursements, advances and expenses incurred by
it. Such expenses shall include the reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel.
The Company and the Guarantors jointly and severally agree to indemnify the
Trustee against any loss, liability or expense incurred by it arising out of or
in connection with the acceptance or administration of its duties under this
Indenture, except as set forth in the next paragraph. The Trustee shall notify
the Company and the Guarantors promptly of any claim for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate
in the defense. The Trustee may have separate counsel and the Company and the
Guarantors shall pay the reasonable fees and expenses of such counsel. The
Company need not pay for any settlement made without its consent.
Neither the Company nor the Guarantors shall be obligated to reimburse any
expense or indemnify against any loss or liability incurred by the Trustee
through negligence or bad faith.
To secure the payment obligations of the Company and the Guarantors in this
Section 6.07, the Trustee shall have a Lien prior to the Securities on all money
or property held or collected by the Trustee, except that held in trust to pay
principal of, and premium, if any, and interest on the Securities. Such Lien
shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.01(6) or (7) hereof occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 6.08 Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 6.08.
The Trustee may resign and be discharged from the trust hereby created by
so notifying the Company and the Guarantors. The Holders of a majority in
principal amount of the then outstanding Securities may remove the Trustee by so
notifying the Trustee and the Company. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 6.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
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(3) a Custodian or public officer takes charge of the Trustee or its
property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company and the Guarantors shall promptly appoint
a successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 6.10 hereof, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company and the Guarantors. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the Lien
provided for in Section 6.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 6.08 hereof, the obligations of the Company and the
Guarantors under Section 6.07 hereof shall continue for the benefit of the
retiring Trustee.
SECTION 6.09 Successor Trustee by Merger, etc.
Subject to Section 6.10 hereof, if the Trustee consolidates, merges or
converts into, or transfers all or substantially all of its corporate trust
business to, another corporation, the successor corporation without any further
act shall be the successor Trustee; provided, however, that in the case of a
transfer of all or substantially all of its corporate trust business to another
corporation, the transferee corporation expressly assumes all of the Trustee's
liabilities hereunder.
In case any Securities shall have been authenticated, but not delivered, by
the Trustee then in office, any successor by merger, conversion or consolidation
to such authenticating Trustee may adopt such authentication and deliver the
Securities so authenticated; and in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor to the Trustee; and in all such cases such certificates shall
have the full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have.
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SECTION 6.10 Eligibility; Disqualification.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia and authorized under such
laws to exercise corporate trust power, shall be subject to supervision or
examination by Federal or State (or the District of Columbia) authority and
shall have, or be a Subsidiary of a bank or bank holding company having, a
combined capital and surplus of at least $50 million as set forth in its most
recent published annual report of condition.
The Indenture shall always have a Trustee who satisfies the requirements of
TIA Sections 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee is subject to and
shall comply with the provisions of TIA Section 310(b) during the period of time
required by this Indenture. Nothing in this Indenture shall prevent the Trustee
from filing with the SEC the application referred to in the penultimate
paragraph of TIA Section 310(b).
SECTION 6.11 Preferential Collection of Claims Against Company.
The Trustee is subject to and shall comply with the provisions of TIA
Section 311(a), excluding any creditor relationship listed in TIA Section
311(b). A Trustee who has resigned or been removed shall be subject to TIA
Section 311(a) to the extent indicated therein.
ARTICLE 7
DISCHARGE OF INDENTURE
SECTION 7.01 Termination of Company's Obligations.
(a) This Indenture shall cease to be of further effect (except that the
Company's and the Guarantors' obligations under Section 6.07 hereof and the
Trustee's and Paying Agent's obligations under Section 7.03 hereof shall
survive), and the Trustee, on demand of the Company, shall execute proper
instruments acknowledging the satisfaction and discharge of this Indenture,
when:
(1) either
(A) all outstanding Securities theretofore authenticated and
issued (other than destroyed, lost or stolen Securities that
have been replaced or paid) have been delivered to the Trustee
for cancellation; or
(B) all outstanding Securities not theretofore delivered to the
Trustee for cancellation:
(i) have become due and payable, or
(ii) will become due and payable at their stated maturity
within one year,
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and the Company, in the case of clause (i) or (ii) above, has
deposited or caused to be deposited with the Trustee as funds (immediately
available to the Holders in the case of clause (i)) in trust for such
purpose an amount which, together with earnings thereon, will be sufficient
to pay and discharge the entire indebtedness on such Securities for
principal premium, if any, and interest to the date of such deposit (in the
case of Securities which have become due and payable) or to the stated
maturity, as the case may be;
(2) the Company has paid all other sums payable by it hereunder; and
(3) the Company has delivered to the Trustee an Officers' Certificate
stating that all conditions precedent to satisfaction and discharge of this
Indenture have been complied with, together with an Opinion of Counsel to
the same effect.
(b) The Company and the Guarantors may, subject as provided herein,
terminate all of their obligations under this Indenture if:
(1) the Company has irrevocably deposited or caused to be irrevocably
deposited with the Trustee as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for and
dedicated solely to the benefit of the Holders, (i) cash in an amount, or
(ii) U.S. Government Obligations, maturing as to principal and interest at
such times and in such amounts as will insure the availability of cash in
an amount or (iii) a combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay, without
consideration of the reinvestment of any such amounts and after payment of
all taxes or other charges or assessments in respect thereof payable by the
Trustee, the principal of, and premium, if any, and interest on all
Securities on each date that such principal, premium, if any, or interest
is due and payable and to pay all other sums payable by it hereunder;
provided that the Trustee shall have been irrevocably instructed to apply
such money and/or the proceeds of such U.S. Government Obligations to the
payment of said principal, premium, if any, and interest with respect to
the Securities as the same shall become due;
(2) the Company has delivered to the Trustee an Officers' Certificate
stating that all conditions precedent to satisfaction and discharge of this
Indenture have been complied with, and an Opinion of Counsel to the same
effect;
(3) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, insofar as clauses (6) and (7)
of Section 5.01 hereof are concerned, at any time during the period ending
on the 91st day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the expiration of such
period);
(4) the Company shall have delivered to the Trustee an Opinion of
Counsel from a nationally recognized counsel acceptable to the Trustee or a
tax ruling to the effect that the Holders will not recognize income, gain
or loss for Federal income tax purposes as a result of the Company's
exercise of its option under this Section 7.01(b) and will be subject to
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Federal income tax on the same amount and in the same manner and at the
same times as would have been the case if such option had not been
exercised;
(5) such deposit and discharge will not result in a breach or
violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which it is bound;
(6) such deposit and discharge shall not cause the Trustee to have a
conflicting interest as defined in TIA Section 310(b); and
(7) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the passage of 91 days following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally.
In such event, this Indenture shall cease to be of further effect (except
as provided in the next succeeding paragraph), and the Trustee, on demand of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge under this Indenture.
However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06,
2.07, 3.01, 4.01, 6.07, 6.08 and 7.04 hereof, the Company's and the Guarantors'
obligations in Sections 4.01, 6.07, 7.04 and 9.01 hereof and the Trustee's and
Paying Agent's obligations in Section 7.03 hereof shall survive until the
Securities are no longer outstanding. Thereafter, only the Company's and the
Guarantors' obligations in Section 6.07 hereof and the Trustee's and Paying
Agent's obligations in Section 7.03 hereof shall survive.
After such irrevocable deposit made pursuant to this Section 7.01(b) and
satisfaction of the other conditions set forth herein, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified above.
In order to have money available on a payment date to pay principal of, or
premium, if any, or premium, if any, or interest on the Securities, the U.S.
Government Obligations shall be payable as to principal or interest on or before
such payment date in such amounts as will provide the necessary money. U.S.
Government Obligations shall not be callable at the issuer's option.
SECTION 7.02 Application of Trust Money.
The Trustee or a trustee satisfactory to the Trustee and the Company shall
hold in trust money or U.S. Government Obligations deposited with it pursuant to
Section 7.01 hereof. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of, and premium, if any, and interest on
the Securities.
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SECTION 7.03 Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company upon
written request any excess money or securities held by them at any time.
Subject to the requirements of any applicable abandoned property laws, the
Trustee and the Paying Agent shall pay to the Company upon written request any
money held by them for the payment of principal, or premium, if any, or interest
that remains unclaimed for two years after the date upon which such payment
shall have become due; provided, however, that the Company shall have either
caused notice of such payment to be mailed to each Holder entitled thereto no
less than 30 days prior to such repayment or within such period shall have
published such notice in a financial newspaper of widespread circulation
published in The City of New York. After payment to the Company, Holders
entitled to the money must look to the Company for payment as general creditors
unless an applicable abandoned property law designates another Person, and all
liability of the Trustee and the Paying Agent with respect to such money shall
cease.
SECTION 7.04 Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money or U. S.
Government Obligations in accordance with Section 7.01 hereof by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the obligations of the Company and the Guarantors under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 7.01 hereof until such time as the
Trustee or the Paying Agent is permitted to apply all such money or U. S.
Government Obligations in accordance with Section 7.01 hereof; provided,
however, that if the Company or any Guarantor has made any payment of principal
of or interest on any Securities because of the reinstatement of its
obligations, the Company or such Guarantor shall be subrogated to the rights of
the Holders of such Securities to receive such payment from the money or U.S.
Government Obligations held by the Trustee or the Paying Agent.
ARTICLE 8
AMENDMENTS
SECTION 8.01 Without Consent of Holders.
The Company, the Guarantors and the Trustee may amend or supplement this
Indenture or the Securities or waive any provision hereof or thereof without the
consent of any Holder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Sections 4.01 and 4.02 hereof;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
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(4) to reflect the release of any Guarantor from its Guarantee, or the
addition of any Subsidiary of the Company as a Guarantor, in the manner
provided by Section 9.06 hereof;
(5) to comply with any requirement in order to effect or maintain the
qualification of this Indenture under the TIA;
(6) to add additional guarantees of the Securities;
(7) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA;
(8) to add to the covenants of the Company or any Guarantor for the
benefit of the Holders or to surrender any right or power herein conferred
upon the Company or any Guarantor; or
(9) to make any change that does not adversely affect the rights
hereunder of any Holder in any material respect.
Upon the request of the Company and the Guarantors, accompanied by a
resolution of the Board of Directors and of the board of directors, board of
trustees or managing partners of each Guarantor authorizing the execution of any
such supplemental indenture, and upon receipt by the Trustee of the documents
described in Section 8.06 hereof, the Trustee shall join with the Company and
the Guarantors in the execution of any supplemental indenture authorized or
permitted by the terms of this Indenture and make any further appropriate
agreements and stipulations that may be therein contained. After an amendment,
supplement or waiver under this Section 8.01 becomes effective, the Company
shall mail to the Holders of each Security affected thereby a notice briefly
describing the amendment, supplement or waiver. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture.
SECTION 8.02 With Consent of Holders.
Except as provided below in this Section 8.02, the Company, the Guarantors
and the Trustee may amend or supplement this Indenture or the Securities with
the written consent (including consents obtained in connection with a tender
offer or exchange offer for Securities or a solicitation of consents in respect
of Securities, provided that in each case such offer or solicitation is made to
all Holders of then outstanding Securities on equal terms) of the Holders of at
least a majority in principal amount of the then outstanding Securities.
Upon the request of the Company and the Guarantors, accompanied by a
resolution of the Board of Directors and of the board of directors, board of
trustees or managing partners of each Guarantor authorizing the execution of any
such supplemental indenture, and upon the filing with the Trustee of evidence of
the consent of the Holders as aforesaid, and upon receipt by the Trustee of the
documents described in Section 8.06 hereof, the Trustee shall join with the
Company and the Guarantors in the execution of such supplemental indenture.
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It shall not be necessary for the consent of the Holders under this Section
8.02 to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
The Holders of a majority in principal amount of the then outstanding
Securities may waive compliance in a particular instance by the Company or the
Guarantors with any provision of this Indenture or the Securities (including
waivers obtained in connection with a tender offer or exchange offer for
Securities or a solicitation of consents in respect of Securities, provided that
in each case such offer or solicitation is made to all Holders of then
outstanding Securities on equal terms).
However, without the consent of each Holder affected, an amendment,
supplement or waiver under this Section may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate of or change the time for payment of interest,
including default interest, on any Security;
(3) reduce the principal of or change the fixed maturity of any
Security or alter the premium or other provisions with respect to
redemption under Section 10.07 or specified in the Securities;
(4) make any Security payable in money other than that stated in the
Security;
(5) impair the right to institute suit for the enforcement of any
payment of principal of, or premium, if any, or interest on any Security
pursuant to Sections 5.07 and 5.08 hereof, except as limited by Section
5.06 hereof;
(6) make any change in the percentage of principal amount of
Securities necessary to waive compliance with certain provisions of this
Indenture pursuant to Section 5.04 or 5.07 hereof or this clause of this
Section 8.02; or
(7) waive a continuing Default or Event of Default in the payment of
principal of, or premium, if any, or interest on the Securities.
The right of any Holder to participate in any consent required or sought
pursuant to any provision of this Indenture (and the obligation of the Company
to obtain any such consent otherwise required from such Holder) may be subject
to the requirement that such Holder shall have been the Holder of record of any
Securities with respect to which such consent is required or sought as of a date
identified by the Trustee in a notice furnished to Holders in accordance with
the terms of this Indenture.
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SECTION 8.03 Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Securities shall comply in form
and substance with the TIA as then in effect.
SECTION 8.04 Revocation and Effect of Consents.
Until an amendment (which includes any supplement) or waiver becomes
effective, a consent to it by a Holder is a continuing consent by the Holder and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security, even if notation of the
consent is not made on any Security. However, any such Holder or subsequent
Holder may revoke the consent as to his or her Security or portion of a Security
if the Trustee receives written notice of revocation before the date the
amendment or waiver becomes effective. An amendment, supplement or waiver
becomes effective in accordance with its terms and thereafter binds every
Holder.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment or
waiver or to take any other action under this Indenture. If a record date is
fixed, then notwithstanding the provisions of the immediately preceding
paragraph, those Persons who were Holders at such record date (or their duly
designated proxies), and only those Persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such Persons continue to be Holders after such record date. No
consent shall be valid or effective for more than 90 days after such record date
unless consents from Holders of the principal amount of Securities required
hereunder for such amendment or waiver to be effective shall have also been
given and not revoked within such 90-day period.
After an amendment, supplement or waiver becomes effective, it shall bind
every Holder, unless it is of the type described in any of clauses (1) through
(7) of Section 8.02 hereof. In such case, the amendment or waiver shall bind
each Holder who has consented to it and every subsequent Holder that evidences
the same debt as the consenting Holder's Security.
SECTION 8.05 Notation on or Exchange of Securities.
If an amendment changes the terms of a Security, the Trustee may require
the Holder of the Security to deliver it to the Trustee. The Trustee may place
an appropriate notation on the Security regarding the changed terms and return
it to the Holder. Alternatively, if the Company or the Trustee so determines,
the Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make the
appropriate notation or to issue a new Security shall not affect the validity of
such amendment.
SECTION 8.06 Trustee to Sign Amendments, etc.
The Trustee shall sign any amendment, waiver or supplemental indenture
authorized pursuant to this Article if the amendment, waiver or supplemental
indenture does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may, but need not, sign
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it. In signing or refusing to sign such amendment, waiver or supplemental
indenture, the Trustee shall be entitled to receive and subject to Section 6.01
hereof, shall be fully protected in relying upon, an Opinion of Counsel as
conclusive evidence that such amendment, waiver or supplemental indenture is
authorized or permitted by this Indenture, that it is not inconsistent herewith,
and that it will be valid and binding upon the Company and the Guarantors in
accordance with its terms.
ARTICLE 9
GUARANTEES OF SECURITIES
SECTION 9.01 Unconditional Guarantees.
(a) For value received, the Guarantors, jointly and severally, hereby
fully, unconditionally and absolutely guarantee (the "Guarantees") to the
Holders and to the Trustee the due and punctual payment of the principal of, and
premium, if any, and interest on the Securities and all other amounts due and
payable under this Indenture and the Securities by the Company, when and as such
principal, premium, if any, and interest shall become due and payable, whether
at the stated maturity, upon redemption or by declaration of acceleration or
otherwise, according to the terms of the Securities and this Indenture.
(b) Failing payment when due of any amount guaranteed pursuant to the
Guarantees, for whatever reason, each Guarantor will be obligated to pay the
same immediately. Each Guarantee hereunder is intended to be a general,
unsecured, senior obligation of each Guarantor and will rank pari passu in right
of payment with all Indebtedness of each such Guarantor that is not, by its
terms, expressly subordinated in right of payment to the Guarantee of such
Guarantor. Each of the Guarantors hereby agrees that its obligations hereunder
shall be full, unconditional and absolute, irrespective of the validity,
regularity or enforceability of the Securities, the Guarantees or this
Indenture, the absence of any action to enforce the same, any waiver or consent
by any Holder with respect to any provisions hereof or thereof, any release of
any other Guarantor, the recovery of any judgment against the Company, any
action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor. Each of the
Guarantors hereby agrees that in the event of a default in payment of the
principal of, or premium, if any, or interest on the Securities, whether at the
stated maturity, upon redemption or by declaration of acceleration or otherwise,
legal proceedings may be instituted by the Trustee on behalf of the Holders or,
subject to Section 5.06 hereof, by the Holders, on the terms and conditions set
forth in this Indenture, directly against each of the Guarantors to enforce the
Guarantees without first proceeding against the Company.
(c) The obligations of each Guarantor under this Article 9 shall be as
aforesaid full, unconditional and absolute and shall not be impaired, modified,
released or limited by any occurrence or condition whatsoever, including,
without limitation, (i) any compromise, settlement, release, waiver, renewal,
extension, indulgence or modification of, or any change in, any of the
obligations and liabilities of the Company or any Guarantor contained in the
Securities or this Indenture, (ii) any impairment, modification, release or
limitation of the liability of the Company, any Guarantor or any of their
estates in bankruptcy, or any remedy for the enforcement thereof, resulting from
the operation of any present or future provision of any applicable Bankruptcy
Law,
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as amended, or other statute or from the decision of any court, (iii) the
assertion or exercise by the Company, any Guarantor or the Trustee of any rights
or remedies under the Securities or this Indenture or their delay in or failure
to assert or exercise any such rights or remedies, (iv) the assignment or the
purported assignment of any property as security for the Securities, including
all or any part of the rights of the Company or any Guarantor under this
Indenture, (v) the extension of the time for payment by the Company or any
Guarantor of any payments or other sums or any part thereof owing or payable
under any of the terms and provisions of the Securities or this Indenture or of
the time for performance by the Company or any Guarantor of any other
obligations under or arising out of any such terms and provisions or the
extension or the renewal of any thereof, (vi) the modification or amendment
(whether material or otherwise) of any duty, agreement or obligation of the
Company or any Guarantor set forth in this Indenture, (vii) the voluntary or
involuntary liquidation, dissolution, sale or other disposition of all or
substantially all of the assets, marshaling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or other similar
proceeding affecting, the Company or any of the Guarantors or any of their
respective assets, or the disaffirmance of the Securities, the Guarantees or
this Indenture in any such proceeding, (viii) the release or discharge of the
Company or any Guarantor from the performance or observance of any agreement,
covenant, term or condition contained in any of such instruments by operation of
law, (ix) the unenforceability of the Securities, the Guarantees or this
Indenture or (x) any other circumstance which might otherwise constitute a legal
or equitable discharge of a surety or guarantor.
(d) Each of the Guarantors hereby (i) waives diligence, presentment, demand
of payment, filing of claims with a court in the event of the merger, insolvency
or bankruptcy of the Company or a Guarantor, and all demands whatsoever, (ii)
acknowledges that any agreement, instrument or document evidencing the
Guarantees may be transferred and that the benefit of its obligations hereunder
shall extend to each holder of any agreement, instrument or document evidencing
the Guarantees without notice to them and (iii) covenants that its Guarantee
will not be discharged except by complete performance of the Guarantees. Each
Guarantor further agrees that if at any time all or any part of any payment
theretofore applied by any Person to any Guarantee is, or must be, rescinded or
returned for any reason whatsoever, including without limitation, the
insolvency, bankruptcy or reorganization of any Guarantor, such Guarantee shall,
to the extent that such payment is or must be rescinded or returned, be deemed
to have continued in existence notwithstanding such application, and the
Guarantees shall continue to be effective or be reinstated, as the case may be,
as though such application had not been made.
(e) Each Guarantor shall be subrogated to all rights of the Holders and the
Trustee against the Company in respect of any amounts paid by such Guarantor
pursuant to the provisions of this Indenture; provided, however, that no
Guarantor shall be entitled to enforce or to receive any payments arising out
of, or based upon, such right of subrogation until all of the Securities and the
Guarantees shall have been paid in full or discharged.
(f) A director, officer, employee or stockholder, as such, of any Guarantor
shall not have any liability for any obligations of such Guarantor under this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation.
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SECTION 9.02 Limitation of Guarantor's Liability.
Each Guarantor and by its acceptance hereof each Holder hereby confirms
that it is the intention of all such parties that the guarantee by such
Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or
conveyance for purposes of any federal, state or foreign law. To effectuate the
foregoing intention, the Holders and each Guarantor hereby irrevocably agree
that each Guarantor's liability shall be limited to the lesser of (i) the
aggregate amount of the obligations of the Company under the Securities and this
Indenture and (ii) the amount, if any, which would not have (A) rendered such
Guarantor "insolvent" (as such term is defined in the Bankruptcy Law and in the
Debtor and Creditor Law of the State of New York) or (B) left such Guarantor
with unreasonably small capital at the time its Guarantee of the Notes was
entered into; provided that it will be a presumption in any lawsuit or other
proceedings in which a Guarantor is a party that the amount guaranteed pursuant
to the Guarantee is the amount set forth in clause (i) above unless any
creditor, or representative of creditors of such Guarantor, or debtor in
possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a
lawsuit that the aggregate liability of the Guarantor is the amount set forth in
clause (ii) above. In making any determination as to solvency or sufficiency of
capital of a Guarantor in accordance with the previous sentence, the right of
such Guarantor to contribution from other Guarantors, and any other rights such
Guarantor may have, contractual or otherwise, shall be taken into account.
SECTION 9.03 Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under its
Guarantee, such Funding Guarantor shall be entitled to a contribution from each
other Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by the Funding Guarantor in discharging the Company's
obligations with respect to the Securities or any other Guarantor's obligations
with respect to its Guarantee.
SECTION 9.04 Execution and Delivery of Guarantees.
To further evidence the Guarantees, each Guarantor hereby agrees that a
notation relating to such Guarantees shall be endorsed on each Security
authenticated and delivered by the Trustee and executed by either manual or
facsimile signature of an Officer of each Guarantor.
Each of the Guarantors hereby agrees that its Guarantee shall remain in
full force and effect notwithstanding any failure to endorse on each Security a
notation relating to such Guarantee.
If an Officer of a Guarantor whose signature is on this Indenture or a
Security no longer holds that office at the time the Trustee authenticates such
Security or at any time thereafter, such Guarantor's Guarantee of such Security
shall be valid nevertheless.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of the Guarantor.
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SECTION 9.05 Addition of Guarantors.
(a) If any Subsidiary of the Company guarantees (or becomes a co-obligor
on) any Funded Indebtedness of the Company other than the Securities at any time
subsequent to the Issue Date (including, without limitation, following any
release of such Subsidiary pursuant to Section 9.06 hereof from any Guarantee
previously provided by it under this Article 9), then the Company shall (i)
cause the Securities to be equally and ratably guaranteed by such Subsidiary,
but only to the extent that the Securities are not already guaranteed by such
Subsidiary on reasonably comparable terms and (ii) cause such Subsidiary to
execute and deliver a supplemental indenture, in substantially the form of
Exhibit E hereto, evidencing its provision of a Guarantee in accordance with
clause (b) below.
(b) Any Person that was not a Guarantor on the Issue Date may become a
Guarantor by executing and delivering to the Trustee (i) a supplemental
indenture in form and substance satisfactory to the Trustee, which subjects such
Person to the provisions (including the representations and warranties) of this
Indenture as a Guarantor and (ii) an Opinion of Counsel and Officers'
Certificate to the effect that such supplemental indenture has been duly
authorized and executed by such Person and constitutes the legal, valid, binding
and enforceable obligation of such Person (subject to such customary exceptions
concerning creditors' rights and equitable principles as may be acceptable to
the Trustee in its discretion and provided that no opinion need be rendered
concerning the enforceability of the Guarantee).
SECTION 9.06 Release of Guarantee.
Notwithstanding anything to the contrary in this Article 9, in the event
that any Guarantor shall no longer be a guarantor of (or co-obligor on) any
Funded Indebtedness of the Company other than the Securities and other than
Funded Indebtedness of the Company (i) subject to a release provision
substantially similar to this Section 9.06 and (ii) the related guarantee (or
obligation) of which will be released substantially concurrently with the
release of the Guarantee of such Guarantor pursuant to this Section 9.06, and so
long as no Default or Event of Default shall have occurred or be continuing,
such Guarantor, upon giving notice to the Trustee to the foregoing effect, shall
be deemed to be released from all of its obligations under this Indenture and
the Guarantee of such Guarantor shall be of no further force or effect.
Following the receipt by the Trustee of any such notice, the Company shall cause
this Indenture to be amended as provided in Section 8.01 hereof; provided,
however, that the failure to so amend this Indenture shall not affect the
validity of the termination of the Guarantee of such Guarantor.
SECTION 9.07 Consent to Jurisdiction and Service of Process.
Each Guarantor that is not organized under the laws of the United States
(including the States and the District of Columbia) (each a "Non-U.S.
Guarantor") hereby appoints the principal office of CT Corporation System in The
City of New York which, on the date hereof, is located at 1633 Broadway, New
York, New York 10019, as the authorized agent thereof (the "Authorized Agent")
upon whom process may be served in any action, suit or proceeding arising out of
or based on this Indenture or the Securities which may be instituted in the
Supreme Court of the State of New York or the United States District Court for
the Southern District of New York, in either case in The
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Borough of Manhattan, The City of New York, by the Holder of any Security, and
each Non-U.S. Guarantor hereby waives any objection which it may now or
hereafter have to the laying of venue of any such proceeding and expressly and
irrevocably accepts and submits, for the benefit of the Holders from time to
time of the Securities, to the nonexclusive jurisdiction of any such court in
respect of any such action, suit or proceeding, for itself and with respect to
its properties, revenues and assets. Such appointment shall be irrevocable
unless and until the appointment of a successor authorized agent for such
purpose, and such successor's acceptance of such appointment, shall have
occurred. Each Non-U.S. Guarantor agrees to take any and all actions, including
the filing of any and all documents and instruments, that may be necessary to
continue such appointment in full force and effect as aforesaid. Service of
process upon the Authorized Agent with respect to any such action shall be
deemed, in every respect, effective service of process upon any such Non-U.S.
Guarantor. Notwithstanding the foregoing, any action against any Non-U.S.
Guarantor arising out of or based on any Security may also be instituted by the
Holder of such Security in any court in the jurisdiction of organization of such
Non-U.S. Guarantor, and such Non-U.S. Guarantor expressly accepts the
jurisdiction of any such court in any such action. The Company shall require the
Authorized Agent to agree in writing to accept the foregoing appointment as
agent for service of process.
SECTION 9.08 Waiver of Immunity.
To the extent that any Non-U.S. Guarantor or any of its properties, assets
or revenues may have or may hereafter become entitled to, or have attributed to
it, any right of immunity, on the grounds of sovereignty or otherwise, from any
legal action, suit or proceeding, from the giving of any relief in any thereof,
from set-off or counterclaim, from the jurisdiction of any court, from service
of process, from attachment upon or prior to judgment, from attachment in aid of
execution of judgment, or from execution of judgment, or other legal process or
proceeding for the giving of any relief or for the enforcement of any judgment,
in any jurisdiction in which proceedings may at any time be commenced, with
respect to its obligations, liabilities or any other matter under or arising out
of or in connection with this Indenture or the Securities, such Non-U.S.
Guarantor, to the maximum extent permitted by law, hereby irrevocably and
unconditionally waives, and agrees not to plead or claim, any such immunity and
consents to such relief and enforcement.
SECTION 9.09 Judgment Currency.
Each Non-U.S. Guarantor agrees to indemnify the Trustee and each Holder
against any loss incurred by it as a result of any judgment or order being given
or made and expressed and paid in a currency (the "Judgment Currency") other
than United States dollars and as a result of any variation as between (i) the
rate of exchange at which the United States dollar amount is converted into the
Judgment Currency for the purpose of such judgment or order and (ii) the spot
rate of exchange in The City of New York at which the Trustee or such Holder on
the date of payment of such judgment or order is able to purchase United States
dollars with the amount of the Judgment Currency actually received by the
Trustee or such Holder. The foregoing indemnity shall constitute a separate and
independent obligation of each Non-U.S. Guarantor and shall continue in full
force and effect notwithstanding any such judgment or order as aforesaid. The
term "spot rate of exchange" shall include any premiums and costs of exchange
payable in connection with the purchase of, or conversion into, United States
dollars.
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ARTICLE 10
REDEMPTION
SECTION 10.01 Notices to Trustee.
If the Company elects to redeem Securities pursuant to the redemption
provisions of Section 10.07, it shall furnish to the Trustee, at least 45 days
but not more than 60 days before a Redemption Date, an Officers' Certificate
setting forth the Redemption Date, the principal amount of Securities to be
redeemed and the Redemption Price.
SECTION 10.02 Selection of Securities to be Redeemed.
If less than all of the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed by such method as the Trustee in its sole
discretion shall deem fair and appropriate. The particular Securities to be
redeemed shall be selected, unless otherwise provided herein, not less than 30
days nor more than 60 days prior to the Redemption Date by the Trustee from the
outstanding Securities not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption and, in the case of any Security selected for partial
redemption, the principal amount thereof to be redeemed. Securities and
portions of them selected shall be in amounts of $1,000 or whole multiples of
$1,000. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption.
SECTION 10.03 Notices to Holders.
(a) At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail in conformity with Section 11.02 a notice of
redemption to each Holder whose Securities are to be redeemed.
The Notice shall identify the Securities to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
Redemption Date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion will be
issued;
(iv) the name and address of the Paying Agent;
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(v) that Securities called for redemption must be surrendered to the
Paying Agent at the address specified in such notice to collect the
Redemption Price;
(vi) that unless the Company defaults in making the redemption payment,
interest on Securities called for redemption ceases to accrue on and after
the Redemption Date and the only remaining right of the Holders is to
receive payment of the Redemption Price upon surrender to the Paying Agent
of the Securities; and
(vii) the aggregate principal amount of Securities being redeemed.
If any of the Securities to be redeemed is in the form of a Global
Security, then the Company shall modify such notice to the extent necessary to
accord with the procedures of the Depositary applicable to redemptions.
(b) At the Company's request, the Trustee shall give the notice required
in Section 10.03(a) in the Company's name; provided, however, that the
Company shall deliver to the Trustee, at least 45 days prior to the
Redemption Date, an Officer's Certificate requesting that the Trustee give
such notice and setting forth the information to be stated in such notice
as provided in Section 10.03(a).
SECTION 10.04 Effect of Notices of Redemption.
Once notice of redemption is mailed pursuant to Section 10.03, Securities
called for redemption become due and payable on the Redemption Date at the
Redemption Price. Upon surrender to the Paying Agent, such Securities shall be
paid out at the Redemption Price.
SECTION 10.05 Deposit of Redemption Price.
At least one Business Day prior to the Redemption Date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
Redemption Price of all Securities to be redeemed on that date. The Trustee or
the Paying Agent shall return to the Company any money not required for that
purpose less the expenses of the Trustee as provided herein.
If the Company complies with the preceding paragraph, interest on the
Securities or portions thereof to be redeemed (whether or not such Securities
are presented for payment) will cease to accrue on the applicable Redemption
Date. If any Security called for redemption shall not be so paid upon surrender
because of the failure of the Company to comply with the preceding paragraph,
then interest will be paid on the unpaid principal and premium, if any, from the
Redemption Date until such principal and premium are paid and, to the extent
lawful, on any interest not paid on such unpaid principal, in each case at the
rate provided in the Securities and in Section 3.01.
SECTION 10.06 Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder, at the expense of the
Company, a new Security equal in principal amount to the unredeemed portion of
the Security surrendered.
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SECTION 10.07 Optional Redemption.
The Securities may be redeemed at any time, at the option of the Company,
in whole or from time to time in part, at the Redemption Price specified in the
Securities.
Any redemption pursuant to this Section 10.07 shall be made, to the extent
applicable, pursuant to the provisions of Sections 10.01 through 10.06.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by operation of TIA Section 318(c), the imposed duties shall
control.
SECTION 11.02 Notices.
Any notice or communication by the Company, the Guarantors or the Trustee
to the others is duly given if in writing and delivered in person or mailed by
first-class mail (registered or certified, return receipt requested), telecopier
or overnight air courier guaranteeing next day delivery, to the other's address:
If to the Company or the Guarantors:
Tuboscope Inc.
2835 Holmes Road
Houston, Texas 77051
Attention: General Counsel
Telecopier No. (713) 799-5227
If to the Trustee:
The Bank of New York Trust Company of Florida
3rd Floor Towermarc Plaza
Jacksonville, Florida 32256
Attention: Corporate Trust
Telecopier No. (904) 645-1930
The Company, the Guarantors or the Trustee by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; five Business Days after
being deposited in the mail,
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postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first-class
mail, postage prepaid, to the Holder's address shown on the register kept by the
Registrar. Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company or any Guarantor mails a notice or communication to Holders,
it shall mail a copy to the Trustee and each Agent at the same time.
All notices or communications, including without limitation notices to the
Trustee or the Company or any Guarantor by Holders, shall be in writing, except
as set forth below, and in the English language.
In case by reason of the suspension of regular mail service, or by reason
of any other cause, it shall be impossible to mail any notice required by this
Indenture, then such method of notification as shall be made with the approval
of the Trustee shall constitute a sufficient mailing of such notice.
SECTION 11.03 Communication by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Securities. The
Company, the Guarantors, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 11.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or any Guarantor to the
Trustee to take any action under this Indenture, the Company or such Guarantor
shall, if requested by the Trustee, furnish to the Trustee:
(1) an Officers' Certificate (which shall include the statements set
forth in Section 11.05 hereof) stating that, in the opinion of the signers,
all conditions precedent and covenants, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel (which shall include the statements set
forth in Section 11.05 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been complied
with.
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SECTION 11.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
SECTION 11.06 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or the Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 11.07 Legal Holidays.
If a payment date is a Legal Holiday at a place of payment, payment may be
made at that place on the next succeeding day that is not a Legal Holiday, and
no interest shall accrue for the intervening period.
SECTION 11.08 No Recourse Against Others.
A director, officer, employee or stockholder of the Company or any
Guarantor, as such, shall not have any liability for any obligations of the
Company or such Guarantor under the Securities or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder by accepting a Security waives and releases all such
liability. The waiver and release shall be part of the consideration for the
issue of Securities.
SECTION 11.09 Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUCTED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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SECTION 11.10 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company, any Guarantor or any other Subsidiary of the Company.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 11.11 Successors.
All agreements of the Company and the Guarantors in this Indenture and the
Securities shall bind their respective successors. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 11.12 Severability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.13 Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.14 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof and shall in no way modify or
restrict any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
TUBOSCOPE INC.
By:
-----------------------------
Name: Joseph C. Winkler
Title: Executive Vice President, Chief Financial
Officer and Treasurer
TUBOSCOPE I/P INC.
TUBOSCOPE VETCO INTERNATIONAL INC.
TUBO-FGS INC
FIBER GLASS HOLDINGS INC.
ENVIRONMENTAL PROCEDURES INC.
TUBOSCOPE PIPELINE SERVICES INC.
TUBOSCOPE (HOLDING U.S.) INC.
By:
-----------------------------
Name: Joseph C. Winkler
Title: Vice President
THE BANK OF NEW YORK
By:
-----------------------------
Name:
Title:
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EXHIBIT A
[FACE OF SECURITY]
TUBOSCOPE INC.
7 1/2% SERIES [A/B] NOTE DUE 2008
CUSIP ___________
No. 1 $ 100,000,000
Tuboscope Inc., a Delaware corporation (the "Company"), for value received
promises to pay to ___________________________ or registered assigns, the
principal sum of $100,000,000 Dollars on February 15, 2008 or such greater or
lesser amount as is indicated on the Schedule of Exchanges of Securities on the
other side of this Security./1/
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated: TUBOSCOPE INC.
By: _________________________
By: _________________________
Certificate of Authentication:
___________________________________________
as Trustee, certifies that this is one of the Securities
referred to in the within-mentioned Indenture.
By: _____________________________
Authorized Signature
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/1/ This phrase should be included only if the Security is a global Security.
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[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. THE DEPOSITORY TRUST COMPANY SHALL ACT AS THE DEPOSITARY UNTIL A
SUCCESSOR SHALL BE APPOINTED BY THE COMPANY AND THE REGISTRAR. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]/2/
[THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (The
"SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER
OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION
5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.]
[THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)
INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF
CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER
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/2/ This paragraph should be included only if the Security is issued in global
form.
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OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A)
ABOVE.]/3/
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/3/ These paragraphs should be included only if the Security is a Transfer
Restricted Security.
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[REVERSE OF SECURITY]
TUBOSCOPE INC.
7 1/2% SERIES [A/B] NOTE DUE 2008
This Security is one of a duly authorized issue of 7 1/2% [Series A/Series
B] Notes due 2008 (the "Securities") of Tuboscope Inc., a Delaware corporation
(the "Company").
1. Interest. The Company promises to pay interest on the principal
amount of this Security at 7 1/2% per annum from February 25, 1998 until
maturity. The Company will pay interest semiannually on February 15 and August
15 of each year (each an "Interest Payment Date"), or if any such day is not a
Business Day, on the next succeeding Business Day. Interest on the Securities
will accrue from the most recent Interest Payment Date on which interest has
been paid or, if no interest has been paid, from February 25, 1998; provided
that if there is no existing Default in the payment of interest, and if this
Security is authenticated between a record date referred to on the face hereof
and the next succeeding Interest Payment Date, interest shall accrue from such
next succeeding Interest Payment Date; provided, further, that the first
Interest Payment Date shall be August 15, 1998. The Company also promises to
pay any additional interest required by Section 6 of the Registration Rights
Agreement (as defined in paragraph 17 below), upon the conditions, at the rates
and for the periods specified therein. Further, the Company shall pay interest
on overdue principal and premium, if any, from time to time on demand at a rate
equal to the interest rate then in effect; it shall pay interest on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Securities
(except defaulted interest) to the Persons who are registered Holders of
Securities at the close of business on the record date next preceding the
Interest Payment Date, even if such Securities are canceled after such record
date and on or before such Interest Payment Date. The Holder must surrender
this Security to a Paying Agent to collect principal and premium, if any,
payments. The Company will pay the principal of, and premium, if any, and
interest on the Securities in money of the United States of America that at the
time of payment is legal tender for payment of public and private debts. In the
case of Securities not in global form, the Company, however, may pay such
amounts by check payable in such money. It may mail an interest check to a
Holder's registered address.
3. Ranking and Guarantees. The Securities are senior unsecured
obligations of the Company. The Company's obligations to pay principal,
premium, if any, and interest with respect to the Securities are unconditionally
guaranteed on a joint and several basis (the "Guarantees") by the guarantors
(the "Guarantors"), parties to the Indenture. Each of the Guarantees is an
unsecured obligation of the Guarantor providing such Guarantee. Certain
limitations to the obligations of the Guarantors are set forth in further detail
in the Indenture. References herein to the Indenture or the Securities shall be
deemed also to refer to the Guarantees set forth in the Indenture except where
the context otherwise requires.
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4. Optional Redemption. The Securities may be redeemed at any time, at
the option of the Company, in whole or from time to time in part, at a price
equal to 100% of their principal amount plus accrued and unpaid interest, if
any, to the Redemption Date (subject to the right of holders of record on the
relevant record date to receive interest due on an interest payment date that is
on or prior to the Redemption Date) plus the Make-Whole Premium, if any (the
"Redemption Price").
The amount of the Make-Whole Premium with respect to any Security (or
portion thereof) to be redeemed will be equal to the excess, if any, of:
(i) the sum of the present values, calculated as of the Redemption
Date, of:
(A) each interest payment that, but for such redemption would
have been payable on the Security (or portion thereof) being redeemed on
each Interest Payment Date occurring after the Redemption Date (excluding
any accrued interest for the period prior to the Redemption Date); and
(B) the principal amount that, but for such redemption, would
have been payable at the final maturity of the Security (or portion
thereof) being redeemed;
over
(ii) the principal amount of the Security (or portion thereof) being
redeemed.
The present values of interest and principal payments referred to in clause (a)
above will be determined in accordance with generally accepted principles of
financial analysis. Such present values will be calculated by discounting the
amount of each payment of interest or principal from the date that each such
payment would have been payable, but for the redemption, to the Redemption Date
at a discount rate equal to the Treasury Yield plus 25 basis points. The Make-
Whole Premium will be calculated by an Independent Investment Banker (as defined
in the Indenture).
For purposes of determining the Make-Whole Premium, "Treasury Yield" means
a rate of interest per annum equal to the weekly average yield to maturity of
United States Treasury Notes that have a constant maturity that corresponds to
the remaining term to maturity of the Securities, calculated to the nearest 1/12
of a year (the "Remaining Term"). The Treasury Yield will be determined as of
the third Business Day immediately preceding the applicable Redemption Date. The
weekly average yields of United States Treasury Notes will be determined by
reference to the most recent statistical release published by the Federal
Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or
any successor release (the "H.15 Statistical Release"). If the H.15 Statistical
Release sets forth a weekly average yield for United States Treasury Notes
having a constant maturity that is the same as the Remaining Term, then Treasury
Yield will be equal to such weekly average yield. In all other cases, the
Treasury Yield will be calculated by interpolation, on a straight-line basis,
between the weekly average yields on the United States Treasury Notes that have
a constant maturity closest to and greater than the Remaining Term and the
United States Treasury Notes that have a constant maturity closest to and less
than the Remaining Term (in each case as set forth in the H.15 Statistical
Release). Any weekly average yields so calculated by
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interpolation will be rounded to the nearest 1/100 of 1%, with any figure of
1/200% or above being rounded upward. If weekly average yields for United States
Treasury Notes are not available in the H.15 Statistical Release or otherwise,
then the Treasury Yield will be calculated by interpolation of comparable rates
selected by the Independent Investment Banker.
Periodic interest installments with respect to which the Interest Payment
Date is on or prior to any Redemption Date will be payable to Holders of record
at the close of business on the relevant record dates referred to herein, all as
provided in the Indenture.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the Redemption Date to each Holder of Securities to be redeemed at
his registered address. Securities in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. On or after the
Redemption Date interest will cease to accrue on Securities or on the portions
thereof called for redemption, as the case may be.
5. Paying Agent and Registrar. Initially, The Bank of New York (the
"Trustee"), the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent, Registrar, co-registrar or
additional paying agent without notice to any Holder. The Company may act in
any such capacity.
6. Indenture. The Company issued the Securities under an Indenture dated
as of February 25, 1998 (the "Indenture") among the Company, the Guarantors and
the Trustee. The terms of the Securities include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb), as in effect on the date
of execution of the Indenture. The Securities are subject to all such terms,
and Holders are referred to the Indenture and such Act for a statement of such
terms. The Securities are unsecured general obligations of the Company limited
to $100,000,000 in aggregate principal amount in the case of the Notes issued on
the Issue Date (as defined in the Indenture).
7. Denominations, Transfer, Exchange. The Securities are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Securities may be registered and Securities may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not exchange or register the transfer of any
Securities during the period between a record date and the corresponding
Interest Payment Date.
8. Persons Deemed Owners. The registered Holder of a Security shall be
treated as its owner for all purposes.
9. Amendments and Waivers. Subject to certain exceptions and limitations,
the Indenture or the Securities may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the then
outstanding Securities, and any existing Default under, or compliance with any
provision of, the Indenture may be waived (other than any continuing Default or
Event of Default in the payment of the principal of, or premium, if any, or
interest on the Securities) by the Holders of at least a majority in principal
amount of the Securities then outstanding
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in accordance with the terms of the Indenture. Without the consent of any
Holder, the Company, the Guarantors and the Trustee may amend or supplement the
Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency; to provide for uncertificated Securities in addition to or in
place of certificated Securities; to provide for the assumption of the
obligations of the Company and each Guarantor under the Indenture to Holders in
the case of the merger, consolidation or sale or other disposition of all or
substantially all of the assets of the Company or any Guarantor; to reflect the
release of any Guarantor from its Guarantee to the extent permitted by the
Indenture; to add guarantees to the Securities; to add to the covenants of the
Company or the Guarantors or to surrender any right of the Company or any
Guarantor; to make any change that does not materially adversely affect the
rights of any Holder; or to comply with the qualification of the Indenture under
the Trust Indenture Act of 1939, as amended.
The right of any Holder to participate in any consent required or sought
pursuant to any provision of the Indenture (and the obligation of the Company to
obtain any such consent otherwise required from such Holder) may be subject to
the requirement that such Holder shall have been the Holder of record of any
Securities with respect to which such consent is required or sought as of a date
identified by the Trustee in a notice furnished to Holders in accordance with
the terms of the Indenture.
Without the consent of each Holder affected, the Company may not (i) reduce
the amount of Securities whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the rate of or change the time for payment of interest,
including default interest, on any Security, (iii) reduce the principal of or
change the fixed maturity of any Security or alter the premium or other
provisions with respect to redemption, (iv) make any Security payable in money
other than that stated in the Security, (v) impair the right to institute suit
for the enforcement of any payment of principal of, or premium, if any, or
interest on any Security, (vi) make any change in the percentage of principal
amount of Securities necessary to waive compliance with certain provisions of
the Indenture or (vii) waive a continuing Default or Event of Default in the
payment of principal of, or premium, if any, or interest on the Securities.
10. Defaults and Remedies. Events of Default include: default in payment
of interest on the Securities for 30 days; default in payment of principal of,
or premium, if any, on the Securities; failure by the Company or any Guarantor
for 60 days after written notice by the Trustee or by the Holders of at least
25% of the aggregate principal amount of the Securities then outstanding to it
to comply with any of its other covenants or agreements in the Indenture, the
Guarantees or the Securities; the acceleration of the maturity of any
Indebtedness of the Company or any Subsidiary of the Company (other than the
Securities or any Non-Recourse Indebtedness) that has an outstanding principal
amount of $10 million or more individually or in the aggregate; a default in the
payment of principal or interest in respect of any Indebtedness of the Company
or any Subsidiary of the Company (other than the Securities or any Non-Recourse
Indebtedness) having an outstanding principal amount of $10 million or more
individually or in the aggregate, and such default shall be continuing for a
period of 30 days without the Company or such Subsidiary, as the case may be,
effecting a cure of such default; a judgment or order for the payment of money
in excess of $10 million (net of applicable insurance coverage) having been
rendered against the Company, any Guarantor or any other "significant
subsidiary" (as such term is defined in Regulation S-X under the Securities
Exchange Act of 1934, as amended; a "Significant Subsidiary") of the Company and
such
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<PAGE>
judgment or order shall continue unsatisfied and unstayed for a period of 30
days; or certain events involving bankruptcy, insolvency or reorganization of
the Company, any Guarantor or any other Significant Subsidiary of the Company.
If an Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the then outstanding Securities may declare
the principal of, and premium, if any, and interest on all the Securities to be
immediately due and payable, except that in the case of an Event of Default
arising from certain events of bankruptcy, insolvency or reorganization of the
Company or any Guarantor, all outstanding Securities become due and payable
immediately without further action or notice. The amount due and payable upon
the acceleration of any Security is equal to 100% of the principal amount
thereof plus premium, if any, and accrued interest to the date of payment.
Holders may not enforce the Indenture or the Securities except as provided in
the Indenture. The Trustee may require indemnity reasonably satisfactory to it
before it enforces the Indenture or the Securities. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders notice of any continuing default (except a
default in payment of principal or premium, if any, or interest) if it
determines that withholding notice is in their interests. The Company must
furnish an annual compliance certificate to the Trustee.
11. Discharge Prior to Maturity. The Indenture shall be discharged and
canceled upon the payment of all of the Securities and shall be discharged
except for certain obligations upon the irrevocable deposit with the Trustee of
funds or U.S. Government Obligations sufficient for such payment.
12. Trustee Dealings with Company and Guarantors. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company, the Guarantors or their respective Affiliates,
and may otherwise deal with the Company, the Guarantors or their respective
Affiliates, as if it were not Trustee.
13. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company or any Guarantor shall not have any
liability for any obligations of the Company or such Guarantor under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder by accepting a
Security waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Securities.
14. Authentication. This Security shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
15. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Securities as a convenience to the Holders of
the Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed thereon.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT
A-8
<PAGE>
TEN (= joint tenants with right of survivorship and not as tenants in common),
CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
17. Additional Rights of Holders of Transfer Restricted Securities. In
addition to the rights provided to Holders of Securities under the Indenture,
Holders of Transfer Restricted Securities shall have all the rights set forth in
the Registration Rights Agreement, dated as of the Issue Date (the "Registration
Rights Agreement"), among the Company, the Guarantors named therein and the
Initial Purchasers.
THE COMPANY WILL FURNISH TO ANY HOLDER UPON WRITTEN REQUEST AND WITHOUT
CHARGE A COPY OF THE INDENTURE. REQUEST MAY BE MADE TO:
TUBOSCOPE INC.
2835 HOLMES ROAD
HOUSTON, TEXAS 77051
ATTENTION: GENERAL COUNSEL
A-9
<PAGE>
FORM OF NOTATION ON SECURITY
RELATING TO GUARANTEES
Each Guarantor (which term includes any successor Person under the
Indenture), has fully, unconditionally and absolutely guaranteed, to the extent
set forth in the Indenture and subject to the provisions in the Indenture, the
due and punctual payment of the principal of, and premium, if any, and interest
on the Securities and all other amounts due and payable under the Indenture and
the Securities by the Company.
The obligations of the Guarantors to the Holders of Securities and to the
Trustee pursuant to the Guarantees and the Indenture are expressly set forth in
Article 9 of the Indenture and reference is hereby made to the Indenture for the
precise terms of the Guarantees.
TUBOSCOPE I/P INC.
TUBOSCOPE VETCO INTERNATIONAL, INC.
TUBO-FGS INC.
FIBER GLASS HOLDINGS, INC.
ENVIRONMENTAL PROCEDURES INC.
TUBOSCOPE PIPELINE SERVICES, INC.
TUBOSCOPE (HOLDING U.S.) INC.
By: _________________________________
A-10
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to _________________________________________
______________________________________________________________________________
(Insert assignee's social security or tax I.D. number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
as agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
________________________________________________________________________________
Date: ___________________________
Your Signature: ____________________________________________________________
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:
____________________________________________________________
(Participant in a Recognized Signature Guaranty Medallion
Program)
A-11
<PAGE>
SCHEDULE OF EXCHANGES OF SECURITIES*
The following exchanges, redemptions or repurchases of a part of this
Global Security have been made:
<TABLE>
<CAPTION>
Principal
Amount of Amount of Amount of Signature of
decrease in increase in Global Security authorized
Principal Principal following Officer, Trustee
Date of Amount of Amount of decrease (or or Security
Transaction Global Security Global Security increase) Custodian
<S> <C> <C> <C> <C>
</TABLE>
______________________
* This should be included only if the Security is issued in global form.
A-12
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Address of Trustee
Re: 7 1/2% Series [A/B] Notes due 2008 of Tuboscope Inc.
This Certificate relates to $_____ principal amount of Securities held in
*______ book-entry or *______ definitive form by _____________________ (the
"Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver in exchange
for its beneficial interest in the Global Securities held by the Depositary a
Definitive Security or Securities equal to its beneficial interest in such
Global Securities (or the portion thereof indicated above); or
[ ] has requested the Trustee by written order to exchange or
register the transfer of a Definitive Security or Securities.
In connection with such request and in respect of each such Security, the
Transferor does hereby certify that the Transferor is familiar with the
Indenture relative to the above captioned Securities and that the transfer of
this Security complies with any applicable blue sky securities laws of any state
of the United States and does not require registration under the Securities Act
(as defined below) because:*
[ ] Such Security is being acquired for the Transferor's own account
without transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section
2.06(d)(i)(A) of the Indenture).
[ ] Such Security is being transferred (i) to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act of 1933,
as amended (the "Securities Act")), in reliance on Rule 144A under the
Securities Act or (ii) pursuant to an exemption from registration in accordance
with Rule 904 under the Securities Act (and in the case of clause (ii), based on
an opinion of counsel if the Company so requests and together with a
certification in substantially the form of Exhibit D to the Indenture).
[ ] Such Security is being transferred (i) in accordance with Rule
144 under the Securities Act (and based on an opinion of counsel if the Company
so requests) or (ii) pursuant to an effective registration statement under the
Securities Act.
[ ] Such Security is being transferred to an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act pursuant to a private placement exemption from the
registration requirements of the Securities Act (and based on an opinion of
counsel if the Company so requests) together with a certification in
substantially the form of Exhibit C to the Indenture.
B-1
<PAGE>
[ ] Such Security is being transferred in reliance on and in
compliance with another exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if the Company so requests).
________________________________________
[INSERT NAME OF TRANSFEROR]
By:_____________________________________
Name:
Title:
Address:
Date:____________________
_____________________
*Check applicable blank or box.
B-2
<PAGE>
EXHIBIT C
FORM OF TRANSFEREE LETTER OF REPRESENTATION
TO BE DELIVERED BY INSTITUTIONAL ACCREDITED INVESTORS
Tuboscope Inc.
c/o ______________________
_________________________
_________________________
Dear Sirs:
In connection with the proposed transfer to us of $___________ aggregate
principal amount of the 7 1/2% Notes due 2008 (the "Notes") of Tuboscope Inc., a
Delaware corporation (the "Company"), we confirm that:
1. We understand that the Notes have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or other applicable
securities laws, and may not be offered, sold or otherwise transferred except as
permitted in the following sentence. We agree on our behalf and on behalf of
any investor account for which we are purchasing Notes to offer, sell or
otherwise transfer such Notes prior to the date which is two years after the
later of the date of original issue thereof and the last date on which the
Company or any "affiliate" of the Company was the owner of such Notes (or any
predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the
Company, (b) pursuant to a registration statement which has been declared
effective under the Securities Act, (c) so long as the Notes are eligible for
resale pursuant to Rule 144A under the Securities Act, to a person we reasonably
believe is a "qualified institutional buyer" (a "QIB") as defined in Rule 144A
under the Securities Act that purchases for its own account or for the account
of a QIB to whom notice is given that the transfer is being made in reliance on
Rule 144A, (d) pursuant to offers and sales to non-U.S. persons that occur
outside the United States within the meaning of Regulation S under the
Securities Act, (e) to an institutional "accredited investor" (an "Institutional
Accredited Investor") within the meaning of subparagraph (a)(1), (2), (3) or (7)
of Rule 501 under the Securities Act that is acquiring the Notes for its own
account or for the account of such an Institutional Accredited Investor for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act or (f) pursuant to any
other available exemption from the registration requirements of the Securities
Act, subject to the Company's and the Trustee's right prior to any such offer,
sale or transfer (i) pursuant to clause (d), (e) or (f) above to require the
delivery of an opinion of counsel, certifications and/or other information
satisfactory to each of them and (ii) in each of the foregoing cases to require
that a certificate of transfer in the form appearing in the Indenture for the
Notes is completed and delivered by the transferor to the Trustee.
2. We are an Institutional Accredited Investor purchasing for our own
account or for the account of such an Institutional Accredited Investor for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act or any other
applicable securities laws and we have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Notes, and we
C-1
<PAGE>
and any accounts for which we are acting are each able to bear the economic risk
of our or its investment for an indefinite period.
3. We are acquiring the Notes purchased by us for our own account or for
one or more accounts as to each of which we exercise sole investment discretion.
4. You are entitled to rely upon the acknowledgments, representations and
agreements set forth in this letter and you are irrevocably authorized to
produce this letter or a copy hereof to any interested party in any
administrative or legal proceeding or official inquiry with respect to the
matters covered hereby, and we agree to notify you promptly in writing if any of
our representations and warranties herein cease to be accurate and complete.
Very truly yours,
Name of Transferee: ___________________
By: ___________________________________
Date: _________________________________
Upon transfer the Notes would be registered in the name of the new
beneficial owner as follows:
Name: __________________________
Address: ______________________________________________
Taxpayer ID No: _______________
C-2
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S
_____________, ____
________________________, as Registrar
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed sale of certain ___% Series [A/B] Notes due
2008 (the "Securities") of Tuboscope Inc., a Delaware corporation (the
"Company"), we represent that:
(i) the offer of the Securities was not made to a person in the
United States;
(ii) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
(iii) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b)or Rule 904(b) of
Regulation S under the U.S. Securities Act of 1933, as applicable; and
(iv) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon the acknowledgements,
representations and agreements set forth in this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby. Terms used in this certificate have the meanings set
forth in Regulation S under the U.S. Securities Act of 1933.
Very truly yours,
___________________________
[Name]
By: _______________________
Name:
Title:
Address:
D-1
<PAGE>
EXHIBIT E
FORM OF SUPPLEMENTAL INDENTURE
Supplemental Indenture (this "Supplemental Indenture"), dated as of
____________ between ____________________, a __________ corporation (the "New
Guarantor"), a subsidiary of Tuboscope Inc., a Delaware corporation (the
"Company"), and [____________________], as trustee under the indenture referred
to below (the "Trustee"). Capitalized terms used herein and not defined herein
shall have the meaning ascribed to them in the Indenture (as defined below).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture (as amended or supplemented from time to time, the "Indenture"),
dated as of ____________, 1998, providing for the issuance of an aggregate
principal amount of $100,000,000 of 7 1/2% Senior Notes due 2008 (the "Notes");
WHEREAS, Section 9.05 of the Indenture provides that under certain
circumstances the Company must cause certain of its subsidiaries to execute and
deliver to the Trustee a supplemental indenture pursuant to which such
subsidiaries shall unconditionally guarantee all of the Company's obligations
under the Notes pursuant to a Guarantee on the terms and conditions set forth
herein; and
WHEREAS, pursuant to Section 9.05 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which are hereby acknowledged, the New
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings ascribed to them in the Indenture.
2. Agreement to Guarantee. The New Guarantor hereby fully,
unconditionally and absolutely guarantees, jointly and severally with all other
Guarantors, the Company's obligations under the Notes and the Indenture on the
terms and subject to the conditions set forth in Article 9 of the Indenture and
agrees to be bound by all other applicable provisions of the Indenture.
3. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator, shareholder or agent of any Guarantor, as such,
shall have any liability for any obligations of the Company or any Guarantor
under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
E-1
<PAGE>
4. New York Law to Govern. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
5. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
7. The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the correctness of the recitals of fact
contained herein, all of which recitals are made solely by the New Guarantor.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: __________________ [Name of New Subsidiary Guarantor]
By: _________________________________
Name:
Title:
Dated: __________________ [____________________]
as Trustee
By: _________________________________
Name:
Title:
E-2
<PAGE>
EXHIBIT 4(i)
REGISTRATION RIGHTS AGREEMENT
$100,000,000
TUBOSCOPE INC.
7 1/2% SENIOR NOTES DUE 2008
REGISTRATION RIGHTS AGREEMENT
-----------------------------
February 25, 1998
Credit Suisse First Boston Corporation
ABN AMRO Incorporated
Chase Securities Inc.
Salomon Brothers Inc
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010-3629
Dear Sirs:
Tuboscope Inc., a Delaware corporation (the "Issuer"), proposes to issue
and sell to Credit Suisse First Boston Corporation, ABN AMRO Incorporated, Chase
Securities Inc. and Salomon Smith Barney Inc (collectively, the "Initial
Purchasers"), upon the terms set forth in a purchase agreement of even date
herewith (the "Purchase Agreement"), $100,000,000 aggregate principal amount of
its 7 1/2% Senior Notes due 2008 (the "Initial Securities") to be guaranteed
(the "Guaranties") by Tuboscope I/P Inc., Tuboscope Vetco International, Inc.,
Tubo-FGS Inc., Fiber Glass Holdings, Inc., Environmental Procedures Inc.,
Tuboscope Pipeline Services Inc., and Tuboscope (Holding U.S.) Inc. (the
"Guarantors" and together with the Issuer, the "Company"). The Initial
Securities will be issued pursuant to an Indenture, dated as of February 25,
1998, (the "Indenture") among the Issuer, the Guarantors and The Bank of New
York (the "Trustee"). As an inducement to the Initial Purchasers, the Company
agrees with the Initial Purchasers, for the benefit of the holders of the
Initial Securities (including, without limitation, the Initial Purchasers), the
Exchange Securities (as defined below) and the Private Exchange Securities (as
defined below) (collectively the "Holders"), as follows:
1. Registered Exchange Offer. The Company shall, at its own cost, prepare
and, not later than 60 days after (or if the 60th day is not a business day, the
first business day thereafter) the date of original issue of the Initial
Securities (the "Issue Date"), file with the Securities and Exchange Commission
(the "Commission") a registration statement (the "Exchange Offer Registration
Statement") on an appropriate form under the Securities Act of 1933, as amended
(the "Securities
1
<PAGE>
Act"), with respect to a proposed offer (the "Registered Exchange Offer") to the
Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who
are not prohibited by any law or policy of the Commission from participating in
the Registered Exchange Offer, to issue and deliver to such Holders, in exchange
for the Initial Securities, a like aggregate principal amount of debt securities
(the "Exchange Securities") of the Company issued under the Indenture and
identical in all material respects to the Initial Securities (except for the
transfer restrictions relating to the Initial Securities and the provisions
relating to the matters described in Section 6 hereof) that would be registered
under the Securities Act. The Company shall use its best efforts to cause such
Exchange Offer Registration Statement to become effective under the Securities
Act within 180 days (or if the 180th day is not a business day, the first
business day thereafter) after the Issue Date of the Initial Securities and
shall keep the Exchange Offer Registration Statement effective for not less than
30 days (or longer, if required by applicable law) after the date notice of the
Registered Exchange Offer is mailed to the Holders (such period being called the
"Exchange Offer Registration Period").
If the Company effects the Registered Exchange Offer, the Company will be
entitled to close the Registered Exchange Offer 30 days after the commencement
thereof provided that the Company has accepted all the Initial Securities
theretofore validly tendered in accordance with the terms of the Registered
Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Registered
Exchange Offer, it being the objective of such Registered Exchange Offer to
enable each Holder of Transfer Restricted Securities (as defined in Section 6
hereof) electing to exchange the Initial Securities for Exchange Securities
(assuming that such Holder is not an affiliate of the Company within the meaning
of the Securities Act, acquires the Exchange Securities in the ordinary course
of such Holder's business and has no arrangements with any person to participate
in the distribution of the Exchange Securities and is not prohibited by any law
or policy of the Commission from participating in the Registered Exchange Offer)
to trade such Exchange Securities from and after their receipt without any
limitations or restrictions under the Securities Act and without material
restrictions under the securities laws of the several states of the United
States.
The Company acknowledges that, pursuant to current interpretations by the
Commission's staff of Section 5 of the Securities Act, in the absence of an
applicable exemption therefrom, (i) each Holder which is a broker-dealer
electing to exchange Securities (as defined), acquired for its own account as a
result of market making activities or other trading activities, for Exchange
Securities (an "Exchanging Dealer"), is required to deliver a prospectus
containing, among other things, the information set forth in (a) Annex A hereto
on the cover, (b) Annex B hereto in the "Exchange Offer Procedures" section and
the "Purpose of the Exchange Offer" section, and (c) Annex C hereto in the "Plan
of Distribution" section of such prospectus in connection with a sale of any
such Exchange Securities received by such Exchanging Dealer pursuant to the
Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell
Exchange Securities acquired in exchange for Securities constituting any portion
of an unsold allotment is required to deliver a prospectus containing the
information required by Items 507 or 508 of Regulation S-K under the Securities
Act, as applicable, in connection with such sale.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein, in order to permit such prospectus to be lawfully delivered
by all persons subject to the prospectus delivery requirements
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<PAGE>
of the Securities Act for such period of time as such persons must comply with
such requirements in order to resell the Exchange Securities; provided, however,
that (i) in the case where such prospectus and any amendment or supplement
thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such
period shall be the lesser of 180 days and the date on which all Exchanging
Dealers and the Initial Purchasers have sold all Exchange Securities held by
them (unless such period is extended pursuant to Section 3(j) below) and (ii)
the Company shall make such prospectus and any amendment or supplement thereto,
available to any broker-dealer for use in connection with any resale of any
Exchange Securities for a period of not less than 90 days after the consummation
of the Registered Exchange Offer.
If, upon consummation of the Registered Exchange Offer, any Initial
Purchaser holds Initial Securities acquired by it as part of its initial
distribution, the Company, simultaneously with the delivery of the Exchange
Securities pursuant to the Registered Exchange Offer, shall issue and deliver to
such Initial Purchaser upon the written request of such Initial Purchaser, in
exchange (the "Private Exchange") for the Initial Securities held by such
Initial Purchaser, a like principal amount of debt securities of the Company
issued under the Indenture and identical in all material respects (including the
existence of restrictions on transfer under the Securities Act and the
securities laws of the several states of the United States, but excluding
provisions relating to the matters described in Section 6 hereof) to the Initial
Securities (the "Private Exchange Securities"). The Initial Securities, the
Exchange Securities and the Private Exchange Securities are herein collectively
called the "Securities".
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter of
transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30 days (or
longer, if required by applicable law) after the date notice thereof is mailed
to the Holders;
(c) utilize the services of a depositary for the Registered Exchange Offer
with an address in the Borough of Manhattan, The City of New York, which may be
the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Securities at any time prior to
the close of business, New York time, on the last business day on which the
Registered Exchange Offer shall remain open; and
(e) otherwise comply with all applicable laws.
As soon as practicable after the close of the Registered Exchange Offer or
the Private Exchange, as the case may be, the Company shall:
(x) accept for exchange all the Securities validly tendered and not
withdrawn pursuant to the Registered Exchange Offer and the Private Exchange;
(y) deliver to the Trustee for cancellation all the Initial Securities so
accepted for exchange; and
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<PAGE>
(z) cause the Trustee to authenticate and deliver promptly to each Holder
of the Initial Securities, Exchange Securities or Private Exchange Securities,
as the case may be, equal in principal amount to the Initial Securities of such
Holder so accepted for exchange.
The Indenture will provide that the Exchange Securities will not be subject
to the transfer restrictions set forth in the Indenture and that all the
Securities shall be considered collectively to be a single class for all
purposes of this Indenture, including, without limitations waivers, amendments,
redemptions and offers to purchase.
Interest on each Exchange Security and Private Exchange Security issued
pursuant to the Registered Exchange Offer and in the Private Exchange will
accrue from the last interest payment date on which interest was paid on the
Initial Securities surrendered in exchange therefor or, if no interest has been
paid on the Initial Securities, from the date of original issue of the Initial
Securities.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule
405 of the Securities Act, of the Company or if it is an affiliate, such Holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such Holder is not a broker-
dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Securities and (v) if such Holder is a broker-
dealer, that it will receive Exchange Securities for its own account in exchange
for Initial Securities that were acquired as a result of market-making
activities or other trading activities and that it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Securities.
Notwithstanding any other provisions hereof, the Company will ensure that
(i) any Exchange Offer Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, does not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
2. Shelf Registration. If, (i) because of any change in law or in
applicable interpretations thereof by the staff of the Commission, the Company
is not permitted to effect a Registered Exchange Offer, as contemplated by
Section 1 hereof, (ii) the Registered Exchange Offer is not consummated within
180 days of the Issue Date, (iii) any Initial Purchaser so requests with respect
to the Initial Securities (or the Private Exchange Securities) not eligible to
be exchanged for Exchange Securities in the Registered Exchange Offer and held
by it following consummation of the Registered Exchange Offer or (iv) any Holder
(other than an Exchanging Dealer) is not eligible to participate in the
Registered Exchange Offer or, in the case of any Holder (other than an
Exchanging Dealer) that participates in the Registered Exchange Offer, such
Holder does not receive
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<PAGE>
freely tradeable Exchange Securities on the date of the exchange, the Company
shall take the following actions:
(a) The Company shall, at its cost, as promptly as practicable (but in no
event later than the latter of (i) 60 days after (or if the 60th day is not a
business day, the first business day thereafter) the Issue Date and (ii) 30 days
after so otherwise required or requested pursuant to this Section 2) file with
the Commission and thereafter shall use its best efforts to cause to be declared
effective one registration statement (the "Shelf Registration Statement" and,
together with the Exchange Offer Registration Statement, a "Registration
Statement") on an appropriate form under the Securities Act relating to the
offer and sale of the Transfer Restricted Securities (as defined in Section 6
hereof) by the Holders thereof from time to time in accordance with the methods
of distribution set forth in the Shelf Registration Statement and Rule 415 under
the Securities Act (hereinafter, the "Shelf Registration"); provided, however,
that no Holder (other than an Initial Purchaser) shall be entitled to have the
Securities held by it covered by such Shelf Registration Statement unless such
Holder agrees in writing to be bound by all the provisions of this Agreement
applicable to such Holder.
(b) The Company shall use its best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the prospectus included
therein to be lawfully delivered by the Holders of the relevant Securities,
until the earlier to occur of (i) the time when the Securities covered by the
Shelf Registration Statement can be sold pursuant to Rule 144 without any
limitations under clauses (c), (e), (f) and (h) of Rule 144 and (ii) two years
(or for such longer period if extended pursuant to Section 3(j) below) from the
Issue Date or such shorter period that will terminate when all the Securities
covered by the Shelf Registration Statement (a) have been sold pursuant thereto
or (b) are no longer restricted securities (as defined in Rule 144 under the
Securities Act, or any successor rule thereof). The Company shall be deemed not
to have used its best efforts to keep the Shelf Registration Statement effective
during the requisite period if it voluntarily takes any action that would result
in Holders of Securities covered thereby not being able to offer and sell such
Securities during that period, unless such action is required by applicable law.
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall cause the Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the effective
date of the Shelf Registration Statement, amendment or supplement, (i) to comply
in all material respects with the applicable requirements of the Securities Act
and the rules and regulations of the Commission and (ii) not to contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
3. Registration Procedures. In connection with any Shelf Registration
contemplated by Section 2 hereof and, to the extent applicable, any Registered
Exchange Offer contemplated by Section 1 hereof, the following provisions shall
apply:
(a) The Company shall (i) furnish to each Initial Purchaser, prior to the
filing thereof with the Commission, a copy of the Registration Statement and
each amendment thereof and each supplement, if any, to the prospectus included
therein and, in the event that an Initial Purchaser (with respect to any portion
of an unsold allotment from the original offering) is participating in the
Registered Exchange Offer or the Shelf Registration Statement, the Company shall
use its best efforts to reflect in each such document, when so filed with the
Commission, such comments as such
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Initial Purchaser reasonably may propose; (ii) include the information set forth
in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in Annex
C hereto in the "Plan of Distribution" section of the prospectus forming a part
of the Exchange Offer Registration Statement and include the information set
forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the
Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include
the information required by Items 507 or 508 of Regulation S-K under the
Securities Act, as applicable, in the prospectus forming a part of the Exchange
Offer Registration Statement; (iv) include within the prospectus contained in
the Exchange Offer Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which shall
contain a summary statement of the positions taken or policies made by the staff
of the Commission with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of Exchange
Securities received by such broker-dealer in the Registered Exchange Offer (a
"Participating Broker-Dealer"), whether such positions or policies have been
publicly disseminated by the staff of the Commission or such positions or
policies, in the reasonable judgment of the Initial Purchasers based upon advice
of counsel (which may be in-house counsel), represent the prevailing views of
the staff of the Commission; and (v) in the case of a Shelf Registration
Statement, include the names of the Holders, who propose to sell Securities
pursuant to the Shelf Registration Statement, as selling securityholders.
(b) The Company shall give written notice to the Initial Purchasers, the
Holders of the Securities and any Participating Broker-Dealer from whom the
Company has received prior written notice that it will be a Participating
Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the
prospectus until the requisite changes have been made):
(i) when the Registration Statement or any amendment thereto has been
filed with the Commission and when the Registration Statement or any post-
effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the prospectus included therein or for
additional information;
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
(iv) of the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and
(v) of the happening of any event that requires the Company to make
changes in the Registration Statement or the prospectus in order that the
Registration Statement or the prospectus do not contain an untrue statement
of a material fact nor omit to state a material fact required to be stated
therein or necessary to make the statements therein (in the case of the
prospectus, in light of the circumstances under which they were made) not
misleading.
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(c) The Company shall make every reasonable effort to obtain the
withdrawal at the earliest possible time, of any order suspending the
effectiveness of the Registration Statement.
(d) The Company shall furnish to each Holder of Securities included within
the coverage of the Shelf Registration, without charge, at least one copy of the
Shelf Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if the Holder so requests in writing,
all exhibits thereto (including those, if any, incorporated by reference).
(e) The Company shall deliver to each Exchanging Dealer and each Initial
Purchaser, and to any other Holder who so requests, without charge, at least one
copy of the Exchange Offer Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if any
Initial Purchaser or any such Holder requests, all exhibits thereto (including
those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver to
each Holder of Securities included within the coverage of the Shelf
Registration, without charge, as many copies of the prospectus (including each
preliminary prospectus) included in the Shelf Registration Statement and any
amendment or supplement thereto as such person may reasonably request. The
Company consents, subject to the provisions of this Agreement, to the use of the
prospectus or any amendment or supplement thereto by each of the selling Holders
of the Securities in connection with the offering and sale of the Securities
covered by the prospectus, or any amendment or supplement thereto, included in
the Shelf Registration Statement.
(g) The Company shall deliver to each Initial Purchaser, any Exchanging
Dealer, any Participating Broker-Dealer and such other persons required to
deliver a prospectus following the Registered Exchange Offer, without charge, as
many copies of the final prospectus included in the Exchange Offer Registration
Statement and any amendment or supplement thereto as such persons may reasonably
request. The Company consents, subject to the provisions of this Agreement, to
the use of the prospectus or any amendment or supplement thereto by any Initial
Purchaser, if necessary, any Participating Broker-Dealer and such other persons
required to deliver a prospectus following the Registered Exchange Offer in
connection with the offering and sale of the Exchange Securities covered by the
prospectus, or any amendment or supplement thereto, included in such Exchange
Offer Registration Statement.
(h) Prior to any public offering of the Securities, pursuant to any
Registration Statement, the Company shall register or qualify or cooperate with
the Holders of the Securities included therein and their respective counsel in
connection with the registration or qualification of the Securities for offer
and sale under the securities or "blue sky" laws of such states of the United
States as any Holder of the Securities reasonably requests in writing and do any
and all other acts or things necessary or advisable to enable the offer and sale
in such jurisdictions of the Securities covered by such Registration Statement;
provided, however, that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it is not then so qualified
or (ii) take any action which would subject it to general service of process or
to taxation in any jurisdiction where it is not then so subject.
(i) The Company shall cooperate with the Holders of the Securities to
facilitate the timely preparation and delivery of certificates representing the
Securities to be sold pursuant to any Registration Statement free of any
restrictive legends and in such denominations and registered in
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such names as the Holders may request a reasonable period of time prior to sales
of the Securities pursuant to such Registration Statement.
(j) Upon the occurrence of any event contemplated by paragraphs (ii)
through (v) of Section 3(b) above during the period for which the Company is
required to maintain an effective Registration Statement, the Company shall
promptly prepare and file a post-effective amendment to the Registration
Statement or a supplement to the related prospectus and any other required
document so that, as thereafter delivered to Holders of the Securities or
purchasers of Securities, the prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. If the Company notifies the Initial
Purchasers, the Holders of the Securities and any known Participating Broker-
Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to
suspend the use of the prospectus until the requisite changes to the prospectus
have been made, then the Initial Purchasers, the Holders of the Securities and
any such Participating Broker-Dealers shall suspend use of such prospectus, and
the period of effectiveness of the Shelf Registration Statement provided for in
Section 2(b) above and the Exchange Offer Registration Statement provided for in
Section 1 above shall each be extended by the number of days from and including
the date of the giving of such notice to and including the date when the Initial
Purchasers, the Holders of the Securities and any known Participating Broker-
Dealer shall have received such amended or supplemented prospectus pursuant to
this Section 3(j).
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Initial Securities,
the Exchange Securities or the Private Exchange Securities, as the case may be,
and provide the applicable trustee with printed certificates for the Initial
Securities, the Exchange Securities or the Private Exchange Securities, as the
case may be, in a form eligible for deposit with The Depository Trust Company.
(l) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the Registered
Exchange Offer or the Shelf Registration and will make generally available to
its security holders (or otherwise provide in accordance with Section 11(a) of
the Securities Act) an earnings statement satisfying the provisions of Section
11(a) of the Securities Act, no later than 45 days after the end of a 12-month
period (or 90 days, if such period is a fiscal year) beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of the Registration Statement, which statement shall cover such 12-month period.
(m) The Company shall cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended, in a timely manner and containing such
changes, if any, as shall be necessary for such qualification. In the event
that such qualification would require the appointment of a new trustee under the
Indenture, the Company shall appoint a new trustee thereunder pursuant to the
applicable provisions of the Indenture.
(n) The Company may require each Holder of Securities to be sold pursuant
to the Shelf Registration Statement to furnish to the Company such information
regarding the Holder and the distribution of the Securities as the Company may
from time to time reasonably require for inclusion in the Shelf Registration
Statement, and the Company may exclude from such registration the Securities of
any Holder that unreasonably fails to furnish such information within a
reasonable time after receiving such request.
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<PAGE>
(o) The Company shall enter into such customary agreements (including, if
requested, an underwriting agreement in customary form) and take all such other
action, if any, as any Holder of the Securities shall reasonably request in
order to facilitate the disposition of the Securities pursuant to any Shelf
Registration.
(p) In the case of any Shelf Registration, the Company shall (i) make
reasonably available for inspection by the Holders of the Securities, any
underwriter participating in any disposition pursuant to the Shelf Registration
Statement and any attorney, accountant or other agent retained by the Holders of
the Securities or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and (ii) cause the
Company's officers, directors, employees, accountants and auditors to supply all
relevant information reasonably requested by the Holders of the Securities or
any such underwriter, attorney, accountant or agent in connection with the Shelf
Registration Statement, in each case, as shall be reasonably necessary to enable
such persons, to conduct a reasonable investigation within the meaning of
Section 11 of the Securities Act; provided, however, that the foregoing
inspection and information gathering shall be coordinated on behalf of the
Initial Purchasers by you and on behalf of the other parties, by one counsel
designated by and on behalf of such other parties as described in Section 4
hereof; provided further, that any person to whom information is provided under
this Section 3(p) agrees in writing to maintain the confidentiality of such
information to the extent such information is not in the public domain.
(q) In the case of any Shelf Registration, the Company, if requested by
any Holder of Securities covered thereby, shall cause (i) its counsel to deliver
an opinion and updates thereof relating to the Securities in customary form
addressed to such Holders and the managing underwriters, if any, thereof and
dated, in the case of the initial opinion, the effective date of such Shelf
Registration Statement covering the matters customarily covered in opinions
requested in underwritten offerings in the form acceptable to the managing
underwriters (ii) its officers to execute and deliver all customary documents
and certificates and updates thereof requested by any underwriters of the
applicable Securities and (iii) its independent public accountants to provide to
the selling Holders of the applicable Securities and any underwriter therefor a
comfort letter in customary form and covering matters of the type customarily
covered in comfort letters in connection with primary underwritten offerings,
subject to receipt of appropriate documentation as contemplated, and only if
permitted, by Statement of Auditing Standards No. 72.
(r) In the case of the Registered Exchange Offer, if requested by any
Initial Purchaser or any known Participating Broker-Dealer, the Company shall
cause (i) its counsel to deliver to such Initial Purchaser or such Participating
Broker-Dealer a signed opinion in the form set forth in Section 6(c) of the
Purchase Agreement with such changes as are customary in connection with the
preparation of a Registration Statement and (ii) its independent public
accountants to deliver to such Initial Purchaser or such Participating Broker-
Dealer a comfort letter, in customary form, meeting the requirements as to the
substance thereof as set forth in Section 6(a) and 6(f) of the Purchase
Agreement, with appropriate date changes.
(s) If a Registered Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Initial Securities by Holders to the Company
(or to such other Person as directed by the Company) in exchange for the
Exchange Securities or the Private Exchange Securities, as the case may be, the
Company shall mark, or caused to be marked, on the Initial Securities so
exchanged
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that such Initial Securities are being canceled in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be; in no event
shall the Initial Securities be marked as paid or otherwise satisfied.
(t) The Company will use its best efforts to (a) if the Initial Securities
have been rated prior to the initial sale of such Initial Securities, confirm
such ratings will apply to the Securities covered by a Registration Statement,
or (b) if the Initial Securities were not previously rated, cause the Securities
covered by a Registration Statement to be rated with the appropriate rating
agencies, if so requested by Holders of a majority in aggregate principal amount
of Securities covered by such Registration Statement, or by the managing
underwriters, if any.
(u) In the event that any broker-dealer registered under the Exchange Act
shall underwrite any Securities or participate as a member of an underwriting
syndicate or selling group or "assist in the distribution" (within the meaning
of the Conduct Rules (the "Rules") of the National Association of Securities
Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company will assist such broker-dealer in complying
with the requirements of such Rules, including, without limitation, by (i) if
such Rules, including Rule 2720, shall so require, engaging a "qualified
independent underwriter" (as defined in Rule 2720) to participate in the
preparation of the Registration Statement relating to such Securities, to
exercise usual standards of due diligence in respect thereto and, if any portion
of the offering contemplated by such Registration Statement is an underwritten
offering or is made through a placement or sales agent, to recommend the yield
of such Securities, (ii) indemnifying any such qualified independent underwriter
to the extent of the indemnification of underwriters provided in Section 5
hereof and (iii) providing such information to such broker-dealer as may be
required in order for such broker-dealer to comply with the requirements of the
Rules.
(v) The Company shall use its best efforts to take all other steps
necessary to effect the registration of the Securities covered by a Registration
Statement contemplated hereby.
4. Registration Expenses. The Company shall bear all fees and expenses
incurred in connection with the performance of its obligations under Sections 1
through 3 hereof (including the reasonable fees and expenses, if any, of Vinson
& Elkins L.L.P., counsel for the Initial Purchasers, incurred in connection with
the Registered Exchange Offer), whether or not the Registered Exchange Offer or
a Shelf Registration is filed or becomes effective, and, in the event of a Shelf
Registration, shall bear or reimburse the Holders of the Securities covered
thereby for the reasonable fees and disbursements of one firm of counsel
designated by the Holders of a majority in principal amount of the Initial
Securities covered thereby to act as counsel for the Holders of the Initial
Securities in connection therewith.
5. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Holder of the Securities, any Participating Broker-Dealer and each
person, if any, who controls such Holder or such Participating Broker-Dealer
within the meaning of the Securities Act or the Exchange Act (each Holder, any
Participating Broker-Dealer and such controlling persons are referred to
collectively as the "Indemnified Parties") from and against any losses, claims,
damages or liabilities, joint or several, or any actions in respect thereof
(including, but not limited to, any losses, claims, damages, liabilities or
actions relating to purchases and sales of the Securities) to which each
Indemnified Party may become subject under the Securities Act, the Exchange Act
or otherwise,
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<PAGE>
insofar as such losses, claims, damages, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement or prospectus or in any amendment or
supplement thereto or in any preliminary prospectus relating to a Shelf
Registration, or arise out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall reimburse, as
incurred, the Indemnified Parties for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action in respect thereof; provided, however, that
(i) the Company shall not be liable in any such case to the extent that such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration in reliance
upon and in conformity with written information pertaining to such Holder and
furnished to the Company by or on behalf of such Holder specifically for
inclusion therein and (ii) with respect to any untrue statement or omission or
alleged untrue statement or omission made in any preliminary prospectus relating
to a Shelf Registration Statement, the indemnity agreement contained in this
subsection (a) shall not inure to the benefit of any Holder or Participating
Broker-Dealer from whom the person asserting any such losses, claims, damages or
liabilities purchased the Securities concerned, to the extent that a prospectus
relating to such Securities was required to be delivered by such Holder or
Participating Broker-Dealer under the Securities Act in connection with such
purchase and any such loss, claim, damage or liability of such Holder or
Participating Broker-Dealer results from the fact that there was not sent or
given to such person, at or prior to the written confirmation of the sale of
such Securities to such person, a copy of the final prospectus if the Company
had previously furnished copies thereof to such Holder or Participating Broker-
Dealer; provided further, however, that this indemnity agreement will be in
addition to any liability which the Company may otherwise have to such
Indemnified Party. The Company shall also indemnify underwriters, their officers
and directors and each person who controls such underwriters within the meaning
of the Securities Act or the Exchange Act to the same extent as provided above
with respect to the indemnification of the Holders of the Securities if
requested by such Holders.
(b) Each Holder of the Securities, severally and not jointly, will
indemnify and hold harmless the Company and its officers and directors and each
person, if any, who controls the Company within the meaning of the Securities
Act or the Exchange Act from and against any losses, claims, damages or
liabilities or any actions in respect thereof, to which the Company or any such
controlling person may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement or prospectus or in any
amendment or supplement thereto or in any preliminary prospectus relating to a
Shelf Registration, or arise out of or are based upon the omission or alleged
omission to state therein a material fact necessary to make the statements
therein not misleading, but in each case only to the extent that the untrue
statement or omission or alleged untrue statement or omission was made in
reliance upon and in conformity with written information pertaining to such
Holder and furnished to the Company by or on behalf of such Holder specifically
for inclusion therein; and, subject to the limitation set forth immediately
preceding this clause, shall reimburse, as incurred, the Company for any legal
or other expenses reasonably incurred by the Company or any such controlling
person in connection with investigating or defending any loss, claim, damage,
liability or action in respect thereof. This indemnity agreement will be in
addition to any liability which such Holder may otherwise have to the Company or
any of its controlling persons.
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(c) Promptly after receipt by an indemnified party under this Section 5 of
notice of the commencement of any action or proceeding (including a governmental
investigation), such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 5, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not, in any event, relieve the indemnifying party
from any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party), and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof the indemnifying party will not be liable to such
indemnified party under this Section 5 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any claims
that are the subject matter of such action.
(d) If the indemnification provided for in this Section 5 is unavailable
or insufficient to hold harmless an indemnified party under subsections (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to in subsection (a) or (b)
above (i) in such proportion as is appropriate to reflect the relative benefits
received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the exchange of the Securities, pursuant to
the Registered Exchange Offer, or (ii) if the allocation provided by the
foregoing clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the indemnifying party or parties on
the one hand and the indemnified party on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
such Holder or such other indemnified party, as the case may be, on the other,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid
by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding any other
provision of this Section 5(d), the Holders of the Securities shall not be
required to contribute any amount in excess of the amount by which the net
proceeds received by such Holders from the sale of the Securities pursuant to a
Registration Statement exceeds the amount of damages which such Holders have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
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fraudulent misrepresentation. For purposes of this paragraph (d), each person,
if any, who controls such indemnified party within the meaning of the Securities
Act or the Exchange Act shall have the same rights to contribution as such
indemnified party and each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act shall have the same rights to
contribution as the Company.
(e) The agreements contained in this Section 5 shall survive the sale of
the Securities pursuant to a Registration Statement and shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.
6. Additional Interest Under Certain Circumstances. (a) Additional
interest (the "Additional Interest") with respect to the Initial Securities
shall be assessed as follows if any of the following events occur (each such
event in clauses (i) through (iii) below a "Registration Default":
(i) If by April 27, 1998, neither the Exchange Offer Registration
Statement nor a Shelf Registration Statement has been filed with the Commission;
(ii) If by August 24, 1998, neither the Registered Exchange Offer is
consummated nor, if required in lieu thereof, the Shelf Registration Statement
is declared effective by the Commission; or
(iii) If after either the Exchange Offer Registration Statement or the
Shelf Registration Statement is declared effective (A) such Registration
Statement thereafter ceases to be effective; or (B) such Registration Statement
or the related prospectus ceases to be usable (except as permitted in paragraph
(b)) in connection with resales of Transfer Restricted Securities during the
periods specified herein because either (1) any event occurs as a result of
which the related prospectus forming part of such Registration Statement would
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the circumstances
under which they were made not misleading, or (2) it shall be necessary to amend
such Registration Statement or supplement the related prospectus, to comply with
the Securities Act or the Exchange Act or the respective rules thereunder.
Additional Interest shall accrue on the Initial Securities over and above the
interest set forth in the title of the Securities from and including the date on
which any such Registration Default shall occur to but excluding the date on
which all such Registration Defaults have been cured (such period shall be
referred to herein as the "Registration Default Period"), at a rate of 0.25% per
annum for the first 90 days of the Registration Default period and at a rate of
0.50% per annum thereafter for the remaining period of the Registration Default
Period.
(b) A Registration Default referred to in Section 6(a)(iii)(B) hereof
shall be deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to such Shelf Registration Statement to incorporate annual audited
financial information with respect to the Company where such post-effective
amendment is not yet effective and needs to be declared effective to permit
Holders to use the related prospectus or (y) other material events, with respect
to the Company that would need to be described in such Shelf Registration
Statement or the related prospectus and (ii) in the case of clause (y), the
Company is
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proceeding promptly and in good faith to amend or supplement such Shelf
Registration Statement and related prospectus to describe such events; provided,
however, that in any case if such Registration Default occurs for a continuous
period in excess of 30 days, Additional Interest shall be payable in accordance
with the above paragraph from the day such Registration Default occurs until
such Registration Default is cured.
(c) Any amounts of Additional Interest due pursuant to clause (i), (ii) or
(iii) of Section 6(a) above will be payable in cash on the regular interest
payment dates with respect to the Initial Securities. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the Initial Securities, multiplied by a
fraction, the numerator of which is the number of days such Additional Interest
rate was applicable during such period (determined on the basis of a 360-day
year comprised of twelve 30-day months), and the denominator of which is 360.
(d) "Transfer Restricted Securities" means each Security until (i) the
date on which such Transfer Restricted Security has been exchanged by a person
other than a broker-dealer for a freely transferable Exchange Security in the
Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the
Registered Exchange Offer of an Initial Security for an Exchange Note, the date
on which such Exchange Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Initial Security has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iv) the
date on which such Initial Security is distributed to the public pursuant to
Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) or
another substantially similar resale exemption promulgated in the future under
the Securities Act.
7. Rules 144 and 144A. The Company shall use its best efforts to file the
reports required to be filed by it under the Securities Act and the Exchange Act
in a timely manner and, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder of Initial Securities, make
publicly available other information so long as necessary to permit sales of
their securities pursuant to Rules 144 and 144A. The Company covenants that it
will take such further action as any Holder of Initial Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Initial Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A (including the
requirements of Rule 144A(d)(4)). The Company will provide a copy of this
Agreement to prospective purchasers of Initial Securities identified to the
Company by the Initial Purchasers upon request. Upon the request of any Holder
of Initial Securities, the Company shall deliver to such Holder a written
statement as to whether it has complied with such requirements. Notwithstanding
the foregoing, nothing in this Section 7 shall be deemed to require the Company
to register any of its securities pursuant to the Exchange Act.
8. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering ("Managing Underwriters") will be selected by
the Holders of a majority in aggregate principal amount of such Transfer
Restricted Securities to be included in such offering and shall be reasonably
acceptable to the Company. The Company shall pay the fees and expenses of such
investment bankers and managers only to the
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<PAGE>
extent specifically provided in Section 4. In no event shall the Company be
responsible for paying any underwriting discounts or commissions in connection
with such underwritten offering.
No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such person's Transfer Restricted Securities on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
9. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, except by the Company and the written
consent of the Holders of a majority in principal amount of the Securities
affected by such amendment, modification, supplement, waiver or consents.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders whose
securities are being tendered pursuant to the Exchange Offer and that does not
affect directly or indirectly the rights of other Holders whose securities are
not being tendered pursuant to such Exchange Offer may be given by the Holders
of a majority of the outstanding principal amount of Transfer Restricted
Securities being tendered or registered.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class mail,
facsimile transmission, or air courier which guarantees overnight delivery:
(1) if to a Holder of the Securities, at the most current address
given by such Holder to the Company.
(2) if to the Initial Purchasers;
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629
Fax No.: (212) 325-8278
Attention: Transactions Advisory Group
with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attention: Scott N. Wulfe
-15-
<PAGE>
(3) if to the Company, at its address as follows:
Tuboscope Inc.
2835 Holmes Road
Houston, Texas 77051
Attention: General Counsel
with a copy to: Latham & Watkins
650 Town Center Drive, 20th Floor
Costa Mesa, California 92626-1918
Attention: Patrick T. Seaver
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged by recipient's facsimile machine operator, if sent by facsimile
transmission; and on the day delivered, if sent by overnight air courier
guaranteeing next day delivery.
(c) No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(d) Successors and Assigns. This Agreement shall be binding upon (i) the
successors and assigns of each of the parties to this Agreement, without the
need for an express assignment, and (ii) subsequent Holders of the Securities.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
(h) Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
(i) Securities Held by the Company. Whenever the consent or approval of
Holders of a specified percentage of principal amount of Securities is required
hereunder, Securities held by the Company or its affiliates (other than
subsequent Holders of Securities if such subsequent Holders are deemed to be
affiliates solely by reason of their holdings of such Securities) shall not be
counted
-16-
<PAGE>
in determining whether such consent or approval was given by the Holders of such
required percentage.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Issuer a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the several Initial Purchasers, the Issuer and the Guarantors in accordance with
its terms.
Very truly yours,
TUBOSCOPE INC.
By:
----------------------------
Name: Joseph C. Winkler
Title: Executive Vice President, Chief Financial
Officer and Treasurer
TUBOSCOPE I/P INC.
TUBOSCOPE VETCO INTERNATIONAL, INC.
TUBO-FGS INC.
FIBER GLASS HOLDINGS, INC.
ENVIRONMENTAL PROCEDURES INC.
TUBOSCOPE PIPELINE SERVICES, INC.
TUBOSCOPE (HOLDING U.S.) INC.
By.
---------------------------------
Name: Joseph C. Winkler
Title: Vice President
The foregoing Registration
Rights Agreement is hereby confirmed
and accepted as of the date first
above written.
Credit Suisse First Boston Corporation
ABN AMRO Incorporated
Chase Securities Inc.
Salomon Brothers Inc
by: Credit Suisse First Boston Corporation
By:
_____________________________
Name: Joseph D. Fashano
Title: Director
-17-
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Securities received in exchange for
Initial Securities where such Initial Securities were acquired by such broker-
dealer as a result of market-making activities or other trading activities. The
Company has agreed that, for a period of 180 days after the Expiration Date (as
defined herein), it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
-18-
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its own account in
exchange for Securities, where such Initial Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution."
-19-
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Securities received in
exchange for Initial Securities where such Initial Securities were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 180 days after the Expiration Date, it will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until ,
199 , all dealers effecting transactions in the Exchange Securities may be
required to deliver a prospectus.(1)
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Securities. Any broker-dealer that resells Exchange Securities that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Securities and any commission or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Securities) other than commissions or concessions of any brokers
or dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
- --------------------
(1) In addition, the legend required by Item 502(e) of Regulation S-K
will appear on the back cover page of the Exchange Offer prospectus.
-20-
<PAGE>
ANNEX D
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ____________________________________________
Address: ___________________________________________
___________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Initial Securities that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
-21-
<PAGE>
EXHIBIT 5
[Tuboscope Letterhead]
April 24, 1998
Tuboscope Inc.
2835 Holmes Road
Houston, Texas 77051
Re: $100,000,000 Aggregate Principal Amount of
7 1/2% Senior Notes due 2008 of Tuboscope Inc.
----------------------------------------------
Ladies and Gentlemen:
I am Vice President, Secretary and General Counsel of Tuboscope Inc.,
a Delaware corporation (the "Company"), and have served as counsel to the
Company and the Guarantors, as defined below, in connection with the
registration of $100,000,000 aggregate principal amount of Series B 7 1/2%
Senior Notes due 2008 (the "New Notes") by the Company, together with the
guarantees of Tuboscope I/P Inc., Tuboscope Vetco International, Inc., Tuboscope
FGS Inc., Fiber Glass Holdings, Inc., Environmental Procedures Inc., Tuboscope
Pipeline Services Inc. and Tuboscope (Holding U.S.) Inc. (collectively, the
"Guarantors"), on Form S-4 filed with the Securities and Exchange Commission
(the "Commission") on April 27, 1998 (the "Registration Statement"). The New
Notes will be issued pursuant to an indenture (the "Indenture"), dated as of
February 25, 1998, among the Company, the Guarantors and The Bank of New York,
as trustee (the "Trustee"). The New Notes will be issued in exchange for the
Company's outstanding Series A 7 1/2% Senior Notes due 2008 (the "Old Notes") on
the terms set forth in the prospectus contained in the Registration Statement
and the Letter of Transmittal filed as an exhibit thereto (the "Exchange
Offer").
For purposes of this opinion, I, or other employees under my
supervision, have made such legal and factual examinations and inquiries,
including an examination of originals or copies certified or otherwise
identified to our satisfaction, of such documents, corporate records and other
instruments as I have deemed necessary or appropriate for purposes of this
opinion, except where a statement is qualified as to knowledge or awareness, in
which case I have made no
<PAGE>
or limited inquiry as stated below. I have obtained and relied upon such
certificates and assurances from public officials as I have deemed necessary.
I am opining herein as to the effect on the subject transactions only of
the internal laws of the State of New York, the internal laws of the State of
Texas and the General Corporation Law of the State of Delaware and I express no
opinion with respect to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction or, in the case of Delaware, any other laws, or
as to any matters of municipal law or the laws of any local agencies within any
state.
Subject to the foregoing and the other matters set forth herein, it is my
opinion that, as of the date hereof:
1. The New Notes, when duly executed, issued, authenticated and delivered
in accordance with the terms of the Exchange Offer and the Indenture, will be
legally valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms.
2. The Guarantees, when duly executed and delivered and when the New Notes
are duly executed, issued, authenticated and delivered in accordance with the
terms of the Exchange Offer and the Indenture, will be legally valid and
binding obligations of the Guarantors, enforceable against the Guarantors in
accordance with their terms.
The opinions rendered in paragraphs 1 and 2 above relating to the
enforceability of the New Notes and the Guarantees, respectively, will be
subject to the following exceptions, limitations and qualifications: (i) the
effect of bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights and
remedies of creditors; (ii) the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought; and
(iii) I express no opinion concerning the enforceability of the waiver of rights
or defenses contained in Section 3.08 of the Indenture.
To the extent that the obligations of the Company and the Guarantors under
the Indenture may be dependent upon such matters, I have assumed for purposes of
this opinion that (i) the Trustee is validly existing and in good standing under
the laws of its jurisdiction of organization; (ii) the Trustee has been duly
qualified to engage in the activities contemplated by the Indenture; (iii) the
Trustee is in compliance generally, and with respect to acting as Trustee under
the Indenture, with all applicable laws and regulations; and (iv) the Trustee
has the requisite organizational and other power and authority to perform its
obligations under the Indenture.
I have not been requested to express and, with your knowledge and consent,
do not render any opinion as to the applicability to the obligations of the
Guarantors under the Indenture, the New Notes or the Guarantees of Section 547
and 548 of the United States Bankruptcy Code or applicable state law (including,
without limitation, Article 10 of the New York Debtor & Creditor Law) relating
to fraudulent transfers and obligations.
<PAGE>
I hereby consent to the filing this opinion as an exhibit to the
Registration Statement and to the reference to my name under the heading "Legal
Matters" in the prospectus contained therein.
Very truly yours,
/s/ James F. Maroney, III
---------------------------------------------
James F. Maroney, III
Vice President, Secretary and General Counsel
<PAGE>
EXHIBIT 10 (cc)
$100,000,000
TUBOSCOPE INC.
7 1/2% Senior Notes due 2008
PURCHASE AGREEMENT
February 19, 1998
Credit Suisse First Boston Corporation
ABN AMRO Incorporated
Chase Securities Inc.
Salomon Brothers Inc
As Purchasers
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Tuboscope Inc. , a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the several initial purchasers named in Schedule A hereto (the "Purchasers")
$100,000,000 principal amount of its 7 1/2% Senior Notes due 2008 (the "Notes")
to be issued under an indenture (the "Indenture"), among the Company, the
Guarantors (as defined herein) and Bank of New York Trust Company of Florida, as
Trustee (the "Trustee"). The United States Securities Act of 1933 is herein
referred to as the "Securities Act."
Initially, the Notes will be guaranteed (the "Guarantees" and together with
the Notes, the "Offered Securities") on a senior unsecured basis by Tuboscope
I/P Inc., Tuboscope Vetco International, Inc., Tubo-FGS Inc., Fiber Glass
Holdings, Inc., Environmental Procedures Inc., Tuboscope Pipeline Services Inc.
and Tuboscope (Holding U.S.) Inc. (collectively, the "Guarantors" and, together
with the Company, the "Issuers").
The Issuers hereby agree with the several Purchasers as follows:
2. Representations and Warranties of the Issuers. The Issuers, jointly
and severally, represent and warrant to, and agree with, the several Purchasers
that:
(a) A preliminary offering circular and an offering circular relating
to the Offered Securities to be offered by the Purchasers have been
prepared by the Company. Such preliminary offering circular and offering
circular, as supplemented as of the date of this Agreement, together with
any other document approved by the Company for use in connection with the
contemplated resale of the Offered Securities are hereinafter collectively
referred to as the "Offering Document". On the date of this Agreement, the
Offering Document does not include any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The preceding sentence does not
<PAGE>
apply to statements in or omissions from the Offering Document based upon
written information furnished to the Company by Credit Suisse First Boston
Corporation ("CSFBC") and the other Purchasers specifically for use
therein, it being understood and agreed that the only such information is
that described as such in Section 7(b). Except as disclosed in the Offering
Document, on the date of this Agreement, the Company's Annual Report on
Form 10-K most recently filed with the Securities and Exchange Commission
(the "Commission") and all subsequent reports (collectively, the "Exchange
Act Reports") which have been filed by the Company with the Commission or
sent to stockholders pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act") do not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. Such documents, when they were filed with the Commission,
conformed in all material respects to the requirements of the Exchange Act
and the rules and regulations of the Commission thereunder.
(b) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and conduct its
business as described in the Offering Document; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure so to qualify would not have a material adverse effect on the
financial condition of the Company and its subsidiaries taken as a whole.
(c) Each Guarantor and each Significant Subsidiary (as defined in
Regulation S-X under the Securities Act) of the Company has been duly
incorporated and is an existing corporation in good standing under the laws
of the jurisdiction of its incorporation, with corporate power and
authority to own its properties and conduct its business as described in
the Offering Document; and each Guarantor and each Significant Subsidiary
of the Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification, except
where the failure to so qualify would not have a material adverse effect on
the financial condition of the Company and its subsidiaries taken as a
whole; all of the issued and outstanding capital stock of each Guarantor
and each Significant Subsidiary of the Company has been duly authorized and
validly issued and is fully paid and nonassessable; and the capital stock
of each Guarantor and each Significant Subsidiary owned by the Company,
directly or through subsidiaries, is owned free from liens, encumbrances
and defects.
(d) (1) The Indenture has been duly authorized by each of the
Issuers; (2) the Notes and the Guarantees have been duly authorized by the
Company and each of the Guarantors, respectively; and (3) when the Notes
and the Guarantees are delivered and paid for pursuant to this Agreement on
the Closing Date (as defined below), (i) the Indenture will have been duly
executed and delivered by each of the Issuers, (ii) the Notes and the
Guarantees will have been duly executed, authenticated, issued and
delivered by the Company and each of the Guarantors, respectively, and will
conform to the description thereof contained in the Offering Document,
(iii) the Indenture and the Notes will constitute valid and legally binding
obligations of the Company enforceable against the Company in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles
and (iv) the Indenture and the Guarantees will constitute valid and binding
obligations of each of the Guarantors enforceable against each Guarantor in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer,
-2-
<PAGE>
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(e) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company.
(f) The execution, delivery and performance of the Indenture and this
Agreement by the Issuers, and the issuance and sale of the Offered
Securities by the Issuers and compliance with the terms and provisions
thereof will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, rule, regulation
or order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Company or any subsidiary of the
Company or any of their properties, or any agreement or instrument to which
the Company or any such subsidiary is a party or by which the Company or
any such subsidiary is bound or to which any of the properties of the
Company or any such subsidiary is subject, or the charter or by-laws of the
Company or any such subsidiary, and the Issuers have full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement.
(g) This Agreement has been duly authorized, executed and delivered
by the Company and each of the Guarantors.
(h) Except as disclosed in the Offering Document, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Offering Document or the Exchange Act Documents,
the Company and its subsidiaries hold any leased real or personal property
under valid and enforceable leases with no exceptions that would materially
interfere with the use made or to be made thereof by them.
(i) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or
bodies necessary to conduct the business now operated by them and have not
received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
Company and its subsidiaries taken as a whole.
(j) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a material adverse effect on the Company and its subsidiaries
taken as a whole.
(k) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them, and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the Company and its subsidiaries taken as a whole.
-3-
<PAGE>
(l) Except as disclosed in the Offering Document or the Exchange Act
Documents, neither the Company nor any of its subsidiaries is in violation
of any statute, rule, regulation, decision or order of any governmental
agency or body or any court, domestic or foreign, relating to the use,
disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "environmental laws"), owns or operates
any real property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any claim relating to
any environmental laws, which violation, contamination, liability or claim
would individually or in the aggregate have a material adverse effect on
the Company and its subsidiaries taken as a whole; and the Company is not
aware of any pending investigation which might lead to such a claim.
(m) Except as disclosed in the Offering Document or the Exchange Act
Documents, there are no pending actions, suits or proceedings against or
affecting the Company, any of its subsidiaries or any of their respective
properties that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the condition (financial or other), business, properties
or results of operations of the Company and its subsidiaries taken as a
whole, or would materially and adversely affect the ability of the Company
to perform its obligations under the Indenture or this Agreement, or which
are otherwise material in the context of the sale of the Offered
Securities; and no such actions, suits or proceedings are threatened or, to
the Company's knowledge, contemplated.
(n) The financial statements included in the Offering Document and
the Exchange Act Documents present fairly the financial position of the
Company and its consolidated subsidiaries as of the dates shown and their
results of operations and cash flows for the periods shown, and such
financial statements have been prepared in conformity with the generally
accepted accounting principles in the United States applied on a consistent
basis.
(o) Except as disclosed in the Offering Document, since the date of
the latest audited financial statements incorporated by reference in the
Offering Document there has been no material adverse change, nor any
development or event involving a prospective material adverse change, in
the condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole there has
been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(p) None of the Issuers is an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the United States Investment Company
Act of 1940 (the "Investment Company Act); and none of the Issuers is nor,
after giving effect to the offering and sale of the Offered Securities and
the application of the proceeds thereof as described in the Offering
Document, will be an "investment company" as defined in the Investment
Company Act.
(q) No securities of the same class (within the meaning of Rule
144A(d)(3) under the Securities Act) as the Offered Securities are listed
on any national securities exchange registered under Section 6 of the
Exchange Act or quoted in a U.S. automated inter-dealer quotation system.
(r) The offer and sale of the Offered Securities in the manner
contemplated by this Agreement and the Offering Document will be exempt
from the registration requirements of the Securities Act by reason of
Section 4(2) thereof and Regulation S thereunder and it is not necessary
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to qualify an indenture in respect of the Offered Securities under the
United States Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act").
(s) Neither the Company, nor any of its affiliates, nor any person
acting on its or their behalf (i) has, within the six-month period prior to
the date hereof, offered or sold in the United States or to any U.S. person
(as such terms are defined in Regulation S under the Securities Act) the
Offered Securities or any security of the same class or series as the
Offered Securities or (ii) has offered or will offer or sell the Offered
Securities (A) in the United States by means of any form of general
solicitation or general advertising within the meaning of Rule 502(c) under
the Securities Act or (B) with respect to any such securities sold in
reliance on Rule 903 of Regulation S ("Regulation S") under the Securities
Act, by means of any directed selling efforts within the meaning of Rule
902(b) of Regulation S. The Company, its affiliates and any person acting
on its or their behalf have complied and will comply with the offering
restrictions requirement of Regulation S. The Company has not entered and
will not enter into any contractual arrangement with respect to the
distribution of the Offered Securities except for this Agreement.
(t) The Company is subject to Section 13 or 15(d) of the Exchange
Act.
(u) There is no "substantial U.S. market interest" as defined in Rule
902(n) of Regulation S in the Company's debt securities.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Issuers agree to sell to the
Purchasers, and the Purchasers agree, severally and not jointly, to purchase
from the Issuers, at a purchase price of 98.2% of the principal amount thereof,
the respective principal amounts of Notes (together with Guarantees) set forth
opposite the names of the several Purchasers in Schedule A hereto.
The Issuers will deliver, against payment of the purchase price the Offered
Securities to be offered and sold by the Purchasers in reliance on Regulation S
(the "Regulation S Securities") and Rule 144A (the "144A Securities") under the
Securities Act in the form of one or more permanent global securities in
registered form without interest coupons (the "Global Securities") which will be
deposited with the Trustee as custodian for The Depository Trust Company ("DTC")
and registered in the name of Cede & Co., as nominee for DTC. The Offered
Securities to be offered and sold by the Purchasers in reliance on Regulation S
will be held by the Trustee as custodian for DTC for the respective accounts of
the DTC participants for Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System ("Euroclear"), and Cedel Bank
societe anonyme ("Cedel"). The Global Securities shall include the legend
regarding restrictions on transfer set forth under "Transfer Restrictions" in
the Offering Document. Until the termination of the restricted period (as
defined in Regulation S) with respect to the offering of the Offered Securities,
interests in the Regulation S Securities may only be held by the DTC
participants for Euroclear and Cedel. Interests in any permanent global
securities will be held only in book-entry form through Euroclear, Cedel or DTC,
as the case may be, except in the limited circumstances described in the
Offering Document.
Payment for the Regulation S Securities and the 144A Securities shall be
made by the Purchasers in Federal (same day) funds by official check or checks
or wire transfer to an account at a bank acceptable to CSFBC drawn to the order
of the Company at the office of Vinson & Elkins L.L.P. at 9:00 A.M., (New York
time), on February 25, 1998 , or at such other time not later than seven full
business days thereafter as CSFBC and the Company determine, such time being
herein referred to as the "Closing Date", against delivery to the Trustee as
custodian for DTC of the Global Securities representing all of the Regulation S
Securities for the respective accounts of the DTC participants for Euroclear and
Cedel and all of the 144A
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Securities. The Global Securities will be made available for checking at the
above office of Vinson & Elkins L.L.P. at least 24 hours prior to the Closing
Date.
4. Representations by Purchasers; Resale by Purchasers. (a) Each
Purchaser severally represents and warrants to the Issuers that it is an
"accredited investor" within the meaning of Regulation D under the Securities
Act.
(b) Each Purchaser severally acknowledges that the Offered Securities
have not been registered under the Securities Act and may not be offered or
sold within the United States or to, or for the account or benefit of, U.S.
persons except pursuant to an exemption from the registration requirements
of the Securities Act. Each Purchaser severally represents and agrees that
it has offered and sold the Offered Securities, and will offer and sell the
Offered Securities (i) as part of its distribution at any time, only in
accordance with Rule 903 or Rule 144A under the Securities Act ("Rule
144A"). Accordingly, neither such Purchaser nor its affiliates, nor any
persons acting on its or their behalf, have engaged or will engage in any
directed selling efforts with respect to the Offered Securities, and such
Purchaser, its affiliates and all persons acting on its or their behalf
have complied and will comply with the offering restrictions requirement of
Regulation S.
Terms used in this subsection (b) have the meanings given to them by
Regulation S.
(c) Each Purchaser severally agrees that it and each of its
affiliates has not entered and will not enter into any contractual
arrangement with respect to the distribution of the Offered Securities
except for any such arrangements with the other Purchasers or affiliates of
the other Purchasers or with the prior written consent of the Company.
(d) Each Purchaser severally agrees that it and each of its
affiliates will not offer or sell the Offered Securities in the United
States by means of any form of general solicitation or general advertising
within the meaning of Rule 502(c) under the Securities Act, including, but
not limited to (i) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or (ii) any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising. Each Purchaser severally agrees, with respect to resales made
in reliance on Rule 144A of any of the Offered Securities, to deliver
either with the confirmation of such resale or otherwise prior to
settlement of such resale a notice to the effect that the resale of such
Offered Securities has been made in reliance upon the exemption from the
registration requirements of the Securities Act provided by Rule 144A.
(e) Each of the Purchasers severally represents and agrees that (i)
it has not offered or sold and prior to the date six months after the date
of issue of the Offered Securities will not offer or sell any Offered
Securities to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995; (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
Offered Securities in, from or otherwise involving the United Kingdom; and
(iii) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of
the Offered Securities to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
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<PAGE>
5. Certain Agreements of the Company. The Issuers agree with the several
Purchasers that:
(a) The Company will advise CSFBC promptly of any proposal to amend
or supplement the Offering Document and will not effect such amendment or
supplementation without CSFBC's consent, which consent will not be
unreasonably witheld. If, at any time prior to the completion of the
resale of the Offered Securities by the Purchasers, any event occurs as a
result of which the Offering Document as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, the
Company promptly will notify CSFBC of such event and promptly will prepare,
at its own expense, an amendment or supplement which will correct such
statement or omission. Neither CSFBC's consent to, nor the Purchasers'
delivery to offerees or investors of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section 6.
(b) The Company will furnish to CSFBC copies of any preliminary
offering circular, the Offering Document and all amendments and supplements
to such documents, in each case as soon as available and in such quantities
as CSFBC requests, and the Company will furnish to CSFBC on the date hereof
three copies of the Offering Document signed by duly authorized officers of
the Company and each of the Guarantors, one of which will include the
independent accountants' reports therein manually signed by such
independent accountants. At any time when the Company is not subject to
Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish
or cause to be furnished to CSFBC (and, upon request, to each of the other
Purchasers) and, upon request of holders and prospective purchasers of the
Offered Securities, to such holders and purchasers, copies of the
information required to be delivered to holders and prospective purchasers
of the Offered Securities pursuant to Rule 144A(d)(4) under the Securities
Act (or any successor provision thereto) in order to permit compliance with
Rule 144A in connection with resales by such holders of the Offered
Securities. The Company will pay the expenses of printing and distributing
to the Purchasers all such documents.
(c) The Issuers will arrange for the qualification of the Offered
Securities for sale and the determination of their eligibility for
investment under the laws of such jurisdictions in the United States and
Canada as CSFBC designates and will continue such qualifications in effect
so long as required for the resale of the Offered Securities by the
Purchasers, provided that the Issuers will not be required to qualify as a
foreign corporation or to file a general consent to service of process in
any such state.
(d) During the period of ten years hereafter or such shorter period
as the Notes are outstanding, the Company will furnish to CSFBC and, upon
request, to each of the other Purchasers, as soon as practicable after the
end of each fiscal year, a copy of its annual report to stockholders for
such year; and the Company will furnish to CSFBC and, upon request, to each
of the other Purchasers (i) as soon as available, a copy of each report and
any definitive proxy statement of the Company filed with the Commission
under the Exchange Act or mailed to stockholders, and (ii) from time to
time, such other information concerning the Issuers as CSFBC may reasonably
request.
(e) During the period of two years after the Closing Date the Company
will, upon request, furnish to CSFBC, each of the other Purchasers and any
holder of Offered Securities a copy of the restrictions on transfer
applicable to the Offered Securities.
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<PAGE>
(f) During the period of two years after the Closing Date the Issuers
will not, and will not permit any of their affiliates (as defined in Rule
144 under the Securities Act) to, resell any of the Offered Securities that
have been reacquired by any of them.
(g) During the period of two years after the Closing Date, none of
the Issuers will be or become, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the Investment Company Act.
(h) The Company will pay all expenses incidental to the performance
of its obligations under this Agreement and the Indenture, including (i)
the fees and expenses of the Trustee and its professional advisers; (ii)
all expenses in connection with the execution, issue, authentication,
packaging and initial delivery of the Offered Securities, the preparation
and printing of this Agreement, the Offered Securities, the Indenture, the
Offering Document and amendments and supplements thereto, and any other
document relating to the issuance, offer, sale and delivery of the Offered
Securities; (iii) the cost of qualifying the Offered Securities for trading
in The Portal/SM/ Market ("PORTAL") and any expenses incidental thereto;
(iv) the cost of any advertising approved by the Company in connection with
the issue of the Offered Securities; (v) any expenses (including fees and
disbursements of counsel) incurred in connection with qualification of the
Offered Securities for sale under the laws of such jurisdictions in the
United States and Canada as CSFBC designates and the printing of memoranda
relating thereto; (vi) any fees charged by investment rating agencies for
the rating of the Securities; (vii) expenses incurred in distributing
preliminary offering circulars and the Offering Document (including any
amendments and supplements thereto) to the Purchasers; and (viii) all fees
and expenses of its counsel. The Company will also pay or reimburse the
Purchasers (to the extent incurred by them) for all travel expenses of the
Company's officers and employees and any other expenses of the Company in
connection with attending or hosting meetings with prospective purchasers
of the Offered Securities from the Purchasers. Such amount may be deducted
from the purchase price for the Offered Securities set forth in Section 3
hereof.
(i) In connection with the offering, until CSFBC shall have notified
the Company and the other Purchasers of the completion of the resale of the
Offered Securities, neither the Issuers nor any of their affiliates has or
will, either alone or with one or more other persons, bid for or purchase
for any account in which it or any of its affiliates has a beneficial
interest any Offered Securities or attempt to induce any person to purchase
any Offered Securities; and neither it nor any of its affiliates will make
bids or purchases for the purpose of creating actual, or apparent, active
trading in, or of raising the price of, the Offered Securities.
(j) For a period of 60 days after the date of the initial offering of
the Offered Securities by the Purchasers, neither the Issuers nor any of
their affiliates will offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any United States dollar-denominated
debt securities issued or guaranteed by any of the Issuers and having a
maturity of more than one year from the date of issue. Neither the Issuers
nor any of their affiliates will at any time offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any securities
under circumstances where such offer, sale, pledge, contract or disposition
would cause the exemption afforded by Section 4(2) of the Securities Act or
the safe harbor of Regulation S thereunder to cease to be applicable to the
offer and sale of the Offered Securities.
6. Conditions of the Obligations of the Purchasers. The obligations of
the several Purchasers to purchase and pay for the Offered Securities will be
subject to the accuracy of the representations and warranties on the part of the
Issuers herein, to the accuracy of the statements of officers of the Issuers
made
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<PAGE>
pursuant to the provisions hereof, to the performance by the Issuers of
their obligations hereunder and to the following additional conditions
precedent:
(a) The Purchasers shall have received a letter, dated the date of
this Agreement, of Ernst & Young L.L.P. confirming that they are
independent public accountants within the meaning of the Securities Act and
the applicable published rules and regulations thereunder ("Rules and
Regulations") and to the effect that:
(i) in their opinion the financial statements examined by them and
included in the Offering Document and in the Exchange Act Reports comply as to
form in all material respects with the applicable accounting requirements of the
Securities Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim financial
information as described in Statement of Auditing Standards No. 71, Interim
Financial Information, on the unaudited financial statements included in the
Offering Document and in the Exchange Act Reports;
(iii) on the basis of the review referred to in clause (ii) above, a
reading of the latest available interim financial statements of the Company,
inquiries of officials of the Company who have responsibility for financial and
accounting matters and other specified procedures, nothing came to their
attention that caused them to believe that:
(A) the unaudited financial statements included in the Offering
Document or in the Exchange Act Reports do not comply as to form in all material
respects with the applicable accounting requirements of the Securities Act and
the related published Rules and Regulations or any material modifications should
be made to such unaudited financial statements for them to be in conformity with
generally accepted accounting principles;
(B) at the date of the latest available balance sheet read by such
accountants, or at a subsequent specified date not more than three business days
prior to the date of this Agreement, there was any change in the capital stock
or any increase in short-term indebtedness or long-term debt of the Company and
its consolidated subsidiaries or, at the date of the latest available balance
sheet read by such accountants, there was any decrease in consolidated net
current assets or net assets, as compared with amounts shown on the latest
balance sheet included in the Offering Document; or
(C) for the period from the closing date of the latest income
statement included in the Offering Document to the closing date of the latest
available income statement read by such accountants there were any decreases, as
compared with the corresponding period of the previous year and with the period
of corresponding length ended the date of the latest income statement included
in the Offering Document, in consolidated net sales, net operating income,
consolidated income before extraordinary items or net income or in the ratio of
earnings to fixed charges;
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Offering Document discloses have
occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information contained in
the Offering Document and the Exchange Act Reports (in each case to the extent
that such dollar amounts, percentages and other financial information are
derived from the general accounting records of the Company and its subsidiaries
subject to the internal
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<PAGE>
controls of the Company's accounting system or are derived directly from such
records by analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures specified in
such letter and have found such dollar amounts, percentages and other financial
information to be in agreement with such results, except as otherwise specified
in such letter.
(b) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) a change in U.S. or international financial,
political or economic conditions or currency exchange rates or exchange
controls as would, in the judgment of CSFBC, be likely to prejudice
materially the success of the proposed issue, sale or distribution of the
Offered Securities, whether in the primary market or in respect of dealings
in the secondary market, or (ii) (A) any change, or any development or
event involving a prospective change, in the condition (financial or
other), business, properties or results of operations of the Company or its
subsidiaries which, in the judgment of a majority in interest of the
Purchasers including CSFBC, is material and adverse and makes it
impractical or inadvisable to proceed with completion of the offering or
the sale of and payment for the Offered Securities; (B) any downgrading in
the rating of any debt securities of the Company by any "nationally
recognized statistical rating organization" (as defined for purposes of
Rule 436(g) under the Securities Act), or any public announcement that any
such organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (C) any suspension or limitation of trading
in securities generally on the New York Stock Exchange, or any setting of
minimum prices for trading on such exchange, or any suspension of trading
of any securities of the Company on any exchange or in the over-the-counter
market; (D) any banking moratorium declared by U.S. Federal or New York
authorities; or (E) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency if,
in the judgment of a majority in interest of the Purchasers including
CSFBC, the effect of any such outbreak, escalation, declaration, calamity
or emergency makes it impractical or inadvisable to proceed with completion
of the offering or sale of and payment for the Offered Securities.
(c) The Purchasers shall have received an opinion, dated the Closing
Date, of Latham and Watkins, counsel for the Company and James F. Maroney,
III, Executive Vice President, Chief Financial Officer and General Counsel
to the Company, substantially to the effect that:
(i) Each of the Company and the Guarantors has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its organization, with corporate power and authority to own its
properties and conduct its business as described in the Offering Document; and
each of the Company and the Guarantors is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires such
qualification;
(ii) The Indenture has been duly authorized, executed and delivered by
each of the Issuers; the Notes and the Guarantees have been duly authorized,
executed, authenticated, issued and delivered by the Company and each of the
Guarantors, respectively, and conform to the description thereof contained in
the Offering Document; the Indenture and the Notes constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; and the Indenture and the
Guarantees constitute valid and legally binding obligations of each of the
Guarantors, enforceable in accordance with their terms,
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<PAGE>
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(iii) None of the Issuers are and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds thereof
as described in the Offering Document, will be an "investment company" as
defined in the Investment Company Act.
(iv) No consent, approval, authorization or order of, or filing with,
any governmental agency or body or any court is required for the consummation of
the transactions contemplated by this Agreement in connection with the issuance
or sale of the Offered Securities by the Issuers, except such as may be required
under state securities laws;
(v) The execution, delivery and performance of the Indenture and
this Agreement, and the issuance and sale of the Offered Securities and
compliance with the terms and provisions thereof will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any statute, any rule, regulation or order of any governmental agency or body or
any court having jurisdiction over the Company or any subsidiary of the Company
or any of their properties, or any agreement or instrument to which the Company
or any such subsidiary is a party or by which the Company or any such subsidiary
is bound or to which any of the properties of the Company or any such subsidiary
is subject, or the charter or by-laws of the Company or any such subsidiary, and
each of the Issuers has full power and authority to authorize, issue and sell
the Offered Securities as contemplated by this Agreement;
(vi) Such counsel has no reason to believe that the Offering Document,
or any amendment or supplement thereto, or any Exchange Act Report as of the
date thereof and as of the Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; the
descriptions in the Offering Document and the Exchange Act Reports of statutes,
legal and governmental proceedings and contracts and other documents are
accurate and fairly present the information required to be shown; it being
understood that such counsel need express no opinion as to the financial
statements or other financial data contained in the Offering Document and the
Exchange Act Reports;
(vii) This Agreement has been duly authorized, executed and delivered
by each of the Issuers; and
(viii) It is not necessary in connection with (i) the offer, sale and
delivery of the Offered Securities by the Issuers to the several Purchasers
pursuant to this Agreement or (ii) the resales of the Offered Securities by the
several Purchasers in the manner contemplated by this Agreement, to register the
Offered Securities under the Securities Act or to qualify an indenture in
respect thereof under the Trust Indenture Act.
(d) The Purchasers shall have received from Vinson & Elkins L.L.P.,
counsel for the Purchasers, such opinion or opinions, dated the Closing
Date, with respect to the incorporation of the Issuers, the validity of the
Offered Securities, the Offering Document, the exemption from registration
for the offer and sale of the Offered Securities by the Company to the
several Purchasers and the resales by the several Purchasers as
contemplated hereby and other related matters as CSFBC may require, and the
Company shall have furnished to such counsel such documents as they request
for the purpose of enabling them to pass upon such matters.
(e) The Purchasers shall have received a certificate, dated the
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such
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<PAGE>
officers, to the best of their knowledge after reasonable investigation,
shall state that the representations and warranties of the Issuers in this
Agreement are true and correct, that the Issuers have complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date, and that, subsequent
to the date of the most recent financial statements in the Offering
Document there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Offering Document or as described in such certificate.
(f) The Purchasers shall have received a letter, dated the Closing
Date, of Ernst & Young L.L.P., which meets the requirements of subsection (a) of
this Section, except that the specified date referred to in such subsection will
be a date not more than three business days prior to the Closing Date for the
purposes of this subsection.
The Company will furnish the Purchasers with such conformed copies of such
opinions, certificates, letters and documents as the Purchasers reasonably
request. CSFBC may in its sole discretion waive on behalf of the Purchasers
compliance with any conditions to the obligations of the Purchasers hereunder.
7. Indemnification and Contribution. (a) Each of the Issuers, jointly
and severally, will indemnify and hold harmless each Purchaser against any
losses, claims, damages or liabilities, joint or several, to which such
Purchaser may become subject, under the Securities Act or the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Offering Document, or any
amendment or supplement thereto, or any related preliminary offering circular or
the Exchange Act Reports, or arise out of or are based upon the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and will reimburse each Purchaser for any legal or other
expenses reasonably incurred by such Purchaser in connection with investigating
or defending any such loss, claim, damage, liability or action as such expenses
are incurred; provided, however, that the Issuers will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company by any Purchaser
through CSFBC specifically for use therein, it being understood and agreed that
the only such information consists of the information described as such in
subsection (b) below.
(b) Each Purchaser will severally and not jointly indemnify and hold
harmless the Issuers against any losses, claims, damages or liabilities to which
the Issuers may become subject, under the Securities Act or the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Offering Document, or any
amendment or supplement thereto, or any related preliminary offering circular,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Purchaser through CSFBC specifically for use therein, and will reimburse any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Purchaser consists of the following information in
the Offering Document furnished on behalf of each
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<PAGE>
Purchaser: the last paragraph at the bottom of the cover page concerning the
terms of the offering by the Purchasers, the legend concerning over-allotments
and stabilizing on the inside front cover page, the table of Initial Purchasers
under the caption "Plan of Distribution" and the penultimate paragraph under the
section captioned "Plan of Distribution."
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
the indemnified party from any liability which it may have to any indemnified
party otherwise than under subsection (a) or (b) above. In case any such action
is brought against any indemnified party and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any claims
that are the subject matter of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Issuers on the one hand and the Purchasers on the other from the offering of
the Offered Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Issuers on the one hand and the Purchasers on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Issuers on the one hand
and the Purchasers on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Issuers bear to the total discounts and commissions received by the
Purchasers from the Issuers under this Agreement. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuers or the Purchasers
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The amount
paid by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Purchaser shall be required to contribute
any amount in excess of the amount by which the total price at which the Offered
Securities purchased by it were resold exceeds the amount of any damages which
such Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. The Purchasers'
obligations in this subsection (d) to contribute are several in proportion to
their respective purchase obligations and not joint.
-13-
<PAGE>
(e) The obligations of the Issuers under this Section shall be in
addition to any liability which the Issuers may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Purchaser within the meaning of the Securities Act or the Exchange Act; and the
obligations of the Purchasers under this Section shall be in addition to any
liability which the respective Purchasers may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the
Issuers within the meaning of the Securities Act or the Exchange Act.
8. Default of Purchasers. If any Purchaser or Purchasers default in their
obligations to purchase Offered Securities hereunder and the aggregate principal
amount of Offered Securities that such defaulting Purchaser or Purchasers agreed
but failed to purchase does not exceed 10% of the total principal amount of
Offered Securities, CSFBC may make arrangements satisfactory to the Company for
the purchase of such Offered Securities by other persons, including any of the
Purchasers, but if no such arrangements are made by the Closing Date, the non-
defaulting Purchasers shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Offered Securities that such
defaulting Purchasers agreed but failed to purchase. If any Purchaser or
Purchasers so default and the aggregate principal amount of Securities with
respect to which such default or defaults occur exceeds 10% of the total
principal amount of Offered Securities and arrangements satisfactory to CSFBC
and the Company for the purchase of such Offered Securities by other persons are
not made within 36 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Purchaser or the Company,
except as provided in Section 9. As used in this Agreement, the term
"Purchaser" includes any person substituted for a Purchaser under this Section.
Nothing herein will relieve a defaulting Purchaser from liability for its
default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Issuers or their officers and of the several Purchasers set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Purchaser, the Issuers or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated
pursuant to Section 8 or if for any reason the purchase of the Offered
Securities by the Purchasers is not consummated, the Company shall remain
responsible for the expenses to be paid or reimbursed by it pursuant to Section
5 and the respective obligations of the Issuers and the Purchasers pursuant to
Section 7 shall remain in effect. If the purchase of the Offered Securities by
the Purchasers is not consummated for any reason other than solely because of
the termination of this Agreement pursuant to Section 8 or the occurrence of any
event specified in clause (C), (D) or (E) of Section 6(b)(ii), the Company will
reimburse the Purchasers for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Purchasers will be mailed, delivered or telegraphed and confirmed to the
Purchasers, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue,
New York, N.Y. 10010-3629, Attention: Investment Banking Department -
Transactions Advisory Group, or, if sent to the Issuers, will be mailed,
delivered or telegraphed and confirmed to it at Tuboscope Inc., 2835 Holmes
Road, Houston Texas, Attention: James F. Maroney, III; provided, however, that
any notice to a Purchaser pursuant to Section 7 will be mailed, delivered or
telegraphed and confirmed to such Purchaser.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
controlling persons referred to in Section 7, and no other person will have any
right or obligation hereunder, except that holders of Offered Securities shall
be entitled to enforce the agreements for their benefit contained in the second
and third sentences of Section 5(b) hereof against the Company as if such
holders were parties thereto.
-14-
<PAGE>
12. Representation of Purchasers. CSFBC will act for the several
Purchasers in connection with this purchase, and any action under this Agreement
taken by CSFBC will be binding upon all the Purchasers.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to principles
of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
-15-
<PAGE>
If the foregoing is in accordance with the Purchasers' understanding of our
agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement between the Company and the several
Purchasers in accordance with its terms.
Very truly yours,
TUBOSCOPE INC.
TUBOSCOPE I/P INC.
TUBOSCOPE VETCO INTERNATIONAL, INC.
TUBO-FGS INC.
FIBER GLASS HOLDINGS, INC.
ENVIRONMENTAL PROCEDURES INC.
TUBOSCOPE PIPELINE SERVICES INC.
TUBOSCOPE (HOLDING U.S.) INC.
By.
----------------------------------
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
Credit Suisse First Boston Corporation
ABN AMRO Incorporated
Chase Securities Inc.
Salomon Brothers Inc
As the Purchasers
By: Credit Suisse First Boston Corporation
By
----------------------------------------
-16-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
OFFERED SECURITIES
MANAGER FIRM SECURITIES
- ---------------------------------------------------------------
<S> <C>
Credit Suisse First Boston Corporation...... $ 25,000,000
ABN AMRO Incorporated 25,000,000
Chase Securities Inc. 25,000,000
Salomon Brothers Inc 25,000,000
------------
Total.................................. $100,000,000
============
</TABLE>
-17-
<PAGE>
EXHIBIT 12.1
TUBOSCOPE INC.
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT FOR RATIO)
<TABLE>
<CAPTION>
Fiscal Years Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS:
Income (loss) before income taxes and extraordinary loss $84,949 $(34,988) $15,205 $14,289 $(10,807)
Interest expense 14,456 13,414 12,328 12,190 10,595
Net amortization of debt costs 265 814 540 711 838
------- -------- ------- ------- --------
EARNINGS 99,670 (20,760) 28,073 27,190 626
FIXED CHARGES:
Interest expense 14,456 13,414 12,328 12,190 10,595
Net amortization of debt costs 265 814 540 711 838
------- -------- ------- ------- --------
TOTAL FIXED CHARGES 14,721 14,228 12,868 12,901 11,433
Preferred Dividends (gross up for tax effect) - - 1,077 1,077 1,077
------- -------- ------- ------- --------
TOTAL FIXED CHARGES AND PREFERRED DIVIDENDS 14,721 14,228 13,945 13,978 12,510
Ratio of earnings to fixed charges 6.8 - * 2.2 2.1 - *
------- -------- ------- ------- --------
Ratio of earnings to fixed charges and preferred dividends 6.8 - * 2.0 1.9 - *
------- -------- ------- ------- --------
</TABLE>
*Income before income taxes and extraordinary loss were insufficient to cover
fixed charges by $35.0 million in 1996 and $10.8 million in 1993.
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 4, 1998 (except Note 13, as to which the
date is February 25, 1998) in the Registration Statement (Form S-4) and the
related Prospectus of Tuboscope Inc. for the registration of $100,000,000 of 7
1/2% Senior Notes due 2008.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8) pertaining to (i) the 1996 Equity Participation Plan
(No. 333-05233) (ii) the D.O.S. Ltd. 1993 Stock Option Plan (No. 333-05237)
and (iii) the Tuboscope Vetco International Inc. 401(k) Thrift Savings Plan
(No. 333-43385) of Tuboscope Inc. of our report dated February 4, 1998 (except
Note 13, as to which the date is February 25, 1998), with respect to the
consolidated financial statements and schedules of Tuboscope, Inc. included in
the Registration Statement (Form S-4) and the related Prospectus of Tuboscope
Inc. for the registration of $100,000,000 of 7 1/2% Senior Notes due 2008.
Ernst & Young LLP
Houston, Texas
April 24, 1998
<PAGE>
EXHIBIT 25(a)
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
______________________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [_]
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 13-5160382
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
banks)
48 WALL STREET 10286
NEW YORK, NEW YORK (Zip code)
(Address of principal executive offices)
THE BANK OF NEW YORK
10161 Centurion Parkway
Towermarc Plaza, 3rd Floor
Jacksonville, Florida 32256
(904) 645-1961
Attn: Ms. Julianne Kovatz
(Name, address and telephone number of agent for service)
______________________________
TUBOSCOPE INC.
(Exact name of obligor as specified in its charter)
DELAWARE 76-0252850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2835 HOLMES ROAD
HOUSTON, TEXAS 77051
(Address of principal executive offices) (Zip code)
___________________________
$100,000,000 7 1/2% SENIOR NOTES DUE 2008
(Title of the indenture securities)
______________________________________________________________________________
<PAGE>
1. GENERAL INFORMATION. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Superintendent of Banks of the State of New York
2 Rector Street
New York, New York 10006, and Albany, New York 12203
Federal Reserve Bank of New York
33 Liberty Plaza
New York, New York 10045
Federal Deposit Insurance Corporation
Washington, D.C. 20429
New York Clearing House Association
New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
The Bank of New York is authorized to exercise corporate trust
powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the Trustee,
describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. thru 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the
Commission's Rules of Practice.
1. A copy of the Organization Certificate of the Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment 1 to Form T-1 filed
with Registration Statement No. 33-6215; Exhibits 1a and 1b to Form T-1
filed with Registration Statement No. 33-21672; and Exhibit 1 to Form
T-1 filed with Registration Statement No. 33-29637).
2. A copy of the existing by-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019).
<PAGE>
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A attached hereto)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
(included as Exhibit B attached hereto)
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, THE BANK OF NEW YORK, a corporation organized and existing under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Jacksonville, and State of Florida, on the 23rd day of April, 1998.
THE BANK OF NEW YORK
By: /s/ Julianne Kovatz
-------------------
Julianne Kovatz, Agent
3
<PAGE>
EXHIBIT A
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, in connection with the proposed issuance of debt securities by
Tuboscope Inc., The Bank of New York, as the Trustee herein named, hereby
consents that reports of examinations of said trustee by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
THE BANK OF NEW YORK
By: /s/ Julianne Kovatz
-------------------
Julianne Kovatz, Agent
4
<PAGE>
EXHIBIT B
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, New York 10286
And Foreign and Domestic Subsidiaries, a member of the Federal Reserve
System, at the close of business December 31, 1997, published in accordance with
a call made by the Federal Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
DOLLAR
AMOUNTS
in Thousands
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency
and coin......................................................................... $ 5,742,986
Interest-bearing balances....................................................... 1,342,769
Securities:
Held-to-maturity securities..................................................... 1,099,736
Available for sale securities................................................... 3,882,686
Federal funds sold and Securities purchased under agreements to resell........... 2,568,530
Loans and lease financing receivables:
Loans and leases, net of unearned income......................................... 35,019,608
LESS: Allowance for loan and lease losses........................................ 627,350
LESS: Allocated transfer risk reserve............................................ 0
Loans and leases, net of unearned income,
allowance and reserve........................................................... 34,392,258
Assets held in trading accounts.................................................. 2,521,451
Premises and fixed assets (including
capitalized leases)............................................................. 659,209
Other real estate owned.......................................................... 11,992
Investments in unconsolidated subsidiaries
and associated companies......................................................... 226,263
Customers liability to this bank on
acceptances outstanding......................................................... 1,187,449
Intangible assets................................................................ 781,684
Other assets..................................................................... 1,736,574
-----------
Total assets.................................................................... $56,153,587
===========
LIABILITIES
Deposits:
In domestic offices............................................................. $27,031,362
Noninterest-bearing............................................................. 11,899,507
Interest-bearing................................................................ 15,131,855
In foreign offices, Eage and Agreement
subsidiaries, and IBFs......................................................... 13,794,449
Noninterest bearing............................................................. 590,999
Interest bearing................................................................ 13,203,450
Federal funds purchased and Securities sold under
agreement to repurchase........................................................ 2,338,881
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
DOLLAR
AMOUNTS
in Thousands
<S> <C>
Demand notes issued to the U.S. Treasury........................................ 173,851
Trading liabilities............................................................. 1,695,216
Other borrowed money:
With remaining maturity of one year or less.................................... 1,905,330
With remaining maturity of more than one year
through three years............................................................ 0
With remaining maturity of more than three years............................... 25,664
Bank's liability on acceptance executed and outstanding......................... 1,195,923
Subordinated notes and debentures............................................... 1,012,940
Other liabilities............................................................... 2,018,950
-----------
Total liabilities............................................................... $51,192,576
===========
EQUITY CAPITAL
Common Stock.................................................................... 1,135,284
Surplus......................................................................... 731,319
Undivided profits and capital reserves.......................................... 3,093,726
Net unrealized holding gains (losses) on
available-for-sale securities................................................... 36,866
Cumulative foreign currency translation adjustments............................. ( 36,184)
Total equity capital............................................................ 4,961,011
===========
Total liabilities and equity capital............................................ $56,153,587
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named
bank, do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyl }
Alan R. Griffith} Directors
J. Carter Bacot }
B-2
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
7 1/2% SENIOR NOTES DUE 2008
TUBOSCOPE INC.
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, IN WHICH
CASE THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST DATE AND TIME TO
WHICH THE EXCHANGE OFFER IS EXTENDED, TENDERS MAY BE WITHDRAWN AT ANY TIME
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent is:
THE BANK OF NEW YORK
By Registered or Certified Mail, By Facsimile (for Eligible
By Hand or Overnight Courier Institutions Only):
or In Person
(212) 815-6339
The Bank of New York
Corporate Trust Operations Confirm Receipt of Notice of
101 Barclay Street Guaranteed Delivery by Telephone:
Floor 7E
New York, New York 10286 (212) 815-4146
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET
FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE
THIS LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE>
The undersigned acknowledges receipt of the Prospectus dated ,
1998 (the "Prospectus"), of Tuboscope Inc., a Delaware corporation (the
"Company"), and this Letter of Transmittal (the "Letter of Transmittal"),
which together with the Prospectus constitutes the Company's offer (the
"Exchange Offer") to exchange $1,000 principal amount principal amount of its
7 1/2% Senior Notes due 2008 (the "Exchange Notes") for each $1,000 principal
amount of its outstanding 7 1/2% Senior Notes due 2008 (the "Private Notes").
Recipients of the Prospectus should read the requirements described in such
Prospectus with respect to eligibility to participate in the Exchange Offer.
Capitalized terms used but not defined herein have the meaning given to them
in the Prospectus.
The undersigned hereby tenders the Private Notes described in the box
entitled "Description of Private Notes" below pursuant to the terms and
conditions described in the Prospectus and this Letter of Transmittal. The
undersigned is the registered owner of all the Private Notes and the
undersigned represents that it has received from each beneficial owner of
Private Notes ("Beneficial Owners") a duly completed and executed form of
"Instruction to Registered Holder from Beneficial Owner" accompanying this
Letter of Transmittal, instructing the undersigned to take the action
described in this Letter of Transmittal.
This Letter of Transmittal is to be used by a holder of Private Notes (i) if
certificates representing Private Notes are to be forwarded herewith, (ii) if
delivery of Private Notes is to be made by book-entry transfer to the Exchange
Agent's account at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer--Procedures for Tendering," or (iii) if a tender is made pursuant to the
guaranteed delivery procedures in the section of the Prospectus entitled "The
Exchange Offer--Guaranteed Delivery Procedures."
The undersigned hereby represents and warrants that the information received
from the beneficial owners is accurately reflected in the boxes entitled
"Beneficial Owner(s)--Purchaser Status" and "Beneficial Owner(s)--Residence."
Any beneficial owner whose Private Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder of Private Notes promptly and
instruct such registered holder of Private Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing this Letter of
Transmittal and delivering its Private Notes, either maker appropriate
arrangements to register ownership of the private Notes in such beneficial
owner's name or obtain a properly completed bond power from the registered
holder of Private Notes. The transfer of record ownership may take
considerable time.
In order to properly complete this Letter of Transmittal, a holder of
Private Notes must (i) complete the box entitled "Description of Private
Notes," (ii) complete the boxes entitled "Beneficial Owner(s)--Purchaser
Status" and "Beneficial Owner(s)--Residence," (iii) if appropriate, check and
complete the boxes relating to book-entry transfer, guaranteed delivery,
Special Issuance Instructions and Special Delivery Instructions, (v) sign the
Letter of Transmittal by completing the box entitled "Sign Here" and (v)
complete the Substitute Form W-9. Each holder of Private Notes should
carefully read the detailed instructions below prior to completing the Letter
of Transmittal.
Holders of Private Notes who desire to tender their Private Notes for
exchange and (i) whose Private Notes are not immediately available or (ii) who
cannot deliver their Private Notes, this Letter of Transmittal and all other
documents required hereby to the Exchange Agent on or prior to the Expiration
Date, must tender the Private Notes pursuant to the guaranteed delivery
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer--Guaranteed Delivery Procedures." See Instruction 2.
Holders of Private Notes who wish to tender their Private Notes for exchange
must complete columns (1) through (3) in the box below entitled "Description
of Private Notes," complete the boxes entitled and sign the box below entitled
"Sign Here." If only those columns are completed, such holder of Private Notes
will have tendered for exchange all Private Notes listed in column (3) below.
If the holder of Private Notes wishes to tender for exchange less than all of
such Private Notes, column (4) must be completed in full. In such case, such
holder of Private Notes should refer to Instruction 5.
2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DESCRIPTION OF PRIVATE NOTES
- -------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
PRINCIPAL AMOUNT
TENDERED FOR
NAME(S) AND ADDRESS(ES) OF REGISTERED AGGREGATE EXCHANGE (MUST
HOLDER(S) OF PRIVATE NOTE(S), EXACTLY AS PRIVATE NOTE PRINCIPAL BE IN
NAME(S) APPEAR(S) ON PRIVATE NOTE NUMBER(S) AMOUNT INTEGRAL
CERTIFICATE(S) (PLEASE FILL IN, IF (ATTACH SIGNED REPRESENTED BY MULTIPLES
BLANK) LIST IF NECESSARY) CERTIFICATE(S)/1/ OF $1,000)/2/
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
1. Unless indicated in the column "Principal Amount Tendered for Exchange,"
any tendering Holder of 7 1/2% Senior Notes due 2008 will be deemed to have
tendered the entire aggregate principal amount represented by the column
labeled "Aggregate Principal Amount Represented by Certificate(s)."
2. The minimum permitted tender is $1,000 in principal amount of 7 1/2% Senior
Notes due 2008. All other tenders must be in integral multiples of $1,000.
[_] CHECK HERE IF TENDERED PRIVATE NOTES ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER
DEFINED) ONLY:
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
[_] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name of Registered Holder of Private Note(s): ______________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Window Ticket Number (if available): _______________________________________
Name of Institution which Guaranteed Delivery: _____________________________
Account Number (if delivered by book-entry transfer): ______________________
[_] CHECK HERE IF YOU ARE A BROKER DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name: ______________________________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
3
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS (SEE SPECIAL DELIVERY INSTRUCTIONS (SEE
INSTRUCTIONS 1, 6, 7 AND 8) INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY (i) if the To be completed ONLY if the
Exchange Notes issued in exchange Exchange Notes issued in exchange
for Private Notes, certificates for Private Notes, certificates
for Private Notes in a principal for Private Notes in a principal
amount not exchanged for Exchange amount not exchanged for Exchange
Notes, or Private Notes (if any) Notes, or Private Notes (if any)
not tendered for exchange, are to not tendered for exchange, are to
be issued in the name of someone be mailed or delivered (i) to
other than the undersigned or (ii) someone other than the undersigned
if Private Notes tendered by book- or (ii) to the undersigned at an
entry transfer which are not address other than the address
exchanged are to be returned by shown below the undersigned's
credit to an account maintained at signature.
DTC.
Issue to: Issue to:
Name:______________________________ Name: _____________________________
(PLEASE PRINT) (PLEASE PRINT)
Address____________________________ Address ___________________________
___________________________________ ___________________________________
___________________________________ ___________________________________
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
___________________________________ ___________________________________
(TAX IDENTIFICATION OR SOCIAL (TAX IDENTIFICATION OR SOCIAL
SECURITY NO.) SECURITY NO.)
Credit Private Notes not
exchanged and delivered by book-
entry transfer to DTC account set
forth below:
____________________________________
(ACCOUNT NUMBER)
BENEFICIAL OWNER(S)--RESIDENCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATE OF DOMICILE/PRINCIPAL PLACE OF BUSINESS PRINCIPAL AMOUNT OF PRIVATE NOTES HELD FOR
OF EACH BENEFICIAL OWNER OF PRIVATE NOTES ACCOUNT OF BENEFICIAL OWNER(S)
- -------------------------------------------------------------------------------------------
<S> <C>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
BENEFICIAL OWNER(S)--PURCHASER STATUS
The beneficial owner of each of the Private Notes described herein is (check
the box that applies):
[_] A "Qualified Institutional Buyer" as (defined in Rule 144A under the
Securities Act)
[_] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act
[_] A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Private Notes outside the United States in accordance
with Rule 904 of the Securities Act
[_] Other (describe)_________________________________________________________
_______________________________________________________________________________
5
<PAGE>
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Pursuant to the offer by Tuboscope Inc., a Delaware corporation (the
"Company"), upon the terms and subject to the conditions set forth in the
Prospectus dated , 1998 (the "Prospectus") and this Letter of
Transmittal (the "Letter of Transmittal"), which together with the Prospectus
constitutes the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its 7 1/2% Senior Notes due 2008 (the "Exchange Notes")
for each $1,000 principal amount of its outstanding 7 1/2% Senior Notes due
2008 (the "Private Notes"), the undersigned hereby tenders to the Company for
exchange the Private Notes indicated above.
By executing this Letter of Transmittal and subject to and effective upon
acceptance for exchange of the Private Notes tendered for exchange herewith,
the undersigned will have irrevocably sold, assigned, transferred and
exchanged, to the Company, all right, title and interest in, to and under all
of the Private Notes tendered for exchange hereby, and hereby will have
appointed the Exchange Agent as the true and lawful agent and attorney-in-fact
(with full knowledge that the Exchange Agent also acts as agent of the
Company) of such holder of Private Notes with respect to such Private Notes
will full power of substitution to (i) deliver certificates representing such
Private Notes, or transfer ownership of such Private Notes on the account
books maintained by DTC (together, in any such case, with all accompanying
evidences of transfer and authenticity), to the Company, (ii) present and
deliver such Private Notes for transfer on the books of the Company (iii)
receive all benefits and otherwise exercise all rights and incidents of
beneficial ownership with respect to such Private Notes, all in accordance
with the terms of the Exchange Offer. The power of attorney granted in this
paragraph shall be deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner; (ii) has a net long position within the meaning of Rule 14e-4 under
the Securities Exchange Act of 1934, as amended ("Rule 14e-4") equal to or
greater than the principal amount of Private Notes tendered hereby; (iii) the
tender of such Private Notes complies with Rule 14e-4 (to the extent that Rule
14e-4 is applicable to such exchange); (iv) the undersigned has full power and
authority to tender, exchange, assign and transfer the Private Notes and (v)
that when such Private Notes are accepted for exchange by the Company, the
Company will acquire good and marketable title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claims. The undersigned will, upon receipt, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Private
Notes tendered for exchange hereby.
By tendering, the undersigned hereby further represents to the Company that
(i) the Exchange Notes to be acquired by the undersigned in exchange for the
Private Notes tendered hereby and any beneficial owner(s) of such Private
Notes in connection with the Exchange Offer will be acquired by the
undersigned and such beneficial owner(s) in the ordinary course of business of
the undersigned, (ii) the undersigned have no arrangement or understanding
with any person to participate, in the distribution of the Exchange Notes,
(iii) the undersigned and each beneficial owner(s) acknowledge and agree that
any person who is a broker-dealer registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or is participating in the Exchange
Offer for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) the undersigned and each
beneficial owner understand that a secondary resale transaction described in
clause (iii) above and any resales of Exchange Notes obtained by the
undersigned in exchange for the Private Notes acquired by the undersigned
directly from the Company should be covered by an effective registration
statement containing the selling security holder information required by Item
507 or Item 508, as applicable, of Regulation S-K of the Commission and (v)
neither the undersigned or any beneficial owner is an "affiliate," as defined
in Rule 405 under the Securities Act, of the Company. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account in exchange
for the Private Notes that were
6
<PAGE>
acquired as a result of market-making activities or other trading activities,
it acknowledges that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
does not and will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted for exchange, and to have exchanged, validly tendered Private Notes,
if, as and when the Company gives oral or written notice thereof to the
Exchange Agent. Tenders of Private Notes for exchange may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders" in the Prospectus. Any Private Notes
tendered by the undersigned and not accepted for exchange will returned to the
undersigned at the address set forth above unless otherwise indicated in the
box above entitled "Special Delivery Instructions" as promptly as practicable
after the Expiration Date.
The undersigned acknowledges that the Company's acceptance of Private Notes
validly tendered for exchange pursuant to any one of the procedures described
in the section of the Prospectus entitled "The Exchange Offer" and in the
instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of
the Exchange Offer.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions," please return any Private Notes not tendered for exchange in
the name(s) of the undersigned. Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions," please mail any certificates for
Private Notes not tendered or exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Private Notes
accepted for exchange in the name(s) of, and return any Private Notes not
tendered for exchange or not exchanged to, the person(s) so indicated. The
undersigned recognizes that the Company has not obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to
transfer any Private Notes from the name of the holder of Private Note(s)
thereof if the Company does not accept for exchange any of the Private Notes
so tendered for exchange or if such transfer would not be in compliance with
any transfer restrictions applicable to such Private Note(s).
IN ORDER TO VALIDLY TENDER PRIVATE NOTES FOR EXCHANGE, HOLDERS OF PRIVATE
NOTES MUST COMPLETE, EXECUTE AND DELIVER THIS LETTER OF TRANSMITTAL.
Except as stated in the Prospectus, all authority herein conferred or agreed
to be conferred shall survive the death, incapacity, or dissolution of the
undersigned, and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as otherwise stated in the Prospectus, this tender for
exchange of Private Notes is irrevocable.
7
<PAGE>
SIGN HERE
________________________________________________________________________________
________________________________________________________________________________
(SIGNATURE(S) OF OWNER(S)
Date: __________________, 1998
Must be signed by the registered holder(s) of Private Notes exactly as
name(s) appear(s) on certificate(s) representing the Private Notes or on a
security position listing or by person(s) authorized to become registered
Private Note holder(s) by certificates and documents transmitted herewith. If
signature is by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or
representative capacity, please provide the following information. (See
Instruction 6).
Name(s)_________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Capacity (full title):__________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone No. (___)_______________________________________________
Tax identification or Social Security Nos.______________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9
GUARANTEE OF SIGNATURE(S)
(SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 1)
Authorized Signature:___________________________________________________________
Date:___________________________________________________________________________
Name and Title:_________________________________________________________________
(PLEASE PRINT)
Name of Firm:___________________________________________________________________
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by an institution
which is (1) a member firm of a registered national securities exchange or of
the National Associate of Securities Dealers, Inc., (2) a commercial bank or
trust company having an office or correspondent in the United States, or (3)
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, which is a member of one of
the following recognized Signature Guarantee Programs (an "Eligible
Institution"):
a. The Securities Transfer Agents Medallion Program (STAMP)
b. New York Stock Exchange Medallion Signature Program (MSP)
c. The Stock Exchange Medallion Program (SEMP)
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the registered holder(s) of the Private
Notes tendered herewith and such registered holder(s) have not completed the
box entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (ii) if such Private
Notes are tendered for the account of an Eligible Institution. IN ALL OTHER
CASES, ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
2. Delivery of this Letter of Transmittal and Private Notes; Guaranteed
Delivery Procedures. This Letter of Transmittal is to be completed by holders
of Private Notes (i) if certificates are to be forwarded herewith or (ii) if
tenders are to be made pursuant to the procedures for tender by book-entry
transfer or guaranteed delivery set forth in the section of the Prospectus
entitled "The Exchange Offer." Certificates for all physically tendered
Private Notes or by any timely confirmation of a book-entry transfer (a "Book-
Entry Confirmation"), as well as a properly completed and duly executed copy
of this Letter of Transmittal or facsimile hereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth on the cover of this Letter of Transmittal prior to
5:00 p.m., New York City time, on the Expiration Date. Holders of Private
Notes who elect to tender Private Notes and (i) whose Private Notes are not
immediately available or (ii) who cannot deliver the Private Notes, this
Letter of Transmittal or other required documents to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date, must tender their
Private Notes according to the guaranteed delivery procedures set forth in the
Prospectus. Holders may have such tender effected if: (a) such tender is made
through an Eligible Institution; (b) prior to 5:00 p.m., New York City time,
on the Expiration Date, the Exchange Agent has received from such Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery, setting forth the name and address of the holder of such Private
Notes, the certificate number(s) of such Private Notes and the principal
amount of Private Notes tendered for exchange, stating that tender is being
made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date, this Letter of Transmittal (or a
facsimile thereof), together with the certificate(s) representing such Private
Notes (or a Book-Entry Confirmation), in proper form for transfer, and any
other documents required by this Letter of Transmittal, will be deposited by
such Eligible Institution with the Exchange Agent; and (c) a properly executed
Letter of Transmittal (or a facsimile hereof), as well as the certificate(s)
for all tendered Private Notes in proper form for transfer or a Book-Entry
confirmation, together with any other documents required by this Letter of
Transmittal, are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
THE METHOD OF DELIVERY OF PRIVATE NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD
OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NEITHER THIS LETTER OF TRANSMITTAL NOR
9
<PAGE>
ANY PRIVATE NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders of Private Notes, by execution of this Letter of Transmittal
(or facsimile hereof, if applicable), waive any right to receive notice of the
acceptance of their Private Notes for exchange.
3. Inadequate Space. If the space provided in the box entitled "Description
of Private Notes" above is inadequate, the certificate numbers and principal
amounts of the Private Notes being tendered should be listed on a separate
signed schedule affixed hereto.
4. Withdrawals. A tender of Private Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date by delivery of
written or facsimile notice of withdrawal to the Exchange Agent at the address
set forth on the cover of this Letter of Transmittal. To be effective, a
notice of withdrawal of Private Notes must (i) specify the name of the person
who tendered the Private Notes to be withdrawn (the "Depositor"), (ii)
identify the Private Notes to be withdrawn (including the certificate number
of numbers and aggregate principal amount of such Private Notes), and (iii) be
signed by the holder of Private Notes were tendered (including any required
signature guarantees). All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company
in its sole discretion, whose determination shall be final and binding on all
parties. Any Private Notes so withdrawn will thereafter be deemed not validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be
issued with respect thereto unless the Private Notes so withdrawn are validly
retendered. Properly withdrawn Private Notes may be retendered by following
one of the procedures described in the section of the Prospectus entitled "The
Exchange Offer--Procedures for Tendering" at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
5. Partial Tenders. Tenders of Private Notes will be accepted only in
integral multiples of $1,000 principal amount. If a tender for exchange is to
be made with respect to less than the entire principal amount of any Private
Notes, fill in the principal amount of Private Notes which are tendered for
exchange in column (4) of the box entitled "Description of Private Notes," as
more fully described in the footnotes thereto. In case of a partial tender for
exchange, a new certificate, in fully registered form, for the remainder of
the principal amount of the Private Notes, will be sent to the holders of
Private Notes unless otherwise indicated in the appropriate box on this Letter
of Transmittal as promptly as practicable after the expiration or termination
of the Exchange Offer.
6. Signatures on this Letter of Transmittal, Assignment and Endorsements.
(a) The signature(s) of the holder of Private Notes on this Letter of
Transmittal must correspond with the name(s) as written on the face of the
Private Notes without alternation, enlargement or any change whatsoever.
(b) If tendered Private Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
(c) If any tendered Private Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Letter of Transmittal and any necessary or
required documents was there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the holder of the Private
Notes listed and transmitted hereby, no endorsements of Private Notes or bond
powers are required. If, however, Private Notes not tendered or not accepted,
are to be issued or returned in the name of a person other than the holder of
Private Notes, then the Private Notes transmitted hereby must be endorsed or
accompanied by a properly completed bond power, in a form satisfactory to the
Company, in either case signed exactly as the name(s) of the holder of Private
Notes appear(s) on the Private Notes. Signatures on such Private Notes or bond
powers must be guaranteed by an Eligible Institution (unless signed by an
Eligible Institution).
10
<PAGE>
(e) If this Letter of Transmittal or Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by this
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with this Letter of Transmittal.
(f) If this Letter of Transmittal is signed by a person other than the
registered holder of Private Notes listed, the Private Notes must be endorsed
or accompanied by a properly completed bond power, in either case signed by
such registered holder exactly as the name(s) of the registered holder of
Private Notes appear(s) on the certificates. Signatures on such Private Notes
or bond powers must be guaranteed by an Eligible Institution (unless signed by
an Eligible Institution).
7. Transfer Taxes. Except as set forth in this Instruction 7, the Company
will pay all transfer taxes, if any, applicable to the exchange of Private
Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed
for any reason other than the exchange of the Private Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemptions
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
8. Special Issuance and Delivery Instructions. If the Exchange Notes are to
be issued, or if any Private Notes not tendered for exchange are to be issued
or sent to someone other than the holder of Private Notes or to an address
other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed. Holders of Private Notes tendering Private
Notes by book-entry transfer may request that Private Notes not accepted be
credited to such account maintained at DTC as such holder of Private Notes may
designate.
9. Irregularities. All questions as to the validity, form, eligibility
(including time of receipt), compliance with conditions, acceptance and
withdrawal of tendered Private Notes will be determined by the Company in its
sole discretion, which determination will be final and binding. The Company
reserves the absolute right to reject any and all Private Notes not properly
tendered or any Private Notes the Company's acceptance of which would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular Private Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured with such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Private Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
10. Waiver of Conditions. The Company reserves the absolute right to waive,
amend or modify certain of the specified conditions as described under "The
Exchange Offer--Conditions" in the Prospectus in the case of any Private Notes
tendered (except as otherwise provided in the Prospectus).
11. Mutilated, Lost, Stolen or Destroyed Private Notes. Any tendering Holder
whose Private Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address listed below for further
instructions:
The Bank of New York
Corporate Trust Operations
101 Barclay Street
Floor 7E
New York, New York 10286
11
<PAGE>
12. Requests for Information or Additional Copies. Requests for information
or for additional copies of the Prospectus and this Letter of Transmittal may
be directed to the Exchange Agent at the address or telephone number set forth
on the cover of this Letter of Transmittal.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF
APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE
NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of Private Notes whose
tendered Private Notes are accepted for exchange may be subject to backup
withholding unless the holder provides the Company (as payor), through the
Exchange Agent, with either (i) such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such holder of Private
Notes is awaiting a TIN) and that (A) the holder of Private Notes has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report all interest or dividends or
(B) the Internal Revenue Service has notified the holder of Private Notes that
he or she is no longer subject to backup withholding; or (ii) an adequate
basis for exemption from backup withholding. If such holder of Private Notes
is an individual, the TIN is such holder's social security number. If the
Exchange Agent is not provided with the correct taxpayer identification
number, the holder of Private Notes may be subject to certain penalties
imposed by the Internal Revenue Service.
Certain holders of Private Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding
and reporting requirements. Exempt holders of Private Notes should indicate
their exempt status on Substitute Form W-9. A foreign individual may qualify
as an exempt recipient by submitting to the exchange Agent a properly
completed Internal Revenue Service Form W-8 (which the Exchange Agent will
provide upon request) signed under penalty of perjury, attesting to the
holder's exempt status. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "Guidelines") for
additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of Private notes or other Payee. Backup
withholding is not an additional federal income tax. Rather, the federal
income tax liability of persons subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained from the Internal Revenue Service.
The holder of Private Notes is required to give the Exchange Agent the TIN
(e.g., social security number or employer identification number) or the record
owner of the Private Notes. If the Private Notes are held in more than one
name or are note held in the name of the actual owner, consult the enclosed
Guidelines for additional guidance regarding which number to report.
12
<PAGE>
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF
7 1/2% SENIOR NOTES DUE 2008
OF
TUBOSCOPE INC.
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus") of Tuboscope Inc., a Delaware corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer"). Capitalized terms used by not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Exchange Offer with respect to the 7 1/2% Senior Notes
due 2008 (the "Private Notes") held by you for the account of the undersigned.
The aggregate face amount of the Private Notes held by you for the account
of the undersigned is (fill in amount):
$ of the Private Notes.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] To TENDER the following Private Notes held by you for the account of the
undersigned (insert principal amount of Private Notes to be tendered, if any):
$ of the Private Notes
[_] NOT to TENDER any Private Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Private Notes held by you for
the account of the undersigned, it is understood that you are authorized (a)
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner of the Private Notes, including but not limited to the
representations that (i) the undersigned's principal residence is in the state
of (fill in state) (ii) the undersigned is acquiring the Exchange Notes
in the ordinary course of business of the undersigned, (iii) the undersigned
has no arrangement or understanding with any person to participate in the
distribution of Exchange Notes, (iv) the undersigned acknowledges that any
person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purpose of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended, in connection with a
secondary resale transaction of the Exchange Notes acquired by such person and
cannot rely on the position of the Staff of the Securities and Exchange
Commission set forth in certain no-action letters (See the section of the
Prospectus entitled "The Exchange Offer--Resale of the Exchange Notes"), (v)
the undersigned understands that a secondary resale transaction described in
clause (iv) above and any resales of Exchange Notes obtained by the
undersigned in exchange for the Private Notes acquired by the undersigned
directly from the Company should be covered by an effective registration
statement containing the selling security holder information required by Item
507 or Item 508, if applicable, of Regulation S-K of the Commission, (vi) the
undersigned is not an "affiliate," as defined in Rule 405 under the Securities
Act, of the Company, and (vii) if the undersigned is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Private Notes that
were acquired as a result of market-making activities o other trading
activities, it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any sale of such
Exchange Notes; however, by so acknowledging and by delivering a prospectus,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act; (b) to agree,
13
<PAGE>
on behalf of the undersigned, as set forth in the Letter of Transmittal; and
(c) to take such other action as necessary under the Prospectus or the Letter
of Transmittal to effect the valid tender of Private Notes.
The purchaser status of the undersigned is (check the box that applies):
[_]A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[_]An "Institutional Accredited Investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act)
[_]A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Private Notes outside the United States in accordance
with Rule 904 of the Securities Act.
[_]Other (describe)
----------------------------------------------------------
----------------------------------------------------------
SIGN HERE
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Name of Beneficial Owner(s)
-------------------------------------------------
----------------------------------------------------------------------------
Signature(s)
----------------------------------------------------------------
----------------------------------------------------------------------------
Address:
--------------------------------------------------------------------
----------------------------------------------------------------------------
Principal place of business (if different from address listed above)
--------
----------------------------------------------------------------------------
Telephone Numbers.
----------------------------------------------------------
----------------------------------------------------------------------------
Taxpayer Identification of Social Security Number(s)
------------------------
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Date:
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14
<PAGE>
PAYER'S NAME:
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PART 1--PLEASE PROVIDE YOUR
TIN IN THE BOX AT RIGHT AND ----------------------
CERTIFY BY SIGNING AND Social Security Number
DATING BELOW. OR
-----------------------
SUBSTITUTE Employer Identification
FORM W-9 Number
DEPARTMENT OF -----------------------------------------------------
THE TREASURY PART 2--CERTIFICATION--Under Penalties of Perjury, I
INTERNAL Certify that:
REVENUE (1) The number shown on this form is my current
SERVICE taxpayer identification number (or I am waiting
for a number to be issued to me) and
PAYER'S REQUEST
FOR TAXPAYER (2) I am not subject to backup withholding either
IDENTIFICATION because I have not been notified by the Internal
NUMBER (TIN) Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to
report all interest or dividends or the IRS has
notified me that I am no longer subject to backup
withholding.
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PART 3--Awaiting TIN [_]
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CERTIFICATION INSTRUCTIONS--You must cross out item
(2) in Part 2 above if you have been notified by the
IRS that you are subject to backup withholding
because of underreporting interest or dividends on
your tax return. However, if after being notified by
the IRS that you are subject to backup withholding
you receive another notification from the IRS stating
from the IRS stating that you are no longer subject
to backup withholding, do not cross out item(2).
Signature _________________ Date __________________
Name __________________________________________________
Address _______________________________________________
City _________ States _________ Zip Code __________
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NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
PAYOR'S NAME: BANK OF NEW YORK TRUST COMPANY OF FLORIDA
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CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me and either (a) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number within sixty (60) days, 31% of all reportable
payments made to me thereafter will be withheld until I provide such
number.
SIGNATURE ____________________________________________ DATE: , 1997
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15
<PAGE>
LETTER TO CLIENTS
REGARDING THE OFFER TO EXCHANGE
$100,000,000 PRINCIPAL AMOUNT OF 7 1/2% SENIOR NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING
$100,000,000 PRINCIPAL AMOUNT OF 7 1/2% SENIOR NOTES DUE 2008
OF
TUBOSCOPE INC.
To Our Clients:
We are enclosing herewith a Prospectus, dated , 1998, of Tuboscope
Inc. (the "Company") and a related Letter of Transmittal (which together
constitute the "Exchange Offer") relating to the offer by the Company to
exchange its new 7 1/2% Senior Notes due 2008 (the "Exchange Notes"), pursuant
to an offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of its issued and outstanding 7
1/2% Senior Notes due 2008 (the "Private Notes") upon the terms and subject to
the conditions set forth in the Prospectus and the Letter of Transmittal.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Private
Notes being tendered.
We are the Registered Holder or DTC participant through which you hold an
interest in the Private Notes. A tender of such Private Notes can be made only
by us pursuant to your instructions. The Letter of Transmittal is furnished to
you for your information only and cannot be used by you to tender your
beneficial ownership of Private Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of your
Private Notes held by us for your account pursuant to the terms and subject to
the conditions of the Exchange Offer. We also request that you confirm that we
may on your behalf make the representations contained in the Letter of
Transmittal that are to be made with respect to you as beneficial owner.
Pursuant to the Letter of Transmittal, each holder of Private Notes must
make certain representations and warranties that are set forth in the Letter
of Transmittal and in the attached form that we have provided to you for your
instructions regarding what action we should take in the Exchange Offer with
respect to your interest in the Private Notes.
<PAGE>
LETTER TO REGISTERED HOLDERS AND DTC PARTICIPANTS
REGARDING THE OFFER TO EXCHANGE
$100,000,000 PRINCIPAL AMOUNT OF 7 1/2% SENIOR NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING
$100,000,000 PRINCIPAL AMOUNT OF 7 1/2% SENIOR NOTES DUE 2008
OF
TUBOSCOPE INC.
To Registered Holders and The Depository Trust Company Participants:
We are enclosing herewith the materials listed below relating the offer by
Tuboscope Inc. (the "Company") to exchange its new 7 1/2% Senior Notes due
2008 (the "Exchange Notes"), pursuant to an offering registered under the
Securities Act of 1933, as amended (the "Securities Act"), for a like
principal amount of its issued and outstanding 7 1/2% Senior Notes due 2008
(the "Private Notes") upon the terms and subject to the conditions set forth
in the Company's Prospectus, dated , 1998, and the related Letter
of Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated ;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder or DTC Participant from Beneficial
Owner; and
5. Letter which may be sent to your clients for whose account you hold
Definitive Registered Notes or Book-Entry Interests representing
Private Notes in your name or in the name of your nominee, to
accompany the instruction form referred to above, for obtaining such
client's instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the Exchange
Offer will expire at 5:00 p.m., New York City time, on , 1998,
unless extended.
The Exchange Offer is not conditioned upon any minimum number of Private
Notes being tendered.
To participate in the Exchange Offer, a beneficial holder must either (i)
cause to be delivered to The Bank of New York (the "Exchange Agent"), at the
address set forth in the Letter of Transmittal, Definitive Registered Notes in
proper form for transfer together with a properly executed Letter of
Transmittal or (ii) cause a DTC Participant to tender such holder's Private
Notes to the Exchange Agent's account maintained at the Depository Trust
Company ("DTC") for the benefit of the Exchange Agent through DTC's Automated
Tender Offer Program ("ATOP"), including transmission of a computer-generated
message that acknowledges and agrees to be bound by the terms of the Letter of
Transmittal. By complying with DTC's ATOP procedures with respect to the
Exchange Offer, the DTC Participant confirms on behalf of itself and the
beneficial owners of tendered Private Notes all provisions of the Letter of
Transmittal applicable to it and such beneficial owners as fully as if it
completed, executed and returned the Letter of Transmittal to the Exchange
Agent.
Pursuant to the Letter of Transmittal, each holder of Private Notes will
represent to the Company that: (i) the Exchange Notes or Book-Entry Interests
therein to be acquired by the undersigned (the "Beneficial Owner(s)") in
connection with the Exchange Offer are being acquired by the undersigned in
the ordinary course of business of the undersigned, (ii) the undersigned is
not participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes, (iii) the undersigned acknowledges and agrees that any person
who is a broker-dealer registered under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or is participating in the Exchange Offer for
the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery
<PAGE>
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes or interests therein acquired by such person
and cannot rely on the position of the staff of the Commission set forth in
certain no-action letters, (iv) the undersigned understands that a secondary
resale transaction described in clause (iii) above and any resales of Exchange
Notes or interests therein obtained by such holder in exchange for Private
Notes or interests therein originally acquired by such holder directly from
the Company should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the Commission and (v) the
undersigned is not an "affiliate," as defined in Rule 405 under the Securities
Act, of the Company. Upon a request by the Company, a holder or beneficial
owner will deliver to the Company a legal opinion confirming its
representation made in clause (v) above. If the undersigned is a broker-dealer
(whether or not it is also an "affiliate") that will receive Exchange Notes
for its own account pursuant to the Exchange Offer, the undersigned represents
that the Private Notes to be exchanged for the Exchange Notes were acquired by
it as a result of market-making activities or other trading activities, and
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes; however,
by so acknowledging and by delivering a prospectus, the undersigned does not
and will not be deemed to admit that it is an "underwriter" within the meaning
of the Securities Act.
The enclosed "Instruction to Registered Holder or DTC Participant from
Beneficial owner" form contains an authorization by the beneficial owners of
Private Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or to
any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Private Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the
transfer of Private Notes to it, except as otherwise provided in Instruction 7
of the enclosed Letter of Transmittal.
Additional copies of the enclosed material are obtained from The Bank of New
York, 101 Barclay Street--Floor 7E, New York, New York 10286, Attention:
Corporate Trust Operations.
Very truly yours,
TUBOSCOPE INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU,
THE AGENT OF TUBOSCOPE INC. OR THE BANK OF NEW YORK OR AUTHORIZE YOU TO USE
ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE
EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
<PAGE>
INSTRUCTION TO REGISTERED HOLDER OR DTC PARTICIPANT
FROM BENEFICIAL OWNER
FOR
7 1/2% SENIOR NOTES DUE 2008
OF
TUBOSCOPE INC.
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus"), of Tuboscope Inc., a company incorporated
under the laws of Delaware (the "Company"), and the accompanying Letter of
Transmittal (the "Letter of Transmittal") that together constitute the
Company's offer (the "Exchange Offer"). Capitalized terms used but not defined
herein have the meanings assigned to them in the Prospectus and the Letter of
Transmittal.
This will instruct you as to the action to be taken by you relating to the
Exchange Offer with respect to the 7 1/2% Senior Notes due 2008 (the "Private
Notes") held by you for the account of the undersigned.
The principal amount of the Private Notes held by you for the account of the
undersigned is (fill in amount): $ principal amount of Private Notes.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] To TENDER the following principal amount of Private Notes held by you for
the account of the undersigned (insert amount of Private Notes to be
tendered, if any): $ principal amount of Private Notes,
[_] NOT to TENDER any Private Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Private Notes held by you for
the account of the undersigned, it is understood that you are authorized:
(a) to make, on behalf of the undersigned (and the undersigned, by its
signature below, hereby makes to you), the representations and warranties
contained in the Letter of Transmittal that are to be made with respect to
the undersigned as a beneficial owner, including but not limited to the
representations that (i) the Exchange Notes or Book-Entry Interests therein
to be acquired by the undersigned (the "Beneficial Owner(s)") in connection
with the Exchange Offer are being acquired by the undersigned in the
ordinary course of business of the undersigned, (ii) the undersigned is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes, (iii) the undersigned acknowledges and agrees that any
person who is a broker-dealer registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the
Exchange Notes or interests therein acquired by such person and cannot rely
on the position of the staff of the Commission set forth in certain no-
action letters, (iv) the undersigned understands that a secondary resale
transaction described in clause (iii) above and any resales of Exchange
Notes or interests therein obtained by such holder in exchange for Private
Notes or interests therein originally acquired by such holder directly from
the Company should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the Commission and (v) the
undersigned is not an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company. Upon a request by the Company, a holder or
beneficial owner will deliver to the Company a legal opinion confirming its
representation made in clause (v) above. If the undersigned is a broker-
dealer (whether or not it is also an "affiliate") that will receive
Exchange Notes for its own account pursuant to the Exchange Offer, the
undersigned represents that the Private Notes to be exchanged for the
Exchange Notes were acquired by it as a result of market-making activities
or other trading activities, and acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in connection
<PAGE>
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned does not and will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act;
(b) to agree, on behalf of the undersigned, as set forth in the Letter of
Transmittal; and
(c) to take such other action as necessary under the Prospectus or the
Letter of Transmittal to effect the valid tender of such Private Notes.
SIGN HERE
Name of Beneficial Owner(s):___________________________________________________
Signature(s):__________________________________________________________________
Name(s) (please print):________________________________________________________
Address:_______________________________________________________________________
_______________________________________________________________________________
Telephone Number:______________________________________________________________
Taxpayer Identification or Social Security Number:_____________________________
Date:__________________________________________________________________________
<PAGE>
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
7 1/2% SENIOR NOTES DUE 2008
THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED BY ANY
HOLDER OF 7 1/2% SENIOR NOTES DUE 2008 (THE "PRIVATE NOTES") OF TUBOSCOPE
INC., A DELAWARE CORPORATION (THE "COMPANY"), WHO WISHES TO TENDER PRIVATE
NOTES PURSUANT TO THE COMPANY'S EXCHANGE OFFER, AS DEFINED IN THE
PROSPECTUS DATED , 1998 (THE "PROSPECTUS") AND (i)
WHOSE PRIVATE NOTES ARE NOT IMMEDIATELY AVAILABLE OR (ii) WHO CANNOT
DELIVER SUCH PRIVATE NOTES OR ANY OTHER DOCUMENTS REQUIRED BY THE LETTER
OF TRANSMITTAL ON OR BEFORE THE EXPIRATION DATE (AS DEFINED IN THE
PROSPECTUS) OR (iii) WHO CANNOT COMPLY WITH THE BOOK-ENTRY TRANSFER
PROCEDURE ON A TIMELY BASIS. SUCH FORM MAY BE DELIVERED BY FACSIMILE
TRANSMISSION, MAIL OR HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE
EXCHANGE OFFER--GUARANTEED DELIVERY PROCEDURES" IN THE PROSPECTUS.
TUBOSCOPE INC.
NOTICE OF GUARANTEED DELIVERY
To: The Bank of New York, the Exchange Agent
<TABLE>
<S> <C>
By Registered or Certified Mail, By Facsimile (for Eligible Institutions Only:
By Hand or Overnight Courier
or In Person (212) 815-6339
The Bank of New York Confirm Receipt of Notice of
Corporate Trust Operations Guaranteed Delivery by Telephone:
101 Barclay Street
Floor 7E (212) 815-4146
New York, New York 10286
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to the Company upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Private Notes specified below pursuant to the guaranteed delivery procedures
set forth under the caption "The Exchange Offer--Guaranteed Delivery
Procedures" in the Prospectus. By so tendering, the undersigned does hereby
make, at and as of the date hereof, the representations and warranties of a
tendering Holder of Private Notes set forth in the Letter of Transmittal. The
undersigned hereby tenders the Private Notes listed below:
_______________________________________________________________________________
CERTIFICATE NUMBERS
(IF AVAILABLE) PRINCIPAL AMOUNT TENDERED
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
All authority herein conferred or agreed to be conferred shall survive the
death, incapacity, or dissolution of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned.
If Private Notes will be tendered SIGN HERE
by book-entry transfer
_____________________________________
Signature(s)
Name of Tendering Institution: _____________________________________
_____________________________________ _____________________________________
Name(s) (Please Print)
The Depository Trust Company
Account No.: _____________________________________
_____________________________________ _____________________________________
Address
_____________________________________
Zip Code
_____________________________________
Area Code and Telephone No.
Date:________________________________
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in a Recognized Signature Guarantee Medallion
Program, guarantees deposit with the Exchange Agent of the Letter of
Transmittal (or facsimile thereof), together with the Private Notes tendered
hereby in proper form for transfer, or confirmation of the book-entry transfer
of such Private Notes into the Exchange Agent's account at the Depository
Trust Company, pursuant to the procedure for book-entry transfer set forth in
the prospectus, and any other required documents, all by 5:00 p.m., New York
City time, on the fifth New York Stock Exchange trading day following the
Expiration Date (as defined in the Prospectus).
SIGN HERE
_____________________________________
Name of Firm
_____________________________________
Authorized Signature
_____________________________________
Name(s) (Please Print)
_____________________________________
_____________________________________
_____________________________________
Address
_____________________________________
Zip Code
_____________________________________
Area Code and Telephone No.
Date:________________________________
DO NOT SEND CERTIFICATES FOR PRIVATE NOTES WITH THIS FORM. ACTUAL SURRENDER
OF CERTIFICATES FOR PRIVATE NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED
BY, A COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
INSTRUCTIONS
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at one of its addresses set forth on the cover hereof prior
to the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and all other required documents to the Exchange Agent is at the
election and risk of the Holder but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange
Agent. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service, properly insured. If such delivery is by
mail, it is recommended that the Holder use properly insured, registered mail
with return receipt requested. For a full description of the guaranteed
delivery procedures, see the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures." In all cases, sufficient time should
be allowed to assure timely delivery. No Notice of Guaranteed Delivery should
be sent to the Company.
2. Signature on this Notice of Guaranteed Delivery; Guarantee of
Signatures. If this Notice of Guaranteed Delivery is signed by the registered
Holder(s) of the Private Notes referred to herein, then the signature must
correspond with the name(s) as written on the face of the Private Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered Holder(s) of any Private Notes listed, this Notice of Guaranteed
Delivery must be accompanied by a properly completed bond power signed as the
name of the registered Holder(s) appear(s) on the face of the Private Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by the Company, evidence
satisfactory to the Company of their authority so to act must be submitted
with this Notice of Guaranteed Delivery.
3. Requests for Assistance or Additional Copies. Questions relating to the
Exchange Offer or the procedure for consenting and tendering as well as
requests for assistance or for additional copies of the Prospectus, the Letter
of Transmittal and this Notice of Guaranteed Delivery, may be directed to the
Exchange Agent at the address set forth on the cover hereof or to your broker,
dealer, commercial bank or trust company.
