<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
---------- TO
----------.
---------------------
COMMISSION FILE NUMBER 1-10570
---------------------
BJ SERVICES COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 63-0084140
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
5500 NORTHWEST CENTRAL DRIVE, HOUSTON, TEXAS 77092
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 462-4239
---------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<C> <C>
COMMON STOCK $.10 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
WARRANTS TO PURCHASE COMMON STOCK NEW YORK STOCK EXCHANGE
7% SERIES B SENIOR NOTES NEW YORK STOCK EXCHANGE
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K ___.
At December 5, 1997, the registrant had outstanding 38,666,911 shares of
Common Stock, $.10 par value per share. The aggregate market value of the Common
Stock on such date (based on the closing prices in the daily composite list for
transactions on the New York Stock Exchange) held by nonaffiliates of the
registrant was approximately $3,038,381,159.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held January 22, 1998 are incorporated by reference into Part
III.
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
BJ Services Company (the "Company"), whose operations trace back to the
Byron Jackson Company (which was founded in 1872), was organized in 1990 under
the corporate laws of the state of Delaware. The Company is a leading provider
of pressure pumping and other oilfield services serving the petroleum industry
worldwide. The Company's pressure pumping services consist of well stimulation,
cementing, sand control and coiled tubing services used in the completion of new
oil and natural gas wells and in remedial work on existing wells, both onshore
and offshore. Other oilfield services include casing and tubular services
provided to the oil and gas exploration and production industry, commissioning
and inspection services provided to refineries, pipelines and offshore
platforms, specialty chemical services and downhole tools.
In April 1995, the Company completed the acquisition of The Western Company
of North America ("Western" and the "Western Acquisition") for a total purchase
price of $511.4 million (including transaction costs of $7.2 million),
consisting of 12.0 million shares of Common Stock, cash of $247.9 million from
borrowings under the Company's then existing bank credit facility and Warrants
to purchase 4.8 million shares of Common Stock. The Western Acquisition has
provided the Company with a greater critical mass with which to compete in both
domestic and international markets and the realization of significant
consolidation benefits. The Western Acquisition increased the Company's then
existing total revenue base by approximately 75% and more than doubled the
Company's then existing domestic revenue base. In addition, in excess of $40
million in annual overhead and redundant operating costs have been eliminated
annually by combining the two companies.
In June 1996, the Company completed the acquisition of Nowsco Well Service
Ltd. ("Nowsco" and the "Nowsco Acquisition") during June 1996 for a total
purchase price of $582.6 million (including transaction costs of $6.2 million).
Nowsco's operations were conducted primarily in Canada, the United States,
Europe, Southeast Asia and Argentina and included pressure pumping, coiled
tubing, commissioning and inspection service businesses. Including the results
of Nowsco's operations prior to the acquisition, pro forma revenues during 1996
were $1.2 billion.
During the year ended September 30, 1997, the Company generated
approximately 88% of its revenue from pressure pumping services and 12% from
product and equipment sales and other oilfield services. Over the same period,
the Company generated approximately 53% of its revenue from U.S. operations and
47% from international operations.
CEMENTING SERVICES
The Company's cementing services, which accounted for approximately 33% of
the Company's total revenue during 1997, consist of blending cement and water
with various solid and liquid additives to create a slurry that is pumped into a
well between the casing and the wellbore. The additives and the properties of
the slurry are designed to ensure the proper pump time, compressive strength and
fluid loss control, and vary depending upon the well depth, downhole
temperatures and pressures, and formation characteristics.
The Company provides regional laboratory testing services to evaluate
slurry properties, which vary with cement supplier and local water properties.
Job design recommendations are developed by the Company's field engineers to
achieve desired porosity and bonding characteristics.
There are a number of specific applications for cementing services used in
oilfield operations. The principal application is the cementing between the
casing pipe and the wellbore during the drilling and completion phase of a well
("primary cementing"). Primary cementing is performed to (i) isolate fluids
behind the casing between productive formations and other formations which would
damage the productivity of hydrocarbon producing zones or damage the quality of
freshwater aquifers, (ii) seal the casing from corrosive formation fluids, and
(iii) provide structural support for the casing string. Cementing services are
also utilized when recompleting wells from one producing zone to another and
when plugging and abandoning wells.
2
<PAGE> 3
STIMULATION SERVICES
The Company's stimulation services, which accounted for approximately 55%
of the Company's total revenue during 1997, consist of fracturing, acidizing,
sand control, nitrogen and coiled tubing services. These services are designed
to improve the flow of oil and gas from producing formations and are summarized
as follows:
Fracturing. Fracturing services are performed to enhance the production of
oil and gas from formations having such low permeability that the natural flow
is restricted. The fracturing process consists of pumping a fluid gel into a
cased well at sufficient pressure to "fracture" the formation. Sand, bauxite or
synthetic proppant which is suspended in the gel is pumped into the fracture to
prop it open. The size of a fracturing job is generally expressed in terms of
the pounds of proppant. The main pieces of equipment used in the fracturing
process are the blender, which blends the proppant and chemicals into the
fracturing fluid, and the pumping unit, which is capable of pumping significant
volumes at high pressures. The Company's fracturing pump units are capable of
pumping slurries at pressures of up to 14,000 pounds per square inch at rates of
up to four barrels per minute. In some cases, fracturing is performed by an acid
solution pumped under pressure without a proppant or with small amounts of
proppant.
An important element of fracturing services is the design of the fracturing
treatment, which includes determining the proper fracturing fluid, proppants and
injection program to maximize results. The Company's field engineering staff
provides technical evaluation and job design recommendations as an integral
element of its fracturing service for the customer. Technological developments
in the industry over the past three to four years have focused on proppant
concentration control (i.e., proppant density), liquid gel concentrate
capabilities, computer design and monitoring of jobs and cleanup properties for
fracturing fluids. Over the past decade, the Company has successfully introduced
equipment to respond to these technological advances. During 1991, the Company
introduced a patented, borate-based fracturing fluid, Spectra Frac G(R). During
1993, the Company introduced two additional fracturing fluids, Medallion Frac
and Spartan Frac. These fracturing fluids are now used in most of the Company's
fracturing treatments. During 1994, the Company commercialized a proprietary
enzyme treatment used in conjunction with the three fracturing fluids. These
"enzyme breakers" can significantly enhance the production of oil and gas in a
wide range of wells.
Acidizing. Acidizing services are performed to enhance the flow rate of oil
and gas from wells with reduced flow caused by formation damage due to drilling
or completion fluids, or the buildup over time of various materials that block
the formation. Acidizing entails pumping large volumes of specially formulated
acids into reservoirs to dissolve barriers and enlarge crevices in the
formation, thereby eliminating obstacles to the flow of oil and gas. The Company
maintains a fleet of mobile acid transport and pumping units to provide
acidizing services for the onshore market.
Sand Control. Sand control services involve the pumping of gravel to fill
the cavity created around the wellbore during drilling. The gravel provides a
filter for the exclusion of formation sand from the producing pathway. Oil and
gas is then free to move through the gravel into the wellbore to be produced.
These services are primarily provided in the Gulf of Mexico, the North Sea,
Venezuela, Trinidad and Indonesia.
Nitrogen. There are a number of uses for nitrogen, an inert gas, in
pressure pumping operations. Used alone, it is effective in displacing fluids in
various oilfield applications, including underbalanced drilling. However,
nitrogen services are used principally in applications which support the
Company's coiled tubing and fracturing services.
Coiled Tubing. Coiled tubing services involve the injection of coiled
tubing into wells to perform various applications and functions for use
principally in well-servicing operations. The application of coiled tubing to
drilling operations has increased in recent years due to improvements in coiled
tubing technology. Coiled tubing is a flexible steel pipe with a diameter of
less than five inches manufactured in lengths of thousands of feet and wound or
coiled along a large reel on a truck or skid-mounted unit. Due to the small
diameter of coiled tubing, it can be inserted through production tubing and used
to perform workovers without using a larger, more costly workover rig. The other
principal advantages of employing coiled tubing in a workover include (i) not
having to "shut-in" the well during such operations, thereby allowing production
to continue
3
<PAGE> 4
and reducing the risk of formation damage to the well, (ii) the ability to reel
continuous coiled tubing in and out of a well significantly faster than
conventional pipe, which must be jointed and unjointed, (iii) the ability to
direct fluids into a wellbore with more precision, allowing for localized
stimulation treatments and providing a source of energy to power a downhole
motor or manipulate downhole tools and (iv) enhanced access to remote or
offshore fields due to the smaller size and mobility of a coiled tubing unit.
Recent technological improvements to coiled tubing have increased its
dependability and durability, expanding coiled tubing's potential uses and
markets.
The Company participates in the offshore stimulation market through the use
of skid-mounted pumping units and through operation of several stimulation
vessels including one in the North Sea, four in the Gulf of Mexico and five in
South America.
The Company believes that as production continues to decline in key
producing fields of the U.S. and certain international regions, the demand for
fracturing and stimulation services is likely to increase. The Company has been
increasing its pressure pumping capabilities in certain international markets
over the past several years.
OTHER SERVICES
The Company's other services, including product and equipment sales for
cementing and stimulation services, as well as the following services, accounted
for approximately 12% of the Company's total revenue in 1997. Such products and
equipment sales to customers are generally made in the course of providing
cementing and stimulation services to certain customers and, other than the
specialty chemical business, the Company generally does not sell proprietary
products to other companies involved in well servicing.
Casing and Tubular Services. Casing services principally consist of
installing (or "running") pipe in a wellbore to protect the structural integrity
of the wellbore and to seal various zones in the well. These services are
primarily provided during the drilling and completion phases of a well. Tubular
services, which consist of running pipe inside the casing through which the oil
and gas is produced, are principally provided during workovers. The Company
expects that workover activity and the demand for tubular services in the North
Sea should increase during at least the next several years as operators there
attempt to mitigate the decline in production from the North Sea's mature
fields.
Process and Pipeline Services. Process and pipeline services involve the
inspection and testing of the integrity of pipe connections in offshore drilling
and production platforms, onshore and offshore pipelines and industrial plants,
and are provided during the commissioning, decommissioning, installation or
construction stages of these infrastructures, as well as during routine
maintenance checks. Historically, hydrocarbon storage and production facilities
have been tested for leaks using either water under pressure or a "live" system
whereby oil, gas or water was introduced at operating pressure. At remote
locations such as offshore facilities, the volume of fresh water required to
test the facility made its use impractical and the use of flammable or toxic
fluids created a risk of explosion or other health hazards. Commission leak
testing, or CLT, uses a nitrogen and helium gas mixture in conjunction with
certain specialized equipment to detect very small leaks in joints, instruments
and valves that form the components of such facilities. Although the process is
safer and more practical than traditional leak detection methods, it may in some
instances be more expensive. Accordingly its use is restricted to those
instances where environmental and safety concerns are particularly acute.
Pipeline services include pipeline testing and commissioning services
including filling, pressure testing, dewatering, purging and vacuum drying of
pipelines. Other services include grouting and insulating of pipeline bundles,
abandonment of pipelines and tank desludging services for large storage tanks.
Recent applications include the development of pipeline gels, both hydrocarbon
and aqueous, for pipeline cleaning and transport as well as plugs used for
isolation purposes. The Company has also developed high friction pig trains and
freezing techniques for the isolation of pipelines.
Intelligent pigs are pipeline monitoring vehicles which, together with
interpretational software, offer to pipeline operators, constructors and
regulators measurement of pipeline geometry, determination of pipeline
4
<PAGE> 5
location and orientation and examination of pipeline internal condition. In
addition, the client can develop a structural analysis using the measured
pipeline geometry information. The operator's planning is improved by the
capability of efficiently analyzing the data to determine the pipeline's status,
estimate current and future reliability and provide recommendations on remedial
or maintenance requirements which consider the severity of the problem
identified. Analysis work using intelligent pigs can be routinely performed with
maintenance monitoring programs implemented as a method for increasing safety
for people, property and the environment.
Specialty Chemical Services. Specialty chemical services, provided through
the Company's Unichem division include the sale of corrosion and scale
inhibitors and paraffin control for the treatment of oil wells as well as
process chemicals for refinery, gas processing plant and petrochemical facility
maintenance and flow improvement.
Downhole Tools. The Company provides downhole tools and technical personnel
for gravel pack and frac pack completions, reservoir flow testing, well
stimulation and well servicing applications, operating from key service bases on
the U.S. Gulf Coast. The Company's downhole tool capabilities fall into two
categories -- completion tools and service tools. Completion tools, which are
used after a well is drilled to bring the well into production, generally are
sold and remain in the well. Service tools, which are used to perform a wide
range of downhole operations to maintain or improve a well, generally are rented
from nearby tool inventories.
OPERATIONS
Pressure pumping services are provided to both land-based and offshore
customers on a 24-hour, on-call basis, through regional and district facilities
in over 100 locations worldwide, utilizing complex, truck- or skid-mounted
equipment designed and constructed for the particular pressure pumping service
furnished. After such equipment is moved to a well location, it is configured
with appropriate connections to perform the specific services required. The
mobility of this equipment permits the Company to provide pressure pumping
services to changing geographic areas. While approaching capacity constraints in
certain U.S. locations, management believes that the Company's pressure pumping
equipment is adequate to service both current and projected levels of market
activity in the near term.
The Company maintains a fleet of mobile cement pumping equipment for
onshore operations. Offshore operations are performed with skid-mounted cement
pumping units primarily using its patented Recirculating Averaging Mixer
("RAM"). Sand control services utilize a patented blender, the Cyclone, which
also has pressure pumping and offshore fracturing applications. Since 1992, the
Company has utilized computerized systems which allow for real-time monitoring
and control of the cementing processes.
Principal materials utilized in the pressure pumping business include
cement, fracturing proppants, acid and bulk chemical additives. Generally, these
items are available from several suppliers, and the Company utilizes more than
one supplier for each item. The Company also produces certain of its specialized
products through company-owned blending facilities in Germany, Singapore and
Canada. Sufficient material inventories are maintained to allow the Company to
provide on-call services to its customers to whom the materials are resold in
the course of providing pressure pumping services. Repair parts and maintenance
items for pressure pumping equipment are carried in inventory to ensure
continued operations without significant downtime caused by parts shortages. The
Company has experienced only intermittent tightness in supply or extended lead
times in obtaining necessary supplies of these materials or replacing equipment
parts and does not anticipate any chronic shortage of any items in the
foreseeable future.
The Company believes that coiled tubing and other materials utilized in
performing coiled tubing services are and will continue to be widely available
from a number of manufacturers. Although there are only three principal
manufacturers of the reels around which the coiled tubing is wrapped, the
Company is not aware of any difficulty in obtaining coiled tubing reels in the
past, and the Company anticipates no such difficulty in the future.
5
<PAGE> 6
ENGINEERING AND SUPPORT SERVICES
The Company maintains two primary research and development centers -- one
in Tomball, Texas (near Houston) and the other in Calgary, Alberta. The
Company's research and development organization is divided into five distinct
areas -- Petroleum Engineering, Software Applications, Instrumentation
Engineering, Mechanical Engineering and Coiled Tubing Engineering.
Petroleum Engineering. The Petroleum Engineering laboratory specializes in
designing fluids with enhanced performance characteristics in the fracturing,
acidizing and cementing operations (i.e., "frac fluids" and "cement slurries").
As fluids must perform under a wide range of downhole pressures, temperatures
and other conditions, this design process is a critical element in developing
products to meet customer needs.
Software Applications. The Company's Software Applications group develops
and supports a wide range of proprietary software utilized in the monitoring of
both cement and stimulation job parameters. This software, combined with the
Company's internally developed monitoring hardware, allows for real-time job
control as well as post-job analysis.
Instrumentation Engineering. The pumping services industry utilizes an
array of both monitoring and control instrumentation as an integral element of
providing cementing and stimulation services. The Company's monitoring and
control instrumentation, developed by its Instrumentation Engineering group,
complements its products and equipment and provides customers with desired
real-time monitoring of critical applications.
Mechanical Engineering. Though similarities exist between the major
competitors in the general design of their pumping equipment, the actual
engine/transmission configurations as well as the mixing and blending systems
differ significantly. Additionally, different approaches to the integrated
control systems result in equipment designs which are usually distinct in
performance characteristics for each competitor. The Company's Mechanical
Engineering group is responsible for the design and manufacturing of virtually
all of the Company's primary pumping and blending equipment. However, some
primary pumping equipment and certain generic peripheral support equipment which
is generic to the industry is purchased externally. The Company's Mechanical
Engineering group provides new product design as well as support to the
rebuilding and field maintenance functions.
Coiled Tubing Engineering. The Coiled Tubing Engineering group is located
in Calgary, Alberta. This group provides most of the support and research and
development activities for the Company's coiled tubing services. Development
work for drilling applications (DUCT(TM)) involves using coiled tubing
directional drilling technology for completions and directional underbalanced
drilling. The Company is also actively involved in the ongoing development of
downhole tools that may be run on coiled tubing, including rotary jetting
equipment and through tubing inflatable packer systems. The Company's SandVac
system is a licensed jet pump system that is used with concentric coiled tubing
to clean unwanted sand from horizontal wells. The tool and coiled tubing
configuration allow sand to be drawn into the system and brought to surface
through a cleaning process analogous to a vacuum.
MANUFACTURING
In addition to the engineering facility, the Company's technology and
research center near Houston houses its main equipment and instrumentation
manufacturing facility. This operation currently occupies approximately 65,000
square feet and includes complete fabrication, engine and transmission
rebuilding, pump manufacturing and assembly capabilities. The Company is in the
process of expanding these facilities by an additional 40,000 square feet to
provide additional manufacturing and engineering facilities and to consolidate
certain logistical operations. The Company also has smaller manufacturing
capabilities in selected international locations. The Company employs outside
vendors for manufacturing of its coiled tubing units and certain fabrication
work, but is not dependent on any one source.
COMPETITION
Pressure Pumping Services. There are two primary companies with which the
Company competes in pressure pumping services, Halliburton Energy Services, a
division of Halliburton Company, and Dowell, a
6
<PAGE> 7
division of Schlumberger Ltd. These companies have operations in most areas of
the U.S. in which the Company participates and in most international regions. It
is estimated that these two competitors, along with the Company, provide over
90% of pressure pumping services to the industry. Several smaller companies
compete with the Company in certain areas of the U.S. and in certain foreign
countries. The principal methods of competition which apply to the Company's
business are its prices, service record and reputation in the industry. While
Halliburton Energy Services and Dowell are larger in terms of overall revenues,
the Company has a number one or a number two share position in several markets,
including many regions in the United States, the North Sea, Latin America and
Canada.
Other Services. The Company believes that it is one of the largest
suppliers of casing and tubular services in the U.K. North Sea and has expanded
such services into other international markets in the past several years. The
largest provider of casing and tubular services is Weatherford Enterra, Inc. In
the U.K., casing and tubular services are typically provided under long-term
contracts which limit the opportunities to compete for business until the end of
the contract term. In continental Europe, shorter-term contracts are typically
available for bid by the provider of casing and tubular services. The Company
believes it is the largest provider of commissioning and leak detection services
and one of the largest providers of pipeline inspection services. In specialty
chemical services and in downhole tools, there are several competitors
significantly larger than the Company.
MARKETS AND CUSTOMERS
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 number of well completions and the level of workover activity
worldwide.
The Company's principal customers consist of major and independent oil and
gas producing companies. During 1997, the Company provided oilfield services to
over 2,500 customers, none of which accounted for more than 5% of consolidated
revenues. While the loss of certain of the Company's largest customers could
have a material adverse effect on Company revenues and operating results in the
near term, management believes the Company would be able to obtain other
customers for its services in the event it lost any of its largest customers.
United States. The Company provides its pumping services to its U.S.
customers through a network of over 50 locations throughout the U.S., a majority
of which offer both cementing and stimulation services. Demand for the Company's
services in the U.S. is primarily driven by oil and natural gas drilling
activity, which is affected by the current and anticipated prices of oil and
natural gas. Due to aging oilfields and lower-cost sources of oil
internationally, drilling activity in the U.S. has declined more than 75% from
its peak in 1981. Record low drilling activity levels were experienced in 1986
and 1992. Until recently, excess capacity among pumping service companies has
resulted in the inability to generate adequate returns on new capital
investments. To improve returns in this environment, management believes it is
important to operate with a greater "critical mass" in the key U.S. markets.
This conclusion led to the decision to consolidate the Company's operations with
those acquired from Western, which had a larger presence in the U.S., and
Nowsco. Due to relatively stronger oil and natural gas prices, U.S. drilling
activity levels have recently reached their highest levels since 1991.
International. The Company operates in over 40 countries in the major
international oil and natural gas producing areas of Latin America, Europe,
Africa, Southeast Asia, Canada and the Middle East. The Company generally
provides services to its international customers through wholly-owned foreign
subsidiaries. Additionally, the Company holds certain controlling and minority
interests in several joint venture companies, through which it conducts a
portion of its international operations. For geographic information, see Note 9
of the Notes to Consolidated Financial Statements.
The international market is somewhat less volatile than the U.S. market
despite energy price fluctuations. Due to the significant investment and
complexity in international projects, management believes drilling decisions
relating to such projects tend to be evaluated and monitored with a longer-term
perspective with regard to oil and gas pricing. Additionally, the international
market is dominated by major oil companies and
7
<PAGE> 8
national oil companies which tend to have different objectives and more
operating stability than the typical independent producer in the U.S.
International activities have been increasingly important to the Company's
results of operations since 1992, when it implemented a strategy to expand its
international presence.
In general, the Company operates in those international markets where it
can achieve and maintain both a significant share position and an attractive
return on its investment. The Company's major international revenue and income
producing operations are in the North Sea in the European market; Indonesia,
Thailand and Malaysia in the Southeast Asian market; Canada; Egypt and India in
the Middle Eastern market; and Argentina, Venezuela, Colombia and Brazil in the
Latin American market. Foreign operations are subject to special risks that can
materially affect the sales and profits of the Company, including currency
exchange rate fluctuations, the impact of inflation, governmental expropriation,
exchange controls, political instability and other risks. With the exception of
Canada, however, the majority of the Company's services are billed in U.S.
dollars.
EMPLOYEES
At September 30, 1997, the Company had a total of 8,453 employees.
Approximately 52% of the Company's employees are employed outside the United
States.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company's business is affected both directly and indirectly by
governmental regulations relating to the oil and gas industry in general, as
well as environmental and safety regulations which have specific application to
the Company's business.
The Company, through the routine course of providing its services, handles
and stores bulk quantities of hazardous materials. In addition, leak detection
services involve the inspection and testing of facilities for leaks of hazardous
or volatile substances. If leaks or spills of hazardous materials handled,
transported or stored by the Company occur, the Company may be responsible under
applicable environmental laws for costs of remediating damage to the surface,
subsurface or aquifers incurred in connection with such occurrence. Accordingly,
the Company has implemented and continues to implement various procedures for
the handling and disposal of hazardous materials. Such procedures are designed
to minimize the occurrence of spills or leaks of these materials.
The Company has implemented and continues to implement various procedures
to further assure its compliance with environmental regulations. Such procedures
generally pertain to the operation of underground storage tanks, disposal of
empty chemical drums, improvement to acid and wastewater handling facilities and
cleaning of certain areas at the Company's facilities. The estimated cost for
such procedures is $8.1 million which will be incurred over a period of several
years, for which the Company has provided appropriate reserves. In addition, the
Company maintains insurance for certain environmental liabilities which the
Company believes is reasonable based on its knowledge of the industry.
The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," imposes liability without regard to fault or the
legality of the original conduct, on certain classes of persons that contributed
to the release of a "hazardous substance" into the environment. Certain disposal
facilities used by the Company or its predecessors have been investigated under
state and federal superfund statutes, and the Company is currently named as a
potentially responsible party for cleanup at five such sites. Although the
Company's level of involvement varies at each site, in general, the Company is
one of numerous parties named and will be obligated to pay an allocated share of
the cleanup costs. While it is not feasible to predict the outcome of these
matters with certainty, management is of the opinion that their ultimate
resolution should not have a material effect on the Company's operations or
financial position.
RESEARCH AND DEVELOPMENT; PATENTS
Research and development activities for pressure pumping services are
directed primarily toward improvement of existing products and services and the
design of new products and processes to meet specific
8
<PAGE> 9
customer needs. The Company currently holds numerous patents relating to
products and equipment used in its pumping services business. While such
patents, in the aggregate, are important to maintaining the Company's
competitive position, no single patent is considered to be of a critical or
essential nature.
To remain competitive, the Company devotes significant resources to
developing technological improvements to its pumping services products. In 1991,
the Company introduced a borate based fracturing fluid, Spectra Frac G(R), which
is being widely used in the U.S. stimulation market and the North Sea. In 1993,
this product was complemented with two additional fracturing fluids, Spartan
Frac and Medallion Frac, which have expanded the Company's services line
offering to cover a broader range of economic and downhole design variables.
These products replaced several products previously made available to customers.
During 1994, the Company commercialized a proprietary enzyme process used in
conjunction with the three fracturing fluids. These "enzyme breakers"
significantly enhance the production of oil and gas in a wide range of wells. In
1991, the Company introduced its "Cyclone" blender which, along with Western's
completion tool technology, have helped address the growing sand control and
frac pack markets in the Gulf of Mexico and the North Sea. The Company believes
that these products and equipment have enabled the Company to maintain or
increase its market share in the United States, the Gulf of Mexico and the North
Sea. In 1995, the Company developed Sandstone Acid(TM), a matrix acidizing
chemistry used in sandstone formations. Management believes this product, while
still in the early stages of implementation, offers significant advantages over
conventional acidizing methods in sandstone reservoirs. The Company intends to
continue to devote significant resources to its research and development
efforts.
As a result of the acquisition of Nowsco, the testing and development of
new products is an integral part of the Company's coiled tubing and pipeline
inspection businesses. Recent developments by Nowsco include a prototype
corrosion inspection tool, Rotojet(TM) (a tool for use in wellbore scale
removal) and drilling using coiled tubing (DUCT(TM)).
Additionally, the Company operates under various license arrangements,
generally ranging from 10 to 20 years in duration, relating to certain products
or techniques. None of these license arrangements is material.
For information regarding the amounts of research and development expenses
for each of the three fiscal years ended September 30, 1997, see Note 12 of the
Notes to Consolidated Financial Statements.
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company and their positions and ages
are as follows:
<TABLE>
<CAPTION>
OFFICE
HELD
NAME AGE POSITION WITH THE COMPANY SINCE
---- --- ------------------------- ------
<S> <C> <C> <C>
J. W. Stewart........... 53 Chairman of the Board, President and Chief
Executive Officer 1986
Michael McShane......... 43 Vice President -- Finance and Chief Financial
Officer 1987
David Dunlap............ 36 Vice President and President, International
Division 1995
Thomas H. Koops......... 51 Vice President -- Technology and Logistics 1988
Margaret B. Shannon..... 48 Vice President -- General Counsel 1994
Kenneth A. Williams..... 47 Vice President and President, U.S. Division 1991
Matthew D. Fitzgerald... 40 Controller 1989
T. M. Whichard.......... 39 Treasurer 1992
Stephen A. Wright....... 50 Director of Human Resources 1987
</TABLE>
Mr. Stewart joined Hughes Tool Company in 1969 as Project Engineer. He
served as Vice President -- Legal and Secretary of Hughes Tool Company and as
Vice President -- Operations for a predecessor of the Company prior to being
named President of the Company in 1986.
9
<PAGE> 10
Mr. McShane joined the Company in 1987 from Reed Tool Company, an oilfield
tool company, where he was employed for seven years. At Reed Tool Company he
held various financial management positions including Corporate Controller and
Regional Controller of Far East Operations.
Mr. Dunlap joined the Company in 1984 as a District Engineer and was named
Vice President -- International Operations in December 1995. He has previously
served as Vice President -- Sales for the Coastal Division of North America and
U.S. Sales and Marketing Manager.
Ms. Shannon joined the Company in 1994 as Vice President -- General Counsel
from the law firm of Andrews & Kurth L.L.P. where she had been a partner since
1984.
Mr. Koops joined the Company as Manager -- Products and Technical Services
in 1976, prior to being named Vice President -- Manufacturing and Logistics of
the Company in 1988 and to his current position in 1992.
Mr. Williams joined the Company in 1973 and has since held various
positions in the U.S. operations. Prior to being named Vice President -- North
American Operations in 1991, he served as Region Manager -- Western U.S. and
Canada.
Mr. Fitzgerald joined the Company as Controller in 1989 from Baker Hughes
Incorporated, an oil service company, where he was the Director of Corporate
Audit. Prior thereto, he was a Senior Manager with the certified public
accounting firm of Ernst & Whinney.
Mr. Whichard joined the Company as Tax and Treasury Manager in 1989 from
Weatherford International, an oil service company, where he was the Tax Manager.
Prior to being named Treasurer in 1992, he served in various positions including
Tax Director and Assistant Treasurer.
Mr. Wright joined the Company as Manager of Compensation and Benefits in
1985 from Global Marine Inc., an offshore drilling company, and assumed his
current position with the Company in 1987.
ITEM 2. PROPERTIES
The Company's properties consist primarily of pressure pumping and blending
units and related support equipment such as bulk storage and transport units.
Although a portion of the Company's U.S. pressure pumping and blending fleet is
being utilized through a servicing agreement with an outside party, the majority
of its worldwide fleet is owned and unencumbered. The Company's tractor fleet,
most of which in the U.S. is leased, is used to transport the pumping and
blending units. The Company's domestic light duty truck fleet is also leased,
whereas a majority of vehicles in the international operations are owned by the
Company.
The Company both owns and leases regional and district facilities from
which pressure pumping services and other oilfield services are provided to
land-based and offshore customers. The Company's principal executive offices in
Houston, Texas are leased. The technology and research centers located near
Houston, Texas and Calgary, Alberta are owned by the Company, as are blending
facilities located in Germany, Singapore and Canada. The Company operates
several stimulation vessels, including one in the North Sea and five in South
America which are owned, and four in the Gulf of Mexico on which the hulls are
leased. For additional information with respect to the Company's lease
commitments, see Note 11 of the Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company, through performance of its service operations, is sometimes
named as a defendant in litigation, usually relating to claims for bodily
injuries or property damage (including claims for well or reservoir damage). The
Company maintains insurance coverage against such claims to the extent deemed
prudent by management. The Company believes that there are no existing claims of
a potentially material adverse nature for which it has not already provided.
As a result of the Western Acquisition and the Nowsco Acquisition, the
Company assumed responsibility for certain claims and proceedings made against
Western and Nowsco in connection with their businesses.
10
<PAGE> 11
Some, but not all, of such claims and proceedings will continue to be covered
under insurance policies of the Company's predecessors that were in place at the
time of the acquisitions. Although the outcome of the claims and proceedings
against the Company (including Western and Nowsco) cannot be predicted with
certainty, management believes that there are no existing claims or proceedings
that are likely to have a materially adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for stockholders' vote during the fourth quarter
of the fiscal year ended September 30, 1997.
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company began trading on The New York Stock
Exchange in July 1990 under the symbol "BJS". Warrants to purchase common stock
("Warrants") were issued in April 1995 and trade under the symbol "BJSW". At
December 5, 1997 there were approximately 1,100 holders of record of the
Company's Common Stock and 1,250 holders of record of the Warrants.
The following table sets forth for the periods indicated the high and low
sales prices per share for the Company's Common Stock and Warrants reported on
the NYSE composite tape.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE RANGE WARRANT PRICE RANGE
------------------ --------------------
HIGH LOW HIGH LOW
------ ------ ------- -------
<S> <C> <C> <C> <C>
Fiscal 1996
1st Quarter............................. $29.50 $20.50 $ 7.88 $ 3.00
2nd Quarter............................. 33.63 25.13 11.50 5.38
3rd Quarter............................. 39.38 31.38 15.75 10.00
4th Quarter............................. 39.38 32.00 16.50 10.63
Fiscal 1997
1st Quarter............................. 52.50 36.38 27.63 14.00
2nd Quarter............................. 55.38 38.25 30.50 15.25
3rd Quarter............................. 58.50 43.38 33.38 19.25
4th Quarter............................. 75.69 53.75 49.75 29.00
Fiscal 1998
1st Quarter (through December 5,
1997)................................ 90.75 66.88 64.50 41.50
</TABLE>
Since its initial public offering in 1990, BJ Services has not paid any
cash dividends to its stockholders. The Company expects that, for the
foreseeable future, any earnings will be retained for the development of the
Company's business and, accordingly, no cash dividends are expected to be
declared on the Common Stock. At September 30, 1997, there were 38,530,762
shares of Common Stock issued and outstanding. On December 11, 1997, the
Company's Board of Directors approved a 2 for 1 stock split, to be effected in
the form of a stock dividend, for holders of record on January 30, 1998. The
stock split is subject to stockholder approval, at the annual meeting of
stockholders on January 22, 1998, of an amendment to the Company's charter
increasing the number of authorized shares of Common Stock from 80 million to
160 million shares. On December 19, 1997, the Company's Board of Directors
authorized a stock repurchase program of up to $150 million, effective
immediately. Repurchases will be at the discretion of the Company's management
and the program will remain in effect until terminated by the Company's Board of
Directors.
The Bank Credit Facility prohibits any dividend payments when the Company's
debt to capitalization ratio exceeds 35% immediately prior to and after giving
effect to the declaration of any dividend, except the
11
<PAGE> 12
Company may declare and make dividend payments solely in its capital stock. See
Financial Condition -- Capital Resources and Liquidity and Note 6 of the Notes
to Consolidated Financial Statements.
The Company has a Stockholder Rights Plan (the "Rights Plan") designed to
deter coercive takeover tactics and to prevent an acquirer from gaining control
of the Company without offering a fair price to all of the Company's
stockholders. Under this plan, each outstanding share of the Company's Common
Stock includes one preferred share purchase right ("Right") which becomes
exercisable under certain circumstances, including when beneficial ownership of
the Company's Common Stock by any person, or group, equals or exceeds 15% of the
Company's outstanding Common Stock. Each Right entitles the registered holder to
purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock at a price of $150, subject to adjustment under
certain circumstances. Upon the occurrence of certain events specified in the
Rights Plan, each holder of a Right (other than an Acquiring Person) will have
the right, upon exercise of such Right, to receive that number of shares of
common stock of the Company (or the surviving corporation) that, at the time of
such transaction, would have a market price of two times the purchase price of
the Right. No shares of Series A Junior Participating Preferred Stock have been
issued by the Company at September 30, 1997. Subject to stockholder approval of
the increase in the number of authorized shares of Common Stock, the Rights will
be proportionately adjusted as of the stock split record date to reflect the
effect of the stock split.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected historical financial data
of the Company. The selected operating and financial position data as of and for
each of the five years in the period ended September 30, 1997 have been derived
from the audited consolidated financial statements of the Company. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto which are included elsewhere herein.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1997 1996(1) 1995(1) 1994 1993
---------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue................................ $1,466,573 $ 965,261 $633,660 $434,476 $394,363
Operating expenses, excluding unusual
charges and goodwill amortization... 1,269,731 875,022 592,905 414,493 373,934
Goodwill amortization.................. 14,435 7,910 3,266 1,298 691
Unusual charges(2)..................... 7,425 17,200
Operating income....................... 182,407 74,904 20,289 18,685 19,738
Interest expense....................... (30,715) (26,948) (15,164) (7,383) (5,414)
Other income -- net.................... 1,727 3,321 2,763 745 1,330
Income tax expense (benefit)........... 46,462 12,105 (1,102) 2,006 1,593
Income before cumulative effect of
accounting change................... 107,906 40,486 9,889 10,770 14,561
Cumulative effect of change in
accounting principle, net of
tax(3).............................. (10,400)
Net income............................. 107,906 40,486 9,889 370 14,561
Earnings per share before cumulative
effect of accounting change:
Primary............................. 2.62 1.29 0.46 0.68 0.94
Fully diluted....................... 2.56 1.26 0.45 0.68 0.94
Depreciation and amortization.......... 90,376 66,050 42,064 25,335 24,170
Capital expenditures(4)................ 102,198 54,158 30,966 39,345 37,350
FINANCIAL POSITION DATA (AT END OF
PERIOD):
Property -- net........................ $ 540,356 $ 558,156 $416,810 $198,844 $183,962
Total assets........................... 1,726,768 1,709,160 989,683 410,066 369,531
Long-term debt, excluding current
maturities.......................... 298,634 523,004 259,566 74,700 84,500
Stockholders' equity................... 960,227 841,703 466,795 189,927 187,132
</TABLE>
12
<PAGE> 13
- ---------------
(1) Includes the effect of the acquisitions of Nowsco in 1996 and Western in
1995, both of which were accounted for as purchases in accordance with
generally accepted accounting principles. See Note 3 of the Notes to
Consolidated Financial Statements.
(2) Unusual charges represent nonrecurring costs associated with the
acquisitions of Nowsco in 1996 and Western in 1995. See Note 4 of the Notes
to Consolidated Financial Statements.
(3) In 1994, the Company changed its method of accounting for postretirement
benefits other than pensions in accordance with SFAS 106.
(4) Excluding acquisitions of businesses.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company's operations are primarily driven by the number of oil and gas
wells being drilled, the depth and drilling conditions of such wells, the number
of well completions and the level of workover activity worldwide. Drilling
activity, in turn, is largely dependent on the price of oil and natural gas.
This is especially true in the United States, where the Company generated
approximately one-half of its revenues during fiscal 1997.
Due to "aging" oilfields and lower-cost sources of oil internationally,
drilling activity in the United States has declined more than 75% from its peak
in 1981. Record low drilling activity levels were experienced in 1986 and 1992.
Until recently, excess capacity among pumping service companies resulted in the
inability to generate adequate returns on new capital investments. To improve
returns in this environment, the Company believes it is important to operate
with a greater "critical mass" in the key U.S. markets. This conclusion led to
the decision in April 1995 to consolidate its operations with those of The
Western Company of North America ("Western"), which had a larger presence in the
United States. The Company's U.S. operations were further increased through the
acquisition of Nowsco Well Service Ltd. ("Nowsco") in June 1996, which added
operations in the mid-continental and northeastern U.S., the latter being an
area in which the Company did not have an existing presence.
Relatively stronger oil and gas prices and improved oilfield technology and
equipment have recently led to more favorable drilling conditions in the United
States. As a result, during August 1997 the U.S. active rig count exceeded 1000
rigs for the first time since 1991. The U.S. active rig count averaged 906 rigs
during the fiscal year ended September 30, 1997, an increase of 19% and 23% over
the fiscal years ended September 30, 1996 and 1995, respectively. Increases in
activity occurred in drilling for both oil and natural gas. While U.S. drilling
activity is expected to continue to be relatively strong during fiscal 1998 at
current oil and gas prices, the rate of increase is expected to decline
beginning in the Company's second fiscal quarter.
With the exception of Canada, international drilling activity has
historically been less volatile than domestic drilling activity. Active
international drilling rigs averaged 1,147 during 1997, an increase of 11% and
15% over 1996 and 1995, respectively, primarily on the strength of development
work in Canada. Calendar 1997 is expected to be a record year in terms of the
number of wells drilled in Canada. Canadian drilling activity is expected to
remain strong during the next several years due to the completion of additional
pipeline capacity.
In both the United States and internationally, there has been a continuing
trend by oil and gas companies toward "alliances" with the service companies.
These alliances take various forms including packaged or integrated services,
single source suppliers and turnkey agreements. More than 20% of the Company's
revenues were generated under such alliances during 1997. While the Company's
service line offerings are not as comprehensive as some of its major
competitors, management believes the trend towards alliances has not had a
material negative impact on the Company's operating results to date.
13
<PAGE> 14
EXPANSIONS AND ACQUISITIONS
The Company's expansion and acquisition efforts over the past several years
have been focused on adding critical mass to its U.S. operations and
international geographic expansions of its existing service lines. The Company
has completed two major acquisitions during this period -- the acquisition of
Western in April 1995 (the "Western Acquisition") and the acquisition of Nowsco
in June 1996 (the "Nowsco Acquisition").
The Western Acquisition was completed for a total purchase price of $511.4
million (including transaction costs of $7.2 million), for which the Company
paid approximately half in cash and half in shares of the Company's common stock
and warrants to purchase common stock. The Western Acquisition has provided the
Company with a greater critical mass with which to compete in domestic and
international markets and the realization of significant consolidation benefits.
The Western Acquisition increased the Company's then existing total revenue base
by approximately 75% and more than doubled the Company's then existing domestic
revenue base beginning in the June 1995 quarter. In addition, in excess of $40
million per year of overhead and redundant operating costs have been eliminated
by combining the two companies.
The Nowsco Acquisition was completed for a total purchase price of $582.6
million (including transaction costs of $6.2 million) in cash. The Nowsco
Acquisition accomplished three primary objectives: (i) it provided the Company
with the number one pumping services market position in Canada (where the
Company had not operated since 1992) and added to the Company's existing market
position in several key U.S. and international markets; (ii) it provided a
technological leadership position in the high-growth coiled tubing service line;
and (iii) it provided in excess of $20 million per year of additional cost
savings through consolidation of redundant overhead and operating bases. The
Nowsco Acquisition added approximately 40% to the Company's then existing
revenue base.
The Company's other expansion efforts during the past three years have
included: (i) expanding pumping services into several key markets including
Brazil (through acquisition of the majority ownership position from its joint
venture partner), Saudi Arabia, Qatar and Vietnam; (ii) expanding tubular
services and process and pipeline services into geographic regions outside the
North Sea, and (iii) adding additional pressure pumping service capacity in key
Latin American markets.
RESULTS OF OPERATIONS
The following table sets forth selected key operating statistics reflecting
industry rig count and the Company's financial results:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Rig Count:(1)
U.S.................................................... 906 759 739
International.......................................... 1,147 1,032 996
Revenue per rig (in thousands)........................... $714.4 $539.0 $365.2
Revenue per employee (in thousands)...................... $185.8 $173.0 $168.3
Percentage of gross profit to revenue(2)................. 22.2% 19.2% 17.0%
Percentage of research and engineering expense to
revenue................................................ 1.7% 1.8% 1.9%
Percentage of marketing expense to revenue............... 3.5% 4.1% 4.2%
Percentage of general and administrative expense to
revenue................................................ 3.5% 4.0% 4.5%
</TABLE>
- ---------------
(1) Industry estimate of average active rigs.
(2) Gross profit represents revenue less cost of sales and services.
Revenue: The Company's revenue increased for the fifth consecutive year
during 1997, increasing by 52% in each of the past two fiscal years. The 1997
increase was primarily a result of the Nowsco Acquisition and the recovery in
U.S. drilling activity. The 1996 increase was primarily driven by the Western
and Nowsco Acquisitions, international expansions and increased activity in
Latin America, the U.K. North Sea and Southeast Asia.
14
<PAGE> 15
United States
The Company's U.S. revenue increased by 41% and 58% in 1997 and 1996,
respectively. The 1997 increase was due to a combination of the Nowsco
acquisition, improved drilling activity and better pricing. The Nowsco
acquisition added approximately 15 to 20% to the Company's U.S. revenues
beginning in the fourth quarter of fiscal 1996, therefore providing nine months
of additional benefit during 1997. Taking into account the prior year's
pre-acquisition Nowsco revenues, the Company's U.S. operations showed a pro
forma revenue increase of 26%. Activity, as measured by the rig count, increased
by 19% during this period. Pricing improved by approximately 7% to 8% mainly
through price book increases implemented in July 1996 and June 1997. Pricing
showed stronger improvement (12% to 13%) during the last quarter of the year due
to tightening capacity in the U.S. pressure pumping market. While management
believes the Company has retained most of the key customers of Nowsco, it
estimates the Company may have experienced 1% to 2% of market share
deterioration on a pro forma basis during 1997 due to the loss of certain
low-priced Nowsco business to a new competitor and job turndowns due to
personnel and equipment limitations.
The 1996 revenue increase reflects the benefits of the Western and Nowsco
Acquisitions. Exclusive of the benefits of these acquisitions, revenue also
increased due to stronger natural gas drilling activity, most significantly in
the Company's South Texas and Gulf of Mexico operations. Natural gas activity
typically generates higher revenue per well for the Company than oil activity.
International
International revenues increased by 66% and 45% during 1997 and 1996,
respectively. The 1997 increase was primarily driven by the Nowsco Acquisition,
as approximately two-thirds of Nowsco's business was generated outside the
United States (mostly in Canada and the North Sea). As a result of the Nowsco
Acquisition, the Company now has the largest pressure pumping operation in
Canada. Pro forma for the Nowsco operations, 1997 international pressure pumping
revenues increased by 18% due primarily to strong Canadian drilling activity,
which increased by 38% over 1996. Other international pressure pumping
operations showing the most significant revenue increases during the year were
Venezuela, due to increased activity and coiled tubing capacity additions; the
Middle East, reflecting new contracts in India and Egypt and expansions into
Saudi Arabia and Bangladesh; and Brazil and Indonesia. Partially offsetting
these increases were pro forma revenue declines in the North Sea and Russia.
Each of the Company's other international service lines, which primarily consist
of tubular services and process and pipeline services, also showed pro forma
revenue increases due to stronger activity and expansions into new markets.
The 1996 revenue increase was primarily attributable to three factors: (i)
the continued geographic expansion of the Company's service lines; (ii) a
significant increase in Latin America, the U.K. North Sea and Southeast Asia
business; and (iii) acquisitions. Pressure pumping international expansions
included Qatar and Vietnam in 1995 and Saudi Arabia and Azerbaijan in 1996. The
tubular services and commissioning and leak detection service lines have now
operated in each of the Company's international regions. Most of the revenue
growth in Latin America (up 28% in 1996) was a result of increased cementing and
stimulation activity with both private and national oil and gas companies in
Argentina, the addition of a coiled tubing barge in both 1995 and 1996 to
service the Lake Maracaibo, Venezuela market and the acquisition of the
remaining 60% of the Company's joint venture in Brazil in November 1995. The
Western Acquisition added international operations in Nigeria, Indonesia and
Hungary, while the Nowsco Acquisition added revenues beginning in the fourth
quarter of 1996.
Operating Income: Operating income more than doubled in both 1997 and 1996
due to the revenue increases described above, partially offset by increased
goodwill amortization and unusual charges resulting from the Western and Nowsco
Acquisitions. Although increasing on an absolute basis, each of the other
operating expenses (i.e. cost of sales and services, research and engineering,
marketing and general and administrative) have declined as a percentage of
revenues in each of the past two years primarily as a result of the economies of
scale obtained from consolidating the Western and Nowsco operations.
The cost of sales and services as a percentage of revenue was 77.8% in
1997, down from 80.8% and 83.0% in 1996 and 1995, respectively. The improvement
resulted primarily from cost reduction efforts implemented
15
<PAGE> 16
after the Western and Nowsco Acquisitions and from the efficiencies of having
larger operating bases. Net pricing also improved during 1997, mainly in the
latter part of the year, as a result of a U.S. price book increase in June 1997
and discount reductions of approximately 3% during the fourth fiscal quarter. In
1996, management believes that pricing improvement approximately offset
inflation increases in its labor and material costs. The increases in research
and engineering, marketing and general and administrative operating expenses
resulted primarily from additional overhead from the former Nowsco and Western
operations. In addition, marketing expenses increased somewhat during both 1997
and 1996 due to international expansions and higher revenues in operations which
require agency commission payments, and in the U.S. as a result of an expansion
of a program which places Company engineers in customer offices. General and
administrative expenses also increased in each of the past two years as a result
of increased spending on information systems. Information system costs are
expected to continue to increase during 1998 due to new systems recently
implemented, expected upgrades to existing systems and costs (currently
estimated at $2 million to $4 million) related to the review, testing and
reprogramming necessary to make the Company's systems compliant with Year 2000
data fields. Due to the current shortage of qualified personnel (especially
equipment operators and engineers) in the oilfield services industry, the
Company also expects to have a greater increase in its labor costs in 1998
compared with the past several years.
Goodwill amortization increased in each of the past two years due to
acquisitions. The Nowsco and Western Acquisitions resulted in additional annual
goodwill amortization in 1997 of $9.5 million and $3.3 million, respectively.
The unusual charges taken in 1997 and 1996 were taken in conjunction with
consolidation programs associated with the acquisitions of Nowsco and Western,
respectively. Included in the unusual charges were adjustments to the carrying
value of duplicate operating facilities, severance and related benefit costs,
benefits due under agreements covering the Company's executives that were
triggered as a result of the Western Acquisition, and legal and other costs that
would not have been incurred had the acquisitions not occurred. The unusual
charge associated with the Nowsco Acquisition was significantly lower than that
of the Western Acquisition as the Company had fewer overlapping operations with
Nowsco. See also Note 4 of the Notes to Consolidated Financial Statements.
Other: Interest expense increased in each of the past two years as a result
of additional borrowings to fund the Western and Nowsco Acquisitions. The
Company's weighted-average borrowing costs declined during 1997 primarily as a
result of two major factors: (i) utilization of lower interest rate facilities
and (ii) improvement in the Company's credit ratings. See also "Financial
Condition -- Capital Resources and Liquidity" and Notes 3 and 6 of the Notes to
Consolidated Financial Statements. Other income was a net gain in each of the
past three years due primarily to gains on asset sales, rental income and
royalty income. Royalty income has declined in each of the past two years due to
a reduction in use by the licensee.
Income Taxes: Primarily as a result of profitability in international
jurisdictions where the statutory tax rate is below the U.S. rate, the
availability of certain nonrecurring tax benefits and the availability of tax
benefits from the Company's reorganization pursuant to its initial public
offering in 1990, the Company's effective tax rate has remained below the U.S.
statutory rate during each of the past three years. The effective tax rate
increased in 1997 primarily as a result of higher U.S. profitability. While
increasing the Company's effective tax rate, the greater U.S. profitability has
not resulted in higher cash taxes due to the existence of U.S. net operating
loss carryforwards. The Company also recognized nonrecurring tax benefits of
$1.9 million in 1996 and $1.5 million in 1995 from the favorable settlement of
tax audits and tax losses attributable to foreign exchange fluctuations in
certain international jurisdictions. See also Note 8 of the Notes to
Consolidated Financial Statements.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided from operating activities increased in each of the last
two years primarily due to larger and more profitable operations as a result of
the Western and Nowsco Acquisitions and, in 1997, due to a recovery in U.S.
drilling activity. Partially offsetting such increased profitability in both
years were higher receivable balances and the payment of environmental, pension
and merger related expenses.
16
<PAGE> 17
Net cash provided from investing activities was $4.5 million in 1997 after
net use of $635.6 million in 1996 and $228.9 million in 1995 due primarily to
the Nowsco and Western Acquisitions, respectively. The Company's 1997 property
additions totaled $102.2 million, increasing from $54.2 million in 1996 and
$31.0 million in 1995. The current year's spending included two additional
pumping service vessels (both operating in Latin America), expansion of
cementing and stimulation capacity in the Gulf of Mexico and Latin America, and
improvements to the Company's information systems. Major items included in 1996
spending were related to international expansion opportunities (primarily in
Latin America) and offshore cementing skids. Net cash used for 1997 investing
activities was impacted by a transaction involving the transfer of certain
pumping service equipment assets. Subsequent to the transfer of equipment, the
Company received $100.0 million which was used to repay outstanding bank debt.
As a result of the reduced debt, the Company will realize a reduction in future
interest expense of approximately $6 million per year. The equipment will be
used to provide services to the Company for its customers for which the Company
will pay a service fee over a period of at least eight, but not more than
fourteen, years. The transaction generated a deferred gain for book purposes of
approximately $38 million, which will be amortized over twelve years. The
taxable gain of approximately $91 million will be completely offset with net
operating loss carryforwards that are available to the Company as a result of
the Western Acquisition. The expected tax benefit of the net operating loss
utilization has been recorded as a reduction to goodwill. Net cash used for 1997
investing activities was also impacted by the receipt of $20.3 million from the
sale of an idle stimulation vessel (the "Renaissance"), which was partially
offset by the higher property additions and the acquisitions of Top Tool
Company, Inc. and the remaining 51% ownership of the Company's previously
unconsolidated joint venture in Argentina acquired with Nowsco. Other investing
activities in 1996 included the acquisition of the remaining 60% interest in the
Company's joint venture in Brazil for total consideration of $5.4 million
(consisting of $3.7 million cash and $1.7 million of debt assumed by the
Company) and the Nowsco Acquisition for $582.6 million in cash. Other investing
activities in 1995 included the Western Acquisition for $203.3 million in cash
and $5.4 million of proceeds from the sale of a duplicate facility and other
disposals of assets. Projected capital expenditures for fiscal 1998 are expected
to substantially exceed 1997 levels, and are expected to include spending for
coiled tubing growth opportunities, additional capacity in certain high margin
locations and higher levels of replacement capital. The actual amount of 1998
capital expenditures (excluding acquisitions) will be primarily dependent upon
the availability of expansion opportunities and are expected to be funded by
cash flows from operating activities and available credit facilities. Management
believes cash flows from operating activities and available lines of credit, if
necessary, will be sufficient to fund projected capital expenditures.
Because net cash flows from operating activities exceeded the Company's
capital requirements, the Company was able to reduce existing borrowings by
$150.0 million during 1997. In 1996, the Nowsco Acquisition was financed with
the proceeds from the sale of 9.8 million shares of the Company's common stock
that generated net proceeds of $323.1 million, with the remainder provided from
borrowings under its credit facility. The 1995 financing activities were used
primarily to fund the Western Acquisition.
Management strives to maintain low cash balances while utilizing available
credit facilities to meet the Company's capital needs. Any excess cash generated
is used to pay down outstanding borrowings. In June 1996, the Company replaced
its existing credit facility with a committed, unsecured credit facility ("Bank
Credit Facility") executed to accommodate the acquisition of Nowsco. Nowsco Well
Service Ltd., the Company's Canadian Subsidiary, is a borrower in Canadian
dollars. The Bank Credit Facility consists of a Canadian $320 million
(approximately U.S. $232 million) six-year term loan, that is repayable in 22
quarterly installments which began in March 1997, and a five year U.S. $325
million revolving facility. In October 1997, the Company reduced the commitment
under the revolving facility by $100 million to $225 million. At September 30,
1997, borrowings outstanding under the Bank Credit Facility totaled $206
million, consisting wholly of borrowings under the term loan.
In 1996, the Company issued $125.0 million of unsecured 7% Notes due 2006
that have been registered under the Securities Act of 1933. The net proceeds
from the issuance of the 7% Notes ($123.3 million) were used by the Company to
repay indebtedness outstanding under the term loan portion of the Company's then
existing bank credit facility.
17
<PAGE> 18
The outstanding balance of the 9.2% Notes was $6.0 million at September 30,
1997, which the Company repaid in December 1997.
The Company's interest-bearing debt represented 29.5% of its total
capitalization at September 30, 1997, compared to 39.8% at September 30, 1996.
The Bank Credit Facility includes various customary covenants and other
provisions including the maintenance of certain profitability and solvency
ratios and restrictions on dividend payments. Management believes that the Bank
Credit Facility, combined with other discretionary credit facilities and cash
flow from operations, provides the Company with sufficient capital resources and
liquidity to manage its routine operations and fund projected capital
expenditures.
At September 30, 1997, the Company had approximately $506 million of United
States tax net operating loss carryforwards expiring between 2000 and 2011.
Under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"), the Company is required to record a deferred tax
asset for the future tax benefit of these tax net operating loss carryforwards,
as well as other items, if realization is "more likely than not." The 1995
Western Acquisition provided the Company with a greater critical mass with which
to compete in the United States as it more than doubled the Company's United
States revenue base. In addition, with the combination of Nowsco and Western,
the Company has realized significant consolidation benefits. Management
estimates that in excess of $60 million per year of overhead and redundant
operating costs have been eliminated as a result of the combination of the three
companies. Management has concluded that the Company's future taxable income
will be sufficient over the remaining caryforward periods to realize the tax
benefits represented by approximately $565 million of tax net operating loss
carryforwards acquired with the acquisitions of Nowsco and Western and generated
by the Company's operations prior to such acquisitions. Net tax benefits
resulting from the acquisitions approximate $165 million and have been included
as a deferred tax asset recognized in the purchase price allocation. Valuation
allowances have been established for the benefits of the tax net operating loss
carryforwards that are estimated to expire prior to their utilization.
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 concerning, among other things,
the Company's prospects, developments and business strategies for its
operations, all of which are subject to certain risks, uncertainties and
assumptions. These forward-looking statements are identified by their use of
terms and phrases such as "expect," "estimate," "project," "believe," and
similar terms and phrases. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those expected, estimated or projected.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Stockholders of BJ Services Company:
We have audited the accompanying consolidated statements of financial
position of BJ Services Company and subsidiaries as of September 30, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended September
30, 1997. Our audits also included the financial statement schedule listed at
Item 14. These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of BJ Services Company and
subsidiaries at September 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1997 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
November 24, 1997 (December 15, 1997 as to Notes 6 and 14)
19
<PAGE> 20
BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1997 1996 1995
---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenue............................................... $1,466,573 $965,261 $633,660
Operating Expenses:
Cost of sales and services.......................... 1,141,570 780,046 525,859
Research and engineering............................ 24,820 17,094 12,299
Marketing........................................... 51,555 39,309 26,429
General and administrative.......................... 51,786 38,573 28,318
Goodwill amortization............................... 14,435 7,910 3,266
Unusual charges..................................... 7,425 17,200
---------- -------- --------
Total operating expenses.................... 1,284,166 890,357 613,371
---------- -------- --------
Operating income...................................... 182,407 74,904 20,289
Interest expense...................................... (30,715) (26,948) (15,164)
Interest income....................................... 949 1,314 899
Other income -- net................................... 1,727 3,321 2,763
---------- -------- --------
Income before income taxes............................ 154,368 52,591 8,787
Income tax expense (benefit).......................... 46,462 12,105 (1,102)
---------- -------- --------
Net income............................................ $ 107,906 $ 40,486 $ 9,889
========== ======== ========
Earnings Per Share:
Primary............................................. $ 2.62 $ 1.29 $ .46
Fully diluted....................................... $ 2.56 $ 1.26 $ .45
Weighted-Average Shares Outstanding:
Primary............................................. 41,248 31,381 21,550
Fully diluted....................................... 42,219 32,159 21,749
</TABLE>
See Notes to Consolidated Financial Statements
20
<PAGE> 21
BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 3,900 $ 2,897
Receivables, less allowance for doubtful accounts:
1997, $6,194,000; 1996, $6,223,000...................... 332,851 271,583
Inventories:
Finished goods.......................................... 73,343 59,926
Work in process......................................... 6,969 9,479
Raw materials........................................... 23,922 17,696
---------- ----------
Total inventories.................................. 104,234 87,101
Deferred income taxes..................................... 12,986 19,349
Other current assets...................................... 20,773 37,217
---------- ----------
Total current assets............................... 474,744 418,147
Property:
Land...................................................... 14,332 18,509
Buildings................................................. 136,366 134,862
Machinery and equipment................................... 781,883 795,891
---------- ----------
Total property..................................... 932,581 949,262
Less accumulated depreciation............................. 392,225 391,106
---------- ----------
Property -- net......................................... 540,356 558,156
Goodwill, net of amortization............................... 513,388 567,260
Deferred income taxes....................................... 183,076 132,666
Investments and other assets................................ 15,204 32,931
---------- ----------
$1,726,768 $1,709,160
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable -- trade................................. $ 162,467 $ 141,966
Short-term borrowings..................................... 62,492 2,488
Current portion of long-term debt......................... 40,206 31,870
Accrued employee compensation and benefits................ 38,807 32,227
Income taxes.............................................. 10,859 8,544
Taxes other than income................................... 10,267 5,154
Accrued insurance......................................... 15,486 13,282
Other accrued liabilities................................. 44,760 56,494
---------- ----------
Total current liabilities.......................... 385,344 292,025
Long-term debt.............................................. 298,634 523,004
Deferred income taxes....................................... 7,598 11,740
Accrued postretirement benefits............................. 27,228 26,067
Minority interest and other long-term liabilities........... 47,737 14,621
Commitments and contingencies
Stockholders' Equity:
Preferred stock (authorized 5,000,000 shares)
Common stock, $.10 par value (authorized 80,000,000
shares; issued and outstanding 1997 -- 38,530,762
shares, 1996 -- 38,088,781 shares)...................... 3,853 3,809
Capital in excess of par.................................. 763,063 748,712
Retained earnings......................................... 201,897 93,991
Minimum pension liability adjustment...................... (2,051)
Cumulative translation adjustment......................... 540 (1,623)
Unearned compensation..................................... (7,075) (3,186)
---------- ----------
Total stockholders' equity......................... 960,227 841,703
---------- ----------
$1,726,768 $1,709,160
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
21
<PAGE> 22
BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
EQUITY
COMPONENT OF
CAPITAL MINIMUM CUMULATIVE
COMMON IN EXCESS UNEARNED RETAINED PENSION TRANSLATION
STOCK OF PAR COMPENSATION EARNINGS LIABILITY ADJUSTMENT TOTAL
------ --------- ------------ -------- ------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994................ $1,567 $151,340 $(2,463) $43,616 $ $(4,133) $189,927
Net income................................. 9,889 9,889
Issuance of stock for:
Business acquisition..................... 1,204 262,347 263,551
Stock options............................ 2 535 537
Stock purchase plan...................... 5 733 738
Stock performance awards................. 17 287 1,803 2,107
Recognition of unearned compensation....... 660 660
Cumulative translation adjustments......... (614) (614)
------ -------- ------- -------- ------- ------- --------
BALANCE, SEPTEMBER 30, 1995................ 2,795 415,242 53,505 (4,747) 466,795
Net income................................. 40,486 40,486
Issuance of stock for:
Business acquisition..................... 978 322,086 323,064
Stock options............................ 31 5,985 6,016
Stock purchase plan...................... 5 908 913
Stock performance awards................. 4,491 (4,491)
Recognition of unearned compensation....... 1,305 1,305
Cumulative translation adjustments......... 3,124 3,124
------ -------- ------- -------- ------- ------- --------
BALANCE, SEPTEMBER 30, 1996................ 3,809 748,712 (3,186) 93,991 (1,623) 841,703
Net income................................. 107,906 107,906
Issuance of stock for:
Stock options............................ 36 7,270 7,306
Stock purchase plan...................... 8 1,676 1,684
Warrants surrendered..................... 16 16
Stock performance awards................. 964 (964)
Recognition of unearned compensation....... 1,500 1,500
Revaluation of stock performance awards.... 4,425 (4,425)
Minimum pension liability, net of deferred
tax benefit.............................. (2,051) (2,051)
Cumulative translation adjustments......... 2,163 2,163
------ -------- ------- -------- ------- ------- --------
BALANCE, SEPTEMBER 30, 1997................ $3,853 $763,063 $(7,075) $201,897 $(2,051) $ 540 $960,227
====== ======== ======= ======== ======= ======= ========
</TABLE>
See Notes to Consolidated Financial Statements
22
<PAGE> 23
BJ SERVICES COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1997 1996 1995
--------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 107,906 $ 40,486 $ 9,889
Adjustments to reconcile net income to cash provided from
operating activities:
Depreciation and amortization.......................... 90,376 66,050 42,064
Net gain on disposal of assets......................... (169) (2,271) (830)
Recognition of unearned compensation................... 1,500 1,305 2,463
Deferred income tax benefit............................ 28,764 (136) (8,861)
Unusual charge (noncash)............................... 4,300 3,646
Minority interest...................................... 805 519 (29)
Changes in:
Receivables............................................ (59,307) (32,475) (1,091)
Accounts payable -- trade.............................. 18,188 8,620 7,707
Inventories............................................ (13,355) (3,717) (8,078)
Other current assets and liabilities................... (6,638) (29,438) (1,170)
Other, net............................................. (24,525) (2,037) (6,326)
--------- --------- ---------
Net cash flows provided from operating activities........ 143,545 51,206 39,384
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions....................................... (102,198) (54,158) (30,966)
Proceeds from disposal of assets......................... 127,490 4,805 5,393
Acquisitions of businesses, net of cash acquired......... (20,810) (586,282) (203,313)
--------- --------- ---------
Net cash provided from (used for) investing activities... 4,482 (635,635) (228,886)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock................... 323,064
Proceeds from exercise of stock options and stock
purchase grants........................................ 9,006 6,929 1,275
Proceeds from (repayment of) bank borrowings -- net...... (150,030) 261,491 192,851
Principal payment on other long-term notes............... (6,000) (6,000) (6,000)
--------- --------- ---------
Net cash flows provided from (used for) financing
activities............................................. (147,024) 585,484 188,126
Increase (decrease) in cash and cash equivalents......... 1,003 1,055 (1,376)
Cash and cash equivalents at beginning of year........... 2,897 1,842 3,218
--------- --------- ---------
Cash and cash equivalents at end of year................. $ 3,900 $ 2,897 $ 1,842
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
23
<PAGE> 24
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
BJ Services Company is a leading provider of pressure pumping and other
oilfield services to the petroleum industry. The consolidated financial
statements include the accounts of BJ Services Company and its majority-owned
subsidiaries (the "Company" ). All significant intercompany balances and
transactions have been eliminated in consolidation.
Certain amounts for 1996 and 1995 have been reclassified in the
accompanying consolidated financial statements to conform to the current year
presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings per share: Primary earnings per share are based on the weighted
average number of shares outstanding during each period and the assumed exercise
of dilutive stock options and warrants less the number of treasury shares
assumed to be purchased from the proceeds using the average market price of the
Company's common stock for each of the periods presented.
Fully diluted earnings per share are based on the weighted average number
of shares outstanding during each period and the assumed exercise of dilutive
stock options and warrants less the number of treasury shares assumed to be
purchased from the proceeds using the closing market price of the Company's
common stock for each of the periods presented.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share."
SFAS 128 establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock. This statement simplifies the standards for computing EPS
previously found in Accounting Principles Board Opinion No. 15 ("APB 15"),
"Earnings Per Share," and makes them comparable to international EPS standards.
The statement replaces the presentation of primary EPS and fully diluted EPS and
requires presentation of basic EPS and diluted EPS. Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
is computed similarly to fully diluted EPS pursuant to APB 15. This statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. Pro forma
basic EPS for the three years ended September 30, 1997, 1996 and 1995 is $2.81,
$1.32, and $.46, respectively. Based on the Company's current capital structure,
pro forma diluted EPS is the same as primary EPS for all periods presented.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from these estimates.
Cash and cash equivalents: The Company considers all highly liquid debt
instruments purchased with original maturities of three months or less to be
cash equivalents.
Inventories: Inventories, which consist principally of (i) products which
are consumed in the Company's services provided to customers, (ii) spare parts
for equipment used in providing these services and (iii) manufactured components
and attachments for equipment used in providing services, are stated primarily
at the lower of average cost or market.
Property: Property is stated at cost less amounts provided for permanent
impairments and includes capitalized interest of $684,000, $200,000 and $216,000
for the years ended September 30, 1997, 1996 and 1995, respectively, on funds
borrowed to finance the construction of capital additions. Depreciation is
generally provided using the straight-line method over the estimated useful
lives of individual items. Leasehold
24
<PAGE> 25
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
improvements are amortized on a straight-line basis over the shorter of the
estimated useful life or the lease term.
Intangible assets: Goodwill represents the excess of cost over the fair
value of the net assets of companies acquired in purchase transactions. Goodwill
is being amortized on a straight-line method over periods ranging from 5 to 40
years. Patents are being amortized on a straight line basis over their estimated
useful lives, not to exceed 17 years. Accumulated amortization on intangible
assets at September 30, 1997 and 1996 was $29,612,000 and $13,412,000
respectively. The Company utilizes undiscounted estimated cash flows to evaluate
any possible impairment of intangible assets.
Investments: Investments in companies in which the Company's ownership
interest ranges from 20 to 50 percent and the Company exercises significant
influence over operating and financial policies are accounted for using the
equity method. Other investments are accounted for using the cost method.
Foreign currency translation: Gains and losses resulting from financial
statement translation of foreign operations where the U.S. dollar is the
functional currency are included in the consolidated statement of operations.
Gains and losses resulting from financial statement translation of foreign
operations where a foreign currency is the functional currency are included as a
separate component of stockholders' equity. Except in Canada, the Company's
foreign operations use the U.S. dollar as the functional currency.
Foreign exchange contracts: From time to time, the Company enters into
forward foreign exchange contracts to hedge the impact of foreign currency
fluctuations on certain assets and liabilities denominated in foreign
currencies. Changes in market value are offset against foreign exchange gains or
losses on the related assets or liabilities and are included in cost of sales
and services. There were no foreign exchange contracts outstanding at September
30, 1997 and 1996.
Environmental remediation and compliance: Environmental remediation and
compliance costs are accrued based on estimates of known environmental
exposures. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the cost can be reasonably estimated.
Impairment of long-lived assets: In accordance with Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company
recognizes impairment losses for long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. In
January 1996, the Company decommissioned a stimulation vessel, the Renaissance,
acquired in 1995. At September 30, 1996, the carrying value of the vessel of
$20.4 million was recorded as an asset held for sale and was included in other
current assets. The vessel's hull was sold in January 1997 and the proceeds were
used to reduce outstanding debt. The vessel's stimulation equipment was removed
and redeployed to other of the Company's operating locations. No loss was
recorded on the sale of the hull and redeployment of the equipment from this
vessel.
Employee stock-based compensation: In fiscal 1997, the Company adopted
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). Under SFAS 123, the Company is permitted
to either record expenses for stock options and other stock-based employee
compensation plans based on their fair value at the date of grant or to continue
to apply its current accounting policy under Accounting Principles Board Opinion
No. 25 ("APB 25") and recognize compensation expense, if any, based on the
intrinsic value of the equity instrument at the measurement date. The Company
elected to continue following APB 25; therefore, no compensation expense has
been recognized because the exercise price of employee stock options equals the
market price of the underlying stock on the date of grant.
New accounting pronouncements: In June 1997, the Financial Accounting
Standards Board issued Statement No. 130, "Reporting Comprehensive Income,"
("SFAS 130") and Statement No. 131, "Disclo-
25
<PAGE> 26
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sures About Segments of an Enterprise and Related Information," ("SFAS 131").
SFAS 130 and SFAS 131 are effective for periods beginning after December 15,
1997. SFAS 130 establishes standards for the reporting and displaying of
comprehensive income and its components. SFAS 131 establishes standards for the
way that public business enterprises report information about operating segments
in interim and annual financial statements. These two statements had no effect
on the Company's 1997 financial statements. Management is currently evaluating
what, if any, additional disclosure may be required when these two statements
are adopted in the first quarter of fiscal 1999.
3. ACQUISITIONS OF BUSINESSES
Nowsco: In June 1996, the Company completed the acquisition of Nowsco Well
Service Ltd. ("Nowsco") for a total purchase price of $582.6 million (including
transaction costs) in cash. The transaction may be summarized as follows (in
thousands):
<TABLE>
<S> <C>
Cash........................................................ $576,361
Transaction costs........................................... 6,221
--------
Total consideration............................... 582,582
Net assets acquired......................................... 188,587
--------
Goodwill.......................................... $393,995
========
</TABLE>
This acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of Nowsco's operations are included in the statement of
operations beginning July 1, 1996. The assets and liabilities of Nowsco have
been recorded in the Company's statement of financial position at estimated fair
market value on June 30, 1996 with the remaining purchase price reflected as
goodwill, which is being amortized on a straight line basis over 40 years.
Western: In April 1995, the Company acquired The Western Company of North
America ("Western") for total consideration, including $7.2 million of
transaction costs, of $511.4 million in cash, Company common stock and warrants
to purchase Company common stock. The transaction may be summarized as follows
(in thousands):
<TABLE>
<S> <C>
Cash........................................................ $247,880
Stock issued (12,036,393 shares)............................ 239,551
Warrants issued (4,800,037 warrants)........................ 24,000
--------
Total consideration............................... 511,431
Net assets acquired......................................... 335,891(1)
--------
Goodwill.......................................... $175,540
========
</TABLE>
- ---------------
(1) Includes cash acquired of $44.5 million.
This acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of Western are included in the statement of operations
beginning April 1, 1995. The assets and liabilities of Western have been
recorded in the statement of financial position at estimated fair market value
on April 1, 1995 with the remaining purchase price reflected as goodwill, which
is being amortized on a straight-line basis over 40 years.
The following unaudited pro forma summary presents the consolidated results
of operations, excluding estimated consolidation savings, of the Company for the
years ended September 30, 1996 and 1995 as if the
26
<PAGE> 27
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Nowsco and Western acquisitions and the related issuance of common stock
discussed in Note 14 had occurred at the beginning of 1995 (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenue..................................................... $1,228,032 $1,146,851
Net income.................................................. 31,458 3,861
Earnings per share:
Primary................................................... .81 .10
Fully diluted............................................. .80 .10
</TABLE>
Other: Effective July 1, 1997, the Company acquired Top Tool Company, Inc.
for a total cash outlay of $7.3 million, including transaction costs. Top Tool
provides oilfield servicing tools along the Louisiana Gulf Coast. The
acquisition provides added capacity and tool expertise to the Company's downhole
tool operations. The consolidated statement of operations includes operating
results of the subsidiary acquired since the date of acquisition.
Effective December 1, 1996, the Company acquired the remaining 51%
ownership of its previously unconsolidated joint venture in Argentina, for total
consideration of $13.5 million which was funded through borrowings under
existing credit facilities. The consolidated statement of operations includes
operating results of the subsidiary acquired since the date of acquisition.
Effective December 1, 1995, the Company acquired the remaining 60%
ownership of its previously unconsolidated joint venture in Brazil for total
consideration of $5.4 million, consisting of $3.7 million in cash and $1.7
million in debt assumed by the Company. The consolidated statement of operations
includes operating results of the subsidiary acquired since the date of
acquisition.
Each of these "other" acquisitions have been accounted for using the
purchase method of accounting and, accordingly, any excess of the total
consideration over the estimated fair value of the net assets acquired has been
recorded as goodwill and is being amortized over 40 years. These acquisitions
are not material to the Company's financial statements and therefore pro forma
information is not presented.
4. UNUSUAL CHARGES
During 1996, the Company recorded an unusual charge of $7.4 million ($.15
per share after-tax) for costs incurred in connection with the acquisition of
Nowsco. The components of the unusual charge were as follows (in thousands):
<TABLE>
<CAPTION>
1996
PROVISION
---------
<S> <C>
Interest.................................................... $1,917
Writeoff of bank fees (noncash)............................. 1,622
Asset writeoffs (noncash)................................... 1,212
Severance and relocation.................................... 1,357
Legal and other............................................. 1,317
------
Unusual charge.............................................. $7,425
======
</TABLE>
The interest charge represents the incremental interest accrued from the
date of financing the Nowsco acquisition (June 13, 1996) to the date Nowsco's
results were consolidated for financial reporting purposes (July 1, 1996). The
bank fees represent a writeoff of the unamortized portion of the Company's prior
credit facility which was replaced by the current credit facility to finance the
Nowsco acquisition. Asset writeoffs include computer systems, inventory and
other assets purchased in previous years which were not used
27
<PAGE> 28
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subsequent to the acquisition. The remaining portion of the unusual charge
reflects severance costs of terminated BJ Services employees, relocation of
personnel and equipment, legal fees and other costs which would not have been
incurred had the acquisition of Nowsco not occurred. All expenditures for such
costs have been made as of September 30, 1997.
During 1995, the Company recorded an unusual charge of $17.2 million ($.52
per share after-tax) for costs incurred in connection with the acquisition of
Western. The components of the unusual charge are as follows (in thousands):
<TABLE>
<CAPTION>
1995
PROVISION
---------
<S> <C>
Facility closings........................................... $ 5,596(1)
Change in control costs..................................... 5,381
Legal and other............................................. 4,047
Severance costs............................................. 2,176
-------
Unusual charge.............................................. $17,200
=======
</TABLE>
- ---------------
(1) Includes $3,646 noncash impairment of facilities.
The Company and Western both operated facilities in many of the same
locations. Management made the decision to close the duplicate facilities
previously operated by BJ Services and retain those operated by Western. A
provision was recorded to adjust the carrying value of these duplicate
facilities to estimated net realizable value and accruals were recorded for the
estimated costs associated with their closings, including maintenance of the
facilities until their ultimate sale and relocation of assets. Substantially all
of the duplicate facilities were closed as of September 30, 1995.
The consummation of the Western acquisition triggered the change in control
provision under the Company's 1990 Stock Incentive Plan. As a result, 168,547
performance units previously granted to the Company's executive officers became
fully vested and 168,547 shares of common stock were subsequently issued. The
1995 unusual charge includes an amount for the excess of the value of the
performance units on the date of issuance over the estimated amount which
otherwise was earned had the acquisition not occurred.
The 1995 unusual charge also includes legal, severance of BJ employees and
other merger-related costs that would not have been incurred had the acquisition
of Western not occurred. All expenditures for such costs were made as of
September 30, 1996.
28
<PAGE> 29
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. EARNINGS PER SHARE
The following table presents information necessary to calculate earnings
per share for the three years ended September 30, 1997 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Primary:
Net income................................................ $107,906 $40,486 $ 9,889
Average primary common and common equivalent shares
outstanding:
Common stock............................................ 38,434 30,594 21,376
Common stock equivalents from assumed exercise of stock
options.............................................. 784 613 174
Common stock equivalents from assumed exercise of
warrants............................................. 2,030 174
-------- ------- -------
41,248 31,381 21,550
-------- ------- -------
Primary earnings per share................................ $ 2.62 $ 1.29 $ .46
======== ======= =======
Fully diluted:
Average fully diluted common and common equivalent shares
outstanding:
Common stock............................................ 38,434 30,594 21,376
Common stock equivalents from assumed exercise of stock
options.............................................. 928 739 373
Common stock equivalents from assumed exercise of
warrants............................................. 2,857 826
-------- ------- -------
42,219 32,159 21,749
-------- ------- -------
Fully diluted earnings per share.......................... $ 2.56 $ 1.26 $ .45
======== ======= =======
</TABLE>
6. LONG-TERM DEBT AND BANK CREDIT FACILITIES
Long-term debt at September 30, 1997 and 1996 consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Notes payable, banks........................................ $205,936 $416,413
9.2% notes due August 1998.................................. 6,000 12,000
7% Series B Notes due 2006, net of discount................. 124,365 124,288
Other....................................................... 2,539 2,173
-------- --------
338,840 554,874
Less current maturities of long-term debt................... 40,206 31,870
-------- --------
Long-term debt.............................................. $298,634 $523,004
======== ========
</TABLE>
In June 1996, the Company replaced its existing credit facility with a
committed, unsecured credit facility ("Bank Credit Facility") executed to
accommodate the acquisition of Nowsco. The Company and three of its
subsidiaries, BJ Services Company, U.S.A., BJ Service International, Inc. and BJ
Services Company Middle East were borrowers and guarantors under the Bank Credit
Facility. In November 1997, the Bank Credit Facility was amended to remove BJ
Services Company, U.S.A., BJ Service International, Inc. and BJ Services Company
Middle East as borrowers and, accordingly, their guarantees were released.
Nowsco Well Service Ltd., the Company's Canadian subsidiary, is a borrower in
Canadian dollars. The Bank Credit Facility consists of a Canadian $320 million
(approximately U.S. $232 million) six year term loan, that is repayable in
29
<PAGE> 30
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22 quarterly installments which began in March 1997, and a five year U.S. $325
million revolving facility. In October 1997, the Company reduced the commitment
under the revolving facility by $100 million to $225 million. Interest on
outstanding borrowings is charged based on prevailing market rates. The Company
is charged various fees in connection with the Bank Credit Facility, including a
commitment fee based on the average daily unused portion of the commitment.
Commitment fees under the Company's credit facilities were $414,000, $366,000
and $207,000 for 1997, 1996 and 1995, respectively. At September 30, 1997,
$325.0 million was available to borrow under the revolver (subsequently reduced
to $225.0 million in October 1997). Principal reductions of the term loan are
due in aggregate installments of $34,054,000, $43,540,000, $46,702,000,
$46,702,000 and $34,950,000 in the years ended September 30, 1998, 1999, 2000,
2001 and 2002 respectively.
In addition to the committed facility, the Company had $97.9 million in
various unsecured, discretionary lines of credit at September 30, 1997 which
expire at various dates in 1998. There are no requirements for commitment fees
or compensating balances in connection with these lines of credit. Interest on
borrowings is based on prevailing market rates. At September 30, 1997 and 1996,
there were $59.8 million and $2.5 million, respectively, in outstanding
borrowings under these lines of credit.
The weighted average interest rates on short-term borrowings outstanding as
of September 30, 1997 and 1996 were 4.7% and 5.8%, respectively.
In 1996, the Company issued $125.0 million of unsecured 7% Notes due 2006,
which were registered under the Securities Act of 1933. The net proceeds from
the issuance of the 7% Notes ($123.3 million) were used by the Company to repay
indebtedness outstanding under the term loan portion of the Company's then
existing bank credit facility. Three of the Company's subsidiaries that were
obligors with respect to the Bank Credit Facility and the Company's 9.2% Notes
due August 1, 1998, BJ Services Company, U.S.A., BJ Service International, Inc.
and BJ Services Company Middle East (collectively, the "Guarantor
Subsidiaries"), were guarantors of the 7% Notes. As a result of the amendment to
the Bank Credit Facility in November 1997 and the prepayment of the 9.2% Notes
in December 1997, discussed below, the guarantees of the Guarantor Subsidiaries
have been released in accordance with terms of the Indenture.
In August 1991, the Company placed $30.0 million of unsecured notes (the
"Notes") with private investors. The Notes bear interest at a fixed rate of 9.2%
with principal payments due in five annual installments of $6.0 million the
first of which was paid in August 1994. The Company has repaid the remaining
$6.0 million balance in December 1997.
At September 30, 1997, the Company had outstanding letters of credit and
performance related bonds totaling $18.7 million and $26.4 million,
respectively. The letters of credit are issued to guarantee various trade
activities.
The Company's debt agreements contain various customary covenants including
maintenance of certain profitability and solvency ratios and restrictions on
dividend payments, as defined in the Bank Credit Facility. At September 30,
1997, the Company was not prohibited from making any dividend payments.
7. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and Cash Equivalents, Trade Receivables and Trade Payables: The
carrying amount approximates fair value because of the short maturity of those
instruments.
Long-term Debt: Fair value is based on the rates currently available to the
Company for debt with similar terms and average maturities. Other long-term debt
consists of borrowings under the Company's Bank Credit
30
<PAGE> 31
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Facility. The carrying amount of such borrowings approximates fair value as the
individual borrowings bear interest at current market rates.
The fair value of financial instruments which differed from their carrying
value at September 30, 1997 and 1996 was as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
9.2% Notes.............................. $ 6,000 $ 6,255 $ 12,000 $ 12,460
7.0% Series B Notes..................... 124,365 126,050 124,288 117,900
</TABLE>
8. INCOME TAXES
The geographical sources of income (loss) before income taxes for the three
years ended September 30, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
United States....................................... $ 70,638 $(8,369) $(31,879)
Foreign............................................. 83,730 60,960 40,666
-------- ------- --------
Income before income taxes and cumulative effect of
accounting change................................. $154,368 $ 2,591 $ 8,787
======== ======= ========
</TABLE>
The provision (benefit) for income taxes for the three years ended
September 30, 1997 is summarized below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current:
United States....................................... $ $ $
Foreign............................................. 17,698 12,241 7,759
------- ------- -------
Total current............................... 17,698 12,241 7,759
Deferred:
United States....................................... 18,312 (1,616) (8,336)
Foreign............................................. 10,452 1,480 (525)
------- ------- -------
Total deferred.............................. 28,764 (136) (8,861)
------- ------- -------
Income tax expense (benefit).......................... $46,462 $12,105 $(1,102)
======= ======= =======
</TABLE>
31
<PAGE> 32
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated effective income tax rates (as a percent of income before
income taxes) for the three years ended September 30, 1997 varied from the
United States statutory income tax rate for the reasons set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- -----
<S> <C> <C> <C>
Statutory rate.............................................. 35.0% 35.0% 35.0%
Foreign earnings at varying rates........................... (3.1) (9.5) (79.8)
Amortization of excess tax basis over book resulting from
separation from former parent............................. (6.6) (2.2) (20.4)
Changes in tax laws and tax rates........................... .3 (1.3)
Foreign income recognized domestically...................... .9 1.0 37.2
Goodwill amortization....................................... 3.4 4.8 10.3
Nondeductible expenses...................................... .7 1.6 6.1
Other -- net................................................ (.5) (6.4) (0.9)
---- ---- -----
30.1% 23.0% (12.5)%
==== ==== =====
</TABLE>
Deferred tax assets and liabilities are recognized for the estimated future
tax effects of temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements. The measurement
of deferred tax assets and liabilities is based on enacted tax laws and rates
currently in effect in each of the jurisdictions in which the Company has
operations. Generally, deferred tax assets and liabilities are classified as
current or noncurrent according to the classification of the related asset or
liability for financial reporting. The estimated deferred tax effect of
temporary differences and carryforwards as of September 30, 1997 and 1996 were
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Assets:
Expenses accrued for financial reporting purposes, not yet
deducted for tax....................................... $ 54,961 $ 49,313
Net operating loss carryforwards.......................... 215,070 243,304
Valuation allowance....................................... (25,300) (65,750)
-------- --------
Total deferred tax asset.......................... 244,731 226,867
======== ========
Liabilities:
Differences in depreciable basis of property.............. (52,964) (77,558)
Income accrued for financial reporting purposes, not yet
reported for tax....................................... (3,303) (9,034)
-------- --------
Total deferred tax liability...................... (56,267) (86,592)
-------- --------
Net deferred tax asset...................................... $188,464 $140,275
======== ========
</TABLE>
In 1997, the deferred tax valuation allowance was decreased due to an
increase in the projected taxable income following the combination of Western,
Nowsco and BJ Services' operations. In 1996, the deferred tax valuation
allowance was decreased by $20.0 million based on an increase in the projected
taxable income following the combination of Western and BJ Services' U.S.
operations. These adjustments to the deferred tax valuation allowance were
recorded as a reduction to goodwill. Any subsequent decreases in the deferred
tax valuation allowance will also be recorded as a reduction to goodwill.
At September 30, 1997, the Company had approximately $506 million of U.S.
tax net operating loss carryforwards expiring in varying amounts between 2000
and 2011. The Company also had approximately
32
<PAGE> 33
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$82 million of foreign tax net operating loss carryforwards and approximately $7
million of foreign investment tax credit carryforwards as of September 30, 1997.
Of the foreign tax net operating loss carryforwards, approximately $44 million
is not subject to an annual limitation and will carryforward indefinitely. The
foreign investment tax credit carryforward and the remaining loss carryforward,
if not used, will expire in varying amounts beginning in 1998. The potential
impact of the expiration of net operating loss and investment tax credit
carryforwards has been reflected in the deferred tax asset valuation allowance
balance as of September 30, 1997 and 1996.
The Company does not provide federal income taxes on the undistributed
earnings of its foreign subsidiaries that the Company considers to be
permanently reinvested in foreign operations. The cumulative amount of such
undistributed earnings was approximately $280 million at September 30, 1997. If
these earning were to be remitted to the Company, any U.S. income taxes payable
would be substantially reduced by foreign tax credits generated by the
repatriation of the earnings.
9. GEOGRAPHIC INFORMATION
The Company operates primarily in one business segment -- oilfield
services. Summarized information concerning geographic areas in which the
Company operated at September 30, 1997, 1996, and 1995 and for each of the years
then ended is shown as follows (in thousands):
<TABLE>
<CAPTION>
UNITED LATIN
STATES AMERICA EUROPE CANADA OTHER TOTAL
---------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
1997:
Revenue............ $ 773,688 $171,129 $188,992 $179,956 $152,808 $1,466,573
Operating income... 99,835 29,164 19,284 21,352 12,772 182,407
Identifiable
assets.......... 1,163,318 144,696 163,089 119,708 135,957 1,726,768
1996:
Revenue............ $ 547,620 $140,390 $127,111 $ 37,983 $112,157 $ 965,261
Operating income... 19,979 26,824 13,897 1,306 12,898 74,904
Identifiable
assets.......... 1,212,149 104,993 166,829 108,587 116,602 1,709,160
1995:
Revenue............ $ 345,922 $111,447 $104,840 $ 71,451 $ 633,660
Operating income
(loss).......... (13,683) 22,095 4,942 6,935 20,289
Identifiable
assets.......... 624,545 88,655 201,838 74,645 989,683
</TABLE>
Export sales totaled $11,547,000, $2,744,000 and $5,634,000 for the years
ended September 30, 1997, 1996 and 1995, respectively.
Corporate general and administrative expense, research and engineering
expense and certain other expenses related to worldwide manufacturing and other
support functions benefit both domestic and international operations. An
allocation of these expenses has been made to foreign areas based on total
revenues. The expenses allocated totaled $12,106,000, $10,853,000, and
$8,357,000 for the years ended September 30, 1997, 1996 and 1995, respectively.
10. EMPLOYEE BENEFIT PLANS
The Company administers a thrift plan whereby eligible employees elect to
contribute from 2% to 12% of their base salaries to an employee benefit trust.
Employee contributions are matched by the Company at the rate of $.50 per $1.00
up to 6% of the employee's base salary. In addition, the Company contributes
between 2% and 5% of each employee's base salary depending on their age as of
January 1 each year as a base
33
<PAGE> 34
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contribution. Company matching contributions vest immediately while base
contributions become fully vested after five years of employment. The Company's
U.S. employees formerly employed by Western are covered under a thrift plan
which was merged into the Company's thrift plan effective December 31, 1995. The
Company's U.S. employees formerly employed by Nowsco are covered under a thrift
plan which was merged into the Company's thrift plan effective October 1, 1996.
The Company's contributions to these thrift plans amounted to $6,887,000,
$5,095,000 and $2,862,000 in 1997, 1996 and 1995, respectively.
The Company's U.S. employees formerly employed by Western with at least one
year of service are also covered under a defined benefit pension plan as a
carryover from the Western acquisition. Pension benefits are based on years of
service and average compensation for each employee's five consecutive highest
paid years during the last ten years worked. Benefits under the Western plan
were frozen effective December 31, 1995 at which time all earned benefits were
vested. Management has not yet made a decision on whether to terminate the plan
and therefore will fund the amounts necessary to meet minimum funding
requirements under the Employees' Retirement Income Security Act, as amended.
The funded status of this plan at September 30, 1997 and 1996 was as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Vested benefit obligation................................... $50,847 $40,113
======= =======
Accumulated benefit obligation.............................. $50,847 $40,113
Plan assets at fair value................................... 46,285 39,473
------- -------
Benefit obligation in excess of plan assets................. 4,562 640
Unrecognized gain (loss).................................... (3,156) 2,241
Adjustment required to recognize minimum liability.......... 3,156
------- -------
Net pension liability....................................... $ 4,562 $ 2,881
======= =======
</TABLE>
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 87, "Employers' Accounting for Pensions," the Company recorded in other
noncurrent liabilities an additional minimum pension liability adjustment of
$3.2 million as of September 30, 1997, representing the amount by which the
accumulated benefit obligation exceeded the fair value of plan assets plus
accrued amounts previously recorded. As there were no previously unrecognized
prior service costs at September 30, 1997, the full amount of the adjustment,
net of related deferred tax benefit, was recorded as a reduction of
stockholder's equity of $2.1 million.
Assumptions used in accounting for the Company's U.S. defined benefit plan
were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Weighted -- average discount rate........................... 7.3% 7.5%
Weighted -- average expected long-term rate of return on
assets.................................................... 9.0% 9.0%
</TABLE>
Costs for the two years ended September 30, 1997 for the Company's U.S.
defined benefit plan were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Service cost for benefits earned............................ $ 0 $ 359
Interest cost on projected benefit obligation............... 3,537 2,862
Actual return on plan assets................................ (7,779) (3,997)
Net amortization and deferral............................... 4,452 862
------- -------
Net pension cost............................................ $ 210 $ 86
======= =======
</TABLE>
34
<PAGE> 35
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company sponsors defined benefit plans for foreign
operations which cover substantially all employees in Canada, the United Kingdom
and Venezuela. Due to differences in foreign pension laws and economics, the
defined benefit plans are at least partially unfunded. The funded status of
these plans at September 30, 1997 and 1996 was as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation................................. $43,618 $39,594
======= =======
Accumulated benefit obligation............................ $48,070 $42,535
======= =======
Projected benefit obligation................................ $57,020 $51,370
Plan assets at fair value................................... 54,599 46,969
------- -------
Projected benefit obligation in excess of plan assets....... 2,421 4,401
Unrecognized gain (loss).................................... 424 (2,218)
Unrecognized transition asset, net of amortization.......... 126 135
Unrecognized prior service cost............................. (344) (366)
------- -------
Net pension liability....................................... $ 2,627 $ 1,952
======= =======
</TABLE>
Assumptions used in accounting for the Company's international defined
benefit pension plans were as follows:
<TABLE>
<S> <C>
Weighted -- average discount rate........................... 5-8%
Weighted -- average rate of increase in future
compensation.............................................. 3-6%
Weighted -- average expected long-term rate of return on
assets.................................................... 3-9%
</TABLE>
Combined costs for the Company's international defined benefit plans for
the three years ended September 30, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ------
<S> <C> <C> <C>
Net periodic foreign pension cost:
Service cost for benefits earned....................... $ 4,687 $ 2,836 $1,090
Interest cost on projected benefit obligation.......... 4,238 2,450 660
Actual return on plan assets........................... (12,846) (2,719) (617)
Net amortization and deferral.......................... 9,005 468 158
-------- ------- ------
Net pension cost......................................... $ 5,084 $ 3,035 $1,291
======== ======= ======
</TABLE>
The Company also sponsors a plan whereby certain health care and life
insurance benefits are provided for retired employees (primarily U.S.) and their
eligible dependents if the employee meets specified age and service
requirements. These plans are unfunded and the Company retains the right,
subject to existing agreements, to modify or eliminate these plans.
The Company's postretirement medical benefit plan provides credits based on
years of service which can be used to purchase coverage under the active
employee plans. This plan effectively caps the Company's health care inflation
rate at a 4% increase per year. The reduction of approximately $5.7 million in
the accumulated postretirement benefit obligation due to this amendment is being
amortized over the average period of future service to the date of full
eligibility for such postretirement benefits of the active employees.
35
<PAGE> 36
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement benefit costs for the three years ended
September 30, 1997 included the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost for benefits attributed to service during the
period.................................................... $1,388 $1,194 $ 807
Interest cost on accumulated postretirement benefit
obligation................................................ 1,532 1,381 1,033
Amortization of prior service cost.......................... (894) (894) (894)
------ ------ ------
Net periodic postretirement benefit cost.................... $2,026 $1,681 $ 946
====== ====== ======
</TABLE>
The actuarial and recorded liabilities for these postretirement benefits
were as follows at September 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $ 7,047 $ 7,217
Fully eligible active plan participants................... 2,174 3,573
Other active plan participants............................ 12,916 10,163
------- -------
22,137 20,953
Unrecognized cumulative net gain............................ 2,703 1,832
Unrecognized prior service cost............................. 2,388 3,282
------- -------
Accrued postretirement benefit liability.................... $27,228 $26,067
======= =======
</TABLE>
The accumulated postretirement benefit obligation at September 30, 1997 and
1996 was determined using a discount rate of 7.0% and 7.5% , respectively and a
health care cost trend rate of 4%, reflecting the cap discussed above.
Increasing the assumed health care cost trend rates by one percentage point
would not have a material impact on the accumulated postretirement benefit
obligation or the net periodic postretirement benefit cost because these
benefits are effectively capped by the Company.
11. COMMITMENTS AND CONTINGENCIES
The Company through performance of its service operations is sometimes
named as a defendant in litigation, usually relating to claims for bodily
injuries or property damage (including claims for well or reservoir damage). The
Company maintains insurance coverage against such claims to the extent deemed
prudent by management. The Company believes that there are no existing claims of
a potentially material adverse nature for which it has not already provided
appropriate accruals.
Federal, state and local laws and regulations govern the Company's
operation of underground fuel storage tanks. Rather than incur additional costs
to restore and upgrade tanks as required by regulations, management has opted to
remove the existing tanks. The Company is in the process of removing these tanks
and has identified certain tanks with leaks which will require remedial
cleanups. In addition, the Company is conducting a number of environmental
investigations and remedial actions at current and former company locations and,
along with other companies, has been named a potentially responsible party at
five waste disposal sites. The Company has established an accrual of $8,100,000
for such environmental matters which management believes to be its best estimate
of the Company's portion of future costs to be incurred. The Company also
maintains insurance for environmental liabilities which the Company believes is
reasonable based on its knowledge of its industry.
In 1997, the Company completed a transaction involving the transfer of
certain pumping service equipment assets. The Company received $100.0 million
which was used to pay outstanding bank debt. The equipment will be used to
provide services to the Company's customers for which the Company will pay a
36
<PAGE> 37
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
service fee over a period of at least eight, but not more than fourteen years.
The transaction generated a deferred gain for book purposes of approximately $38
million which will be amortized over twelve years.
Lease and Other Long-Term Commitments: At September 30, 1997, the Company
had long-term operating leases and service fee commitments covering certain
facilities and equipment with varying expiration dates. Minimum annual
commitments for the years ended September 30, 1998, 1999, 2000, 2001 and 2002
are $35,807,000, $29,993,000, $26,889,000, $29,140,000 and $19,484,000
respectively, and $89,026,000 in the aggregate thereafter.
12. SUPPLEMENTAL FINANCIAL INFORMATION
Supplemental financial information for the three years ended September 30,
1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Consolidated Statement of Operations:
Research and development expense.................. $ 9,904 $ 7,157 $ 6,801
Rent expense...................................... 24,960 19,148 16,759
Net foreign exchange gain (loss).................. 148 (214) 1,537
Consolidated Statement of Cash Flows:
Income taxes paid................................. $20,378 $ 11,768 $ 5,980
Interest paid..................................... 30,407 24,533 12,798
Details of acquisitions:
Fair value of assets acquired.................. 5,366 283,505 447,622
Liabilities assumed............................ 9,600 91,218 111,731
Goodwill....................................... 25,044 393,995 175,540
Cash paid for acquisitions, net of cash
acquired..................................... 20,810 586,282 203,313
</TABLE>
In connection with the Western acquisition, in 1995 the Company issued
$263,551,000 of common stock and warrants to Western stockholders.
Other income -- net for the three years ended September 30, 1997 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Rental income............................................ $ 349 $ 356 $ 410
Gain on Argentine bonds.................................. 276
Income from equity method investments.................... 246 114 43
Royalty income........................................... 213 785 1,385
Gain on sales of assets -- net........................... 169 2,271 830
Other -- net............................................. 474 (205) 95
------ ------ ------
Other income -- net...................................... $1,727 $3,321 $2,763
====== ====== ======
</TABLE>
13. EMPLOYEE STOCK PLANS
Stock Option Plans: The Company's 1990 Stock Incentive Plan and 1995
Incentive Plan (the "Plans") provide for the granting of options for the
purchase of the Company's common stock ("Common Stock") and other performance
based awards to officers, key employees and nonemployee directors of the
Company. Such options vest over a three-year period and are exercisable for
periods ranging from one to ten years. The options granted in December 1996 also
had an acceleration clause which provided that such options would vest
immediately if the closing price of the Common Stock reached $75.00. On October
1, 1997, the Company's Common Stock closed at $75.06 and all options granted on
December 12, 1996 became vested in full. An
37
<PAGE> 38
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
aggregate of 3,000,000 shares of Common Stock have been reserved for grants, of
which 665,347 were available for future grants at September 30, 1997.
A summary of the status of the Company's stock option activity, and related
information for the years ended September 30, 1997, 1996 and 1995 is presented
below (in thousands, except per share prices):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- -----------------------
WEIGHTED-AVG. WEIGHTED-AVG. WEIGHTED-AVG.
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE-PRICE
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................. 1,386 $20.74 1,432 $18.96 768 $19.42
Granted................... 279 46.28 337 27.03 712 18.44
Exercised................. (359) 20.08 (313) 19.59 (30) 17.77
Forfeited................. (15) 34.43 (70) 19.68 (18) 19.91
------ ------ ------
Outstanding at end of
year.................... 1,291 26.28 1,386 20.74 1,432 18.96
====== ====== ======
Options exercisable at
year-end................ 984 $25.85 503 $19.37 679 $19.73
Weighted-average fair
value of options granted
during the year......... $24.55 $15.18 $ 5.91
</TABLE>
The following table summarizes information about stock options outstanding
as of September 30, 1997 (in thousands, except per share prices):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED-AVG.
RANGE OF REMAINING WEIGHTED-AVG. WEIGHTED-AVG.
EXERCISE PRICE SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
-------------- ------ ---------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$12.00 to 18.63............. 392 6.9 $16.75 392 $16.75
19.25 to 24.54............. 554 7.1 21.86 348 21.15
36.38 to 47.13............. 345 9.1 44.18 244 47.13
----- ---
1,291 7.6 26.28 984 25.85
===== ===
</TABLE>
SFAS 123 encourages, but does not require companies to record compensation
cost for employee stock-based compensation plans at fair value as determined by
generally recognized option pricing models such as the Black-Scholes model or
the binomial model. Because of the inexact and subjective nature of deriving
stock option values using these methods, the Company has adopted the
disclosure-only provisions of SFAS 123 and continues to account for stock-based
compensation as it has in the past using the intrinsic value method prescribed
in APB 25. Accordingly, no compensation expense has been recognized for the
Company's employee stock option plans. Had compensation cost for the Company's
employee stock option plans been determined based on the fair value at the grant
date for awards issued in 1996 and 1997 consistent with the provisions of SFAS
123, the Company's net earnings and fully diluted earnings per share would have
been reduced by $5.1 million or $.13 per share and $1.8 million or $.06 per
share in 1997 and 1996, respectively. As this calculation does not consider the
effect in 1997 and 1996 of awards issued prior to 1996, it may not be
38
<PAGE> 39
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
representative of the effects on pro forma net income in future years. The pro
forma fair value of options at the date of grant was estimated using the
Black-Scholes model and the following assumptions.
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Expected life (years)....................................... 7.6 7.6
Interest rate............................................... 5.8% 5.8%
Volatility.................................................. 37.4% 37.4%
Dividend yield.............................................. 0 0
Weighted-average fair value at grant date................... $24.55 $15.18
</TABLE>
Stock Purchase Plan: The Company's 1990 Employee Stock Purchase Plan (the
"Purchase Plan") is a plan under which employee participants may purchase shares
of the Common Stock at 85% of market value on the first or last business day of
the twelve-month plan period beginning each October, whichever is lower. Such
purchases are limited to 10% of the employee's regular pay. A maximum aggregate
of 750,000 shares has been reserved under the Purchase Plan, 442,763 of which
were available for future purchase at September 30, 1997. In October 1997,
93,110 shares were purchased at $30.81 per share and in October 1996, 78,503
shares were purchased at $21.46 per share. Had compensation cost for the
Company's stock purchase plan been determined consistent with the provisions of
SFAS 123, the Company's net earnings and fully diluted earnings per share would
have been reduced by $ .6 million or $.02 per share and $.4 million or $.01 per
share in 1997 and 1996, respectively. The pro forma value of the employees'
purchase rights was estimated using the Black-Scholes model with the following
assumptions; no dividend yield; an expected life of 1 year; expected volatility
of 37.4%; and a risk free interest rate of 5.8%. The weighted-average fair value
of these purchase rights granted in 1997 and 1996 was $10.79 and $7.51,
respectively.
Pursuant to the terms of the 1990 Stock Incentive Plan, during 1993 through
1997 the Company also issued a total of 353,384 Performance Units ("Units") to
officers of the Company. Each Unit represents the right to receive from the
Company at the end of a stipulated period one unrestricted share of Common
Stock, contingent upon achievement of certain financial performance goals over
the stipulated period. Should the Company fail to achieve the specific financial
goals as set by the Executive Compensation Committee of the Board of Directors,
the Units are canceled and the related shares revert to the Company for
reissuance under the plan. The aggregate fair market value of the underlying
shares granted under this plan is considered unearned compensation at the time
of grant and is adjusted annually based on the current market price for the
Common Stock. Compensation expense is determined based on management's current
estimate of the likelihood of meeting the specific financial goals and charged
ratably over the stipulated period. In connection with the acquisition of
Western, which triggered certain change of control provisions in the Company's
1990 Stock Incentive Plan, a total of 168,547 Units were converted into Common
Stock and issued to officers, and 51,769 Units were canceled. The difference
between the amount accrued as of the acquisition date and the value of the
shares issued has been reflected as an unusual charge in the accompanying
financial statements (see Note 4). As of September 30, 1997 there were 133,068
Units outstanding.
14. STOCKHOLDERS' EQUITY
On July 1, 1996, the Company issued 9,775,000 shares of common stock
through a public offering. The net proceeds of $323.1 million were used to repay
indebtedness incurred to fund the Nowsco acquisition.
Stockholder Rights Plan: The Company has a Stockholder Rights Plan (the
"Rights Plan") designed to deter coercive takeover tactics and to prevent an
acquirer from gaining control of the Company without offering a fair price to
all of the Company's stockholders. Under this plan, each outstanding share of
the Common Stock includes one preferred share purchase right ("Right") which
becomes exercisable under certain circumstances, including when beneficial
ownership of the Common Stock by any person, or group, equals or exceeds 15% of
the Company's outstanding Common Stock. Each Right entitles the registered
39
<PAGE> 40
BJ SERVICES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock at a price of $150, subject to adjustment
under certain circumstances. Upon the occurrence of certain events specified in
the Rights Plan, each holder of a Right (other than an Acquiring Person) will
have the right, upon exercise of such Right, to receive that number of shares of
common stock of the Company (or the surviving corporation) that, at the time of
such transaction, would have a market price of two times the purchase price of
the Right. No shares of Series A Junior Participating Preferred Stock have been
issued by the Company at September 30, 1997.
Stock Purchase Warrants: In connection with the acquisition of Western (See
Note 3), the Company issued 4,800,037 stock purchase warrants ("Warrants"). The
Warrants were issued on April 14, 1995 at an initial value of $5.00 per Warrant.
Each Warrant represents the right to purchase one share of the Common Stock at
an exercise price of $30, until the expiration date of April 13, 2000. As of
September 30, 1997, 546 Warrants had been exercised.
Stock Split: At September 30, 1997, there were 38,530,762 shares of Common
Stock issued and outstanding. On December 11, 1997, the Company's Board of
Directors approved a 2 for 1 stock split, effected in the form of a stock
dividend, for holders of record on January 30, 1998. The stock split is subject
to stockholder approval at the annual meeting of stockholders on January 22,
1998, of an amendment to the Company's charter increasing the number of
authorized shares of Common Stock from 80 million to 160 million shares.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL
FIRST SECOND THIRD FOURTH YEAR
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Fiscal Year 1997:
Revenue........................... $340,380 $343,698 $368,619 $413,876 $1,466,573
Gross profit(1)................... 63,668 63,967 77,736 94,812 300,183
Net income........................ 19,974 20,197 28,111 39,624 107,906
Earnings per share:
Primary......................... .49 .50 .68 .94 2.62
Fully diluted................... .49 .49 .68 .94 2.56
Fiscal Year 1996:
Revenue........................... $206,501 $200,794 $220,960 $337,006 $ 965,261
Gross profit(1)................... 35,671 29,773 38,553 64,124 168,121
Net income........................ 9,145 4,423 9,072(2) 17,846(3) 40,486
Earnings per share:
Primary......................... .32 .15 .31(2) .45(3) 1.29
Fully diluted................... .32 .15 .31(2) .45(3) 1.26
</TABLE>
- ---------------
(1) Represents revenue less cost of sales and services and research and
engineering expenses.
(2) Includes $3.5 million ($2.3 million after tax or $.08 per share) unusual
charge resulting from the acquisition of Nowsco. See Note 4.
(3) Includes $3.9 million ($2.5 million after tax or $.06 per share) unusual
charge resulting from the acquisition of Nowsco. See Note 4.
40
<PAGE> 41
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is set forth in the
section entitled "Election of Directors" in the Proxy Statement of the Company
for the Annual Meeting of Stockholders to be held January 22, 1998 which section
is incorporated herein by reference. For information regarding executive
officers of the Company, see page 9 hereof. Information concerning compliance
with Section 16(a) of the Exchange Act is set forth in the section entitled
"Compliance with Section 16(a) of the Exchange Act" in the Proxy Statement of
the Company for the Annual Meeting of Stockholders to be held January 22, 1998,
which section is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information for this item is set forth in the sections entitled "Executive
Compensation" and "Severance Agreements" in the Proxy Statement of the Company
for the Annual Meeting of Stockholders to be held January 22, 1998, which
sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information for this item is set forth in the sections entitled "Voting
Securities" and "Election of Directors" in the Proxy Statement of the company
for the Annual Meeting of Stockholders to be held January 22, 1998, which
sections are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
41
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report or incorporated herein by
reference:
(1) Financial Statements:
The following financial statements of the Registrant as set forth
under Part II, Item 8 of this report on Form 10-K on the pages indicated.
<TABLE>
<CAPTION>
PAGE IN THIS
FORM 10-K
------------
<S> <C>
Report of Independent Auditors.............................. 19
Consolidated Statement of Operations for the years ended
September 30, 1995, 1996 and 1997......................... 20
Consolidated Statement of Financial Position as of September
30, 1996 and 1997......................................... 21
Consolidated Statement of Stockholders' Equity for the years
ended September 30, 1995, 1996 and 1997................... 22
Consolidated Statement of Cash Flows for the years ended
September 30, 1995, 1996 and 1997......................... 23
Notes to Consolidated Financial Statements.................. 24
</TABLE>
(2) Financial Statement Schedules:
<TABLE>
<CAPTION>
SCHEDULE PAGE
NUMBER DESCRIPTION OF SCHEDULE NUMBER
- -------- ----------------------- ------
<C> <S> <C>
II -- Valuation and Qualifying Accounts........................ 46
</TABLE>
All other financial statement schedules are omitted because of the
absence of conditions under which they are required or because all
material information required to be reported is included in the
consolidated financial statements and notes thereto.
(b) The Company did not file any reports on Form 8-K during the fourth quarter
of fiscal 1997.
(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 -- Agreement and Plan of Merger dated as of November 17,
1994 ("Merger Agreement"), among BJ Services Company,
WCNA Acquisition Corp. and The Western Company of North
America (filed as Exhibit 2.1 to the Company's Annual
Report on Form 10-K for the year ended September 30,
1995, and incorporated herein by reference).
2.2 -- First Amendment to Agreement and Plan of Merger dated
March 7, 1995, among BJ Services Company, WCNA
Acquisition Corp. and The Western Company of North
America (filed as Exhibit 2.2 to the Company's Annual
Report on Form 10-K for the year ended September 30,
1995, and incorporated herein by reference).
3.1 -- Certificate of Incorporation, as amended (filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1995, and incorporated
herein by reference).
3.2 -- Certificate of Designation of Series A Junior
Participating Preferred Stock, as amended (filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1996, and incorporated
herein by reference).
3.3 -- Bylaws of the Company, as amended (filed as Exhibit 3.1
to the Company's Form 8-K dated October 21, 1996, and
incorporated herein by reference).
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
4.1 -- Specimen form of certificate for the Common Stock (filed
as Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-35187) and incorporated herein by
reference).
4.2 -- Amended and Restated Rights Agreement dated as of
September 26, 1996, between the Company and First Chicago
Trust Company of New York, as Rights Agent (filed as
Exhibit 4.1 to the Company's Form 8-K dated October 21,
1996 and incorporated herein by reference).
*4.3 -- First Amendment to Amended and Restated Rights Agreement
and Appointment of Rights Agent, dated as of March 31,
1997, among the Company, First Chicago Trust Company of
New York and The Bank of New York.
4.4 -- Warrant Agreement with respect to the Company's warrants
to purchase common stock (filed as Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1995, and incorporated herein by
reference).
*4.5 -- First Amendment to Warrant Agreement and Appointment of
Warrant Agent, dated as of March 31, 1997, among the
Company, First Chicago Trust Company of New York, and The
Bank of New York.
10.1 -- Relationship Agreement dated as of July 20, 1990, between
the Company and Baker Hughes Incorporated (filed as
Exhibit 10.1 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-35187) and incorporated herein by
reference).
10.2 -- Tax Allocation Agreement dated as of July 20, 1990,
between the Company and Baker Hughes Incorporated
(included as Exhibit A to Exhibit 10.1) (filed as Exhibit
10.2 to the Company's Registration Statement on Form S-1
(Reg. No. 33-35187) and incorporated herein by
reference).
10.3 -- 1990 Stock Incentive Plan, as amended and restated (filed
as Exhibit 10.1 to the Company's Registration Statement
on Form S-8 (Reg. No. 33-62098) and incorporated herein
by reference.
10.4 -- Amendment effective December 12, 1996, to 1990 Stock
Incentive Plan, as amended and restated (filed as Exhibit
10.4 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1996, and incorporated herein by
reference).
10.5 -- 1990 Employee Stock Purchase Plan (filed as Exhibit 10.4
to the Company's Registration Statement on Form S-1 (Reg.
No. 33-35187) and incorporated herein by reference).
10.6 -- Amendment effective December 12, 1996, to 1990 Employee
Stock Purchase Plan (filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1996, and incorporated herein by
reference).
10.7 -- BJ Services Company 1995 Incentive Plan (filed as Exhibit
4.5 to the Company's Registration Statement on Form S-8
(Reg. No. 33-58637) and incorporated herein by
reference).
10.8 -- Amendments effective January 25, 1996, and December 12,
1996, to BJ Services Company 1995 Incentive Plan (filed
as Exhibit 10.9 to the Company's Annual Report on Form
10-K for the year ended September 30, 1996, and
incorporated herein by reference).
10.9 -- Form of Severance Agreement between BJ Services Company
and certain executive officers (filed as Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the year
ended September 30, 1993, and incorporated herein by
reference).
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.10 -- Credit Agreement dated as of August 7, 1996, among the
Company, BJ Services Company, U.S.A., BJ Service
International, Inc., BJ Services Company Middle East,
Nowsco Well Service, Ltd., and Bank of America National
Trust and Saving Association and Bank of America Canada,
as agents, and the other financial institutions parties
thereto (the "Credit Agreement") (filed as Exhibit 10.1
to the Company's Form 10-Q for the quarter ended June 30,
1996, and incorporated herein by reference).
10.11 -- Form of Revolving Note, U.S. Term Note, Prime Rate Note
and Swing Loan Note pursuant to the Credit Agreement
(filed as Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1996, and
incorporated herein by reference).
10.12 -- Parent Guaranty Agreement dated as of August 7, 1996, by
the Company under the Credit Agreement (filed as Exhibit
10.16 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1996, and incorporated herein by
reference).
10.13 -- Form of Amendment to Executive Severance Agreement
between BJ Services Company and certain executive
officers (filed as Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the year ended September 30,
1995, and incorporated herein by reference).
*10.14 -- Key Employee Security Option Plan.
*10.15 -- Trust Indenture and Security Agreement dated as of August
7, 1997 among First Security Bank, National Association,
BJ Services Equipment, L.P. and State Street Bank and
Trust Company, as Indenture Trustee.
*10.16 -- Amended and Restated Agreement of Limited Partnership
dated as of August 7, 1997 of BJ Services Equipment, L.P.
*10.17 -- Indenture Supplement No. 1 dated as of August 8, 1997
between First Security Bank, as Nonaffiliated Partner
Trustee, and BJ Services Equipment, L.P., and State
Street Bank and Trust Company, as Indenture Trustee.
*10.18 -- First Amendment to Amended and Restated Credit Agreement
dated as of November 14, 1997 among the Company, BJ
Services Company, U.S.A., BJ Service International, Inc.,
BJ Services Company Middle East, Nowsco Well Service
Ltd., Bank of America National Trust and Savings
Association, Bank of America Canada, The Chase Manhattan
Bank, Bank of Montreal, Royal Bank of Canada, Toronto
Dominion (Texas), Inc., Credit Lyonnais New York Branch,
and Wells Fargo Bank (Texas), National Association.
*21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of Deloitte & Touche LLP
*27.1 -- Financial data schedule.
</TABLE>
- ---------------
* Filed herewith.
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BJ SERVICES COMPANY
By /s/ J.W. STEWART
-----------------------------------
J.W. Stewart
President and Chief Executive
Officer
Date: December 19, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J.W. STEWART Chairman of the Board, December 19, 1997
- ----------------------------------------------------- President, and Chief
J.W. Stewart Executive Officer
(Principal Executive
Officer)
/s/ MICHAEL MCSHANE Vice President -- Finance, December 19, 1997
- ----------------------------------------------------- Chief Financial Officer and
Michael McShane Director (Principal
Financial Officer)
/s/ MATTHEW D. FITZGERALD Controller (Principal December 19, 1997
- ----------------------------------------------------- Accounting Officer)
Matthew D. Fitzgerald
/s/ L. WILLIAM HEILIGBRODT Director December 19, 1997
- -----------------------------------------------------
L. William Heiligbrodt
/s/ JOHN R. HUFF Director December 19, 1997
- -----------------------------------------------------
John R. Huff
/s/ DON D. JORDAN Director December 19, 1997
- -----------------------------------------------------
Don D. Jordan
/s/ R.A. LEBLANC Director December 19, 1997
- -----------------------------------------------------
R. A. LeBlanc
/s/ JAMES E. MCCORMICK Director December 19, 1997
- -----------------------------------------------------
James E. McCormick
Director
- -----------------------------------------------------
Michael E. Patrick
</TABLE>
45
<PAGE> 46
BJ SERVICES COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO
BEGINNING CHARGED OTHER BALANCE AT
OF PERIOD TO EXPENSE ACCOUNTS DEDUCTIONS END OF PERIOD
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1995
Allowance for doubtful accounts
receivable......................... $ 2,184 $1,399 $4,105(3) $ 205(1) $ 7,483
Reserve for inventory obsolescence
and adjustment..................... 8,146 115 2,061(3) 777(2) 9,545
YEAR ENDED SEPTEMBER 30, 1996
Allowance for doubtful accounts
receivable......................... $ 7,483 $ 357 $1,302(3) $2,919(1) $ 6,223
Reserve for inventory obsolescence
and adjustment..................... 9,545 100 2,481(3) 1,116(2) 11,010
YEAR ENDED SEPTEMBER 30, 1997
Allowance for doubtful accounts
receivable......................... $ 6,223 $2,098 $ 337(4) $2,464(1) $ 6,194
Reserve for inventory obsolescence
and adjustment..................... 11,010 1,056 521(3) 3,050(2) 9,537
</TABLE>
- ---------------
(1) Deductions in the allowance for doubtful accounts principally reflect the
write-off of previously reserved accounts.
(2) Deductions in the reserve for inventory obsolescence and adjustment
principally reflect the sale or disposal of related inventory.
(3) Additions to the reserve resulting from acquisitions of businesses.
(4) Additions to the reserve resulting from recoveries of accounts previously
written-off.
46
<PAGE> 47
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 -- Agreement and Plan of Merger dated as of November 17,
1994 ("Merger Agreement"), among BJ Services Company,
WCNA Acquisition Corp. and The Western Company of North
America (filed as Exhibit 2.1 to the Company's Annual
Report on Form 10-K for the year ended September 30,
1995, and incorporated herein by reference).
2.2 -- First Amendment to Agreement and Plan of Merger dated
March 7, 1995, among BJ Services Company, WCNA
Acquisition Corp. and The Western Company of North
America (filed as Exhibit 2.2 to the Company's Annual
Report on Form 10-K for the year ended September 30,
1995, and incorporated herein by reference).
3.1 -- Certificate of Incorporation, as amended (filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1995, and incorporated
herein by reference).
3.2 -- Certificate of Designation of Series A Junior
Participating Preferred Stock, as amended (filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1996, and incorporated
herein by reference).
3.3 -- Bylaws of the Company, as amended (filed as Exhibit 3.1
to the Company's Form 8-K dated October 21, 1996, and
incorporated herein by reference).
4.1 -- Specimen form of certificate for the Common Stock (filed
as Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-35187) and incorporated herein by
reference).
4.2 -- Amended and Restated Rights Agreement dated as of
September 26, 1996, between the Company and First Chicago
Trust Company of New York, as Rights Agent (filed as
Exhibit 4.1 to the Company's Form 8-K dated October 21,
1996 and incorporated herein by reference).
*4.3 -- First Amendment to Amended and Restated Rights Agreement
and Appointment of Rights Agent, dated as of March 31,
1997, among the Company, First Chicago Trust Company of
New York and The Bank of New York.
4.4 -- Warrant Agreement with respect to the Company's warrants
to purchase common stock (filed as Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1995, and incorporated herein by
reference).
*4.5 -- First Amendment to Warrant Agreement and Appointment of
Warrant Agent, dated as of March 31, 1997, among the
Company, First Chicago Trust Company of New York, and The
Bank of New York.
10.1 -- Relationship Agreement dated as of July 20, 1990, between
the Company and Baker Hughes Incorporated (filed as
Exhibit 10.1 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-35187) and incorporated herein by
reference).
10.2 -- Tax Allocation Agreement dated as of July 20, 1990,
between the Company and Baker Hughes Incorporated
(included as Exhibit A to Exhibit 10.1) (filed as Exhibit
10.2 to the Company's Registration Statement on Form S-1
(Reg. No. 33-35187) and incorporated herein by
reference).
10.3 -- 1990 Stock Incentive Plan, as amended and restated (filed
as Exhibit 10.1 to the Company's Registration Statement
on Form S-8 (Reg. No. 33-62098) and incorporated herein
by reference.
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.4 -- Amendment effective December 12, 1996, to 1990 Stock
Incentive Plan, as amended and restated (filed as Exhibit
10.4 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1996, and incorporated herein by
reference).
10.5 -- 1990 Employee Stock Purchase Plan (filed as Exhibit 10.4
to the Company's Registration Statement on Form S-1 (Reg.
No. 33-35187) and incorporated herein by reference).
10.6 -- Amendment effective December 12, 1996, to 1990 Employee
Stock Purchase Plan (filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1996, and incorporated herein by
reference).
10.7 -- BJ Services Company 1995 Incentive Plan (filed as Exhibit
4.5 to the Company's Registration Statement on Form S-8
(Reg. No. 33-58637) and incorporated herein by
reference).
10.8 -- Amendments effective January 25, 1996, and December 12,
1996, to BJ Services Company 1995 Incentive Plan (filed
as Exhibit 10.9 to the Company's Annual Report on Form
10-K for the year ended September 30, 1996, and
incorporated herein by reference).
10.9 -- Form of Severance Agreement between BJ Services Company
and certain executive officers (filed as Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the year
ended September 30, 1993, and incorporated herein by
reference).
10.10 -- Credit Agreement dated as of August 7, 1996, among the
Company, BJ Services Company, U.S.A., BJ Service
International, Inc., BJ Services Company Middle East,
Nowsco Well Service, Ltd., and Bank of America National
Trust and Saving Association and Bank of America Canada,
as agents, and the other financial institutions parties
thereto (the "Credit Agreement") (filed as Exhibit 10.1
to the Company's Form 10-Q for the quarter ended June 30,
1996, and incorporated herein by reference).
10.11 -- Form of Revolving Note, U.S. Term Note, Prime Rate Note
and Swing Loan Note pursuant to the Credit Agreement
(filed as Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1996, and
incorporated herein by reference).
10.12 -- Parent Guaranty Agreement dated as of August 7, 1996, by
the Company under the Credit Agreement (filed as Exhibit
10.16 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1996, and incorporated herein by
reference).
10.13 -- Form of Amendment to Executive Severance Agreement
between BJ Services Company and certain executive
officers (filed as Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the year ended September 30,
1995, and incorporated herein by reference).
*10.14 -- Key Employee Security Option Plan.
*10.15 -- Trust Indenture and Security Agreement dated as of August
7, 1997 among First Security Bank, National Association,
BJ Services Equipment, L.P. and State Street Bank and
Trust Company, as Indenture Trustee.
*10.16 -- Amended and Restated Agreement of Limited Partnership
dated as of August 7, 1997 of BJ Services Equipment, L.P.
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
*10.17 -- Indenture Supplement No. 1 dated as of August 8, 1997
between First Security Bank, as Nonaffiliated Partner
Trustee, and BJ Services Equipment, L.P., and State
Street Bank and Trust Company, as Indenture Trustee.
*10.18 -- First Amendment to Amended and Restated Credit Agreement
dated as of November 14, 1997 among the Company, BJ
Services Company, U.S.A., BJ Service International, Inc.,
BJ Services Company Middle East, Nowsco Well Service
Ltd., Bank of America National Trust and Savings
Association, Bank of America Canada, The Chase Manhattan
Bank, Bank of Montreal, Royal Bank of Canada, Toronto
Dominion (Texas), Inc., Credit Lyonnais New York Branch,
and Wells Fargo Bank (Texas), National Association.
*21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of Deloitte & Touche LLP
*27.1 -- Financial data schedule.
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
FIRST AMENDMENT TO AMENDED AND RESTATED
RIGHTS AGREEMENT AND APPOINTMENT OF RIGHTS AGENT
FIRST AMENDMENT TO AMENDED AND RESTATED RIGHTS AGREEMENT AND
APPOINTMENT OF RIGHTS AGENT (this "First Amendment"), dated as of March 31,
1997, among BJ SERVICES COMPANY, a Delaware corporation ("BJ Services"), First
Chicago Trust Company of New York, a New York limited purpose trust company
("First Chicago"), and THE BANK OF NEW YORK, a New York trust company.
WHEREAS, BJ Services and First Chicago have heretofore entered
into an Amended and Restated Rights Agreement, dated as of September 26, 1996
(as amended and restated, the "Rights Agreement"), pursuant to which First
Chicago has served as rights agent (the "Rights Agent"); and
WHEREAS, BJ Services has determined that it is advisable to
remove First Chicago as Rights Agent and to appoint The Bank of New York as
successor Rights Agent under the Rights Agreement; and
WHEREAS, BJ Services has heretofore provided notice of the
removal of the Rights Agent to First Chicago and to the transfer agent of the
BJ Common Stock and the BJ Preferred Stock, in accordance with the requirements
of Section 21 of the Rights Agreement; and
WHEREAS, BJ Services, First Chicago and The Bank of New York
are entering into this First Amendment in order to confirm the removal of First
Chicago as Rights Agent, the appointment of The Bank of New York as successor
Rights Agent and the acceptance by The Bank of New York of such appointment and
of its powers, rights, duties and responsibilities as Rights Agent as provided
for in the Rights Agreement;
NOW, THEREFORE, in consideration of the foregoing premises,
and other good and valuable consideration, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT
1.1 BJ Services hereby removes First Chicago as Rights
Agent under the Rights Agreement, effective at the Effective Time (as defined
in Section 1.2).
1.2 BJ Services hereby appoints The Bank of New York as
Rights Agent under the Rights Agreement, and The Bank of New York hereby
accepts such appointment, all in accordance with the terms and subject to the
conditions of the Rights Agreement, and effective as of 5:00 p.m., New York
time, on March 31, 1997 (the "Effective Time").
<PAGE> 2
ARTICLE II
AMENDMENTS
As of the Effective Time, the Rights Agreement is hereby
amended as follows:
2.1 First Chicago shall hereby cease to be a party to the
Rights Agreement.
2.2 Each reference to the Rights Agent in the Rights
Agreement and, as applicable, each exhibit thereto is amended to be a reference
to The Bank of New York.
2.3 Section 26 of the Rights Agreement is hereby amended
to change the address for notices to the Rights Agent to read as follows:
"The Bank of New York
101 Barclay Street (12W)
New York, New York 10286
Attention: Tenders and Exchange Administration"
2.4 The form of Right Certificate attached as Exhibit B
to the Rights Agreement shall be deleted and replaced in its entirety with the
amended Exhibit B that is attached as Annex I to this First Amendment.
ARTICLE III
MISCELLANEOUS
3.1 Terms used in this First Amendment without definition
shall have the meanings ascribed to such terms in the Rights Agreement.
3.2 This First Amendment may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
3.3 Except as expressly amended and modified by the terms
of this First Amendment, the terms and provisions of the Rights Agreement shall
remain in full force and effect.
3.4 This First Amendment, the Rights Agreement and each
Right Certificate issued hereunder and thereunder shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes
shall be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State.
3.5 The undersigned officer of BJ Services hereby
certifies to First Chicago and The Bank of New York that this First Amendment
is compliance with the terms of Section 27 of the Rights Agreement.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the day first written above by their
respective officers thereunto duly authorized, to be effective as of the
Effective Time.
BJ SERVICES COMPANY
By: /s/ Margaret B. Shannon
-----------------------------------
Margaret B. Shannon, Vice President
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By: /s/ Kevin Laurita
----------------------------------
Kevin Laurita, Assistant Vice
President
THE BANK OF NEW YORK
By: /s/ John I. Sivertsen
---------------------------------
John I. Sivertsen, Vice President
<PAGE> 1
EXHIBIT 4.5
FIRST AMENDMENT TO WARRANT AGREEMENT
AND APPOINTMENT OF WARRANT AGENT
FIRST AMENDMENT TO WARRANT AGREEMENT AND APPOINTMENT OF WARRANT AGENT
(this "First Amendment"), dated as of March 31, 1997, among BJ SERVICES
COMPANY, a Delaware corporation ("BJ Services"), First Chicago Trust Company of
New York, a New York limited purpose trust company ("First Chicago"), and THE
BANK OF NEW YORK, a New York trust company.
WHEREAS, BJ Services and First Chicago have heretofore entered into a
Warrant Agreement, dated as of April 13, 1995 (the "Warrant Agreement"),
pursuant to which BJ Services appointed First Chicago and First Chicago agreed
to act, in accordance with the terms and subject to the conditions of the
Warrant Agreement, as agent (the "Warrant Agent") for the issuance, transfer,
exchange and exercise of warrants (the "BJ Warrants") to purchase Common Stock,
par value $0.10 per share, of BJ Services ("BJ Common Stock"); and
WHEREAS, BJ Services has determined that it is advisable to remove
First Chicago as Warrant Agent and to appoint The Bank of New York as successor
Warrant Agent under the Warrant Agreement; and
WHEREAS, BJ Services has heretofore provided notice of the removal of
First Chicago as Warrant Agent to First Chicago, to the transfer agent of the
BJ Common Stock and to the holders of the BJ Warrants, in each case in
accordance with the requirements of Section 20 of the Warrant Agreement; and
WHEREAS, BJ Services, First Chicago and The Bank of New York are
entering into this First Amendment in order to confirm the removal of First
Chicago as Warrant Agent, the appointment of The Bank of New York as successor
Warrant Agent, and the acceptance by The Bank of New York of such appointment
and of its powers, rights, duties and responsibilities as Warrant Agent as
provided for in the Warrant Agreement;
NOW, THEREFORE, in consideration of the foregoing premises, and other
good and valuable consideration, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT
1.1 BJ Services hereby removes First Chicago as Warrant Agent
under the Warrant Agreement, effective at the Effective Time (as defined in
Section 1.2).
<PAGE> 2
1.2 BJ Services hereby appoints The Bank of New York as Warrant
Agent under the Warrant Agreement, and The Bank of New York hereby accepts such
appointment, all in accordance with the terms and subject to the conditions of
the Warrant Agreement, and effective as of 5:00 p.m., New York time, on March
31, 1997 (the "Effective Time").
ARTICLE II
AMENDMENTS
As of the Effective Time, the Warrant Agreement is hereby amended as
follows:
2.1 First Chicago shall hereby cease to be a party to the Warrant
Agreement.
2.2 Each reference to the Warrant Agent in the Warrant Agreement
and, as applicable, each exhibit thereto is hereby amended to be a reference to
The Bank of New York.
2.3 The reference to the "Stockholder Rights Agreement, dated as
of January 12, 1994, as amended, between BJ and First Chicago Trust Company of
New York, as amended (the "Rights Agreement")" in Section 10(e) of the Warrant
Agreement is hereby deleted, and the following is inserted in place thereof:
"Amended and Restated Rights Agreement, dated as of September 26, 1996, as
amended, between BJ and The Bank of New York (as the same may be further
amended from time to time, the "Rights Agreement")."
2.4 Section 24(b) of the Warrant Agreement is hereby amended to
read as follows:
"(b) If to the Warrant Agent, to:
The Bank of New York
101 Barclay Street (12W)
New York, New York 10286
Attention: Tenders and Exchange Administration"
2.5 The form of Warrant Certificate attached as Exhibit 1 to the
Warrant Agreement shall be deleted and replaced in its entirety with the
amended Exhibit 1 that is attached as Annex A to this First Amendment.
-2-
<PAGE> 3
ARTICLE III
MISCELLANEOUS
3.1 Terms used in this First Amendment without definition shall
have the meanings ascribed to such terms in the Warrant Agreement.
3.2 This First Amendment may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
3.3 Except as expressly amended and modified by the terms of this
First Amendment, the terms and provisions of the Warrant Agreement shall remain
in full force and effect.
3.4 This First Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
the conflicts of laws principles thereof.
* * * * *
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the day first written above by their
respective officers thereunto duly authorized, to be effective as of the
Effective Time.
BJ SERVICES COMPANY
By: /s/ Margaret B. Shannon
--------------------------------------
Margaret B. Shannon, Vice President
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By: /s/ Kevin Laurita
--------------------------------------
Kevin Laurita, Assistant Vice President
THE BANK OF NEW YORK
By: /s/ John I. Sivertsen
--------------------------------------
John I. Sivertsen, Vice President
<PAGE> 1
EXHIBIT 10.14
BJ SERVICES COMPANY U.S.A. AND AFFILIATES
KEY EMPLOYEE SECURITY OPTION PLAN (KEYSOP(TM))
Effective Date of Plan: September 30, 1997
<PAGE> 2
BJ SERVICES COMPANY U.S.A. AND AFFILIATES
KEY EMPLOYEE SECURITY OPTION PLAN (KEYSOP(TM))
Table of Contents
<TABLE>
<CAPTION>
Article Page
<S> <C> <C>
Preamble 1
I Definitions 1
II Award of Options 3
III Exercise of Options 4
IV Amendment or Termination of Plan 6
V Administration 7
VI Trust Provisions 8
VII Miscellaneous 9
</TABLE>
<PAGE> 3
BJ SERVICES COMPANY U.S.A. AND AFFILIATES
KEY EMPLOYEE SECURITY OPTION PLAN (KEYSOP(TM))
Preamble
BJ Services Company U.S.A. and Affiliates (the "Employer") hereby
establishes the BJ Services Company U.S.A. and Affiliates Key Employee
Security Option Plan(TM) (the "Plan"), effective as of the date specified
herein.
The purpose of the Plan is to provide a vehicle for the payment of
compensation (either salary or bonuses) otherwise payable to the participating
key executives of the Employer, commensurate with their contributions to the
success of the Employer's activities, in a form that will provide incentives
and rewards for meritorious performance and encourage the recipients'
continuance as employees of the Employer. The Plan is intended to be a
nonqualified stock option plan within the meaning of Section 83 of the Internal
Revenue Code, and is not intended to be covered by the provisions of the
Employee Retirement Income Security Act of 1974.
ARTICLE I
Definitions
As used in this Plan, the following capitalized words and phrases have
the meanings indicated, unless the context requires a different meaning:
1.1 "Beneficiary" means the person or persons designated by a
Participant, or otherwise entitled, to exercise Options after a Participant's
death.
1.2 "Board of Directors" or "Board" means the board of directors of
the Employer.
1.3 "Code" means the Internal Revenue Code of 1986, any amendments
thereto, and any regulations on rulings issued thereunder.
1.4 "Committee" means the committee appointed in accordance with
Section 5.1 to determine awards of Options and administer the Plan.
1.5 "Designated Property" means securities of regulated investment
companies or any other property (not including cash, cash equivalents, or
securities of the Employer) designated by the Committee as subject to purchase
through the exercise of an Option.
1.6 "Effective Date" means September 30, 1997.
1.7 "Employee" means, for purposes of this plan, any individual who
is employed by the Employer and any director of the Employer.
1
<PAGE> 4
1.8 "Employer" means BJ Services Company U.S.A. and Affiliates, and
any successor thereto.
1.9 "ERISA" means the Employee Retirement Income Security Act of
1974, any amendments thereto, and any regulations or rulings issued thereunder.
1.10 "Exercise Price" means the price that a Participant must pay in
order to exercise an Option.
1.11 "Grant Date" means, with respect to any Option, the date on which
an Option is awarded to the Participant.
1.12 "Option" means the right of a Participant, granted by the
Employer in accordance with the terms of this Plan, to purchase Designated
Property from the Employer at the Exercise Price established under Section 2.3.
1.13 "Option Agreement" means an agreement executed by the Employer
and by a Participant to whom Options have been awarded, acknowledging the
issuance of the Options and setting forth any terms that are not specified in
this Plan.
1.14 "Participant" means any individual who has received an award of
Options in accordance with Section 2.2 and whose Options have not been
completely exercised. After a Participant's death, his Beneficiary is
considered to be a Participant to the extent necessary to facilitate the
exercise of any Options that continue to be exercisable under the terms of the
Plan. In the event of a Participant's disability or other legal incapacity,
the Participant's legal representative is considered to be a Participant to the
extent necessary to facilitate the exercise of any Options that are or become
exercisable under the terms of the Plan.
1.15 "Plan" means the BJ Services Company U.S.A. and Affiliates Key
Employee Security Option Plan(TM), as set forth herein and as from time to time
amended.
1.16 "Plan Year" means the operating year of the Plan, which ends on
December 31st.
1.17 "Termination of Employment" means a Participant's separation
from the service of the Employer (including all subsidiaries or other
affiliates of the Employer that participate in the Plan) by reason of his
resignation, retirement, discharge or death.
1.18 "Trust" means the trust that may be established pursuant to
Article VI to hold the Designated Property that is subject to purchase through
the exercise of an Option.
1.19 "Trust Agreement" means an agreement setting forth the terms of
the Trust established pursuant to Article VI.
1.20 "Trust Fund" means the Designated Property that is subject to an
option that is held in the Trust.
2
<PAGE> 5
1.21 "Trustee" means the persons or institution acting as trustee of
the Trust.
1.22 Rules of construction
1.22.1 Governing law. The construction and operation of this Plan
are governed by the laws of the State of Delaware.
1.22.2 Headings. The headings of Articles, Sections and Subsections
are for reference only and are not to be utilized in construing the Plan.
1.22.3 Gender. Unless clearly inappropriate, all pronouns of
whatever gender refer indifferently to persons or objects of any gender.
1.22.4 Singular and plural. Unless clearly inappropriate, singular
terms refer also to the plural number and vice versa.
1.22.5 Severability. If any provision of this Plan is held to be
illegal or invalid for any reason, the remaining provisions are to remain in
full force and effect and to be construed and enforced in accordance with the
purposes of the Plan as if the illegal or invalid provision did not exist.
ARTICLE II
Award of Options
2.1 Eligibility for awards. Awards of Options may be made to any
Employee selected by the Committee from the directors, executive officers and
other key employees who occupy senior managerial or professional positions and
who have the capacity of making a substantial contribution to the success of
the Employer. In making this selection and in determining the form and amount
of options the Committee shall consider any factors it deems relevant,
including the individual's functions, responsibilities, value of services to
the Employer and past and potential contributions to the Employer's
profitability and growth.
2.2 Procedure for awarding Options. The recipients of Options are
determined from time to time by the Committee. Although a Committee member may
receive Options under the Plan, no Committee member may take part in any way in
determining the amount of any award of Options to himself. Awards become
effective upon the Grant Date. Awards may be made at any time on or after the
Effective Date and prior to the termination of the Plan.
2.3 Selection of Designated Property and Establishment of Exercise
Price. When an Option is awarded, the Committee will specify the Designated
Property that may be purchased by exercise of the Option and will fix the
Exercise Price. If the Employer acquires Designated
3
<PAGE> 6
Property specified by an Option Agreement in accordance with Section 2.5
hereunder, such Designated Property must:
(a) not be subject to any security interest, whether or not
perfected, or to any option or contract under which any other
person may acquire any interest in it; and
(b) be readily tradable on an established market or consist wholly
of interests in property that is readily tradable on an
established market.
Unless otherwise specified in a particular Option Agreement, the Exercise Price
will equal seventy percent (70%) of the fair market value of the Designated
Property on the date of exercise.
2.4 Effect of dividends and distributions with respect to Designated
Property. The Employer agrees, whenever any dividend or other distribution is
paid on the Designated Property, to reinvest all said dividends and
distributions in additional property of the same kind (or as nearly the same
kind as feasible, if property of the same kind is not available). Any property
acquired through this investment or reinvestment will immediately be subject to
the same Option as provided for the purchase of the Designated Property from
which the dividends or distributions arose. Such property acquired thereafter
through reinvestment shall be referred to and treated as Designated Property.
2.5 Held in Trust. Upon the grant of an Option, the Employer may
acquire the Designated Property and contribute it to the Trust as soon as
practicable after the Grant Date. At the time contributed to the Trust, the
Designated Property shall not be subject to any security interest, whether or
not perfected, or to any option or contract under which any other person may
acquire any interest in it, except as otherwise provided in Section 6.2
2.6 Substitution of other property for Designated Property. At any
time after the grant of an Option, the Committee may, in its discretion, after
consultation with the Participant substitute other property of equal value for
Designated Property subject to that option. After substitution, such modified
option shall not be exercisable for six months or the period specified in the
option agreement, whichever is later.
ARTICLE III
Exercise of Options
3.1 Period for exercise of Options. Options may be exercised by a
Participant at any time during the period beginning six months after the Grant
Date and ending fifteen years after the Grant Date or such earlier date as may
be specified in the option agreement.
If a Participant dies before all of his Options have been exercised, any
Options that remain outstanding may be exercised by his Beneficiary.
4
<PAGE> 7
3.2 Procedure for exercising Option. A Participant may exercise all
or a portion of an Option by giving written notice to the Committee and
tendering payment of the applicable Exercise Price.
3.3 Inalienability of Options. No Option granted under this Plan may
be transferred, assigned or alienated. An Option may be exercised only by the
Participant to whom it was granted, by his Beneficiary after his death, or by a
person holding a valid power of attorney to act on behalf of the person
entitled to exercise the Option.
3.4 Delivery of Designated Property. On the date of exercise, or as
soon as administratively feasible, the Employer will deliver or cause to be
delivered the Designated Property then being purchased to the Participant or
the Participant's Beneficiary pursuant to Section 3.6. In the event that the
listing, registration or qualification of the Option or the Designated Property
on any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary as a condition of,
or in connection with, the exercise of the Option, then the Option will not be
exercised in whole or in part until such listing, registration, qualification,
consent or approval has been effected or obtained.
3.5 Tax Withholding. Whenever Designated Property is to be delivered
upon exercise of an Option under the Plan, the Employer will require as a
condition of such delivery (a) the cash payment by the Participant of an amount
sufficient to satisfy all federal, state and local tax withholding requirements
related thereto, (b) the withholding of such amount from any Designated
Property to be delivered to the Participant, (c) the withholding of such amount
from compensation otherwise due to the Participant, or (d) any combination of
the foregoing, at the election of the Participant with the consent of the
Employer. Such election will be made before the date on which the amount of
tax to be withheld is determined by the Employer, and such election will be
irrevocable. With the consent of the Employer, the Participant may elect a
greater amount of withholding, not to exceed the estimated amount of the
Participant's total tax liability with respect to the delivery of Designated
Property under the Plan. Such election will be made at the same time and in
the same manner as provided above.
3.6 Election of Beneficiary.
3.6.1 Designation or Change of Beneficiary by Participant. When
Options are first awarded to a Participant, the Committee will send him a
Beneficiary designation form, on which he may designate one or more
Beneficiaries and successor Beneficiaries. A Participant may change his
Beneficiary designation at any time by filing the prescribed form with the
Committee. The consent of the Participant's current Beneficiary is not
required for a change of Beneficiary, and no Beneficiary has any rights under
this Plan except as are provided by its terms. The rights of a Beneficiary who
predeceases the Participant who designated him immediately terminate, unless
the Participant has specified otherwise.
3.6.2 Beneficiary if no election is made. Unless a different
Beneficiary has been elected in accordance with Section 3.6.1, the Beneficiary
of any Participant who is lawfully
5
<PAGE> 8
married on the date of his death is his surviving spouse. The Beneficiary of
any other Participant who dies without having designated a Beneficiary is his
estate.
ARTICLE IV
Amendment or Termination of the Plan
4.1 Employer's right to amend or terminate Plan. The Board may, at
any time and from time to time, amend, in whole or in part, any of the
provisions of this Plan or may terminate it as a whole or with respect to any
Participant or group of Participants. Any such amendment is binding upon all
Participants and Beneficiaries, the Committee and all other parties in
interest. The termination of the Plan will not affect the outstanding options
previously issued under the Plan.
4.2 When amendments take effect. A resolution amending or
terminating the Plan becomes effective as of the date specified therein.
4.3 Amendment of Options. An Option Agreement may be amended by the
Committee at any time if the Committee determines that an amendment is
necessary or advisable as a result of:
(a) any addition to or change in the Code or any other
law or regulation which occurs after the Grant Date
and by its terms applies to the Option,
(b) any substitutions of Designated Property held in
trust pursuant to Section 2.5,
(c) any Plan amendment or termination pursuant to Section
4.1, provided that the amendment does not materially
affect the terms, conditions and restrictions
applicable to the Option, or
(d) any circumstances not specified in Paragraphs (a),
(b), (c), with the consent of the Participant.
ARTICLE V
Administration
5.1 The Committee. The Plan will be administered by a Committee
consisting of one or more persons appointed by the Board of Directors or
appointed by one or more designated representatives of the Board of Directors.
The Committee will act by a majority of its members at the time in office and
may take action either by vote at a meeting or by consent in writing without a
meeting.
(a) The Board may remove any member of the Committee at
any time, with or without cause, and may fill any
vacancy. If a vacancy occurs, the remaining member
or members of the Committee will have full authority
to act.
6
<PAGE> 9
(b) Any member of the Committee may resign by written
resignation delivered to the Board. Any such
resignation will become effective upon its receipt by
the Board or on such other date as agreed to by the
Board and the resigning member.
(c) The Board or its designated representative(s) may
authorize the Committee to delegate certain
responsibilities and powers to individuals who are
not members of the Committee.
5.2 Powers of the Committee. In carrying out its duties with
respect to the general administration of the Plan, the Committee will have, in
addition to any other powers conferred by the Plan or by law, the following
powers:
(a) to determine eligibility to participate in the Plan
and eligibility to receive Options;
(b) to grant Options, and to determine the form, amount
and timing of such Options;
(c) to determine the terms and provisions of the Option
Agreements, and to modify such Option Agreements as
provided in Section 4.3;
(d) to substitute Designated Property held in Trust as
provided in Section 2.6;
(e) to maintain all records necessary for the
administration of the Plan;
(f) to prescribe, amend, and rescind rules for the
administration of the Plan to the extent not
inconsistent with the terms thereof;
(g) to appoint such individuals and subcommittees as it
deems desirable for the conduct of its affairs and
the administration of the Plan;
(h) to employ counsel, accountants and other consultants
to aid in exercising its powers and carrying out its
duties under the Plan; and
(i) to perform any other acts necessary and proper for
the conduct of its affairs and the administration of
the Plan, except those reserved by the Board.
5.3 Determinations by the Committee. The Committee will interpret
and construe the Plan and the Option Agreements, and its interpretations and
determinations will be conclusive and binding on all Participants,
Beneficiaries and any other persons claiming an interest under the Plan or any
Option Agreement.
5.4 Indemnification of the Committee. The Employer will indemnify
and hold harmless each member of the Committee and any individuals who have
been delegated responsibilities under Sections 5.1(c) and 5.2(b) against any
and all expenses and liabilities arising out of such member's action or failure
to act in such capacity, excepting only expenses and liabilities arising out of
such member's own willful misconduct or gross negligence.
(a) Expenses and liabilities against which a member of
the Committee is indemnified hereunder will include,
without limitation, the amount of any settlement or
judgment, costs, counsel fees and related charges
reasonably incurred in connection with a claim
asserted or a proceeding
7
<PAGE> 10
brought against him or the settlement thereof.
(b) This right of indemnification will be in addition to
any other rights to which any member of the Committee
may be entitled.
(c) The Employer may, at its own expense, settle any
claim asserted or proceeding brought against any
member of the Committee when such settlement appears
to be in the best interests of the Employer, with
such member's consent which will not be unreasonably
withheld.
5.5 Expenses of the Committee. The members of the Committee will
serve without compensation for services as such. All expenses of the Committee
will be paid by the Employer.
ARTICLE VI
Trust Provisions
6.1 Establishment of the Trust. A trust may be established to hold
all Designated Property contributed by the Employer pursuant to Section 2.5.
Except as otherwise provided in Section 6.2, the Trust will be irrevocable and
no portion of the Trust Fund will be used for any purpose other than the
delivery of Designated Property pursuant to the exercise of an Option, and the
payment of expenses of the Plan and Trust.
6.2 Trust Status. The Trust is intended to be a grantor trust,
within the meaning of section 671 of the Code, of which the Employer is the
grantor, and this Plan is to be construed in accordance with that intention.
Notwithstanding any other provision of this Plan, the Trust Fund will remain
the property of the Employer and will be subject to the claims of its creditors
in the event of its bankruptcy or insolvency. No Participant will have any
priority claim on the Trust Fund or any security interest or other right
superior to the rights of a general creditor of the Employer.
ARTICLE VII
Miscellaneous Provisions
7.1 No Rights of Shareholder. Neither the Participant, a Beneficiary
nor any assignee will be, or will have any of the rights and privileges of, a
stockholder with respect to any Designated Property purchasable or issuable
upon the exercise of an Option, prior to the date of exercise of such Option.
7.2 No Right to Continued Employment. Nothing contained in the Plan
will be deemed to give any person the right to be retained in the employ of the
Employer, or to interfere with the right of the Employer to discharge any
person at any time without regard to the effect that such discharge will have
upon such person's rights or potential rights, if any, under the Plan. The
provisions of the Plan are in addition to, and not a limitation on, any rights
that a Participant may have against the Employer by reason of any employment or
other agreement with the Employer.
8
<PAGE> 11
7.3 Notices. Unless otherwise specified in an Option Agreement, any
notice to be provided under the Plan to the Committee will be mailed (by
certified mail, postage prepaid) or delivered to the Committee in care of the
Employer at its executive offices, and any notice to the Participant will be
mailed (by certified mail, postage prepaid) or delivered to the Participant at
the current address shown on the payroll records of the Employer. No notice
will be binding on the Committee until received by the Committee, and no notice
will be binding on the Participant until received by the Participant.
7.4 Change of Control. As used in the Plan, a Change of Control shall
be deemed to have occurred upon, and shall mean (a) the acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Act) of 25% or more of either (i) the then outstanding securities of Common
Stock of the Employer (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the Employer
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change of Control: (A) any acquisition directly from
the Employer (excluding an acquisition by virtue of the exercise of a
conversion privilege), (B) any acquisition by the Employer, (C) any acquisition
by any employee benefit plan(s) (or related trust(s)) sponsored or maintained
by the Employer of any corporation controlled by the Employer or (D) any
acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, immediately following such reorganization, merger or
consolidation, the conditions described in clause (i), (ii) and (iii) of clause
(b) of this paragraph 7.4 are satisfied; or (b) the approval by the
stockholders of the Employer of a reorganization, merger or consolidation, in
each case, unless immediately following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then outstanding
securities of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportions
as their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding the Employer,
any employee benefit plan(s) (or related trust(s)) of the Employer and/or its
subsidiaries or such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 25% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding securities of common stock of the
corporation resulting from such reorganization, merger or consolidation or the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (iii)
at least a majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were members of the
Incumbent Board (as defined
9
<PAGE> 12
below) at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation. The "Incumbent Board" shall mean
individuals who, as of September 30, 1997, constitute the Board; provided,
however, that any individual becoming a director subsequent to such date whose
election, or nomination for election by the Employer's stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either (1) an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Act), or an actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board or (2) a plan or agreement to replace a majority of the members of the
Board then comprising the Incumbent Board.
7.5 Acceleration upon a Change in Control. Notwithstanding any
provision in any document or instrument evidencing a nonqualified option
granted under the Plan, upon the occurrence of a Change of Control each
nonqualified option previously granted under the Plan which is not then
immediately exercisable in full shall be immediately exercisable in full.
IN WITNESS WHEREOF, BJ Services Company U.S.A. and Affiliates has
caused these presents to be executed by its duly authorized officer and its
corporate seal to be hereunto affixed by authority of its Board of Directors
this _____ day of ____________________, 1997.
BJ Services Company U.S.A. and Affiliates
Corporate Seal
By:
----------------------------------------
Attest / Witness
----------------------------------------
Printed Name:
-----------------------------
10
<PAGE> 1
EXHIBIT 10.15
================================================================================
TRUST INDENTURE AND SECURITY AGREEMENT
dated as of August 7, 1997
among
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual
capacity except as otherwise expressly provided herein,
but solely as Nonaffiliated Partner Trustee under the
Trust Agreement dated as of August 7, 1997 with
Beneficiaries,
BJ SERVICES EQUIPMENT, L.P.,
a Delaware Limited Partnership
and
STATE STREET BANK AND TRUST COMPANY,
as Indenture Trustee.
================================================================================
Well Services Equipment
(BJ Services Trust No. 1997-1)
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Excluded Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.3 HABENDUM CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.4 Attachment of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.5 Effect of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.6 Appointment of Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.8 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2. THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.1 Notes; Title, Dating and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Indenture Trustee as Agent; Ownership of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.6 Mutilated, Destroyed, Lost or Stolen Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.7 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.8 Payment on Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.9 Payment from Indenture Estate Only; Nonrecourse Obligations; Excess Amounts . . . . . . . . . . . . . 16
2.10 Execution and Delivery of Notes upon Original Issuance . . . . . . . . . . . . . . . . . . . . . . . . 17
2.11 Security for and Parity of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.12 Application of Payments to Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.13 Intentional Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.14 Late Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.15 Definition of Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.16 Special Rights of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3. RECEIPT, DISTRIBUTION AND APPLICATION OF FUNDS IN THE INDENTURE ESTATE . . . . . . . . . . . . . . . . . . . 21
3.1 Payment Upon Delivery of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
3.2 Payments Upon Event of Loss, Obsolescence or ET Right; Certain Prepayments . . . . . . . . . . . . . . 21
3.3 Application of Priority Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.4 Application of Certain Amounts Upon Event of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.5 Amounts During Indenture Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.6 Amounts for Which Application is Provided in Other Basic Documents . . . . . . . . . . . . . . . . . . 24
3.7 Amounts for Which No Application is Otherwise Provided . . . . . . . . . . . . . . . . . . . . . . . . 24
3.8 Excepted Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.9 Notice of Nonpayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4. COVENANTS OF NONAFFILIATED PARTNER TRUSTEE AND PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . 25
5. DISPOSITION, SUBSTITUTION AND RELEASE OF PROPERTY INCLUDED IN THE INDENTURE ESTATE DURING CONTINUATION OF
PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.1 Disposition, Substitution and Release of Property Included in the Indenture Estate During
Continuation of Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.2 Possession of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.3 Release of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.4 Release of Units - Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.5 Protection of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6. PREPAYMENT OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.1 Prepayment of Notes upon Event of Loss, Obsolescence or ET Date . . . . . . . . . . . . . . . . . . . 29
6.2 Notice of Prepayment to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.3 Deposit of Prepayment Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.4 Notes Payable on Prepayment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7. NONAFFILIATED PARTNER TRUSTEE AND INDENTURE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.1 Prepayment of Moneys for Note Payments Held by Indenture Trustee . . . . . . . . . . . . . . . . . . . 32
7.2 No Representations or Warranties as to Units or Documents . . . . . . . . . . . . . . . . . . . . . . 32
8. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Indenture Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
8.2 Acceleration; Rescission and Annulment; Limitations . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 Other Remedies Available to Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.4 Waiver of Nonaffiliated Partner Trustee and Partnership . . . . . . . . . . . . . . . . . . . . . . . 45
8.5 Waiver of Existing Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.6 Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.7 Limitation on Suits by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.8 Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.9 Indenture Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9. INDENTURE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.1 Rights and Duties of Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.2 Individual Rights of Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.3 Funds May Be Held by Indenture Trustee; Investments . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.4 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.6 Replacement of Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.7 Successor Indenture Trustee by Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.8 Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.9 Trustee's Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.10 Withholding Taxes; Information Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.11 Co-Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10. SATISFACTION AND DISCHARGE; TERMINATION
OF OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10.1 Satisfaction and Discharge of Agreement; Termination of Obligations . . . . . . . . . . . . . . . . . 54
10.2 Survival of Certain Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10.3 Moneys to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10.4 Moneys to Be Returned to Nonaffiliated Partner Trustee . . . . . . . . . . . . . . . . . . . . . . . . .55
11. AMENDMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
11.1 Amendments to This Indenture Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . 55
11.2 Supplements to Partnership Agreement, Guaranty, Services Agreement and O&M Agreement Without Holder
Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.3 Amendments With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
11.4 Notation on or Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
11.5 Indenture Trustee Protected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.6 Opinion of Counsel Conclusive as to Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12. ACTIONS TO BE TAKEN UPON EXERCISE OF CERTAIN RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
12.1 Actions to Be Taken upon Exercise of Certain Rights . . . . . . . . . . . . . . . . . . . . . . . . . 59
13. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
13.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
13.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
13.3 No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
13.4 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
13.5 Indenture for Benefit of Nonaffiliated Partner Trustee, Indenture Trustee, Beneficiaries and Holders . 61
13.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
13.7 No Oral Modifications or Continuing Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
13.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
13.9 Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
13.10 No Legal Title to Indenture Estate in Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
13.11 Capacity in Which Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
13.12 Directly or Indirectly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>
iv
<PAGE> 6
Attachments
Exhibit A Note
Exhibit B Indenture Supplement No. 1
v
<PAGE> 7
TRUST INDENTURE AND SECURITY AGREEMENT dated as of August 7,
1997 among FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national
banking association not in its individual capacity except as otherwise
expressly provided herein, but solely as Nonaffiliated Partner
Trustee, BJ SERVICES EQUIPMENT, L.P., a Delaware Limited Partnership
and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust
company, as Indenture Trustee hereunder.
R E C I T A L S:
A. Beneficiaries and First Security Bank, National Association, a
national banking association, have entered into the Trust Agreement whereby,
among other things, (i) Nonaffiliated Partner Trustee has established a certain
trust for the use and benefit of Beneficiaries, to be subject, however, to the
Lien of the Indenture created pursuant hereto and (ii) Nonaffiliated Partner
Trustee has been authorized and directed to execute and deliver this Indenture.
B. Before the Commencement Date General Partner and
Organizational Limited Partner formed Partnership pursuant to the Initial
Partnership Agreement, and General Partner contributed the Initial Units to
Partnership.
C. Nonaffiliated Partner Trustee, Indenture Trustee and other
parties have entered into the Participation Agreement providing for the
commitment of the Note Purchasers to purchase Notes in an aggregate amount not
to exceed $75,000,000.
D. Subject to the terms of the Participation Agreement,
Nonaffiliated Partner Trustee on the Commencement Date will enter into the
Partnership Agreement (which amends and restates the Initial Partnership
Agreement) with General Partner, Affiliated Partner and Organizational Limited
Partner and will make a capital contribution to Partnership.
E. The proceeds of the Notes are to be used by Nonaffiliated
Partner Trustee to finance a portion of the Nonaffiliated Partner Trustee's
capital contribution to Partnership on the Commencement Date.
F. The parties desire by this Indenture, among other things, (i)
to provide for the issuance by Nonaffiliated Partner
<PAGE> 8
Trustee of the Notes in accordance with this Indenture, (ii) to provide for the
assignment, mortgage and pledge by Nonaffiliated Partner Trustee to Indenture
Trustee, as part of the Indenture Estate hereunder, among other things, of
Nonaffiliated Partner Trustee's Partnership Interest and of certain of
Nonaffiliated Partner Trustee's right, title and interest under certain Basic
Documents and certain payments and other amounts received hereunder or
thereunder, and (iii) to provide for the assignment, mortgage and pledge by
Partnership to Indenture Trustee, as part of the Indenture Estate hereunder,
among other things, of all of Partnership's right title and interest in and to
the Units and certain of Partnership's right, title and interest under certain
Basic Documents and certain payments and other amounts received with respect
thereto, all in accordance with the terms hereof, as security for, among other
things, the payment and performance of the Notes and Nonaffiliated Partner
Trustee's other obligations to Holders and to Indenture Trustee, for the
ratable benefit and security of Holders.
G. The Holders (i) by entering into the Participation Agreement,
have made it possible for Nonaffiliated Partner Trustee to make its capital
contribution to Partnership and, accordingly, have conferred financial and
other benefits on Partnership and Partners and (ii) would not enter into the
transactions contemplated by the Basic Documents without the grant by
Partnership and Nonaffiliated Partner Trustee of the Liens provided hereunder.
H. All things necessary to make this Indenture the legal, valid
and binding obligation of Nonaffiliated Partner Trustee, Partnership and
Indenture Trustee, for the uses and purposes herein set forth, in accordance
with its terms, have been done and performed and have happened.
I. For all purposes of this Indenture, except as otherwise
defined herein or unless the context otherwise requires:
(a) capitalized terms used herein shall have the meanings
assigned to them in Appendix A attached hereto and made a part hereof;
(b) the words "herein", "hereof" and "hereunder", and
other words of similar import, refer to this Indenture as a
-2-
<PAGE> 9
whole and not to any particular Section or other subdivision hereof; and
(c) all references in this Indenture to Sections and
Exhibits refer to Sections and Exhibits of this Indenture unless otherwise
indicated.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto hereby agree as follows:
SECTION 1. SECURITY
1.1 Grant of Security Interest.
To secure the prompt payment of the principal of, Premium, if
any, and interest on the Notes from time to time Outstanding in accordance with
their terms and to secure the payment, performance and observance by
Nonaffiliated Partner Trustee and Partnership of all the agreements, covenants
and provisions for the benefit of the Holders and Indenture Trustee contained
herein and in the Basic Documents to which Partnership or Nonaffiliated Partner
Trustee is a party (collectively, the "Secured Obligations") and for the uses
and purposes and subject to the terms and provisions hereof,
(i) Nonaffiliated Partner Trustee does hereby grant,
bargain, sell, assign, transfer, convey, pledge and confirm, unto
Indenture Trustee, its successors and assigns, for the security and
benefit of the Holders from time to time and Indenture Trustee, and
grant a security interest in and lien on, all estate, right, title and
interest of Nonaffiliated Partner Trustee in, to and under the
following described property, agreements, rights, interests and
privileges, whether now owned or hereafter acquired, arising or
existing (which collectively, including, without limitation, all
property hereafter specifically subjected to the Lien of this
Indenture by Nonaffiliated Partner Trustee by any instrument
supplemental hereto, but excluding the Excepted Property, are herein
called the "Nonaffiliated Partner Trustee Indenture Estate"):
-3-
<PAGE> 10
(A) the Partnership Agreement and Nonaffiliated
Partner Trustee's Partnership Interest under the Partnership
Agreement (including all instruments or certificates owned or
held by or established in favor of Nonaffiliated Partner
Trustee with respect to such Partnership Interest) and all
rights, authority, powers and privileges of Nonaffiliated
Partner Trustee as a holder of such Partnership Interest and
all payments and distributions thereunder of whatever kind or
character and whether in cash or other property, at any time
made or distributable to Nonaffiliated Partner Trustee
thereunder or in respect thereof, whether due or to become due
and whether representing profits, distributions, repayment of
capital contributions or otherwise (including all amounts of
Priority Distributions, Supplemental Priority Distributions,
Special Distributions, Disposition Value, ET Price, FT Price
and payments of any kind required to be made to Nonaffiliated
Partner Trustee thereunder), including, without limitation,
the immediate and continuing right of Nonaffiliated Partner
Trustee to receive and collect all distributions and any other
payments or other amounts and the right of Nonaffiliated
Partner Trustee to exercise any election or option or to make
any decision or determination or to give or receive any
notice, consent, waiver or approval or to consent to any
amendment, modification or waiver or to make any claims or
demands under or to take any other action provided under or in
respect of the Partnership Agreement, the Services Agreement
or the O&M Agreement or to accept surrender of any Unit or
Units, including all the rights and powers of Nonaffiliated
Partner Trustee to the exclusion of General Partner and any
other Partner, to declare the O&M Agreement and the Services
Agreement to be in default, to terminate such agreements and
exercise all rights and remedies thereunder and under the
Partnership Agreement, including, without limitation, the
commencement, conduct and consummation of legal,
administrative and other proceedings as permitted thereunder
or by law, the liquidation of Partnership, and all rights and
powers of Nonaffiliated Partner Trustee to the exclusion of
General Partner and any other Partner
-4-
<PAGE> 11
following a BJ Event of Default to amend, modify or waive such
agreements and to exercise the other rights contained in
Section 7 of the Partnership Agreement;
(B) all rights, authority, powers and privileges
of, and all payments and distributions payable to,
Nonaffiliated Partner Trustee under Sections 5.11 through 5.18
and Section 5.22 of the Participation Agreement;
(C) without limiting the foregoing clause (A) or
(B), all rents, issues, profits, revenues and other income of
the property subjected or required to be subjected to the Lien
of this Indenture which relate to such Partnership Interest,
including, without limitation, the immediate and continuing
right to receive any of the foregoing;
(D) all moneys and securities now or hereafter
paid or deposited or required to be paid or deposited to or
with Indenture Trustee by or for the account of Nonaffiliated
Partner Trustee pursuant to any term of any Basic Document and
held or required to be held by Indenture Trustee hereunder
that relate to Partnership, the Units or to the Notes;
(E) the Guaranty, including, without limitation,
all covenants and warranties in favor of Nonaffiliated Partner
Trustee and all other rights and remedies of Nonaffiliated
Partner Trustee thereunder, whether now owned or hereafter
acquired; and
(F) all proceeds of the foregoing (Nonaffiliated
Partner Trustee, concurrently, with the delivery hereof,
having delivered to Indenture Trustee originals of the
executed Partnership Agreement, O&M Agreement, Services
Agreement, Guaranty and the relevant Partnership Agreement
Supplement and O&M Agreement Supplement and executed
counterparts of the Trust Agreement); and
(ii) Partnership does hereby grant, bargain, sell, assign,
transfer, convey, pledge and confirm, unto Indenture Trustee, its
successors and assigns, for the
-5-
<PAGE> 12
security and benefit of the Holders from time to time and Indenture
Trustee, and grant a security interest in and lien on, all estate,
right, title and interest of Partnership in, to and under the
following described property, agreements, rights, interests and
privileges, whether now owned or hereafter acquired, arising or
existing (which collectively, including, without limitation, all
property hereafter specifically subjected to the Lien of this
Indenture by Partnership by any instrument supplemental hereto, but
excluding the Excepted Property, are herein called the "Partnership
Indenture Estate" and together with the Nonaffiliated Partner Trustee
Indenture Estate herein called the "Indenture Estate"):
(A) the Units and all replacements thereof and
substitutions therefor in which Partnership shall from time to
time acquire an interest under the Contribution Agreements and
the Partnership Agreement, as more particularly described in
the Indenture Supplement, Partnership Agreement Supplement and
O&M Agreement Supplement executed and delivered with respect
to such Units;
(B) without limiting the foregoing clause(A), all
rents, issues, profits, revenues and other income of the
property subjected or required to be subjected to the Lien of
this Indenture which relate to the Contribution Agreements,
the Units or the Notes, including, without limitation, the
immediate and continuing right to receive any of the
foregoing;
(C) all insurance proceeds, sale proceeds or
proceeds arising out of a taking, condemnation, requisition or
appropriation by any government authority with respect to
Partnership, the Units or any Unit, including, without
limitation, the immediate and continuing right to receive any
of the foregoing;
(D) all moneys and securities now or hereafter
paid or deposited or required to be paid or deposited to or
with Indenture Trustee by or for the account of Partnership
pursuant to any term of any Basic Document and held or
required to be held by Indenture Trustee hereunder that relate
to the Units or to the Notes;
-6-
<PAGE> 13
(E) all Contribution Agreements, including,
without limitation, all covenants and warranties in favor of
Partnership and all other rights and remedies of Partnership
thereunder, whether now owned or hereafter acquired; and
(F) all proceeds of the foregoing (Partnership,
concurrently, with the delivery hereof, having delivered to
Indenture Trustee originals of the executed Partnership
Agreement, O&M Agreement, Services Agreement, Contribution
Agreements, Guaranty and the relevant Partnership Agreement
Supplement and O&M Agreement Supplement and executed
counterparts of the Trust Agreement);
excluding however, all Excepted Property. Such mortgage, charge, hypothec,
security interest and assignment shall attach to the Partnership Agreement, the
O&M Agreement and the Services Agreement and the amounts due and to become due
thereunder upon the execution and delivery of this Agreement, the
Participation Agreement, the Partnership Agreement, the O&M Agreement and the
Services Agreement; such security interest shall attach to the Units
specifically described in a supplement hereto upon the execution and delivery
of such supplement. The mortgage, charge, hypothec, security interest and
assignment granted hereunder shall in all events be subject to the terms and
conditions of this Indenture and the rights of Nonaffiliated Partner Trustee
and Partnership, respectively hereunder.
There shall be excluded from the foregoing grant of security interest
and assignment all Excepted Property.
1.2 Excluded Rights.
(a) Notwithstanding the foregoing assignment,
Nonaffiliated Partner Trustee and Partnership, respectively, shall have the
right, not to the exclusion of Indenture Trustee:
(i) to receive from Partnership, General
Partner, Affiliated Partner, Service Taker and Operator, respectively,
duplicate copies of all notices, documents, reports and other information that
Partnership, General Partner, Affiliated Partner, Service Taker and Operator
are required or permitted to give to Nonaffiliated Partner Trustee or
-7-
<PAGE> 14
Partnership under the Partnership Agreement, the Services Agreement, the O&M
Agreement, the Participation Agreement or any other Basic Document;
(ii) to inspect the Units and
Partnership's, General Partner's, Affiliated Partner's, Service Taker's, and
Operator's respective records with respect thereto and with respect to the
Partnership Agreement, O&M Agreement and the Services Agreement;
(iii) to provide or carry insurance in addition to
that required to be carried by Operator pursuant to the O&M Agreement so long
as such additional insurance does not adversely affect Operator's insurance or
the cost thereof or impair the collectibility of such insurance carried by
Operator; and
(iv) in the case only of Nonaffiliated
Partner Trustee, subject to the limitations of Section 8.3(e)(i)(5), to make
advances to protect or preserve the Units, and to pay, purchase, contest or
compromise any insurance premium, encumbrance, charge, tax, lien or other sum
that in the reasonable judgment of Nonaffiliated Partner Trustee appears to
affect the Units to enable it to exercise its rights under this Indenture.
(b) If no Indenture Event of Default exists,
Nonaffiliated Partner Trustee and Partnership shall have the right:
(i) jointly with and not to the
exclusion of Indenture Trustee, to consent or withhold consent to any
amendment, modification or waiver of any provision of the Partnership
Agreement, Sections 5.11 through 5.18 and 5.22 of the Participation Agreement,
any provision of the O&M Agreement, any provision of the Services Agreement to
which Nonaffiliated Partner Trustee has the right to join or consent pursuant
to Section 11.2 of the Services Agreement, it being the intention of the
parties that consent of Nonaffiliated Partner Trustee and Indenture Trustee
shall be required for any such amendment, modification or waiver;
(ii) to the exclusion of Indenture
Trustee, but jointly with Nonaffiliated Partner Trustee and Partnership,
-8-
<PAGE> 15
to adjust the Priority Distributions, Disposition Values and ET Price, pursuant
to and in accordance with Section 2.7 of the Participation Agreement, and to
amend the Partnership Agreement to reflect any such adjustment, if such
adjustment or amendment does not reduce the amounts payable under the
Partnership Agreement on any date below that necessary to pay in full, when
due, the principal of, Premium, if any, and the interest on the Notes due or to
become due on such date; and
(iii) to the exclusion of Indenture Trustee, but
jointly with Nonaffiliated Partner Trustee and Partnership to determine the
"Fair Market Value" pursuant to Section 5.17 of the Participation Agreement.
(c) During the continuance of an Indenture Event of
Default and until Indenture Trustee forecloses on the Indenture Estate,
Nonaffiliated Partner Trustee shall have the right, jointly with and not to the
exclusion of Indenture Trustee, to consent or withhold consent to any
amendment, modification or waiver of Sections 3.1, 5, 6, 7, 8, 9, 10, 11, 12,
13, 14, 15.1, 15.2, 15.3, 17, 19, 20, 22, 23.1 and 23.8 of the O&M Agreement,
Sections 3.1, 4, 5, 6, 7.1, 7.2, 7.3, 9, 10, 12 and 13.1 of the Services
Agreement, Sections 2.4, 3, 4, 6, 7, 9, 10, 11, 13.1, 13.2 and 13.5 of the
Partnership Agreement and Sections 5.11 through 5.18 and 5.22 of the
Participation Agreement, it being the intention of the parties that consent of
both Nonaffiliated Partner Trustee and Indenture Trustee shall be required for
any such amendment, modification or waiver.
(d) Subject to Section 1.2(b)(iii), Nonaffiliated Partner
Trustee and Indenture Trustee shall jointly determine the "Fair Market Value"
pursuant to the Basic Documents.
1.3 HABENDUM CLAUSE
TO HAVE AND TO HOLD all and singular the property described in Section
1.1 unto Indenture Trustee, its successors and assigns, in trust for the
benefit and security of the Holders from time to time, without any preference,
priority or distinction of any one Note over any other Note under this
Indenture, and for the benefit and security of Indenture Trustee and for the
uses and purposes and subject to the terms and provisions set forth in this
Indenture.
-9-
<PAGE> 16
1.4 Attachment of Security Interest.
This Indenture, as supplemented from time to time, is intended to and
shall create and grant to Indenture Trustee a security interest in each of the
Units, which security interest shall attach on the Commencement Date or other
date on which Partnership acquires an interest in such Units. The security
interests created by this Indenture and the Indenture Supplements and granted
to Indenture Trustee hereunder and thereunder in the Indenture Estate other
than the Units shall likewise attach on the Commencement Date.
1.5 Effect of Assignment.
Anything herein contained to the contrary notwithstanding,
Nonaffiliated Partner Trustee or Partnership, as the case may be, shall remain
liable under each of the Basic Documents to which it is a party to perform all
of the obligations assumed by it thereunder, all in accordance therewith and
Indenture Trustee and the Holders shall have no obligation or liability under
any of the Basic Documents to which Nonaffiliated Partner Trustee or
Partnership, as the case may be, is a party by reason of or arising out of any
assignment hereunder, nor shall Indenture Trustee (except as to Indenture
Trustee, if Indenture Trustee becomes Nonaffiliated Partner Trustee under the
Partnership Agreement) or the Holders be required or obligated in any manner to
perform or fulfill any obligations of Nonaffiliated Partner Trustee or
Partnership, as the case may be, under or pursuant to any of the Basic
Documents to which Nonaffiliated Partner Trustee or Partnership, as the case
may be, is a party or, except as herein expressly provided, to make any
payment, or to make any inquiry as to the nature or sufficiency of any payment
received by it, or present or file any claim, or take any action to collect or
enforce the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.
1.6 Appointment of Indenture Trustee.
Subject to the terms and conditions hereof, Nonaffiliated Partner
Trustee and Partnership do each hereby constitute Indenture Trustee the true
and lawful attorney of Nonaffiliated Partner Trustee or
-10-
<PAGE> 17
Partnership, as the case may be, irrevocably, with full power (in the name of
Nonaffiliated Partner Trustee or Partnership, as the case may be, or otherwise)
to ask, require, demand, receive, compound and give acquittance for any and all
moneys and claims for moneys due and to become due to Nonaffiliated Partner
Trustee or Partnership, as the case may be, (other than with respect to the
Excepted Property) under or arising out of the Partnership Agreement, the
Services Agreement or the O&M Agreement to endorse any checks or other
instruments or orders in connection therewith, to file any claims or take any
action or institute any proceedings which Indenture Trustee may deem to be
necessary or advisable in the premises. Nonaffiliated Partner Trustee and
Partnership have agreed, in the Partnership Agreement, that Partnership shall
make all Priority Distributions, Supplemental Priority Distributions and
Special Distributions distributable to Nonaffiliated Partner Trustee directly
to Indenture Trustee in accordance with this Indenture. Promptly on receipt
thereof, Nonaffiliated Partner Trustee or Partnership, as the case may be,
shall transfer to Indenture Trustee any and all moneys from time to time
received by it constituting part of the Indenture Estate, for distribution by
Indenture Trustee pursuant to this Indenture, except that Nonaffiliated Partner
Trustee shall accept for distribution pursuant to the Trust Agreement or
Partnership Agreement, as the case may be, any amounts distributed to it by
Indenture Trustee as expressly provided in this Indenture and any Excepted
Property.
1.7 Further Assurances.
Nonaffiliated Partner Trustee and Partnership each agrees that, at any
time and from time to time, upon the written request of Indenture Trustee,
Nonaffiliated Partner Trustee or Partnership, as the case may be, will, at
General Partner's expense as provided in the Participation Agreement, promptly
and duly execute, acknowledge and deliver or cause to be duly executed,
acknowledged and delivered to Indenture Trustee any and all such further acts,
deeds, conveyances, transfers and assurances as Indenture Trustee may
reasonably request for the perfection or protection of the Lien being herein
provided for in the Indenture Estate, whether now owned or hereafter acquired.
All property described or referred to in Section 1.1 hereafter acquired by
Nonaffiliated Partner Trustee or Partnership, as the case may be, shall,
without further act, assignment or conveyance by Nonaffiliated Partner Trustee,
Partnership or Indenture Trustee, become subject to the Lien of
-11-
<PAGE> 18
this Indenture as fully and completely as if originally described herein.
1.8 Representations and Warranties.
Nonaffiliated Partner Trustee does hereby warrant and represent that
it has the right, power and authority under the Trust Agreement and Partnership
Agreement, and Partnership does hereby warrant and represent that it has the
right, power and authority under the Partnership Agreement, to grant a Lien on,
and a security interest in, all property comprising the Indenture Estate and
that it has not granted, bargained, sold, assigned, transferred, conveyed or
pledged a security interest in or lien on, and hereby covenants that it will
not grant, bargain, sell, assign, transfer, convey or pledge a security
interest in, or lien on, so long as this Indenture remains in effect, any of
its right, title or interest in the Indenture Estate to anyone other than
Indenture Trustee. Nonaffiliated Partner Trustee will warrant and defend such
security interest against all Persons claiming by, through or under
Nonaffiliated Partner Trustee. Partnership will warrant and defend such
security interest against all Persons claiming by, through or under
Partnership.
SECTION 2. THE NOTES.
2.1 Notes; Title, Dating and Terms.
(a) The Notes shall be substantially in the form set
forth in Exhibit A or in the form or forms set forth in the Indenture
Supplement. The Notes shall be (i) dated the original date of issuance, (ii)
issued in such maturities, aggregate principal amounts, subject to repayment or
redemption in the aggregate and bear interest as the same are specified in
Exhibit B to the Indenture Supplement, and (iii) each subject to repayment or
redemption as specified herein and therein. Accrued interest on each Note
shall be payable on each Payment Date until the principal thereof is paid or
made available for payment in full.
(b) The Notes shall be issued in registered form
only. The Notes may not be prepaid or redeemed (or purchased in lieu of
prepayment or redemption), in whole or in part, except as provided in this
Indenture.
-12-
<PAGE> 19
(c) All computations of interest accruing on any
Note shall be made on the basis of a year of 360 days consisting of twelve
30-day months.
(d) The aggregate outstanding principal amount of
the Notes shall not exceed at any time $75,000,000. The Notes shall have the
same Payment Dates as to both principal and interest.
(e) The principal of, Premium (as defined in
Section 2.15), if any, and interest on the Notes shall be payable in
immediately available funds at the principal corporate trust office of
Indenture Trustee.
(f) All payments in respect of the Notes shall
be made in United States dollars.
2.2 Execution and Authentication.
(a) Notes shall be executed on behalf of
Nonaffiliated Partner Trustee by manual signature of the president, a senior
vice president, a vice president, an assistant vice president, its treasurer,
its secretary, an assistant secretary, an assistant treasurer or other
authorized officer of Nonaffiliated Partner Trustee.
(b) Immediately after the execution of the Notes,
Nonaffiliated Partner Trustee shall deliver such Notes to Indenture Trustee for
authentication and, subject to the provisions of Section 2.10, Indenture
Trustee shall authenticate the Notes by manual signature upon written orders of
Nonaffiliated Partner Trustee. Notes shall be authenticated on behalf of
Indenture Trustee by any authorized officer or signatory of Indenture Trustee.
(c) A Note shall not be valid or obligatory for
any purpose or entitled to any security or benefit hereunder until executed on
behalf of Nonaffiliated Partner Trustee by the manual signature of the officer
of Nonaffiliated Partner Trustee specified in Section 2.2(a) and until
authenticated on behalf of Indenture Trustee by the manual signature of the
authorized officer or signatory of Indenture Trustee specified in Section
2.2(b). Such signatures shall be conclusive evidence
-13-
<PAGE> 20
that such Note has been duly executed, authenticated and issued under this
Indenture and any Indenture Supplement.
(d) The authentication by Indenture Trustee of
any Note issued hereunder shall not be construed as a representation or
warranty by Indenture Trustee as to the validity or security of this Indenture
or such Note, and Indenture Trustee shall in no respect be liable or answerable
for the use made of such Note or the proceeds thereof.
2.3 Register. Indenture Trustee shall maintain an office
where the Notes may be presented for registration of transfer or for exchange.
At such office, the registrar (the "Registrar") shall keep a register (the
"Register") with respect to the Notes and their transfer and exchange. The
names and addresses of Holders, the transfers of the Notes and the names and
addresses of the transferees of all Notes shall be registered in the Register.
Indenture Trustee may appoint one or more co-registrars (the "Co-Registrars")
for the Notes and Indenture Trustee may terminate the appointment of any
Co-Registrar at any time upon written notice. The term "Registrar" includes
any Co- Registrar.
2.4 Transfer and Exchange. At the option of a Holder and
subject to Section 2.13 and Section 6.2 of the Participation Agreement, Notes
may be presented for exchange or surrendered for transfer for an equal
aggregate principal amount of other Notes, having the same date of original
issue, Payment Dates, Debt Rate and Maturity Date as the Notes so to be
exchanged or transferred at the office of the Registrar. Whenever any Note or
Notes are so presented or surrendered, Nonaffiliated Partner Trustee shall
execute and deliver to Indenture Trustee, and Indenture Trustee shall
authenticate and deliver to the Holder, the replacement Note or Notes which
such Holder or the transferee, as the case may be, is entitled to receive.
Each replacement Note shall bear a notation by Indenture Trustee of (a) the
aggregate amounts of principal of, and Premium, if any, on such replacement
Note that were paid to any Holder of the replaced Note at any time prior to the
delivery of the replacement Note, and (b) the date to which interest on such
replacement Note had been paid to any Holder of the replaced Note prior to the
delivery of the replacement Note.
-14-
<PAGE> 21
Any Note issued in connection with an exchange or transfer of existing
Notes shall be in a principal amount not less than the lesser of (a) the then
outstanding principal amount of the Note presented for exchange or transfer and
(b) $1,000,000, subject to Section 6.2 of the Participation Agreement.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of Nonaffiliated Partner Trustee,
evidencing the same obligations, and entitled to the same security and benefits
under this Indenture, as the Notes surrendered upon such registration of
transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall (if so required by Indenture Trustee or Nonaffiliated Partner
Trustee) be duly endorsed by, or be accompanied by a written instrument of
transfer or exchange in form satisfactory to, Indenture Trustee and
Nonaffiliated Partner Trustee, duly executed by the requesting Holder or such
Holder's attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
The Registrar shall not be required (a) to register the transfer of or
to exchange any Note during a period beginning at the opening of business 10
days before the day of the scheduled prepayment (or purchase in lieu of
prepayment where applicable) of Notes pursuant to Section 6.1 or 8.3(e) and
ending at the close of business on the scheduled date of prepayment (or
purchase) or (b) to register the transfer of or to exchange any Note called for
prepayment (or purchase in lieu of prepayment where applicable) pursuant to
such Section 6.1 or 8.3(e).
2.5 Indenture Trustee as Agent; Ownership of Notes.
(a) Indenture Trustee is hereby appointed the
agent of Nonaffiliated Partner Trustee for the payment, registration, transfer
and exchange of Notes. Subject to the provisions of Section 2.8, Notes may be
presented for payment at, and notices or demands with respect to the Notes or
this
-15-
<PAGE> 22
Indenture may be served or made at, the principal corporate trust office of
Indenture Trustee. Indenture Trustee shall promptly notify Nonaffiliated
Partner Trustee of any such presentment, notice or demand; provided, however,
that the failure of Indenture Trustee to so notify Nonaffiliated Partner
Trustee shall not affect the obligations of Nonaffiliated Partner Trustee
hereunder or under the Notes or, absent gross negligence or wilful misconduct,
give rise to any liability of Indenture Trustee to Nonaffiliated Partner
Trustee or to any other Person for any such failure.
(b) Ownership of the Notes shall be proved by the
Register kept by the Registrar. Prior to due presentment for registration of
transfer of any Note, Nonaffiliated Partner Trustee and Indenture Trustee shall
deem and treat the Person in whose name any Note is registered as the absolute
owner of such Note for the purpose of receiving payment of principal of,
Premium, if any, and interest on such Note and for all other purposes
whatsoever, whether or not such Note is overdue, and neither Nonaffiliated
Partner Trustee nor Indenture Trustee shall be affected by notice to the
contrary.
2.6 Mutilated, Destroyed, Lost or Stolen Notes. If any Note
is mutilated, destroyed, lost or stolen, Nonaffiliated Partner Trustee shall,
upon the written request of the relevant Holder, issue and execute, and
Indenture Trustee shall authenticate and deliver to the relevant Holder in
replacement thereof, a new Note of the same date of original issue and having
the same Payment Dates, Debt Rate and Maturity Date, payable to the same Holder
in the same principal amount and dated the same date as the Note so mutilated,
destroyed, lost or stolen. If the Note being replaced has become mutilated,
such Note shall be surrendered to Indenture Trustee. If the Note being
replaced has been destroyed, lost or stolen, the relevant Holder shall furnish
to Nonaffiliated Partner Trustee and Indenture Trustee (i) such security or
indemnity as may be required by them to save Nonaffiliated Partner Trustee and
Indenture Trustee harmless and (ii) evidence satisfactory to Nonaffiliated
Partner Trustee and Indenture Trustee of the destruction, loss or theft of such
Note and of the ownership thereof. If the original Holder or such other Person
that is an institutional investor is the owner of any such destroyed, lost or
stolen Note, then the affidavit of the President, any Vice President, Assistant
Vice President, Treasurer or Secretary of
-16-
<PAGE> 23
the original Holder or such other Person setting forth the fact of destruction,
loss or theft and of its ownership of the Note, at the time thereof, shall be
accepted as satisfactory evidence thereof, and no indemnity shall be required
as a condition to the execution and delivery of a new Note other than the
written agreement of such original Holder or other Person reasonably
satisfactory to Nonaffiliated Partner Trustee and Indenture Trustee to
indemnify (including for any costs and expenses, including reasonable
attorneys' fees) Nonaffiliated Partner Trustee and Indenture Trustee for any
claims or actions against them resulting from the issuance of such new Note or
the reappearance of the old Note. Each Note issued pursuant to this Section
2.6 shall bear a notation by Indenture Trustee of (a) the aggregate amounts of
principal of, and Premium, if any, on, such mutilated, destroyed, lost or
stolen Note that were paid to any Holder thereof at any time before the
delivery of such new Note and (b) the date to which interest on such mutilated,
destroyed, lost or stolen Note had been paid to any Holder thereof at or prior
to the time of such delivery.
2.7 Cancellation. All Notes surrendered for the purpose of
payment, redemption, transfer or exchange shall be delivered to Indenture
Trustee for cancellation or, if surrendered to Indenture Trustee, shall be
cancelled by it, and no Notes shall be issued in lieu thereof except as
expressly required or permitted by this Indenture. Indenture Trustee shall
deliver a certificate to Nonaffiliated Partner Trustee specifying any
cancellation of Notes that has been made. All such cancelled Notes shall be
held by Indenture Trustee until this Indenture is discharged, at which time
Indenture Trustee shall either deliver such cancelled Notes in a manner
necessary to effect the discharge and release of this Indenture or, if no such
delivery is necessary, such Notes shall be delivered to or disposed of as
directed by Nonaffiliated Partner Trustee.
2.8 Payment on Notes.
(a) The principal of, the Premium, if any,
interest on, and any other amounts payable with respect to, the Notes shall be
payable at the principal office of Indenture Trustee, in lawful money of the
United States of America without surrender or presentation of such Note and
without any notation being made thereon. The Holder (or the Person for whom
such Holder is a nominee) will, before selling, transferring or
-17-
<PAGE> 24
otherwise disposing of such Note, present such Note to Indenture Trustee for
transfer and notation as provided in Section 2.4. Any payment or prepayment of
amounts due on the Notes in accordance with the terms thereof and hereof which
is due on a date that is not a Business Day shall be payable, at the election
of Nonaffiliated Partner Trustee, on the next following Business Day without
penalty or reduction of, or increase in, the amount of interest that is payable
thereon.
(b) Notwithstanding Section 2.8(a), if any Note
is held by the original Note Purchaser, a permitted successor or assign that is
an institutional investor or a nominee thereof, Indenture Trustee shall, if
requested in writing by such Holder, pay interest on such Note and pay or
prepay the principal thereof and the Premium, if any, thereon and shall pay all
other amounts due with respect to such Note, by check, duly mailed, by
first-class mail, postage prepaid, or delivered to such Holder at its address
appearing on the Register. Upon written notice from any Holder that is an
original Note Purchaser, a permitted successor or assign that is an
institutional investor or a nominee thereof, which notice shall be given not
less than 30 days before the payment or prepayment of the Notes (and Section
2.16 shall constitute such written notice and wire transfer instructions until
otherwise designated in the case of the Note Purchasers), Indenture Trustee
will pay interest on such Note and pay or prepay the principal thereof and the
Premium, if any thereon, by wire transfer of immediately available funds to
such institution in the continental United States as such Holder may designate
in such notice, such wire transfers to be made on each date on which such
payment or prepayment is due if, and only so long as, such institution has
facilities for the receipt of a wire transfer. Indenture Trustee will transmit
any such wire transfer from its offices not later than 1:00 p.m. (New York
time) on each date on which payment or prepayment is due if, and only so long
as, available funds therefor have been received by Indenture Trustee by 11:00
a.m. (New York time) on such date or, if Indenture Trustee has not received
such available funds, Indenture Trustee will transmit such wire transfer
promptly upon receipt of such available funds.
(c) A Holder shall have no further interest in,
or other right with respect to, the Indenture Estate when and if the principal
amount of, Premium, if any, and interest on all
-18-
<PAGE> 25
Notes held by such Holder and all other sums payable to such Holder and secured
hereunder are paid in full.
2.9 Payment from Indenture Estate Only; Nonrecourse
Obligations; Excess Amounts.
(a) All amounts payable by Indenture Trustee and
Nonaffiliated Partner Trustee under the Notes, this Indenture and the relevant
Indenture Supplement shall be made only from the income and proceeds of the
Indenture Estate and each Holder by its acceptance of its Note agrees that (i)
it will look solely to such Indenture Estate for the payment of such amounts,
to the extent available for distribution to it as herein provided, and (ii)
none of Nonaffiliated Partner Trustee, any Beneficiary, Indenture Trustee or
any of their permitted successors or assigns, is or shall be personally liable
to any Holder for any amount payable under such Note or this Indenture, except,
in the case of Nonaffiliated Partner Trustee and Indenture Trustee and any of
their permitted successors or assigns, as expressly provided in this Indenture.
Notwithstanding any other provision of this Indenture, including Section 9,
First Security shall be liable hereunder in its individual capacity for its own
willful misconduct or gross negligence or, in the case of the holding or
transfer of funds, the failure to act with the same care as it uses in the
handling of its own funds.
(b) First Security Bank, National Association is
entering into this Indenture solely as Nonaffiliated Partner Trustee under the
Trust Agreement and not in its individual capacity, and in no case whatsoever
shall First Security, or any entity acting as successor trustee under the Trust
Agreement, be personally liable for, or for any loss in respect of, any
statements, representations, warranties, agreements or obligations hereunder or
thereunder; provided that First Security shall be liable hereunder (i) for the
performance of its agreements under Sections 3.5(c), 5.5 and 5.9 of the
Participation Agreement, and (ii) for its own willful misconduct or gross
negligence or, in the case of the holding and transfer of funds, the failure to
act with the same care as it uses in the handling of its own funds. If a
successor Nonaffiliated Partner Trustee is appointed in accordance with the
terms of Section 8 of the Trust Agreement and the Participation Agreement, such
successor Nonaffiliated Partner Trustee shall,
-19-
<PAGE> 26
without any further act, succeed to all of the rights, duties, immunities and
obligations hereunder, and its predecessor Nonaffiliated Partner Trustee and
First Security shall be released from all further duties and obligations
hereunder, without prejudice to any claims against such predecessor
Nonaffiliated Partner Trustee or First Security, for any default by such
predecessor Nonaffiliated Partner Trustee or First Security, respectively, in
the performance of its obligations hereunder prior to such appointment.
(c) If (i) all or any part of the Trust Estate
becomes the property of, or any Beneficiary becomes, a debtor subject to the
reorganization provisions of the Bankruptcy Reform Act of 1978 or any successor
provision, (ii) pursuant to such reorganization provisions, First Security or
any Beneficiary is required, by reason of First Security or any Beneficiary
being held to have recourse liability to the Holders or Indenture Trustee,
directly or indirectly, to make payment on account of the principal of,
Premium, if any, or interest on the Notes and (iii) any Holder or Indenture
Trustee actually receives any Excess Amount (as defined below) which reflects
any payment by First Security or any Beneficiary on account of clause (ii)
above, then such Holder or Indenture Trustee, as the case may be, shall
promptly refund to First Security or such Beneficiary (whichever shall have
made such payment) such Excess Amount. For purposes of this Section 2.9,
"Excess Amount" means the amount by which any payment required to be made by
First Security or any Beneficiary under clause (ii) above exceeds the amount
which would have been received by the Holder(s) or Indenture Trustee if First
Security or such Beneficiary had not become subject to the recourse liability
referred to in clause (ii) above.
2.10 Execution and Delivery of Notes upon Original Issuance.
Nonaffiliated Partner Trustee shall issue, execute and deliver to Indenture
Trustee, and Indenture Trustee shall authenticate and deliver to Holders, the
Notes for original issuance only upon payment by Holders pursuant to the
Participation Agreement of an amount equal to the aggregate original principal
amount of the Notes.
2.11 Security for and Parity of Notes. It is the intention of
the parties hereto that all Notes issued and Outstanding hereunder rank on a
parity with each other Note and,
-20-
<PAGE> 27
that as to each other Note, they be secured equally and ratably by the
collateral described in this Indenture and any Indenture Supplement without
preference, priority or distinction of any one thereof over any other by reason
of difference in time of issuance, or otherwise, and that each such Note be
entitled to the same benefits and security in this Indenture and any Indenture
Supplement as each other such Note.
2.12 Application of Payments to Notes. In the case of each
Note, each payment of principal of, and Premium, if any, and interest on such
Note, shall be applied, first, to the payment of accrued but unpaid interest on
such Note (including any interest at the Late Rate on overdue principal,
Premium and (to the extent permitted by applicable law) interest) to the date
of such payment, second, the balance, if any, remaining thereafter to the
payment of the principal amount due and payable on such Note, and third, the
balance, if any, remaining thereafter, to the payment of Premium, if any, then
due and payable on such Note, provided that such Note shall not be subject to
prepayment or redemption by Nonaffiliated Partner Trustee except as provided in
Sections 6.1 and 8.3(e).
2.13 Intentional Omitted.
2.14 Late Rate. If Nonaffiliated Partner Trustee, any
Beneficiary or a Person designated by any of them elects or is required to
redeem, prepay, pay or purchase any Note (in whole or in part) under any
provision of this Indenture or any other Basic Document, and such redemption,
prepayment or purchase is not consummated on the date originally scheduled
therefor (unless, following General Partner's election to remove the Unit or
Units from the Lien of the Indenture pursuant to Section 5.16 of the
Participation Agreement or to exercise its ET Right pursuant to Section 9.1 of
the Partnership Agreement, Nonaffiliated Partner Trustee provides written
notice to Indenture Trustee and each Holder no later than eight Business Days
before such originally scheduled prepayment date to the effect that such
termination or purchase will not occur and accordingly it will not be prepaying
the Notes on such date), the Notes shall accrue interest at the Late Rate from
such date to the date of payment, payable on demand.
2.15 Definition of Premium. As used herein "Premium" means as
at any date a payment thereof is due (the "payment
-21-
<PAGE> 28
date") in connection with payment or prepayment in respect of any of the Notes
the excess of (i) the present value as at the payment of the Prepaid Cash
Flows, discounted semiannually at an annual rate which is equal to the Treasury
Rate plus 0.50% over (ii) the aggregate principal amount of such Notes then to
be paid or prepaid. To the extent that the Treasury Rate plus 0.50% at the
time of determination of the Premium is equal to or higher than the rate of
interest then borne by such Notes, the Premium shall be zero.
The following terms shall have the following meanings:
"Prepaid Cash Flows" -- for each date on which a payment
of principal or interest, or both, is scheduled to become due on the
Notes, an amount determined by subtracting (x) the amount of such
payment scheduled to become due on such date after giving effect to
any installment of principal scheduled to be paid on the date as to
which the determination is being made and the application of such
installment from (y) the amount of such payment (exclusive of interest
accrued to the date of such payment) which would have become due on
such date but for such prepayment.
"Statistical Release" -- the then most recently published
statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve System
and which establishes yields on actively traded U.S. government
securities adjusted to constant maturities or, if such statistical
release is not published at the time of any determination hereunder,
such other reasonably comparable index which shall be designated by a
Majority In Interest.
"Treasury Rate" -- the yield to maturity of actually
traded United States Treasury obligations with a constant maturity
(rounded to the nearest month) corresponding to the remaining Weighted
Average Life to Maturity of the Prepaid Cash Flows as set forth on
page 5 of the Telerate or, if not available, on page "USD" of the
Bloomberg Financial Markets Screen (or, if not available, any other
nationally recognized trading screen reporting on-line intraday
trading in United States government securities) at
-22-
<PAGE> 29
10:00 a.m. (New York City time) on the second Business Day before the
date fixed for prepayment, or in the event no such nationally
recognized trading screen reporting on-line intraday trading in United
States government securities is available, the arithmetic mean of the
two most recent yields under the heading "week ending" published in
the Statistical Release opposite the caption "Treasury Constant
Maturities" for the maturity (rounded to the nearest month)
corresponding to the Weighted Average Life to Maturity of the Prepaid
Cash Flows. If no maturity exactly corresponding to the remaining
Weighted Average Life to Maturity of the Prepaid Cash Flows shall
appear therein, yields for the two most closely corresponding
published maturities shall be calculated pursuant to the foregoing
sentence and the Treasury Rate shall be interpolated or extrapolated
from such yields on a straight-line basis (rounding to the nearest
month). If such rates shall not have been so published, the Treasury
Rate in respect of such determination date shall be calculated
pursuant to the next preceding sentence on the basis of the arithmetic
mean of the arithmetic means of the secondary market ask rates, as of
approximately 3:30 p.m. (New York City time) on the last Business Days
of each of the two weeks preceding the payment date, for the actively
traded U.S. Treasury security or securities with a maturity or
maturities most closely corresponding to the remaining Weighted
Average Life to Maturity of the Prepaid Cash Flows as at such payment
or prepayment date, as reported by three primary United States
government securities dealers in New York City of national standing
selected in good faith by Operator.
"Weighted Average Life to Maturity" -- with respect to
the Prepaid Cash Flows, as at the payment or prepayment date for the
determination of the Treasury Rate, the number of years obtained by
dividing the then Remaining Dollar-years of such Prepaid Cash Flows by
the principal amount of Notes then being paid or prepaid. The term
"Remaining Dollar-years" of the Prepaid Cash Flows means the product
obtained by (x) multiplying (A) the principal portion of each Prepaid
Cash Flow (including the payment at final maturity), by (B) the number
of years (calculated to the nearest one-twelfth) between the time of
determination and the date of such Prepaid Cash Flow, and (y) totaling
all
-23-
<PAGE> 30
the products obtained in the computations described in clause (x).
2.16 Special Rights of Holders. Notwithstanding any provision
to the contrary in this Agreement, the Indenture or the Notes relating to the
manner and place of payment, all amounts payable to a Holder with respect to
any Notes held by such Holder or a nominee for such Holder shall be paid by
Indenture Trustee to such Holder (without any presentment thereof and without
any notation of the payment being made thereon) by check, duly mailed, by
first-class mail, postage prepaid, or delivered to such Holder at the address
for payments for such Holder or, if a wire transfer to a bank account is
designated in Schedule 1 to the Participation Agreement or in a written notice
from such Holder to Nonaffiliated Partner Trustee and Indenture Trustee, by
wire transfer of immediately available funds to the bank so designated for
credit to the account and marked for attention as so designated so long as such
bank has facilities for the receipt of a wire transfer, or in any other manner
or to any other address in the United States as may be designated by such
Holder in a written notice from such Holder to Nonaffiliated Partner Trustee
and Indenture Trustee. In the case of any wire transfer, Indenture Trustee
will transfer funds from the office of Indenture Trustee not later than 1:00
p.m. New York time on the date any payment or prepayment of principal, Premium,
if any, or interest on the Notes is due if funds therefor have been received by
Indenture Trustee in cash or in solvent credits acceptable to it by 11:00 a.m.,
New York time, or if not so received by such time, Indenture Trustee shall
transfer such funds promptly upon its receipt of such cash or solvent credits.
Each Holder agrees that, if such Holder shall sell or transfer any Notes, such
Holder will notify Indenture Trustee of the name and address of the transferee
and such Holder will, before the delivery of such Notes, make a notation on
such Notes of the date to which interest has been paid thereon and of the
amount of any payments or prepayments made on account of the principal thereof.
SECTION 3. RECEIPT, DISTRIBUTION AND APPLICATION OF FUNDS IN THE
INDENTURE ESTATE.
3.1 Payment Upon Delivery of Units. On the Commencement
Date, Indenture Trustee, on behalf of Nonaffiliated Partner Trustee, shall
apply the proceeds of the sale of the
-24-
<PAGE> 31
Notes to the financing of a portion of Nonaffiliated Partner Trustee's capital
contribution to Partnership on the Commencement Date in accordance with the
provisions of the Participation Agreement.
3.2 Payments Upon Event of Loss, Obsolescence or ET Right;
Certain Prepayments.
(a) Except as otherwise provided in Section 3.5,
if the Notes are prepaid in whole or in part in accordance with Section 6.1(a),
6.1(b), 6.1(c), 8.3(e)(iii) or 8.3(e)(iv), Indenture Trustee will apply on the
Prepayment Date any amounts then held by it in the Indenture Estate with
respect to such Notes and received by it from or on behalf of Nonaffiliated
Partner Trustee, Guarantor or any other Person (other than Excepted Property),
in the following order of priority:
first, so much thereof as is required to pay the
Prepayment Price on the Outstanding Notes which are being prepaid in
whole or in part pursuant to Section 6.1(a), 6.1(b), 6.1(c),
8.3(e)(iii) or 8.3(e)(iv), as the case may be, on the Prepayment Date
shall be applied to the prepayment (or purchase, in lieu of
prepayment, of the Notes, if applicable) of such Notes in accordance
with the appropriate aforesaid Section on the Prepayment Date for
application in accordance with the ordering set forth in Section 2.12;
second, so much thereof as is required to pay all other
accrued and unpaid Secured Obligations;
third, so much thereof as was received by Indenture
Trustee with respect to the amounts due to it pursuant to Section 9.5
shall be applied to pay Indenture Trustee such amounts; and
fourth, the balance, if any, thereof remaining shall be
distributed to Nonaffiliated Partner Trustee to be held or distributed
in accordance with the Trust Agreement.
3.3 Application of Priority Distributions. Except as
otherwise provided in Section 3.5, each Priority Distribution received by
Indenture Trustee from or on behalf of Nonaffiliated Partner Trustee, Guarantor
or any other Person together with any
-25-
<PAGE> 32
other amount received by Indenture Trustee with respect to interest on Priority
Distributions not made on the relevant Distribution Date shall be distributed
by Indenture Trustee in the following order of priority:
first, so much of such aggregate amount as is required to
pay in full the principal and interest then due on all Outstanding
Notes shall be distributed to the Holders entitled thereto for
application in accordance with the ordering set forth in Section 2.12;
and
second, the balance, if any, of such aggregate amount
remaining thereafter shall be distributed to Nonaffiliated Partner
Trustee for distribution in accordance with the terms of the Trust
Agreement.
3.4 Application of Certain Amounts Upon Event of Loss.
Except as otherwise provided in Section 3.5, any amounts received directly by
Indenture Trustee from Nonaffiliated Partner Trustee or through Partnership,
Service Taker or Operator from any Government Authority or other Person in
connection with an Event of Loss, to the extent such amounts are not at the
time to be paid to or retained by Partnership pursuant to Section 11 or 12 of
the O&M Agreement or Section 5.14 or 5.15 of the Participation Agreement (other
than Excepted Property), shall, except as otherwise provided in the next
sentence, be applied in accordance with Section 3.2 in reduction of
Partnership's obligations to distribute a Supplemental Priority Distribution in
an amount equal to Disposition Value and other amounts referred to or described
in Section 5.12 of the Participation Agreement and Section 6.1(c) of the
Partnership Agreement and the remainder, if any, shall, except as provided in
the next sentence, be distributed to Nonaffiliated Partner Trustee to be
distributed in accordance with the terms of the Trust Agreement. Any portion
of any such amount referred to in the preceding sentence that is not to be so
paid or retained by Partnership pursuant to the O&M Agreement and the
Participation Agreement, solely because a BJ Default or BJ Event of Default
exists, shall be held by Indenture Trustee, and at such time as no BJ Default
or BJ Event of Default exists, such portion shall be paid to Partnership,
unless Indenture Trustee (as assignee from Nonaffiliated Partner Trustee of
certain rights with respect to the O&M Agreement) theretofore declares the O&M
Agreement to be in default or terminates the
-26-
<PAGE> 33
O&M Agreement pursuant to Section 15 thereof, in which event such portion shall
be distributed forthwith upon such declaration or termination in accordance
with Section 3.5.
3.5 Amounts During Indenture Event of Default. All
distributions and payments (except Excepted Property) received and amounts held
or realized by Indenture Trustee with respect to Nonaffiliated Partner
Trustee's Partnership Interest or Partnership's interest in any Unit subject to
the Lien of this Indenture while an Indenture Event of Default exists
(including any amounts thereafter realized by Indenture Trustee from the
exercise of any remedies pursuant to Section 8), as well as all distributions,
payments or amounts then held or thereafter received by Indenture Trustee as
part of the Indenture Estate while such Indenture Event of Default exists,
shall be distributed by Indenture Trustee in the following order of priority:
first, so much of such distributions, payments or amounts
as is required to pay Indenture Trustee all amounts then due it
pursuant to Section 9.5 shall be applied to pay Indenture Trustee such
amounts;
second, so much of such distributions, payments or
amounts as is required to pay the expenses (including, without
limitation, all fees, taxes, assessments, insurance and other proper
charges) (i) of any sale, taking or other proceeding, (ii) of or in
connection with the use, operation, storage, leasing, controlling or
managing the Indenture Estate and of all maintenance, insurance,
repairs, replacements, alterations, additions or improvements of any
property included in the Indenture Estate, (iii) of or in connection
with realizing on any of the collateral in the Indenture Estate,
including, in the case of each of clauses (i), (ii) and (iii) all
reasonable attorneys' fees and expenses, court costs and any other
reasonable expenditures incurred or advances made by Indenture Trustee
or any Holder in the protection, exercise or enforcement of any right,
power or remedy or taking of any other action permitted by this
Indenture or by law upon such Indenture Event of Default, all of the
foregoing to the extent incurred in accordance with Section 8.3(c);
-27-
<PAGE> 34
third, so much of such distributions, payments or amounts
remaining as is required to pay the principal then due and payable of
all of the Notes then Outstanding and accrued interest then due and
payable on all such Notes then Outstanding payable to the applicable
Holders, whether by declaration of acceleration pursuant to Section
8.2 or otherwise, shall be applied to the payment of such principal
and interest due and payable for application in accordance with the
ordering set forth in Section 2.12; and in case such distributions,
payments or amounts are insufficient to pay in full the whole amount
aforesaid, then to the payment of such principal and interest, in
accordance with the ordering (except as to Premium) set forth in
Section 2.12, without any preference, priority or distinction of one
such Note over another, ratably according to the aggregate amount so
payable for principal and interest, at the date fixed by Indenture
Trustee for the distribution of such distributions, payments or
amounts;
fourth, the balance, if any, of such distributions,
payments or amounts remaining thereafter shall be distributed to
Nonaffiliated Partner Trustee for distribution under the Trust
Agreement;
except that, anything in this Section 3 to the contrary notwithstanding, after
Indenture Trustee has knowledge of an Indenture Event of Default (including,
without limitation, a BJ Event of Default), all amounts (other than Excepted
Property) that, but for the provisions of this Section 3.5, would otherwise be
distributable by Indenture Trustee to Nonaffiliated Partner Trustee, shall be
held by Indenture Trustee as part of the Indenture Estate, and if (i) such
amounts shall have been retained by Indenture Trustee for more than 180 days,
(ii) the unpaid principal amount of all Notes have not been declared to be
immediately due and payable and (iii) in the case of an Indenture Event of
Default arising solely out of a BJ Event of Default, Indenture Trustee does not
commence the exercise of any one or more of the available remedies if any,
referred to in Section 6.1(d), 11.1, 11.3 or 11.4 of the Partnership Agreement,
Section 5.22 of the Participation Agreement, Section 7.1 of the Services
Agreement or Section 15.1 of the O&M Agreement (the choice of which remedy or
remedies to exercise to be made by Indenture Trustee in its sole good faith
discretion) to the
-28-
<PAGE> 35
extent such remedy or remedies are then available and may be exercised by
Indenture Trustee (the determination of which remedy or remedies, if any, are
then available and may be exercised by Indenture Trustee to be made by
Indenture Trustee in its sole good faith discretion), such amounts shall be
distributed to Nonaffiliated Partner Trustee in accordance with the other
applicable provisions of this Section 3.
3.6 Amounts for Which Application is Provided in Other Basic
Documents. Except as otherwise provided in this Indenture, any distribution or
payment received by Indenture Trustee for which provision as to the application
thereof is made in another Basic Document shall be distributed to the Person
for whose benefit such distributions or payments were made in accordance with
the terms of such Basic Document.
3.7 Amounts for Which No Application is Otherwise Provided.
Except as otherwise provided in Section 3.5 or 3.6, any distribution or payment
received by Indenture Trustee for which no provision as to the application
thereof is made elsewhere in this Indenture or in another Basic Document shall
be distributed in accordance with Section 3.5, except that any distribution or
payment received and amounts realized by Indenture Trustee with respect to
Nonaffiliated Partner Trustee's interest in Partnership or the Units to the
extent received or realized at any time after the conditions set forth in
Section 10 for the satisfaction and discharge of this Indenture are satisfied,
as well as any other amounts remaining as part of the Indenture Estate after
such satisfaction, shall be distributed by Indenture Trustee to Nonaffiliated
Partner Trustee for distribution under the Trust Agreement.
3.8 Excepted Property. Indenture Trustee shall deliver any
Excepted Property received by it to whomsoever is lawfully entitled to the
same.
3.9 Notice of Nonpayment. By 2:00 p.m., New York time, on
the Distribution Date of any Priority Distribution, Indenture Trustee shall
notify the Holders, Nonaffiliated Partner Trustee, Beneficiaries and General
Partner, by telephone, which notice shall be confirmed in writing by facsimile
transmission, if Indenture Trustee has not received such Priority Distribution;
but the failure of Indenture Trustee so to notify such parties shall not affect
the obligations of Nonaffiliated Partner
-29-
<PAGE> 36
Trustee hereunder or under the Notes or of Partnership under the Partnership
Agreement or the Participation Agreement or give rise to any liability of
Indenture Trustee to such parties or any other Person for any such failure.
SECTION 4. COVENANTS OF NONAFFILIATED PARTNER TRUSTEE AND
PARTNERSHIP.
4.1 Nonaffiliated Partner Trustee hereby covenants and agrees
that:
(a) it will, subject to Section 2.9, pay or cause
to be paid when due all amounts of principal of, Premium, if any, and interest
on the Notes and all other amounts due hereunder (in any case, without
duplication of amounts theretofore paid to Indenture Trustee in respect
thereof);
(b) if any responsible officer of Nonaffiliated
Partner Trustee has actual knowledge of an Indenture Event of Default or
Indenture Default or an Event of Loss, Nonaffiliated Partner Trustee will give
prompt written notice thereof to Indenture Trustee and Operator;
(c) it will not, in its capacity as Nonaffiliated
Partner Trustee, engage in any business or other activity (including the
incurrence of indebtedness for money borrowed), except as contemplated hereby
or by the other Basic Documents; and
(d) it will not, except with respect to Excepted
Property or except as expressly permitted hereunder, declare a default, or
exercise any remedies under, or terminate, modify or accept a surrender of, or
offer or agree to any termination, modification or surrender of, the Services
Agreement, the O&M Agreement or the Partnership Agreement.
4.2 Partnership hereby covenants and agrees that if any
responsible officer of General Partner or Affiliated Partner has actual
knowledge of an Indenture Event of Default or Indenture Default or an Event of
Loss, Partnership will give prompt written notice thereof to Indenture Trustee
and Operator.
-30-
<PAGE> 37
SECTION 5. DISPOSITION, SUBSTITUTION AND RELEASE OF PROPERTY
INCLUDED IN THE INDENTURE ESTATE DURING CONTINUATION OF
PARTNERSHIP.
5.1 Disposition, Substitution and Release of Property
Included in the Indenture Estate During Continuation of Partnership. So long
as Partnership is in existence and the Partnership Agreement, the O&M Agreement
and the Services Agreement are in effect:
(a) Modifications. Operator has the obligation,
or the right, to make certain Modifications to the Units. Any Optional
Modification that is a Non-severable Modification and any Required Modification
shall become subject to the Lien of this Indenture and the relevant Indenture
Supplement. Any Optional Modifications that are Severable Modifications shall
not become subject to the Lien of this Indenture. Indenture Trustee shall
promptly execute an appropriate written instrument or instruments to confirm
the absence of a security interest in any Optional Modification that is a
Severable Modification; provided that Indenture Trustee receives a written
request from Partnership therefor addressed to Indenture Trustee and
Nonaffiliated Partner Trustee certifying that the Modifications are Severable
Modifications which are not Required Modifications.
(b) Substitution of Units. Upon the occurrence
of (y) an Event of Loss, or (z) an optional substitution of a Unit pursuant to
Section 5.11 of the Participation Agreement, Section 7.2(d) of the Partnership
Agreement and Section 8.4 of the O&M Agreement, Partnership and Operator may
substitute a replacement for such Unit, upon satisfaction of the conditions
provided therefor in Section 5.11 or 5.12, as the case may be, of the
Participation Agreement. Any Unit substituted as permitted under Section 5.11
or 5.12 of the Participation Agreement shall become subject to the Lien of this
Indenture. Nonaffiliated Partner Trustee and Indenture Trustee shall execute,
concurrently with any such substitution pursuant to said Section 5.11 or 5.12,
an Indenture Supplement substantially in the form of Exhibit B with respect to
any such Unit substituted in accordance with Section 5.11 or 5.12 of the
Participation Agreement. Upon satisfaction of the conditions contained herein
and in the Participation Agreement, Indenture Trustee shall execute and deliver
to Operator, Partnership and
-31-
<PAGE> 38
Nonaffiliated Partner Trustee an instrument releasing its Lien in and to such
replaced Unit and shall execute for recording in public offices, at the expense
of Partnership, such instruments in writing as Nonaffiliated Partner Trustee or
Operator shall reasonably request and as shall be reasonably acceptable to
Indenture Trustee in order to make clear upon public records that such Lien
with respect to such replaced Unit has been released under the laws of the
applicable jurisdiction.
5.2 Possession of Units. So long as no BJ Event of Default
exists, Partnership shall be permitted to remain in full possession, enjoyment
and control of the Units and to manage, operate and use the same and each part
thereof with the rights and franchises appertaining thereto, including, without
limitation, the right to grant to Operator and Service Taker and their
respective permitted successors and assigns possession, enjoyment and control
of the Units; provided that the possession, enjoyment, control and use thereof
shall at all times be subject, insofar as Partnership is concerned, to the
observance and performance of the terms of this Indenture. Without limiting
the generality of the foregoing, it is expressly understood and agreed that
providing Services to Service Taker and the use and possession of the Units by
Operator under and subject to the Services Agreement and the O&M Agreement,
respectively, shall not constitute a violation of this Section 5.2.
5.3 Release of Units. So long as no Indenture Default or
Indenture Event of Default exists, Indenture Trustee shall execute a release in
respect of any Unit in the following instances:
(a) in the case of a Reduction Election with
respect to a Unit or Units pursuant to Section 5.16 of the Participation
Agreement and Section 7.2(e) of the Partnership Agreement, upon receipt by
Indenture Trustee of (i) written notice of such Reduction Election pursuant to
Section 5.16 of the Participation Agreement and (ii) all amounts payable to it
pursuant to Section 6.1(b) in connection with such Reduction Election;
(b) in the case of the exercise by General
Partner of its ET Right pursuant to Section 9.1 of the Partnership Agreement,
upon receipt by Indenture Trustee of (i)
-32-
<PAGE> 39
written notice of such exercise pursuant to Section 9.1 of the Partnership
Agreement and (ii) all amounts payable to it pursuant to Section 6.1(c) in
connection with such exercise of the ET Right;
(c) when designated by Partnership for a cash
settlement after the occurrence of an Event of Loss pursuant to Section 5.12 of
the Participation Agreement, upon receipt by Indenture Trustee of (i) written
notice thereof pursuant to Section 5.12 of the Participation Agreement and (ii)
all amounts payable to it pursuant to Section 6.1(a) in connection with such
Event of Loss; and
(d) in the case of a Unit to be replaced in
connection with an optional substitution (the "Replaced Unit") of a Unit
pursuant to Section 5.11 of the Participation Agreement and Section 7.2(d) of
the Partnership Agreement or Section 5.12 of the Participation Agreement and
Section 7.2(c) of the Partnership Agreement, as the case may be, upon the
compliance with the terms of such Section 5.11 or 5.12, as the case may be, of
the Participation Agreement and the attachment of the Lien of the Indenture to
the Unit being delivered to Partnership in substitution for the Replaced Unit.
Subject to the succeeding sentence, each such release shall be
executed only upon receipt by Indenture Trustee of the applicable amount
described in this Section 5.3 and the written request of General Partner
accompanied by an Officer's Certificate of General Partner setting forth the
basis for such request and stating that General Partner has complied with the
applicable provisions of the Participation Agreement, together with such
additional evidence of such compliance as Indenture Trustee may reasonably
request in writing. Upon written request of Nonaffiliated Partner Trustee, in
the case of Units returned to Nonaffiliated Partner Trustee, pursuant to
Section 5.17(b) of the Participation Agreement in connection with a Reduction
Election pursuant to Section 5.16 thereof, a release shall be executed upon
receipt by Indenture Trustee of the amount described in Section 5.3(a).
5.4 Release of Units - Consent of Holders. Partnership may
sell or otherwise dispose of any Unit then subject to the security interest of
this Indenture and Indenture Trustee shall release the same from the security
interest hereof, to the
-33-
<PAGE> 40
extent and on the terms, and upon compliance with, the conditions provided for
in any written consent given thereto at any time or from time to time by all
Holders. The provisions of this Section 5.4 are in addition to the provisions
of Section 5.3.
5.5 Protection of Purchaser. No purchaser in good faith of
property purporting to be released hereunder shall be bound to ascertain the
authority of Indenture Trustee to execute the release, or to inquire as to any
facts required by the provisions hereof for the exercise of such authority; nor
shall any purchaser in good faith of any Unit be under an obligation to
ascertain or inquire into the conditions upon which any such sale is hereby
authorized.
SECTION 6. PREPAYMENT OF NOTES.
6.1 Prepayment of Notes upon Event of Loss, Obsolescence or
ET Date.
(a) If an Event of Loss occurs with respect to a
Unit and such Unit is not replaced pursuant to Section 5.12 of the
Participation Agreement, the principal on each Outstanding Note shall be
prepaid in part, together with interest on the principal so prepaid, at a
Prepayment Price equal to the sum of (1) as to principal thereof, an amount
equal to the product obtained by multiplying the aggregate Current Principal
Amount of each Outstanding Note as of the Prepayment Date (after deducting
therefrom the related scheduled principal payment, if any, due and paid to
Indenture Trustee on the Prepayment Date) by a fraction, the numerator of which
shall be the Equipment Value of such Unit and the denominator of which shall be
the Equipment Value of the Units then subject to the Lien of this Indenture
immediately prior to such Prepayment Date, plus (2) as to interest, the
aggregate amount of interest accrued and unpaid in respect of the principal
amount to be prepaid pursuant to clause (1) above to but not including the
Prepayment Date after giving effect to the application of any Priority
Distribution or Supplemental Priority Distribution distributable in accordance
with Section 6.1(b) or 6.1(c) of the Partnership Agreement received by
Indenture Trustee on or prior to the date of such prepayment. Each prepayment
made pursuant to subclause (1) of this clause shall be (A) applied to the
prepayment of such Notes being prepaid so that each of the remaining
installments of
-34-
<PAGE> 41
principal of each such Note shall be reduced in the proportion that the
principal amount of the prepayment bears to the unpaid principal amount of such
Notes immediately before the prepayment and (B) made ratably over the Notes,
without preference, priority or distinction of any one such Note over any
other. The Prepayment Date for Notes to be prepaid, in whole or in part,
pursuant to this Section 6.1(a) shall be the Settlement Date related to the
Event of Loss giving rise to the prepayment.
(b) At any time on a Payment Date occurring after
the fifth anniversary of the Commencement Date, if General Partner determines
that any Units then subject to the Lien of this Indenture are obsolete or
surplus to the needs of Partnership in accordance with Section 5.16 of the
Participation Agreement and either (y) Nonaffiliated Partner Trustee has given
notice to Indenture Trustee pursuant to Section 5.18 of the Participation
Agreement of its election to retain such Units and to prepay the Notes on the
Reduction Date as provided below, or (z) Nonaffiliated Partner Trustee has not
given such notice and Partnership has not withdrawn its notice as provided in
Section 5.16 of the Participation Agreement, principal on each Outstanding Note
shall be prepaid in part, together with interest on the principal so prepaid at
a Prepayment Price equal to the sum of (1) as to principal thereof, an amount
equal to the product obtained by multiplying the Current Principal Amount of
each Outstanding Note as of the Prepayment Date (after deducting therefrom the
related scheduled principal payment, if any, due and paid to Indenture Trustee
on the Prepayment Date) by a fraction, the numerator of which shall be the
Equipment Value of such Unit or Units and the denominator of which shall be the
Equipment Value of the Units then subject to the Lien of this Indenture
immediately before such Prepayment Date, plus (2) as to interest, the aggregate
amount of interest accrued and unpaid in respect of the principal amount to be
prepaid pursuant to clause (1) above to, but not including, the Prepayment Date
after giving effect to the application of any Priority Distribution paid to
Indenture Trustee on or before the date of such prepayment, plus (3) the
Premium. Each prepayment made pursuant to subclause (1) of this clause (b)
shall be (A) applied to the prepayment of such Notes being prepaid so that each
of the remaining installments of principal of each such Note shall be reduced in
the proportion that the principal amount of the prepayment bears to the unpaid
principal amount of such Notes in the aggregate immediately prior to the
prepayment
-35-
<PAGE> 42
and (B) made ratably over the Notes, without preference, priority or
distinction of any one such Note over any other. The Prepayment Date for Notes
to be prepaid pursuant to this Section 6.1(b) shall be the Payment Date that
occurs on the Reduction Date.
(c) Upon the election of General Partner to
exercise its fixed price purchase option pursuant to Section 9.1 of the
Partnership Agreement, on the ET Date, the Outstanding Notes shall be prepaid
at a Prepayment Price equal to the sum of (1) Current Principal Amount thereof,
plus (2) accrued but unpaid interest thereon to, but not including, the
applicable Prepayment Date, plus (3) the Premium plus (4) any other accrued and
unpaid Secured Obligations, if any. The Prepayment Date for Notes to be
prepaid pursuant to this Section 6.1(c) shall be the Payment Date that occurs
on the ET Date.
(d) Upon the request of Nonaffiliated Partner
Trustee or Beneficiaries and delivery of notice, all pursuant to Section
8.3(e)(iii), each Outstanding Note shall be purchased on the date specified in
the notice at a Prepayment Price equal to the sum of (1) the Current Principal
Amount thereof, plus (2) accrued but unpaid interest thereon to, but not
including, the applicable Prepayment Date.
(e) Upon the request of Nonaffiliated Partner
Trustee or Beneficiaries and delivery of notice, all pursuant to Section
8.3(e)(iv), each Outstanding Note shall be purchased at a Prepayment Price
equal to the sum of (1) the Current Principal Amount thereof, plus (2) accrued
but unpaid interest thereon to, but not including, the applicable Prepayment
Date, plus (3) the Premium.
6.2 Notice of Prepayment to Holders. Notice of prepayment,
redemption or purchase with respect to any Notes contemplated by Section 6.1
shall be given by Indenture Trustee, in the manner provided in Section 13.1,
not less than five nor more than ten Business Days before the applicable
Prepayment Date, to each Holder of such Note to be prepaid or purchased, at
such Holder's address appearing in the Register.
-36-
<PAGE> 43
All notices of prepayment shall state:
(1) the Prepayment Date;
(2) whether the Notes are to be prepaid in whole
or in part;
(3) the Section and clause of this Indenture
pursuant to which the prepayment is being made;
(4) that, with respect to prepayments in whole of
the Notes, on the Prepayment Date, the Prepayment Price will become
due and payable with respect to the Notes, and that, if any of the
Notes are then Outstanding, interest on such Notes shall cease to
accrue on and after such Prepayment Date;
(5) that, with respect to prepayments in part of
Notes on the Prepayment Date, the Prepayment Price will become due and
payable on such Notes, and that interest with respect to that portion
of the Prepayment Price attributable to the principal amount of such
Notes shall cease to accrue on and after the applicable Prepayment
Date;
(6) the Prepayment Price, including in reasonable
detail the calculation of the estimated Premium, if any, to be paid in
connection therewith; and
(7) the place or places where such Notes are to
be surrendered or presented for payment of the Prepayment Price, which
shall be the office of Indenture Trustee.
6.3 Deposit of Prepayment Price. On or before the Prepayment
Date, Nonaffiliated Partner Trustee (or any Person on behalf of Nonaffiliated
Partner Trustee) shall, to the extent an amount equal to the Prepayment Price
with respect to the Notes to be prepaid, redeemed or purchased on the
Prepayment Date shall not then be held in the Indenture Estate, deposit or
cause to be deposited with Indenture Trustee by 11:00 a.m. (New York time) on
the Prepayment Date in immediately available funds the Prepayment Price with
respect to the Notes to be prepaid or purchased.
-37-
<PAGE> 44
6.4 Notes Payable on Prepayment Date. If notice of
prepayment, redemption or purchase is given in accordance with Section 6.2, the
Notes or portions thereof shall, on the Prepayment Date, become due and payable
at the principal corporate trust office of Indenture Trustee, and from and
after the related Prepayment Date (unless there is a default in the payment of
the Prepayment Price), all Notes then Outstanding shall cease to bear interest
as to any portion the principal of which is prepaid.
If any Note called in whole or in part for prepayment or purchase is
not so paid, the principal amount thereof shall, until paid, continue to bear
interest from the applicable Prepayment Date at the Late Rate as of such
Prepayment Date through the date upon which such Note or such portion is paid.
SECTION 7. NONAFFILIATED PARTNER TRUSTEE AND INDENTURE TRUSTEE.
7.1 Prepayment of Moneys for Note Payments Held by Indenture
Trustee. Any money held by Indenture Trustee in trust for any payment of the
principal of, Premium, if any, or interest on any Note (but not any money
constituting Excepted Property and not any moneys representing the balance, if
any, after giving effect to applications pursuant to clauses "first" through
"third", of Section 3.5, which balance, if any, is to be distributed upon the
terms and conditions provided in clause "fourth" of Section 3.5) and remaining
unclaimed for more than two years and eleven months (or such lesser time as
Indenture Trustee is satisfied, after 60 days written notice from Nonaffiliated
Partner Trustee or General Partner on behalf of Partnership, is one month
before the escheat period provided under applicable law) after the due date for
such payment, shall be paid to Nonaffiliated Partner Trustee; and the Holders
entitled to payment thereon shall thereafter, as unsecured general creditors,
look only to Nonaffiliated Partner Trustee for payment thereof, and all
liability of Indenture Trustee with respect to such trust money shall thereupon
cease, except that Indenture Trustee, before being required to make any such
repayment, shall, at the written direction of Nonaffiliated Partner Trustee
with a copy to General Partner on behalf of Partnership, cause to be mailed to
each such Holder notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
-38-
<PAGE> 45
mailing, any unclaimed balance of such money then remaining will be repaid to
Nonaffiliated Partner Trustee as provided herein.
7.2 No Representations or Warranties as to Units or
Documents. NEITHER NONAFFILIATED PARTNER TRUSTEE IN ITS INDIVIDUAL CAPACITY
OR OTHERWISE NOR INDENTURE TRUSTEE MAKES OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE VALUE, CONDITION,
DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF THE UNITS OR AS TO
THEIR TITLE THERETO, OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO
THE UNITS WHATSOEVER OR ANY REPRESENTATION OR WARRANTY AS TO THE VALIDITY OR
ENFORCEABILITY OF ANY BASIC DOCUMENT, except that (i) First Security makes the
representations and warranties contained in Sections 3.1(h) and 3.1(k) of the
Participation Agreement and Nonaffiliated Partner Trustee hereby represents and
warrants that on the Commencement Date Nonaffiliated Partner Trustee received
whatever right, title and interest was conveyed to it by Partnership and First
Security represents, warrants and covenants that such right, title and interest
and the Units are on the Commencement Date, and thereafter shall be, free of
Nonaffiliated Partner Trustee Liens attributable to First Security and (ii) ITC
represents and warrants that it has not breached its covenant contained in
Section 5.9 of the Participation Agreement.
SECTION 8. DEFAULTS AND REMEDIES.
8.1 Indenture Events of Default. The following events shall
constitute "Indenture Events of Default" under this Indenture (whether any such
event is voluntary or involuntary or comes about or is effected by operation of
law or pursuant to or in compliance with any judgment, decree or order of any
court or any order, rule or regulation of any administrative or government
body):
(a) default in the payment of any installment of
principal, interest or Premium, if any, in respect of any Note when and as the
same shall become due and payable (whether on the due date thereof, a date
fixed for prepayment, by acceleration or otherwise), and which is not
thereafter paid within five Business Days after the same becomes due and
payable;
-39-
<PAGE> 46
(b) the existence of a BJ Event of Default (other
than a BJ Event of Default arising by reason of nonpayment of, or failure to
perform with respect to, Excepted Property);
(c) default in the due observance or performance
of any other covenant or agreement to be observed or performed by Nonaffiliated
Partner Trustee (in its individual capacity or as Nonaffiliated Partner
Trustee) under the Notes or hereunder or to be observed or performed by
Nonaffiliated Partner Trustee (in its individual capacity or as Nonaffiliated
Partner Trustee) or any Beneficiary for the benefit of any Holder under the
Participation Agreement or the Trust Agreement, and any such default continues
unremedied for 30 days after Nonaffiliated Partner Trustee and Beneficiaries
receive notice thereof from Indenture Trustee specifying the default and
demanding that the same be remedied; except that, if such failure is capable of
being remedied and such remedy does not involve the payment of money alone, no
such failure shall constitute an Indenture Event of Default hereunder while
Nonaffiliated Partner Trustee (in its individual capacity or as Nonaffiliated
Partner Trustee)or any Beneficiary is diligently proceeding to remedy such
failure, but in no event shall such failure continue unremedied for a period of
the lesser of 90 days from the date of such notice and the number of days
remaining in the Transaction Term;
(d) any representation or warranty made by
Nonaffiliated Partner Trustee (in its individual capacity or as Nonaffiliated
Partner Trustee) herein, or by Nonaffiliated Partner Trustee or any Beneficiary
in the Participation Agreement or in any certificate or other statement
furnished by Nonaffiliated Partner Trustee (in its individual capacity or as
Nonaffiliated Partner Trustee) or any Beneficiary to Indenture Trustee or any
Holder in connection with the transactions contemplated by the Participation
Agreement is incorrect in any material respect as of the date of the issuance
or making thereof;
(e) Nonaffiliated Partner Trustee, the Trust
Estate or any Beneficiary becomes insolvent or bankrupt or generally fails to
pay, or admits in writing its inability to pay, its debts as they come due, or
makes a general assignment for the benefit of creditors, or applies for,
consents to or acquiesces in the appointment of a trustee, custodian or
-40-
<PAGE> 47
receiver or other similar official for Nonaffiliated Partner Trustee, Trust
Estate or Beneficiary;
(f) a trustee, custodian or receiver or other
similar official is appointed for Nonaffiliated Partner Trustee, the Trust
Estate or any Beneficiary and is not discharged within 60 days after such
appointment;
(g) any bankruptcy, reorganization, arrangement,
insolvency or liquidation case or proceeding, or other case or proceeding for
relief under any bankruptcy law or similar law for the relief of debtors, is
instituted by or against Nonaffiliated Partner Trustee, the Trust Estate or any
Beneficiary and, if instituted against Nonaffiliated Partner Trustee, the Trust
Estate or any Beneficiary is allowed against Nonaffiliated Partner Trustee or
any Beneficiary or is consented to or is not dismissed within 60 days after
such institution.
8.2 Acceleration; Rescission and Annulment; Limitations. If
an Indenture Event of Default exists, Indenture Trustee by written notice to
Nonaffiliated Partner Trustee, Partnership and each Beneficiary, may, and upon
written request of a Majority In Interest of Holders shall, declare the
principal of all the Notes to be due and payable; except that the principal of
all Notes, together with accrued interest thereon from the date in respect of
which interest was last paid hereunder to the date payment of such principal
has been made, and all other accrued and unpaid Secured Obligations will
automatically become due and payable without any action of Indenture Trustee or
the Holders in the case of an Indenture Event of Default under Section 8.1(e),
(f) or (g), unless such Indenture Event of Default with respect to a
Beneficiary is remedied or the defaulting Beneficiary transfers its Beneficial
Interest pursuant to Section 8.3(e)(i)(4). Upon such declaration, the
principal of all Notes, together with accrued interest thereon from the date in
respect of which interest was last paid hereunder to the date payment of such
principal has been made and all other accrued and unpaid Secured Obligations
shall be immediately due and payable as a result of such declaration or
automatic acceleration. At any time after such declaration or automatic
acceleration, as the case may be, and before the sale or disposition of the
Indenture Estate, a Majority In Interest of Holders, by written notice to
Indenture Trustee, Nonaffiliated Partner Trustee, Partnership and each
-41-
<PAGE> 48
Beneficiary, may rescind such a declaration or automatic acceleration, as the
case may be, and thereby annul its consequences if (a) an amount sufficient to
pay all principal of and interest (including interest at the Late Rate on
overdue payments) on such Notes, to the extent each such amount is due or past
due without regard to the acceleration hereof, if any, in respect of the
Outstanding Notes and all other sums then due and payable to Indenture Trustee
has been deposited with Indenture Trustee, (b) the rescission would not
conflict with any judgment or decree and (c) all existing Indenture Defaults
and Indenture Events of Default under this Indenture are cured or waived except
nonpayment of principal of, or interest on, the Notes which have become due
solely because of such acceleration. No such rescission shall affect any
subsequent default or impair any right consequent thereon.
8.3 Other Remedies Available to Indenture Trustee.
(a) If an Indenture Event of Default exists, then
and in every such case Indenture Trustee, as trustee of an express trust and as
assignee hereunder of Nonaffiliated Partner Trustee's Partnership Interest or
as holder of a security interest in the Units or otherwise, may, and when
required pursuant to Section 9 shall, exercise (subject to the following
sentence and Sections 8.3(e) and 8.3(f)), any or all of the rights and powers
and pursue any and all of the remedies accorded to Nonaffiliated Partner
Trustee under the Partnership Agreement and the Participation Agreement and to
Partnership and Nonaffiliated Partner Trustee under the O&M Agreement, the
Services Agreement and this Section 8, may recover judgment in its own name as
Indenture Trustee against the Indenture Estate and may take possession of all
or any part of the Indenture Estate and may exclude Nonaffiliated Partner
Trustee, Partnership, any Partner, Operator, Service Taker and Beneficiaries
and all Persons claiming under any of them wholly or partly therefrom.
Notwithstanding any other provision of this Indenture to the contrary,
Indenture Trustee shall not be entitled pursuant to Section 8.3(b) or otherwise
to sell any of the Partnership Indenture Estate or exercise other remedies
against the Partnership Indenture Estate or to exercise BJ Remedies (as defined
below) until such time, if any, as a BJ Event of Default exists.
Notwithstanding any other provision of this Indenture, Indenture Trustee shall
not be entitled to exercise any remedy hereunder as a result of an Indenture
Event
-42-
<PAGE> 49
of Default that arises solely by reason of one or more events or circumstances
that constitute a BJ Event of Default unless Indenture Trustee as security
assignee of Nonaffiliated Partner Trustee declares the O&M Agreement to be in
default and simultaneously, to the extent it is then entitled to do so
hereunder and under the Partnership Agreement, O&M Agreement and Participation
Agreement and is not then stayed or otherwise prevented from doing so by
operation of law, exercises one or more of the rights or remedies (each right
or remedy, a "BJ Remedy") in Section 6.1(d), 11.1, 11.3 or 11.4 of the
Partnership Agreement, Section 15.1 of the O&M Agreement involving a
termination of the O&M Agreement or any other remedy in Section 15.1 of the O&M
Agreement or Section 5.22 of the Participation Agreement; except, that if
Indenture Trustee is so stayed or otherwise prevented by operation of law from
exercising such BJ Remedies, it shall in any event refrain from so foreclosing
or otherwise exercising BJ Remedies hereunder (i) for 180 days after the
commencement of such stay or other circumstances preventing the exercise of BJ
Remedies or (ii) if Guarantor or an Affiliate of Guarantor with court approval
assumes (and is performing the obligations of each Bankrupt BJ Entity under)
the Basic Documents to which each Bankrupt BJ Entity is a party in accordance
with Section 365 of the Bankruptcy Code and, if an Affiliate of Guarantor so
assumes, Guarantor remains liable for all its obligations under the Guaranty to
the same extent as if such assumption had not occurred.
(b) Subject to Sections 8.3(a), 8(e) and 8(f), if
an Indenture Event of Default exists, Indenture Trustee may, if at the time
such action is lawful and subject to compliance with any mandatory legal
requirements, either with or without taking possession, and either before or
after taking possession, and without instituting any legal proceedings
whatsoever, and having first given notice of such action by registered mail to
Nonaffiliated Partner Trustee, Partnership and each Beneficiary once at least
15 days before the date of such action, and any other notice required by law,
sell and dispose of the Indenture Estate, or any part thereof, or interest
therein, at a private sale or sales or a public auction to the highest bidder,
in each case, in one lot as an entirety or in separate lots, and either for
cash or on credit and on such terms as Indenture Trustee may determine, and at
any place (whether or not it is the location of the Indenture Estate or any
part thereof) and time designated
-43-
<PAGE> 50
in the notice above referred to. Notwithstanding any provision herein to the
contrary, Indenture Trustee shall not sell any of the Partnership Indenture
Estate or exercise other remedies against the Partnership Indenture Estate or
exercise BJ Remedies unless a BJ Event of Default exists. Notwithstanding any
provision herein to the contrary, Indenture Trustee shall not sell any of the
Indenture Estate or exercise other remedies against the Indenture Estate
seeking to deprive Beneficiaries of their interest therein as a result of an
Indenture Event of Default that arises solely by reason of one or more events
or circumstances that constitute a BJ Event of Default unless a declaration of
acceleration has been made pursuant to Section 8.2, Indenture Trustee as
security assignee of Nonaffiliated Partner Trustee declares the O&M Agreement
to be in default and Indenture Trustee is simultaneously exercising, to the
extent it is then entitled to do so hereunder and under the Partnership
Agreement, the Participation Agreement and the O&M Agreement and is not then
stayed or otherwise prevented from doing so by operation of law, one or more BJ
Remedies; and no private sale may be made to BJ USA or any of its Affiliates;
except, that if Indenture Trustee is so stayed or otherwise prevented by
operation of law from exercising such BJ Remedies, it shall in any event
refrain from so foreclosing or otherwise exercising remedies hereunder (i) for
180 days after the commencement of such stay or other circumstances preventing
the exercise of BJ Remedies or (ii) if Guarantor or an Affiliate of Guarantor
with court approval assumes (and is performing the obligations of each Bankrupt
BJ Entity under) the Basic Documents to which each Bankrupt BJ Entity is a
party in accordance with Section 365 of the Bankruptcy Code and, if an
Affiliate of Guarantor so assumes, Guarantor remains liable for all its
obligations under the Guaranty as if such assumption had not occurred. Any
such sale or sales may be adjourned from time to time by announcement at the
time and place appointed for such sale or sales, or for any such adjourned sale
or sales, without further notice, and Indenture Trustee and any Holder may bid
and become the purchaser at any such sale. Indenture Trustee may exercise such
right without possession or production of the Notes or proof of ownership
thereof, and as representative of Holders may exercise such right without
notice to Holders or including Holders as parties to any suit or proceeding
relating to foreclosure of any property in the Indenture Estate. Nonaffiliated
Partner Trustee and Partnership each hereby irrevocably constitutes Indenture
Trustee the true and lawful attorney-in-fact of Nonaffiliated
-44-
<PAGE> 51
Partner Trustee (in the name of Nonaffiliated Partner Trustee or otherwise) and
Partnership (in the name of Partnership or otherwise), as the case may be, for
the purpose of effectuating any sale, assignment, transfer or delivery upon
enforcement of the Lien created under this Indenture, whether pursuant to
foreclosure or power of sale or otherwise, to execute and deliver all such
bills of sale, assignments and other instruments as Indenture Trustee may
consider necessary or appropriate, with full power of substitution,
Nonaffiliated Partner Trustee and Partnership each hereby ratifying and
confirming all that such attorney or any substitute shall lawfully do by virtue
hereof. Nevertheless, if so requested by Indenture Trustee or any purchaser,
Nonaffiliated Partner Trustee and Partnership each shall ratify and confirm any
such sale, assignment, transfer or delivery, by executing and delivering to
Indenture Trustee or such purchaser all bills of sale, assignments, releases
and other proper instruments to effect such ratification and confirmation as
may be designated in any such request.
(c) Subject to Sections 8.3(a), 8.3(e) and
8.3(f), if an Indenture Event of Default exists, Nonaffiliated Partner Trustee
or Partnership, or both, shall, at the request of Indenture Trustee upon
enforcement of the Lien created under this Indenture, promptly execute and
deliver to Indenture Trustee such instruments of title or other documents as
Indenture Trustee may deem necessary or advisable to enable Indenture Trustee
or an agent or representative designated by Indenture Trustee, at such time and
place or places as Indenture Trustee may specify, to obtain possession of all
or any part of the Indenture Estate. If Nonaffiliated Partner Trustee or
Partnership for any reason fails to execute and deliver such instruments and
documents after such request by Indenture Trustee, Indenture Trustee shall be
entitled to a judgment for specific performance of the covenants contained in
the foregoing sentence, conferring upon Indenture Trustee the right to
immediate possession and requiring Nonaffiliated Partner Trustee or
Partnership, as the case may be, to execute and deliver such instruments and
documents to Indenture Trustee. Subject to Sections 8.3(a), 8.3(e) and 8.3(f),
Indenture Trustee shall also be entitled to pursue all or any part of the
Indenture Estate wherever it may be found and may enter any of the premises of
Nonaffiliated Partner Trustee or Partnership or any other Person wherever the
Indenture Estate may be or be supposed to be and
-45-
<PAGE> 52
search for the Indenture Estate and take possession of any item of the
Indenture Estate pursuant to this Section 8.3(c). Subject to Sections 8.3(a),
8.3(e) and 8.3(f), Indenture Trustee may, from time to time, at the expense of
the Indenture Estate, make all such expenditures for maintenance, insurance,
repairs, replacements, alterations, additions and improvements to and of the
Indenture Estate, as it may deem proper. In each such case, Indenture Trustee
shall have the right to use, operate, store, lease, control or manage the
Indenture Estate and to exercise all rights and powers of Nonaffiliated Partner
Trustee or Partnership relating to the Indenture Estate as Indenture Trustee
shall deem appropriate, including the right to enter into any and all such
agreements with respect to the use, operation, storage, leasing, control or
management of the Indenture Estate or any part thereof; and Indenture Trustee
shall be entitled to collect and receive directly all tolls, rents, payments,
distributions (including Priority Distributions, Supplemental Priority
Distributions and Special Distributions other than Excepted Property), issues,
profits, products, revenues and other income of the Indenture Estate and every
part thereof, without prejudice, however, to the right of Indenture Trustee
under any provision of this Indenture to collect and receive cash held by, or
required to be deposited with, Indenture Trustee hereunder. In accordance with
the terms of this Section 8.3(c), such tolls, rents, payments, distributions
(including Priority Distributions, Supplemental Priority Distributions and
Special Distributions other than Excepted Property), issues, profits, products,
revenues and other income shall be applied to pay the expenses of using,
operating, storing, leasing, controlling or managing the Indenture Estate, and
of all maintenance, insurance, repairs, replacements, alterations, additions
and improvements, and to make all payments which Indenture Trustee may be
required or may elect to make, if any, for taxes, assessments, insurance or
other proper charges upon the Indenture Estate or any part thereof (including
the employment of engineers and accountants to examine, inspect and make
reports upon the properties and books and records of Nonaffiliated Partner
Trustee and Partnership) and all other payments which Indenture Trustee may be
required or authorized to make under any provision of this Indenture, including
this Section 8.3(c), as well as just and reasonable compensation for the
services of Indenture Trustee, and of all persons properly engaged and employed
by Indenture Trustee.
-46-
<PAGE> 53
If a BJ Event of Default exists and Indenture Trustee
obtains possession of or title to the Units, Indenture Trustee shall not be
obligated to use or operate the Units or cause the Units to be used or operated
directly or indirectly by itself or through agents or other representatives or
to lease, license or otherwise permit or provide for the use or operation of
the Units by any other Person.
(d) Subject to Sections 8.3(a), 8.3(e) and
8.3(f), Indenture Trustee may proceed to protect and enforce this Indenture and
the Notes by suit or suits or proceedings in equity, at law or in bankruptcy,
and whether for the specific performance of any covenant or agreement herein
contained or in execution or aid of any power herein granted, or for
foreclosure hereunder, or for the appointment of a receiver or receivers for
the Indenture Estate or any part thereof, or for the recovery of judgment for
the indebtedness secured by the Lien created under this Indenture or for the
enforcement of any other proper, legal or equitable remedy available under
applicable law.
(e) (i) (1) If Partnership fails to
distribute any Priority Distribution distributable under the Partnership
Agreement at least ten Business Days after the Distribution Date therefor,
Nonaffiliated Partner Trustee or any Beneficiary, without the consent of
Indenture Trustee or any Holder but subject to Section 8.3(e)(i)(5), may,
within the time period specified in clause (4) below, pay to Indenture Trustee
for application in accordance with Section 3.3, a sum equal to the amount of
all (but not less than all) principal and interest (other than by acceleration)
then due and payable on the Outstanding Notes, together with any interest on
account of such Priority Distribution not being made on the Distribution Date
as provided in Section 4.4(b) of the Partnership Agreement.
(2) If Partnership or General Partner
defaults in the payment or performance of any obligation hereunder or under the
Partnership Agreement (other than the obligation to make Priority
Distributions) or the Participation Agreement, Guarantor defaults in the
payment or performance of any obligation under the Guaranty or the
Participation Agreement, BJ USA defaults in the payment or performance of any
obligation under the Participation Agreement, Service Taker defaults in the
payment or performance of any obligation under the Services Agreement or the
Participation Agreement or
-47-
<PAGE> 54
Operator defaults in the payment or performance of any obligation under the O&M
Agreement or the Participation Agreement and such default can be cured,
Nonaffiliated Partner Trustee or any Beneficiary, without the consent of
Indenture Trustee or any Holder, may, within the period specified in clause (4)
below, pay or perform such obligation on behalf of Partnership, General
Partner, Guarantor, BJ USA, Service Taker or Operator or otherwise perform
such obligations on behalf of Partnership, General Partner, Guarantor, BJ USA,
Service Taker or Operator, without the necessity of giving any notice to
Partnership, General Partner, Guarantor, BJ USA, Service Taker or Operator, it
being understood and agreed that nothing herein contained shall be deemed or
construed to prohibit Nonaffiliated Partner Trustee or any Beneficiary from
exercising any such rights of Partnership before any such notice from Indenture
Trustee.
(3) Solely for the purpose of
determining whether there exists an Indenture Event of Default, (i) any payment
by Nonaffiliated Partner Trustee or any Beneficiary pursuant to, and in
compliance with, Section 8.3(e)(i)(1) shall, for the purposes of this
Indenture, be deemed to remedy any default by Partnership in making Priority
Distributions theretofore distributable and to remedy any default by
Nonaffiliated Partner Trustee in the payment of any amount due and payable
under the Notes, in each case only if such payment pursuant to Section
8.3(e)(i)(1) is in an amount sufficient to remedy such default, and (ii) any
payment or performance by Nonaffiliated Partner Trustee or any Beneficiary of
any obligation of Partnership, General Partner, Guarantor, BJ USA, Service
Taker or Operator under the Partnership Agreement, Participation Agreement,
Guaranty, Services Agreement or O&M Agreement pursuant to, and in compliance
with, Section 8.3(e)(i)(2) shall, for the purposes of this Indenture, be deemed
to remedy any default by Partnership, General Partner, Guarantor, BJ USA,
Service Taker or Operator in the performance in full of such obligation and to
remedy any related default by Nonaffiliated Partner Trustee under this
Indenture.
(4) While an Indenture Event of Default
arising solely from a BJ Event of Default or an Indenture Event of Default with
respect to a Beneficiary under Section 8.1(c), 8.1(d), 8.1(e), 8.1(f) or 8.1(g)
exists, (x) Indenture Trustee shall give Nonaffiliated Partner Trustee and each
Beneficiary at
-48-
<PAGE> 55
least 15 Business Days' prior written notice of its intention to exercise any
rights as assignee of Nonaffiliated Partner Trustee's or Partnership's rights
under the Guaranty, Partnership Agreement, Participation Agreement, Services
Agreement or O&M Agreement (such 15 Business Days' prior written notice to be
given without regard to how long a BJ Event of Default or an Indenture Event of
Default with respect to a Beneficiary under Section 8.1(c), 8.1(d), 8.1(e),
8.1(f) or 8.1(g) which has given rise to such intent to so exercise rights
under the Guaranty, Partnership Agreement, Participation Agreement, Services
Agreement or O&M Agreement exists) or declare the Notes to be so due and
payable for purposes of this Section 8.3(e), (y) if an Indenture Default with
respect to a Beneficiary under Section 8.1(e), 8.1(f) or 8.1(g) exists (such
Indenture Event of Default, a "Beneficiary Bankruptcy" and such Beneficiary, a
"Bankrupt Beneficiary"), Nonaffiliated Partner Trustee or any other Beneficiary
may give Indenture Trustee written notice within 15 days of such Beneficiary
Bankruptcy of the intention of Nonaffiliated Partner Trustee or such
Beneficiary to remedy any default by Bankrupt Beneficiary or to acquire or
cause to be acquired all of Bankrupt Beneficiary's Beneficial Interest and of
the actions it intends to take to accomplish the same, and (z) during such
15-Business Day period or, if the notice required by clause (y) above was
given, during the 90-day period after the occurrence of such Beneficiary
Bankruptcy, Indenture Trustee shall not exercise any rights as assignee of
Nonaffiliated Partner Trustee's or Partnership's rights under the Guaranty,
Partnership Agreement, Participation Agreement, Services Agreement or O&M
Agreement as a result of such Indenture Event of Default and neither Indenture
Trustee nor the Holders shall declare the Notes to be due and payable pursuant
to Section 8.2 as a result of such Indenture Event of Default or exercise any
remedies under Section 8 as a result of such Indenture Event of Default; except
that if within such 15-Business Day period or 90-day period, as the case may
be, Nonaffiliated Partner Trustee or any non-defaulting Beneficiary remedies
any default by Partnership, General Partner, Guarantor, BJ USA, Service Taker
or Operator as provided in clauses (1) and (2) or remedies any default by any
Beneficiary or such defaulting Beneficiary transfers all of its Beneficial
Interest pursuant to Section 6.1 of the Participation Agreement, Indenture
Trustee shall not exercise any rights as assignee of Nonaffiliated Partner
Trustee's or Partnership's rights under the Partnership Agreement,
Participation Agreement, Guaranty,
-49-
<PAGE> 56
Services Agreement or O&M Agreement as a result of such Indenture Event of
Default and neither Indenture Trustee nor the Holders shall declare the Notes
to be due and payable pursuant to Section 8.2 as a result of such Indenture
Event of Default or exercise any remedies under Section 8 as a result of such
Indenture Event of Default.
(5) Section 8.3(e)(i)(1) shall not apply
to any default in making any Priority Distribution under the Partnership
Agreement, if default in making two consecutive Priority Distributions, or in
making a total of five Priority Distributions, are cured by Nonaffiliated
Partner Trustee or any Beneficiary pursuant to Section 8.3(e)(i)(1). Section
8.3(e)(i)(2) shall not apply to any default by Partnership or General Partner
in the payment or performance of any obligation hereunder or under the
Partnership Agreement (other than the obligation to make Priority
Distributions) or the Participation Agreement, by Guarantor in the payment or
performance of any obligation under the Guaranty or the Participation
Agreement, by BJ USA in the payment or performance of any obligation under the
Participation Agreement, by Service Taker in the payment or performance of any
obligation under the Services Agreement or the Participation Agreement or by
Operator in the payment or performance of any obligation under the O&M
Agreement or the Partnership Agreement, if such defaults are cured by
Nonaffiliated Partner Trustee or a Beneficiary pursuant to Section 8.3(e)(i)(2)
by the expenditure of $2,500,000 or more in the aggregate.
(6) Upon the exercise of any cure right
under this Section 8.3(e)(i), neither Nonaffiliated Partner Trustee nor any
Beneficiary shall retain any Lien on any part of the Indenture Estate on
account of any payment made or the costs and expenses incurred in connection
therewith nor shall any claim of Nonaffiliated Partner Trustee or any
Beneficiary against Partnership, General Partner, Guarantor, Operator or any
other Person for the repayment thereof impair the prior right and security
interest of Indenture Trustee in and to the Indenture Estate.
(ii) Upon the exercise of any cure right under
Section 8.3(e)(i), Nonaffiliated Partner Trustee or Beneficiaries, as the case
may be, shall be subrogated to the rights of Holders (1) to receive from
Indenture Trustee the
-50-
<PAGE> 57
Priority Distribution, Supplemental Priority Distribution or other amount with
respect to which Nonaffiliated Partner Trustee or any Beneficiary effected such
cure (including interest on account of such Priority Distribution or
Supplemental Distribution not being distributed on the Distribution Date
therefor or interest on account of such other amount being overdue) and (2)
with respect to which Nonaffiliated Partner Trustee or any Beneficiary
otherwise effected such cure, and if Indenture Trustee thereafter receives such
Priority Distribution, Supplemental Priority Distribution or other amount and
no other Indenture Event of Default exists, then, notwithstanding the
requirements of Section 3.3, Indenture Trustee forthwith shall remit such
Priority Distribution, Supplemental Priority Distribution or other amount to
Nonaffiliated Partner Trustee or such Beneficiary, as the case may be, in
reimbursement for the funds so advanced by any of them; except that, if the
principal of and interest on any Notes have become due and payable pursuant to
Section 8.2, such Priority Distribution or Supplemental Distribution shall be
distributed by Indenture Trustee in accordance with Section 3.5. Neither
Nonaffiliated Partner Trustee nor any Beneficiary shall attempt to recover any
such Priority Distribution, Supplemental Priority Distribution or other amount
paid by it on behalf of General Partner, Partnership, Operator, Service Taker,
BJ USA or Guarantor pursuant to this Section 8.3(e)(ii) except by demanding of
Partnership, General Partner, Operator, Service Taker, BJ USA or Guarantor
payment of such amount or by proceeding by appropriate court action or actions,
either at law or at equity, to enforce performance by Partnership, General
Partner, Operator, Service Taker, BJ USA or Guarantor of the applicable
covenants or recover damages for the breach thereof. Further, upon the
exercise of any cure right under Section 8.3(e)(i)(4) with respect to a
defaulting Beneficiary, Nonaffiliated Partner Trustee or such Beneficiary
effecting such remedy or acquiring the defaulting Beneficiary's Beneficial
Interest, as the case may be, shall be subrogated to the rights of defaulting
Beneficiary to receive distributions, payments and other amounts payable to
defaulting Beneficiary under the Basic Documents.
(iii) If (1) the Notes are accelerated pursuant to
Section 8.2, or (2) the Notes are automatically accelerated, or (3) one or more
BJ Event(s) of Default exists for a period of 180 days or more (and no
Indenture Event of Default that does
-51-
<PAGE> 58
not arise solely from a BJ Event of Default exists) and the Notes are not
accelerated by Indenture Trustee or the Holders during such period,
Nonaffiliated Partner Trustee or a Beneficiary may give notice to Indenture
Trustee of Nonaffiliated Partner Trustee's or a Beneficiary's intention to
purchase, or cause to be purchased by another Person designated by
Nonaffiliated Partner Trustee (or prepay in lieu of purchase), all of the Notes
in accordance with this Section 8.3(e)(iii), which, if a redemption, shall be
pursuant to Section 6.1(d). Concurrently with such notice, Nonaffiliated
Partner Trustee or Beneficiary will deposit with Indenture Trustee, whether or
not an Indenture Event of Default then exists, an amount sufficient to pay the
Prepayment Price equal to the aggregate unpaid principal amount of all unpaid
Notes then Outstanding, but without Premium, together with (A) accrued but
unpaid interest thereon to the date of such receipt (as well as any interest on
overdue principal and, to the extent permitted by applicable law, overdue
interest calculated as provided in Section 4.4(b) of the Partnership Agreement)
and (B) all amounts then due and payable to Indenture Trustee pursuant to
Section 9.5(a)(i), which funds shall be held by Indenture Trustee as provided
in Section 9.3. Upon the receipt of such funds, Indenture Trustee will
terminate any proceedings then in progress. In the event of a purchase by a
Beneficiary, Nonaffiliated Partner Trustee (or a designee) of the Notes
pursuant to this Section 8.3(e)(iii) and upon payment to Indenture Trustee of
the Prepayment Price calculated pursuant to this Section 8.3(e)(iii), each
Holder will be deemed to sell, assign, transfer and convey to such Beneficiary
or Nonaffiliated Partner Trustee or its designee (without recourse or warranty
of any kind except as to title to the Notes being conveyed free and clear of
Liens attributable to such Holder) all of the right, title and interest of such
Holder in and to the Indenture Estate, this Indenture and all Notes held by
such Holder. The Registrar shall register the transfer of ownership of the
Notes into the name of Nonaffiliated Partner Trustee or its designee.
(iv) If a BJ Event of Default exists and before
(1) acceleration of the Notes and (2) the expiration of the 180-day period
referred to in Section 8.3(e)(iii) (and no Indenture Event of Default that does
not arise solely from a BJ Event of Default exists), Nonaffiliated Partner
Trustee or any Beneficiary may give notice to Indenture Trustee of
Nonaffiliated Partner Trustee's or Beneficiary's intention to
-52-
<PAGE> 59
purchase, or cause to be purchased by another Person designated by
Nonaffiliated Partner Trustee (or prepay in lieu of purchase), all of the Notes
in accordance with this Section 8.3(e)(iv), which, if a redemption, shall be
pursuant to Section 6.1(f). Concurrently with such notice, Nonaffiliated
Partner Trustee or Beneficiary will deposit with Indenture Trustee, whether or
not an Indenture Event of Default exists, an amount sufficient to pay the
Prepayment Price equal to the aggregate unpaid principal amount of all unpaid
Notes then Outstanding, together with (A) accrued but unpaid interest thereon
to the date of such receipt (as well as any interest on overdue principal and,
to the extent permitted by applicable law, overdue interest calculated as
provided in Section 4.4(b) of the Partnership Agreement), (B) the Premium, if
any, as of the date of deposit and (C) all amounts then due and payable to
Indenture Trustee pursuant to Section 9.5(a)(i), which funds shall be held by
Indenture Trustee as provided in Section 9.3. Upon the receipt of such funds,
Indenture Trustee will terminate any proceedings then in progress. In the
event of a purchase by any Beneficiary or Nonaffiliated Partner Trustee of
Notes pursuant to this Section 8.3(e)(iv) and upon payment to Indenture Trustee
of the Prepayment Price calculated pursuant to this Section 8.3(e)(iv), each
Holder will be deemed to sell, assign, transfer and convey to Beneficiary or
Nonaffiliated Partner Trustee or its designee (without recourse or warranty of
any kind except as to title to the Notes being conveyed free and clear of Liens
attributable to such Holder) all of the right, title and interest of such
Holder in and to the Indenture Estate, this Indenture and all Notes held by
such Holder. The Registrar shall register the transfer of ownership of the
Notes into the name of Nonaffiliated Partner Trustee or its designee.
(f) Notwithstanding any provision of this
Indenture to the contrary, as long as no BJ Event of Default exists, neither
Indenture Trustee nor Nonaffiliated Partner Trustee shall take any action
contrary to, or disturb, Service Taker's rights under the Services Agreement,
Operator's rights under the O&M Agreement or the rights of General Partner and
Affiliated Partner under the Partnership Agreement.
(g) Each and every right, power and remedy herein
given to Indenture Trustee specifically or otherwise in this Indenture shall be
cumulative and shall be in addition to every other right, power and remedy
herein specifically given or
-53-
<PAGE> 60
now or hereafter existing at law, in equity or by statute, each and every
right, power and remedy whether specifically herein given or otherwise existing
may, subject to the limitations set forth herein, be exercised from time to
time and as often in such order as may be deemed expedient by Indenture
Trustee, and the exercise or the beginning of the exercise of any power or
remedy shall not be construed to be a waiver of the right to exercise at the
same time or thereafter any other right, power or remedy. No delay or omission
by Indenture Trustee or any Holder in the exercise of any right, remedy or
power or in pursuing any remedy shall impair any such right, power or remedy or
be construed to be a waiver of any default on the part of Nonaffiliated Partner
Trustee, Partnership, General Partner, Guarantor, Operator or Service Taker or
to be an acquiescence therein. The giving, taking or enforcement of any other
additional security, collateral or guaranty for the payment and performance of
Secured Obligations shall not operate to impair, affect, waive or prejudice the
Lien of this Indenture or any rights, powers or remedies hereunder. Neither
Indenture Trustee nor any Holder shall be required to look to any additional
security, collateral or guaranty, or exhaust any remedies with respect thereto,
before exercising remedies hereunder or under the Partnership Agreement,
Participation Agreement, the Services Agreement, the Guaranty, or the O&M
Agreement in accordance with the terms hereof or thereof.
8.4 Waiver of Nonaffiliated Partner Trustee and Partnership.
To the extent now or at any time hereafter enforceable under applicable law,
Nonaffiliated Partner Trustee and Partnership each covenants that it will not
at any time insist upon or plead, or in any manner whatsoever claim or take any
benefit or advantage of, any stay or extension law now or at any time hereafter
in force, nor claim, take or insist upon any benefit or advantage of or from
any law now or hereafter in force providing for the valuation or appraisal of
the Indenture Estate or
-54-
<PAGE> 61
any part thereof before any sale or sales thereof to be made pursuant hereto,
or to the decree, judgment or order of any court of competent jurisdiction;
nor, after such sale or sales, claim or exercise any right under any statute
now or hereafter made or enacted by any state or otherwise to redeem the
property so sold or any part thereof, and hereby expressly waives for itself
and on behalf of each and every Person, except decree or judgment creditors of
Nonaffiliated Partner Trustee acquiring any interest in or title to the
Indenture Estate or any part thereof subsequent to the date of this Indenture,
all benefit and advantage of any such law or laws, and covenants that it will
not invoke or utilize any such law or laws or otherwise hinder, delay or impede
the execution of any power herein granted and delegated to Indenture Trustee,
but will suffer and permit the execution of every such power as though no such
law or laws had been made or enacted. Nothing in this Section 8.4 shall be
deemed to be a waiver by Nonaffiliated Partner Trustee or Partnership of its
rights under the exception to Section 8.3(a) and under Section 8.3(e).
8.5 Waiver of Existing Defaults. A Majority In Interest by
notice to Indenture Trustee may waive on behalf of the Holders an existing
Indenture Default or Indenture Event of Default and its consequences except (a)
an Indenture Default or Indenture Event of Default in the payment of the
principal of, Premium, if any, or interest on, any Note or (b) in respect of a
covenant or provision hereof which pursuant to Section 11.3 cannot be amended
or modified without the consent of the Holder affected.
8.6 Control by Holders. A Majority In Interest may direct
the time, method and place of conducting any proceeding for any remedy
available to Indenture Trustee or exercising any trust or power conferred on it
by this Indenture. However, Indenture Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that is unduly prejudicial
to the rights of the Holders so affected, or that would subject Indenture
Trustee to personal liability.
8.7 Limitation on Suits by Holders. A Holder may pursue a
remedy under this Indenture or under a Note only if:
(a) the Holder gives to Indenture Trustee written
notice of a continuing Indenture Event of Default under this Indenture;
(b) a Majority In Interest make a written request
to Indenture Trustee to pursue the remedy;
(c) such Holder or Holders offer to Indenture
Trustee indemnity satisfactory to Indenture Trustee against any loss, liability
or expense to be, or which may be, incurred by Indenture Trustee in pursuing
the remedy;
-55-
<PAGE> 62
(d) Indenture Trustee does not comply with the
request within 60 days after receipt of the request and the offer of indemnity;
and
(e) during such 60-day period, a Majority In
Interest does not give Indenture 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.
8.8 Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of, Premium, if any, and interest on a Note on or after
the respective due dates expressed in such Note shall not be impaired or
affected without the consent of such Holder.
8.9 Indenture Trustee May File Proofs of Claim. Indenture
Trustee may file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of Indenture Trustee and of
the Holders allowed in any judicial proceedings relating to Partnership,
Guarantor, Service Taker, Operator or Nonaffiliated Partner Trustee, their
respective creditors, or their property.
SECTION 9. INDENTURE TRUSTEE.
9.1 Rights and Duties of Indenture Trustee.
(a) Indenture Trustee accepts the trusts hereby
created and applicable to it and agrees to perform its duties with respect to
the same but only upon the terms of this Indenture, and agrees to receive and
disburse all moneys constituting part of the Indenture Estate in accordance
herewith and applicable law.
(b) Before Indenture Trustee acts or refrains
from acting, it may consult with counsel or require an Officer's Certificate or
an opinion of counsel from General Partner, Partnership or Nonaffiliated
Partner Trustee after which it will take such action or refrain from acting as
it deems appropriate. Indenture Trustee shall not be liable for any action it
takes or
-56-
<PAGE> 63
omits to take in good faith and in accordance herewith in reliance on a
resolution of the Board of Directors of General Partner, the written advice of
counsel acceptable to Nonaffiliated Partner Trustee and Indenture Trustee,
Officer's Certificates or opinions of counsel provided by General Partner,
Partnership or Nonaffiliated Partner Trustee.
(c) Indenture Trustee may act through agents
appointed with due care and shall be responsible for the misconduct or
negligence of any such agent; except that Indenture Trustee shall not be
responsible for the misconduct or negligence of any agent appointed at the
request of the Holders.
(d) Indenture Trustee shall not be liable for any
action it takes or omits to take which it in good faith believes to be
authorized or within its rights or powers.
(e) Indenture Trustee may refuse to perform any
duty or exercise any right or power unless it receives indemnity satisfactory
to it against any loss, liability or expense.
(f) Subject to Section 9.3, Indenture Trustee
shall not be liable for interest on any money received by it except as
Indenture Trustee may otherwise agree in writing with General Partner,
Partnership or Nonaffiliated Partner Trustee. Money held in trust by Indenture
Trustee need not be segregated from other funds except to the extent required
by law.
(g) Notwithstanding any other provision of this
Section 9, whether or not an Indenture Event of Default under this Indenture
exists, Indenture Trustee shall exercise its rights and powers under this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(h) Except during the existence of an Indenture
Event of Default:
(i) Indenture Trustee need perform only those
duties that are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against Indenture
Trustee.
-57-
<PAGE> 64
(ii) In the absence of bad faith on its part,
Indenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to Indenture Trustee and conforming
to the requirements of this Indenture. However, Indenture Trustee
shall examine the certificates and opinions to determine whether or
not they substantially conform to the requirements of this Indenture.
(i) Indenture Trustee may not be relieved from
liability for its own negligent action, its own negligent failure to act or its
own wilful misconduct, except that:
(i) This Section 9.1(i) does not limit the effect
of Section 9.1(h).
(ii) Indenture Trustee shall not be liable for any
error of judgment made in good faith by a responsible officer or
officers, unless it shall be proved that Indenture Trustee was
negligent in ascertaining the pertinent facts.
(iii) Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with the direction received by it pursuant to Section 8.6.
(j) Every provision of this Indenture that in any
way relates to Indenture Trustee is subject to Sections 9.1(g), 9.1(h) and
9.1(i).
9.2 Individual Rights of Indenture Trustee. Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise have business relationships with Nonaffiliated
Partner Trustee, any Beneficiary, BJ USA or an Affiliate of any thereof with
the same rights it would have if it were not Indenture Trustee. Any agent may
do the same with like rights.
9.3 Funds May Be Held by Indenture Trustee; Investments. Any
moneys (including for the purpose of this Section 9.3 any cash deposited with
Indenture Trustee or Permitted Investments purchased by the use of such cash
pursuant
-58-
<PAGE> 65
to this Section 9.3 or any cash constituting the proceeds of the maturity, sale
or other disposition of any Permitted Investment) held by Indenture Trustee
hereunder as part of the Indenture Estate, until paid out by Indenture Trustee
as herein provided, (a) subject to clause (b) below, may be carried by
Indenture Trustee on deposit with itself or on deposit to its account with any
bank, trust company or national banking association incorporated or doing
business under the laws of the United States of America or one of the States
thereof having combined capital and surplus and retained earnings of at least
$1,000,000,000 and having a rating assigned to the long-term unsecured debt of
such institutions by Standard & Poor's Corporation and Moody's Investors
Service, Inc. at least equal to AA and AA2, respectively, and Indenture Trustee
shall not have any liability for interest upon any such moneys except as
otherwise agreed in writing with Nonaffiliated Partner Trustee, General Partner
or Partnership; provided, that Indenture Trustee shall not seek indemnity or
reimbursement from any Holder as a result of liability for interest, or (b) at
any time and from time to time at the request of General Partner acting as the
agent of Nonaffiliated Partner Trustee solely for purposes of this Section 9.3,
shall be invested and reinvested in Permitted Investments as specified in such
request (if such investments are reasonably available for purchase); and such
Permitted Investments shall be held by Indenture Trustee in trust as part of
the Indenture Estate until so sold; except that General Partner, as agent of
Nonaffiliated Partner Trustee solely for purposes of this Section 9.3, shall
upon demand pay to Indenture Trustee the amount of any loss realized upon
maturity, sale or other disposition of any such Permitted Investment. Any net
income, profit, interest, dividend or gain realized upon maturity, sale or
other disposition of any Permitted Investment shall be held as part of the
Indenture Estate and shall be applied by Indenture Trustee at the same time, on
the same conditions and in the same manner as the amounts in respect of which
such income, profit, interest, dividend or gain was realized are required to be
distributed in accordance with the provisions hereof. Indenture Trustee shall
not be responsible for any losses on any investments or sales of Permitted
Investments made pursuant to the procedure specified in this Section 9.3.
-59-
<PAGE> 66
9.4 Notice of Defaults.
(a) If an Indenture Event of Default under this
Indenture exists and if it is actually known to Indenture Trustee, Indenture
Trustee shall promptly send written notice thereof to General Partner (on
behalf of Partnership), Nonaffiliated Partner Trustee, Beneficiaries and the
Holders (except Indenture Trustee shall not be obligated to provide such notice
to any such Person if such Person had informed Indenture Trustee of such
Indenture Event of Default). In addition, if an Indenture Default under this
Indenture exists and if a responsible officer of Indenture Trustee has actual
knowledge thereof, Indenture Trustee shall promptly send written notice thereof
to General Partner (on behalf of Partnership), Nonaffiliated Partner Trustee,
Beneficiaries and the Holders. Subject to Sections 9.4(c) and 9.5, Indenture
Trustee shall take or refrain from taking such action, not inconsistent with
the provisions of the Basic Documents, with respect thereto as the Majority in
Interest shall direct by written instruction to Indenture Trustee. If
Indenture Trustee gives the Holders written notice of any event and does not
receive written instruction as above provided within 20 days after mailing
notice of such event to the Holders, Indenture Trustee may, subject to the
Basic Documents, take or refrain from taking such action, but shall be under no
duty to, or shall have no liability for a failure or refusal to, take or
refrain from taking any action with respect thereto as it determines to be
advisable in the best interests of the Holders.
(b) Notice pursuant to this Section 9.4 shall be
transmitted in the manner provided in Section 13.1 to all Holders, as the names
and addresses of such Holders appear upon the Register.
(c) Subject to the terms of, and except as
otherwise provided in Sections 8, 9.5 and 11, upon the written instructions at
any time and from time to time of a Majority in Interest of the Holders or of
Holders holding at least 66 2/3% of the Outstanding Notes, as the case may be,
Indenture Trustee shall take such of the following actions as may be specified
in such instructions: (i) exercise such election or option, or make such
decision or determination, or give such notice, consent, waiver or approval or
exercise such right, remedy or power to take such other action hereunder or in
respect of any
-60-
<PAGE> 67
part or all of the Indenture Estate as specified in such instructions; (ii)
take such action with respect to, or to preserve or protect, the Indenture
Estate (including the discharge of Liens) as specified in such instruction and
as are consistent with this Indenture and the other Basic Documents; and (iii)
take such other action in respect of the subject matter of this Indenture as is
consistent with the terms hereof and of the Basic Documents.
9.5 Compensation.
(a) Nonaffiliated Partner Trustee shall pay to
Indenture Trustee, from time to time, on demand, the following amounts: (i)
reasonable compensation for Indenture Trustee's services, which compensation
shall not be limited by any law on compensation of a trustee of an express
trust, (ii) reimbursement for all reasonable out- of-pocket expenses incurred
by Indenture Trustee in connection with the performance of its duties under
this Indenture (including the reasonable compensation and expenses of Indenture
Trustee's counsel in accordance with Section 9.1(b) and any agent appointed in
accordance with Section 9.1(c)) and (iii) any expense, loss or liability
incurred by it arising out of or in connection with its acceptance or
administration of the trust or trusts hereunder except (1) such expenses or
loss or liability resulting from the negligence or wilful misconduct of
Indenture Trustee or the inaccuracy of any representation or warranty of
Indenture Trustee in its individual capacity in Section 3.3 of the
Participation Agreement, (2) as otherwise provided in Section 9.9 and (3) as
otherwise excluded by Sections 7.1 and 7.2 of the Participation Agreement from
BJ USA's indemnities under said Sections; except that, so long as the
Partnership Agreement is in effect, Indenture Trustee shall not make any claim
against Nonaffiliated Partner Trustee under this Section 9.5 for any claim or
expense for which BJ USA is liable, or for which Nonaffiliated Partner Trustee
is indemnified against by BJ USA, under the Participation Agreement without
first making demand on BJ USA for payment of such claim or expense. Indenture
Trustee shall notify Nonaffiliated Partner Trustee and BJ USA promptly of any
claim or expense for which it may seek indemnity.
(b) To secure the payment obligations of
Nonaffiliated Partner Trustee pursuant to this Section 9.5,
-61-
<PAGE> 68
Indenture Trustee shall have a Lien prior to that of the Holders on all money
or property held or collected from Partnership or Nonaffiliated Partner Trustee
by Indenture Trustee, except that held in trust to pay the principal of,
Premium, if any, and interest on, the Notes.
9.6 Replacement of Indenture Trustee.
(a) The resignation or removal of Indenture
Trustee and the appointment of a successor Indenture Trustee shall become
effective only upon the successor Indenture Trustee's acceptance of appointment
as provided in this Section 9.6.
(b) Indenture Trustee may resign by giving at
least 30 days' prior written notice to General Partner (on behalf of
Partnership), Nonaffiliated Partner Trustee, Beneficiaries and the Holders. A
Majority In Interest may remove Indenture Trustee, and also may appoint a
successor Indenture Trustee, by giving at least 30 days' prior written notice
to Indenture Trustee, Nonaffiliated Partner Trustee, Beneficiaries and General
Partner (on behalf of Partnership). Nonaffiliated Partner Trustee (whether or
not acting pursuant to instructions from Beneficiaries) may remove Indenture
Trustee if:
(i) Indenture Trustee fails to comply, with
Section 9.8;
(ii) Indenture Trustee is adjudged a bankrupt or
an insolvent;
(iii) a receiver or public officer takes charge of
Indenture Trustee or its property; or
(iv) Indenture Trustee becomes incapable of acting.
(c) If (i) Indenture Trustee resigns or is
removed, (ii) the Holders have removed Indenture Trustee pursuant to the second
sentence of Section 9.6(b) and have not appointed a successor within 30 days or
(iii) a vacancy otherwise exists in the office of Indenture Trustee for any
reason, then Nonaffiliated Partner Trustee may, subject to prior
-62-
<PAGE> 69
action being taken pursuant to Section 9.6(d), promptly appoint a successor
Indenture Trustee.
(d) If a successor Indenture Trustee does not
take office within 30 days after the retiring Indenture Trustee resigns or is
removed, the retiring Indenture Trustee, General Partner (on behalf of
Partnership), Beneficiaries or a Majority In Interest may petition any court of
competent jurisdiction for the appointment of a successor Indenture Trustee.
(e) If Indenture Trustee fails to comply with
Section 9.8, any Holder may petition any court of competent jurisdiction for
the removal of such Indenture Trustee and the appointment of a successor
Indenture Trustee.
(f) A successor Indenture Trustee shall deliver a
written acceptance of its appointment to the retiring Indenture Trustee, to
General Partner (on behalf of Partnership), to Beneficiaries and to
Nonaffiliated Partner Trustee. Thereupon, the resignation or removal of the
retiring Indenture Trustee shall become effective, and the successor Indenture
Trustee shall have all the rights, powers and duties of the retiring Indenture
Trustee for which the successor Indenture Trustee is to be acting under this
Indenture. The retiring Indenture Trustee shall promptly transfer all property
and all books and records relating to the administration of the Indenture
Estate held by it as Indenture Trustee to the successor Indenture Trustee
subject to the Lien provided for in Section 9.5(b). Nonaffiliated Partner
Trustee shall give notice of each appointment of a successor Indenture Trustee
by mailing written notice of such event by first-class mail to Holders.
9.7 Successor Indenture Trustee by Merger, etc. If Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all of its corporate trust business assets to, another
corporation, the successor corporation, without any further act, shall be the
successor Indenture Trustee.
9.8 Eligibility; Disqualification. Indenture Trustee shall
at all times have a combined capital and surplus of at least $100,000,000 and
shall be subject to supervision or examination by Federal or state authority.
If Indenture Trustee publishes reports of condition at least annually, pursuant
to
-63-
<PAGE> 70
law or to the requirements of Federal or state supervising or examining
authority, then for the purposes of this Section 9.8, the combined capital and
surplus of Indenture Trustee shall be deemed to be its combined capital and
surplus as set forth in its most recent report of conditions so published.
If at any time Indenture Trustee ceases to be eligible in
accordance with this Section 9.8, Indenture Trustee shall resign immediately in
the manner and with the effect specified in Section 9.6.
9.9 Trustee's Liens. Indenture Trustee in its individual
capacity agrees that it will at its own cost and expense promptly take such
action as may be necessary to comply with the provisions of Section 5.9 of the
Participation Agreement.
9.10 Withholding Taxes; Information Reporting. Indenture
Trustee shall exclude and withhold from each distribution of principal,
Premium, if any, and interest and other amounts due hereunder or under the
Notes any and all withholding taxes applicable thereto as required by law
(provided, however, no such exclusion or withholding shall be made from such
distribution if Indenture Trustee shall have received a duly exercised and
properly completed U.S. Internal Revenue Service Form W-9 or 1001 or any
substitute Form which may be applicable). Indenture Trustee agrees (a) to act
as such withholding agent and, in connection therewith, whenever any present or
future taxes or similar charges are required to be withheld with respect to any
amounts payable in respect of the Notes, to withhold such amounts and timely
pay the same to the appropriate authority in the name of and on behalf of the
Holders, (b) that it will file any necessary withholding tax returns or
statements when due and (c) that, as promptly as possible after the payment of
such amounts, it will deliver to each Holder appropriate documentation showing
the payment of such amounts, together with such additional documentary,
evidence as such Holders may reasonably request from time to time. Indenture
Trustee agrees to file any other information reports relating to withholding
taxes as it may be required to file under United States law.
9.11 Co-Trustee. At any time, for the purpose of meeting any
legal requirements of any jurisdiction in which any
-64-
<PAGE> 71
part of the Indenture Estate may at the time be located, Indenture Trustee
shall have the power, subject to receipt of the prior written approval of
Nonaffiliated Partner Trustee as long as no Indenture Event of Default exists,
and shall execute and deliver all instruments necessary, to appoint one or more
Persons to act as co-trustee, or co-trustees, or separate trustee or separate
trustees, of all or any part of the Indenture Estate, and to vest in such
Person or Persons in such capacity, such interest in the Indenture Estate or
any part thereof, and such rights, powers, duties, trusts or obligations as
Indenture Trustee may consider necessary or desirable.
SECTION 10. SATISFACTION AND DISCHARGE; TERMINATION
OF OBLIGATIONS.
10.1 Satisfaction and Discharge of Agreement; Termination of
Obligations. Subject to Section 10.2, this Indenture shall cease to be of
further force or effect, and Nonaffiliated Partner Trustee and Indenture
Trustee shall, except as herein provided, be deemed to have been discharged
from their respective obligations with respect to the Notes (and Indenture
Trustee, on demand and at the reasonable expense of Nonaffiliated Partner
Trustee, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture in respect of the Notes upon delivery of
satisfactory evidence that all Notes theretofore authenticated have been fully
paid or discharged), when all accrued and unpaid Secured Obligations has been
fully paid or there shall have been deposited with Indenture Trustee in trust
for the purpose of paying and discharging such accrued and unpaid Secured
Obligations, an amount in cash sufficient without reinvestment thereof to
discharge such accrued and unpaid Secured Obligations, including the principal
of, and Premium, if any, and interest on the Notes to the date of such deposit
(in the case of Notes which have become due and payable), or to the maturity
thereof, as the case may be.
10.2 Survival of Certain Obligations. Notwithstanding Section
10.1, the obligations of Nonaffiliated Partner Trustee and Indenture Trustee
contained in Sections 2.1 through 2.8, 7.1, 9.9, 9.10, 10.3 and 10.4 and the
rights, duties, immunities and privileges hereunder of Indenture Trustee shall
survive the discharge of this Indenture.
-65-
<PAGE> 72
10.3 Moneys to Be Held in Trust. All moneys deposited with
Indenture Trustee pursuant to Section 10.1 shall be held in trust and applied
by it, in accordance with the Notes and this Indenture, to the payment to the
Holders, of all sums due and to become due thereon for principal, Premium, if
any, and interest.
10.4 Moneys to Be Returned to Nonaffiliated Partner Trustee.
Indenture Trustee shall promptly pay or return to Nonaffiliated Partner Trustee
upon request of Nonaffiliated Partner Trustee any money held by it at any time
that is not required for the payment of the amounts described above in Section
10.3 for which money has been deposited pursuant to Section 10.1.
SECTION 11. AMENDMENTS AND WAIVERS.
11.1 Amendments to This Indenture Without Consent of Holders.
Nonaffiliated Partner Trustee, Partnership and Indenture Trustee may enter into
one or more written agreements supplemental hereto without the consent of any
Holder for any of the following purposes:
(a) to cure any defect or inconsistency herein or
in the Notes, to make any change not inconsistent with the provisions hereof or
to cure any ambiguity or correct any mistake, provided that such change does
not adversely affect the interests of any Holder;
(b) to evidence the succession of another party
as Nonaffiliated Partner Trustee in accordance with the terms of the Trust
Agreement or to evidence (in accordance with Section 9) the succession of a new
Indenture Trustee hereunder, the removal of Indenture Trustee hereunder or the
appointment of any co-trustee or co-trustees or any separate or additional
trustee or trustees to Indenture Trustee or Nonaffiliated Partner Trustee;
(c) to subject to the Lien of this Indenture
additional property hereafter acquired by Nonaffiliated Partner Trustee or
Partnership and intended to be subjected to the Lien of this Indenture;
(d) to correct or amplify the description of any
property at any time subject to the Lien of this Indenture or
-66-
<PAGE> 73
better to assure, convey and confirm unto Indenture Trustee any property
subject or required to be subject to the Lien of this Indenture;
(e) to add to the covenants of Nonaffiliated
Partner Trustee or Partnership for the benefit of Holders, or to surrender any
rights or power herein conferred upon Nonaffiliated Partner Trustee,
Partnership, Beneficiaries or General Partner;
(f) to add to the rights of Holders;
(g) to include on the Notes any legend required
by law; or
(h) to permit the qualification of this Indenture
under the Trust Indenture Act of 1939, as amended, or any similar federal
statute hereafter in effect, except that nothing herein contained shall permit
or authorize the inclusion of the provisions referred to in Section 316(a)(2)
of said Trust Indenture Act of 1939 or any corresponding provision in any
similar federal statute hereafter in effect.
11.2 Supplements to Partnership Agreement, Guaranty, Services
Agreement and O&M Agreement Without Holder Consent. Indenture Trustee, from
time to time and at any time, subject to the restrictions contained in this
Indenture, may, without the consent of Holders, consent to any amendment of or
supplement to the Partnership Agreement, the Guaranty, the Services Agreement
or the O&M Agreement for any one of the following purposes:
(a) to adjust the Priority Distributions,
Disposition Values, and ET Price payable under Section 2.7 of the Participation
Agreement, subject to all of the conditions set forth therein, if, on or before
the effective date of any adjustment pursuant to the provisions of this Section
11.2(b), Indenture Trustee shall have received an Officer's Certificate of
General Partner (on behalf of Partnership), addressed to Holders and Indenture
Trustee and to the effect that, after giving effect to such adjustment, the
amount of Priority Distributions distributable on each Payment Date under the
Partnership Agreement equals or exceeds the amount payable on such date for
principal and accrued interest on all the Notes, and the amounts of Disposition
Value or ET Price payable on any
-67-
<PAGE> 74
date under the Partnership Agreement or Participation Agreement equals or
exceeds the unpaid principal amount of all the Notes and accrued interest and,
in the case of the ET Price, Premium, if any, thereon after giving effect to
the making of any Category B Priority Distributions on such date, which
certificate shall set forth detailed information sufficient to demonstrate such
matters; and
(b) if requested by Nonaffiliated Partner
Trustee, to agree to any other amendment made to the Partnership Agreement, the
Services Agreement, the O&M Agreement or the Guaranty solely with respect to
matters that constitute, or relate to, Excepted Property.
11.3 Amendments With Consent of Holders.
(a) With the written consent of Holders of not
less than 66-2/3% of the unpaid principal balance of the Notes, (x)
Nonaffiliated Partner Trustee and Partnership may take any action prohibited,
or omit the taking of any action required, by any of the provisions of this
Indenture or any agreement supplemental hereto, (y) Nonaffiliated Partner
Trustee, Partnership and Indenture Trustee may enter into such written
supplemental agreements to add any provisions to or to change or eliminate any
provisions of this Indenture or of any such supplemental agreements, or to
modify the rights of Holders, or (z) Nonaffiliated Partner Trustee and
Partnership may enter into such written supplemental agreements to add any
provisions to or to change or eliminate any provisions of the Partnership
Agreement, the Services Agreement, the O&M Agreement or the Guaranty or of any
supplemental agreements thereto, or to modify the obligations of Nonaffiliated
Partner Trustee, Partnership, General Partner, Affiliated Partner, Operator,
Service Taker or Guarantor thereunder; provided, however, that, without the
consent of each Holder affected thereby, an amendment under this Section 11.3
may not:
(i) reduce any amount payable with respect to,
principal, Premium, if any, or interest on, any Note held by such
Holder;
(ii) change the date on which any principal of,
Premium, if any, or interest on any Note held by such Holder, is due
or payable or otherwise affect the terms of
-68-
<PAGE> 75
payment of any Note or change to a location outside the United States
the place of payment where, or the coin or currency in which, any
payment hereunder is payable;
(iii) reduce the amount of any capital contribution
to be contributed or any Priority Distribution, Supplemental Priority
Distribution or Special Distribution to be distributed under the
Partnership Agreement so that the same is less than the scheduled
payment of principal of, Premium, if any, and interest on any Notes
held by such Holder intended to be made by Nonaffiliated Partner
Trustee from such distributions;
(iv) create any Lien on the Indenture Estate
except such as are permitted by this Indenture, or deprive any Holders
of the benefit of the Lien on the Indenture Estate created by this
Indenture;
(v) reduce the percentage in principal amount of
the Outstanding Notes, the consent of whose Holders is required for
any such supplemental agreement, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or of defaults hereunder or their consequences) provided for
in this Indenture; or
(vi) make any change in Sections 8.5 through 8.8 or
this Section 11.3(a).
(b) Promptly after the execution by Nonaffiliated
Partner Trustee and Indenture Trustee of any supplemental agreement or other
amendment pursuant to Section 11.1, 11.2 or this 11.3, Indenture Trustee shall
transmit by first-class mail a notice, setting forth in general terms the
substance of such supplemental agreement or other amendment, together with a
conformed copy thereof, to all Holders, as the names and addresses of such
Holders appear on the Register. Any failure of Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental agreement.
11.4 Notation on or Exchange of Notes. Indenture Trustee may
place an appropriate notation about an amendment or
-69-
<PAGE> 76
waiver on any Note thereafter executed. Indenture Trustee in exchange for any
Notes may execute new Notes that reflect the amendment or waiver.
11.5 Indenture Trustee Protected. Indenture Trustee need not
sign any supplemental agreement or other amendment pursuant to Section 11.2 or
11.3 that adversely affects its rights.
11.6 Opinion of Counsel Conclusive as to Supplements.
Indenture Trustee may receive an opinion of counsel selected by it (which may
be independent counsel for General Partner, Partnership or Nonaffiliated
Partner Trustee) as conclusive evidence that any waiver, consent or
supplemental agreement or other amendment executed pursuant to this Section 11
complies with the requirements of this Section 11.
SECTION 12. ACTIONS TO BE TAKEN UPON EXERCISE OF CERTAIN RIGHTS.
12.1 Actions to Be Taken upon Exercise of Certain Rights.
Upon any of:
(a) a Reduction Election with respect to any Unit
pursuant to Section 5.16 of the Participation Agreement and Section 7.2(c) of
the Partnership Agreement on a Reduction Date, and upon payment to Indenture
Trustee on a Prepayment Date of an amount equal to the Prepayment Price of the
required portion of the Outstanding Notes determined pursuant to Section
6.1(b);
(b) the purchase by General Partner or its
designee of the Partnership Interest of Nonaffiliated Partner Trustee pursuant
to Section 9.1 of the Partnership Agreement on the ET Date and upon payment to
Indenture Trustee on such date of an amount equal to the Prepayment Price of
the required portion of the Outstanding Notes determined pursuant to Section
6.1(c);
(c) the exercise by Partnership of its right to
remove the Lien of this Indenture with respect to a Unit on the relevant date,
following an Event of Loss suffered by such Unit under circumstances where
Partnership does not exercise its option to substitute replacement equipment
therefor pursuant to Section 5.12 of the Participation Agreement and Section
7.2(c)
-70-
<PAGE> 77
of the Partnership Agreement, and upon payment to Indenture Trustee of an
amount equal to the Prepayment Price as at the Prepayment Date of the required
portion of the Outstanding Notes determined pursuant to Section 6.1(a);
(d) the exercise of Partnership's right to remove
the Lien of this Indenture with respect to any Unit to be replaced in
connection with a substitution pursuant to Section 5.11 of the Participation
Agreement and Section 7.2(d) of the Partnership Agreement or Section 5.12 of
the Participation Agreement and Section 7.2(c) of the Partnership Agreement,
and upon compliance with the terms of such Section 5.11 or 5.12, as the case
may be, of the Participation Agreement and the attachment of the Lien of the
Indenture to the Unit being delivered to Nonaffiliated Partner Trustee in
substitution for the Unit being replaced; and
(e) satisfaction, discharge, defeasance and
termination of the obligations under this Indenture in accordance with Section
10.1;
then Indenture Trustee shall, without recourse or warranty (except as to the
absence of Liens of Persons claiming by, through or under Indenture Trustee)
transfer all of Indenture Trustee's right, title and interest in and to such
Units to the Person contemplated by the relevant provisions of the Partnership
Agreement and Participation Agreement, and Indenture Trustee shall execute such
instruments as may reasonably be requested by General Partner, Nonaffiliated
Partner Trustee or any Beneficiary to evidence such termination.
SECTION 13. MISCELLANEOUS.
13.1 Notices. Unless otherwise expressly specified or
permitted by the terms hereof, all communication and notices provided for
herein shall be in writing, and any such notice shall become effective when
received (and notices given pursuant to clause (b) below shall be deemed
received three days after being deposited in the mail). Any written notice
shall be by (a) personal delivery thereof, including, without limitation, by
overnight mail and courier service, (b) United States mail, certified, postage
prepaid, return receipt requested or (c) facsimile transmission, in each case
effective upon receipt (in the case of clause (c) as evidenced by the sender's
receipt of
-71-
<PAGE> 78
electronic confirmation of the addressee's receipt), and in each case addressed
to the following Person at its respective address set forth below or at such
other address as such Person may from time to time designate by written notice
to the other Persons listed below:
If to BJ USA:
BJ Services Company U.S.A.
5500 Northwest Central Drive
Houston, TX 77092
Attention: Mr. Taylor M. Whichard III
Facsimile: 713/895-5420
Confirmation No.: 713/895-5847
If to Nonaffiliated Partner Trustee:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Facsimile: 801/246-5053
Confirmation No.: 801/246-5630
If to any Beneficiary:
To such Beneficiary at its address set forth on Schedule 1 to the
Participation Agreement
If to Indenture Trustee:
State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attention: Corporate Trust Department
Facsimile: 617/664-5297
Confirmation No.: 617/664-5666
-72-
<PAGE> 79
If to any Holder:
To such Holder at its address set forth in the Register.
13.2 Governing Law. THIS INDENTURE AND THE NOTES SHALL BE IN
ALL RESPECTS GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK
FOR CONTRACTS ENTERED INTO AND TO BE PERFORMED WITHIN NEW YORK, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, EXCEPT TO THE EXTENT THAT
MATTERS RELATING TO PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION
OF THE LIEN GRANTED BY THE BASIC DOCUMENTS ARE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE UNIFORM COMMERCIAL CODE OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
13.3 No Recourse Against Others. No director, officer,
employee, stockholder or Affiliate, as such, of Guarantor, General Partner,
Service Taker, BJ USA, Operator, Nonaffiliated Partner Trustee or any
Beneficiary, as the case may be, shall have any liability for any obligations
of Guarantor, General Partner, Service Taker, BJ USA, Operator, Nonaffiliated
Partner Trustee or any Beneficiary, as the case may be, under 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 Note waives and releases all such
liability. The waiver and release are part of the consideration for the issue
of the Notes.
13.4 Execution in Counterparts. This Indenture may be
executed in any number of counterparts, and the parties hereto on separate
signature pages, each executed counterpart constituting an original but
altogether only one Indenture.
13.5 Indenture for Benefit of Nonaffiliated Partner Trustee,
Indenture Trustee, Beneficiaries and Holders. Nothing in this Indenture or the
Notes, whether express or implied, shall be construed to give to any Person
other than Nonaffiliated Partner Trustee, Indenture Trustee, Partnership,
Beneficiaries and the Holders any legal or equitable right, remedy or claim
under or in respect of this Indenture, other than General Partner to the extent
expressly provided herein.
13.6 Severability. Whenever possible, each provision of this
Indenture shall be interpreted in such manner as to be
-73-
<PAGE> 80
effective and valid under applicable law, but if any provision of this
Indenture shall be prohibited by or invalid under the laws of any jurisdiction,
such provision, as to such jurisdiction, shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Indenture as to such jurisdiction
or in any other jurisdiction.
13.7 No Oral Modifications or Continuing Waivers. No terms or
provisions of this Indenture or the Notes may be waived, discharged or
terminated orally, but only by an instrument in writing signed by the party or
other Person against whom enforcement of the waiver, discharge or termination
is sought; and any waiver of the terms hereof or of any Note shall be effective
only in the specific instance and for the specific purpose given.
13.8 Successors and Assigns. This Indenture shall be binding
upon the parties hereto and their respective successors and assigns and shall
inure to the benefit of, and shall be enforceable by, the parties hereto and
their respective successors and assigns as permitted by and in accordance with
the terms hereof and the Basic Documents. Except as expressly provided herein
or in the other Basic Documents, no party hereto may assign its interests
herein without the consent of the other party hereto. Any request, notice,
direction, consent, waiver or other instrument or action by any Holder shall
bind the successors and assigns of such Holder.
13.9 Headings and Table of Contents. The headings of the
Sections of this Indenture and the Table of Contents are inserted for the
purposes of convenience only and shall not be construed to affect the meaning
or construction of any of the provisions hereof.
13.10 No Legal Title to Indenture Estate in Holders. No Holder
shall have legal title to any part of the Indenture Estate. No transfer, by
operation of law or otherwise, of any Note or other right, title and interest
of any Holder in and to the Indenture Estate or the trusts hereunder shall
operate to terminate this Indenture or the trusts hereunder or entitle any
successor or transferee of such Holder to an accounting or the transfer to it
of legal title to any part of the Indenture Estate.
-74-
<PAGE> 81
13.11 Capacity in Which Acting. Nonaffiliated Partner Trustee
acts hereunder solely as trustee herein and in the Trust Agreement provided and
not in its individual capacity, except as otherwise expressly provided herein,
in the Trust Agreement and in the Participation Agreement.
13.12 Directly or Indirectly. Where any provision in this
Indenture refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.
-75-
<PAGE> 82
IN WITNESS WHEREOF, Nonaffiliated Partner Trustee, Partnership and
Indenture Trustee have caused this INDENTURE to be duly executed and delivered
as of the date first above written.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its
individual capacity except as
expressly provided herein,
but solely as Nonaffiliated
Partner Trustee
By: /s/
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
S-1
<PAGE> 83
BJ SERVICES EQUIPMENT, L.P.
By: BJ SERVICES COMPANY, U.S.A.,
its general partner
By: /s/
-----------------------------------
Name:
-------------------------------
Title:
------------------------------
S-2
<PAGE> 84
STATE STREET BANK AND TRUST COMPANY,
as Indenture Trustee
By: /s/
------------------------------------
Name:
-------------------------------
Title:
------------------------------
S-3
<PAGE> 1
EXHIBIT 10.16
================================================================================
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
BJ SERVICES EQUIPMENT, L.P.
(DATED AS OF AUGUST 7, 1997, AND EFFECTIVE AS OF AUGUST 8, 1997)
================================================================================
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
SECTION 2. ORGANIZATIONAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
2.1. Formation, Continuation and Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
2.2. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
2.3. Certificates and Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
2.4. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.5. Registered Office and Agent; Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
2.6. Ownership of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
SECTION 3. PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
3.1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
3.2. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
SECTION 4. CAPITAL CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
4.1. Organizational Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
4.2. Contribution of Initial Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
4.4. Additional Capital Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
4.5. No Withdrawal; No Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
SECTION 5. CAPITAL ACCOUNTS; ALLOCATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
5.1. Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
5.2. Allocations for Capital Account Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
5.3. Allocations for Tax Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
SECTION 6. DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
6.1. Distributions of Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
6.2. Distributions in Kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
SECTION 7. MANAGEMENT AND OPERATION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
7.1. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
7.2. Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
7.3. Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
7.4. Unanimous Consent of Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
7.5. Rights of Nonaffiliated Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
7.6. Delegation of Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
7.7. Dealings with Partners and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
7.8. Liability of Limited Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
SECTION 8. ACCOUNTING AND TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
8.1. Accrual Basis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
8.2. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
8.3. Reports and Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
8.4. Preparation of Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
8.5. Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
8.6. Tax Controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
8.7. Organizational Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
8.8. Requests for Administrative Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
SECTION 9. RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
9.1. ET Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
9.2. FT Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
9.3. RT Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
9.4. Purchase and Closing Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
SECTION 10. TRANSFER OF THE PARTNERSHIP INTEREST; CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . -23-
10.1 Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
10.2. Rights Transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
10.3. No Release from Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
10.4. Agreements with Partner Transferees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
10.5. Allocations Between Transferor Partner and Partner Transferee . . . . . . . . . . . . . . . . . . . . . . . -24-
10.6. Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
10.7. Consent to Lien of the Indenture; Exercise of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
SECTION 11. DISSOLUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
11.1. Events of Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
11.2. Covenant Not to Cause Dissolution of Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
11.3. Winding-Up; Liquidator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
11.4. Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
11.5. Distributions in Kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
11.6. Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
11.7. Reasonable Time for Winding-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
SECTION 12. ACTIVITIES OF PARTNERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
12.1. Right to Engage in Independent Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
12.2. Matters Concerning General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
SECTION 13. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
13.1. Complete Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
13.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
13.3. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
13.4. Successor and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
13.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
13.6. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
13.7. Headings; References; Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
13.8. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
13.9. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
13.10. Nonrecourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
13.11. Waiver of Right of Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
13.12. No Third Party Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ANNEX I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SCHEDULE I Priority Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXHIBIT A Form of Partnership Agreement Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 5
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF BJ
SERVICES EQUIPMENT, L.P. (as the same may be amended, amended and restated,
supplemented or otherwise modified from time to time, this "Partnership
Agreement"), effective as of August 8, 1997, is made and entered into as of
August 7, 1997, by and among BJ Services Company, U.S.A., a Delaware
corporation ("BJ USA") as general partner, Taylor M. Whichard, III, as
Organizational Limited Partner, BJ SERVICES, L.L.C., a Delaware limited
liability company, as Affiliated Partner, and First Security Bank National
Association, not in its individual capacity, but solely as Nonaffiliated
Partner Trustee of BJ Services Trust No. 1997-1 ("Nonaffiliated Partner"). In
consideration of the covenants, conditions and agreements contained herein, the
parties agree as follows:
SECTION 1. DEFINITIONS.
Capitalized terms used herein have the meanings assigned to them in
Annex I.
SECTION 2. ORGANIZATIONAL MATTERS.
2.1. Formation, Continuation and Conversion. General Partner and
Organizational Limited Partner have previously formed Partnership as a limited
partnership pursuant to the provisions of the Delaware Act and hereby amend and
restate the original Agreement of Limited Partnership dated as of June 25, 1997
of Partnership in its entirety. This amendment and restatement shall become
effective on the Commencement Date. This Partnership Agreement shall govern
all the rights, duties (including fiduciary duties), liabilities and
obligations of the Partners and the administration, dissolution and termination
of Partnership unless otherwise expressly provided to the contrary by the
Delaware Act. The Partnership Interest of each Partner shall be personal
property for all purposes, and a Partner has no interest in specific
Partnership property.
2.2. Name. The name of Partnership shall be "BJ SERVICES
EQUIPMENT, L.P." Partnership's business may be conducted under such name or
any other name or names deemed necessary or appropriate by General Partner,
including the name of General Partner. The words "Limited Partnership,"
"L.P.," "Ltd.," or similar words or letters shall be included in Partnership's
name where necessary for the purposes of complying with the laws of any
jurisdiction that so requires.
2.3. Certificates and Filings. (a) General Partner has executed
and filed a Certificate of Limited Partnership for Partnership in compliance
with the Delaware Act with the Office of
<PAGE> 6
the Secretary of State of the State of Delaware and shall execute and deliver
(and file, record and publish in each jurisdiction where such filing,
recordation or publication is appropriate) all certificates and other
instruments, and perform such acts consistent with the terms of this
Partnership Agreement, as may be necessary to comply with the requirements of
law for the formation and qualification of Partnership as a limited partnership
in each jurisdiction in which Partnership shall conduct business.
(b) Each Limited Partner hereby names, constitutes and appoints
General Partner and any successor General Partner (hereinafter referred to as
an "Attorney-in-Fact"), with full power of substitution as its true and lawful
agent and attorney-in-fact, with full power and authority in its name, place
and stead, to execute, swear to, acknowledge, deliver, file, record and publish
all certificates (including, without limitation, assumed name certificates) and
other instruments and all amendments and renewals thereof that such
Attorney-in-Fact deems appropriate or necessary to comply with the requirements
of law for the formation and qualification of Partnership as a limited
partnership in each jurisdiction in which Partnership shall conduct business.
The execution by said Attorney-in-Fact of any power conferred hereby shall be
conclusive evidence of the determination by said Attorney-in-Fact that the
exercise of such power is requisite, necessary, appropriate or advisable for
all purposes of the power of attorney. Each Partner hereby ratifies and
confirms anything lawfully done or caused to be done by said Attorney-in-Fact
in the exercise of the powers conferred in this Section 2.3(b) and agrees to be
bound by any representations made by said Attorney-in-Fact acting in good faith
and pursuant to the foregoing power of attorney. The foregoing power of
attorney is hereby declared to be irrevocable and a power coupled with an
interest, and it shall survive and not be affected by the subsequent
dissolution or termination of any Partner.
2.4. Term. Partnership commenced on June 25, 1997, upon filing of
the Certificate of Limited Partnership with the Secretary of State of the State
of Delaware in accordance with the Delaware Act and shall continue until the
close of Partnership business on June 25, 2017, or until the earlier
dissolution of the Partnership in accordance with the provisions of Section
Eleven. The existence of Partnership as a separate legal entity for purposes
of the Delaware Act shall continue until the cancellation of the Certificate of
Limited Partnership as provided in the Delaware Act.
2.5. Registered Office and Agent; Place of Business. Unless and
until changed by General Partner, the registered office of Partnership in the
State of Delaware shall be located at 1209 Orange Street, Wilmington, Delaware
19801, and the registered agent for service of process on Partnership in the
State of Delaware at such registered office shall be Corporation Trust Company.
The principal place of business of Partnership shall be located at the offices
of General Partner at the address set forth in Section 13.2, or at such other
place as shall be selected from time to time by General Partner upon not less
than 10 days' prior Notice to the other
-2-
<PAGE> 7
Partners. Partnership may maintain such other offices at such other places as
are reasonably necessary for the purposes of Partnership.
2.6. Ownership of Property. Legal title to all Property shall be
acquired, held and conveyed in the name of Partnership.
SECTION 3. PURPOSE.
3.1. Purpose. The purpose and business of Partnership shall be to
acquire the Units, to enter into and perform the Basic Documents to which
Partnership is or is to become a party, to cause the Units to be used and
maintained as provided in the Basic Documents and to do those things that are
necessary or appropriate to the foregoing. Except as agreed to in an amendment
or supplement to this Partnership Agreement, the Partnership shall not (i)
contract for, create, incur or assume any indebtedness (except for trade
payables and fees and expenses of professionals and agents incurred in the
ordinary course of business) or (ii) enter into any contract, agreement or
instrument or conduct any other business or activity except pursuant to and in
accordance with or as required to effect the purposes and intent of the Basic
Documents.
3.2. Powers. Subject to applicable law and any restrictions set
forth in this Partnership Agreement, Partnership shall be empowered to do any
and all acts and things necessary or appropriate for the furtherance and
accomplishment of the purposes described in Section 3.1 and for the protection
and benefit of Partnership.
-3-
<PAGE> 8
SECTION 4. CAPITAL CONTRIBUTIONS.
4.1. Organizational Contributions. In connection with the
formation of Partnership under the Delaware Act, General Partner made an
initial capital contribution to Partnership in the amount of $10.00, for an
interest in the Partnership and has been admitted as General Partner of the
Partnership, and Organizational Limited Partner made an initial capital
contribution to Partnership in the amount of $990.00 for an interest in
Partnership and has been admitted as Organizational Limited Partner of
Partnership. As of the Commencement Date, the interest of Organizational
Limited Partner shall be redeemed; the initial capital contributions of each
Partner shall thereupon be refunded; and Organizational Limited Partner shall
cease to be a Limited Partner of Partnership. Any interest or other profit
that may have resulted from the investment or other use of such initial capital
contributions shall be allocated and distributed 99% to Organizational Limited
Partner, and the balance thereof shall be allocated and distributed to General
Partner.
4.2. Contribution of Initial Units. Prior to the Commencement
Date, General Partner has contributed the Initial Units, with a value of
approximately US$100,000,000, to Partnership as an additional capital
contribution, in the proportion of 1% with respect to its general partner
interest in the Partnership and 99% in exchange for a limited partner interest
in Partnership, and such limited partner interest will be transferred by
General Partner to Affiliated Partner on the Commencement Date.
4.3. Contribution of Nonaffiliated Partner. On the Commencement
Date, Nonaffiliated Partner will contribute $100,000,000 in cash to
Partnership. In addition, on the Commencement Date, Nonaffiliated Partner will
contribute, in cash, the amount necessary to pay all Transaction Costs
(estimated as of the Commencement Date to be in excess of $749,500).
4.4. Additional Capital Contributions. (a) Except as provided in
Sections 4.1, 4.2, 4.3 and clauses (b) and (c) of this Section 4.4, no Partner
shall be obligated to contribute or advance any cash or other property to
Partnership, and Partnership shall not require additional capital contributions
or advances from any Partner.
(b) Any capital expenditures related to, or improvements,
replacements, substitutions or enhancements of, the Units as required under or
permitted by the provisions of the Indenture or the other Basic Documents, will
be funded by a Capital Contribution (in cash or in kind) by General Partner and
Affiliated Partner in the proportion of 1% and 99%, respectively. In addition,
General Partner and Affiliated Partner will contribute, in the same ratio, cash
necessary to pay any Expenses. "Expenses" means (i) the Initial Operating
Payment and the Operating Payments paid by Partnership pursuant to Section
3.2(a) of the O&M Agreement, (ii) any Reimbursed Expenses paid by Partnership
pursuant to Section 3.2(b) of the O&M Agreement,
-4-
<PAGE> 9
(iii) the expenses of the Trustees payable by Partnership, (iv) the expenses
payable by Partnership pursuant to the Participation Agreement and the
Indenture and (v) in the event that any Priority Distribution, Supplemental
Priority Distribution or Special Distribution is not made on the scheduled
distribution date, an amount intended to provide an equivalent benefit to
Nonaffiliated Partner, which shall be deemed to be the amount of such
undistributed Priority Distribution, Supplemental Priority Distribution or
Special Distribution, as the case may be, multiplied by the Late Rate under the
Indenture from the scheduled distribution date to the date such Priority
Distribution, Supplemental Priority Distribution or Special Distribution is
distributed.
(c) General Partner and Affiliated Partner shall contribute to the
capital of Partnership, in the proportion of 1% and 99%, respectively, cash in
the amounts equal to the Supplemental Contributions, if any, determined as set
forth in this Section 4.4(c). "Supplemental Contribution" means, without
duplication, the following amounts: (i) with respect to any Priority
Distribution specified in Section 6.1(b)(i), to the extent that Available Cash
on any Distribution Date is not then sufficient to make the Priority
Distribution for such Distribution Date, an amount sufficient to permit such
Priority Distribution to be made on such Distribution Date; (ii) with respect
to any Supplemental Priority Distribution specified in Section 6.1(c), to the
extent that Available Cash on the date of such Supplemental Priority
Distribution is not then sufficient to make such Supplemental Priority
Distribution, an amount sufficient to permit such Supplemental Priority
Distribution to be made on the applicable date; and (iii) with respect to any
Special Distribution specified in Section 6.1(d), to the extent that Available
Cash on the date of such Special Distribution is not then sufficient to make
such Special Distribution, an amount sufficient to permit such Special
Distribution to be made on the applicable date. Such Supplemental Contribution
shall be made by General Partner and Affiliated Partner on or prior to the
applicable Distribution Date in the case of clause (i) of this Section 4.4(c),
on or prior to the date of the Supplemental Priority Distribution in the case
of clause (ii) of this Section 4.4(c), and on or prior to the date of the
Special Distribution in the case of clause (iii) of this Section 4.4(c).
(d) If required to effect a substitution or replacement of one or
more Units in accordance with Section 5.11 or 5.12(i) of the Participation
Agreement, respectively, and Section 5.1 of the Indenture, General Partner
shall contribute to the Partnership, either (i) a Replacement Unit or
Replacement Units that meet the requirements set forth in Section 5.11 or
5.12(i), as the case may be, of the Participation Agreement or (ii) cash in an
amount sufficient to permit Operator, on behalf of Partnership, to acquire a
Replacement Unit or Replacement Units that meet the requirements set forth in
Section 5.11 or 5.12(i), as the case may be, of the Participation Agreement, in
each case, as evidenced by a Partnership Agreement Supplement with respect to
such Replacement Unit or Replacement Units.
-5-
<PAGE> 10
4.5. No Withdrawal; No Interest. No Partner shall be entitled to
withdraw any part of its Capital Contributions or its Capital Account or to
receive any distribution from Partnership, except as specifically provided in
this Partnership Agreement. Partnership shall not be obligated to pay interest
to the Partners on their Capital Contributions to Partnership or on balances in
their Capital Accounts.
SECTION 5. CAPITAL ACCOUNTS; ALLOCATIONS.
5.1. Capital Accounts. (a) Partnership shall maintain for each
Partner a separate Capital Account in accordance with the rules of Treasury
Regulation Section 1.704-1(b)(2)(iv). Such Capital Account shall (i) be
increased by (A) the cash amount or Net Agreed Value of all Capital
Contributions made to Partnership by such Partner pursuant to this Partnership
Agreement and (B) all items of Partnership income and gain (including, without
limitation, income and gain exempt from tax) computed in accordance with
Section 5.1(b) and allocated to such Partner pursuant to Section 5.2, (ii) be
decreased by (A) the Net Agreed Value of all distributions of Property made to
such Partner pursuant to this Partnership Agreement and (B) all items of
Partnership deduction and loss computed in accordance with Section 5.1(b) and
allocated to such Partner pursuant to Section 5.2.
(b) For purposes of computing the amount of any item of income,
gain, loss, deduction, realization or basis to be reflected in the Partners'
respective Capital Accounts, the determination, recognition and classification
of each such item shall be the same as its determination, recognition and
classification for federal income tax purposes (including, without limitation,
any method of depreciation, cost recovery or amortization used for that
purpose); provided that:
(i) Except as otherwise provided in Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any election
under Section 754 of the Code which may be made by Partnership and, as
to those items described in Section 705(a)(1)(B) or 705(a)(2)(B) of
the Code, without regard to the fact that such items are not
includable in gross income or are neither currently deductible nor
capitalized for federal income tax purposes.
(ii) Any income, gain or loss attributable to the taxable
disposition of any Property shall be determined as if the adjusted
basis of such Property as of such date of disposition were equal in
amount to Partnership's Carrying Value with respect to such Property
as of such date.
-6-
<PAGE> 11
(iii) In accordance with the requirements of Section 704(b)
of the Code, any deductions for depreciation, cost recovery or
amortization attributable to any Contributed Property shall be
determined as if the adjusted basis of such property on the date it
was acquired by Partnership were equal to the Agreed Value of such
property. Upon an adjustment pursuant to Section 5.1(d) to the
Carrying Value of any Property subject to depreciation, cost recovery
or amortization, any further deductions for such depreciation, cost
recovery or amortization attributable to such Property shall be
determined (A) as if the adjusted basis of such Property were equal to
the Carrying Value of such Property immediately following such
adjustment and (B) using a rate of depreciation, cost recovery or
amortization derived from the same method and useful life (or, if
applicable, remaining useful life) as is applied for federal income
tax purposes; provided, however, that, if such Property has a zero
adjusted basis for federal income tax purposes, depreciation, cost
recovery and amortization deductions shall be determined using any
reasonable method that General Partner may adopt.
(c) A Partner Transferee of a Partnership Interest shall succeed
to a pro rata portion of the Capital Account of the Transferor Partner relating
to the Partnership Interest so transferred; provided, however, that, if the
Transfer causes a termination of Partnership under Section 708(b)(1)(B) of the
Code, the Property shall be deemed to have been contributed to a new
partnership and interests in such new partnership distributed in liquidation of
Partnership to the Partners (including any Partner Transferee of a Partnership
Interest that is a party to the Transfer causing such termination) pursuant to
Sections 11.4 and 11.5. In such event, the Carrying Values of the Property
shall be adjusted immediately prior to such deemed contribution pursuant to
Section 5.1(d) and such Carrying Values shall then constitute the Agreed Values
of such Property upon such deemed contribution to the new partnership. The
Capital Accounts of such new partnership shall be maintained in accordance with
the principles of this Section 5.1.
(d) Immediately prior to any actual or deemed distribution to a
Partner of any Property under Section 11.5, in accordance with Treasury
Regulation Section 1.704-1(b)(2)(iv)(f), the Capital Accounts of each Partner
and the Carrying Value of the distributed Property shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable to such
distributed Property, as if such Unrealized Gain or Unrealized Loss had been
recognized in a sale of such distributed Property immediately prior to such
distribution for an amount equal to its fair market value, and had been
allocated to the Partners, at such time, pursuant to Section 5.2.
(e) In the event that Partnership's items of income, gain, loss,
or deduction are adjusted by any taxing authority by reason of a transaction
between Partnership and a member of a group of organizations under common
ownership or control (of which Partnership is also a member), including, but
not limited to, adjustments pursuant to Section 482 of the Code or any
-7-
<PAGE> 12
similar provisions under state, local or foreign law (any such adjustment
referred to herein as a "Tax Adjustment") and such adjustment results in a
deemed Capital Contribution to Partnership by any Partner or a deemed
distribution by Partnership to any Partner, (i) the Capital Account of any
Partner that is deemed to make such Capital Contribution shall be increased by
the amount of such Capital Contribution, and (ii) the Capital Account of any
Partner that is deemed to receive such a deemed distribution shall be reduced
by the amount of such distribution. In general, the adjustments to Capital
Accounts pursuant to this Section 5.1(e) are intended to cause, after taking
into account the adjustments to Capital Accounts pursuant to this Section
5.1(e), each Partner's balance in its Capital Account, to the extent possible,
to be equal to the balance such Capital Account would have had if no Tax
Adjustment had occurred.
5.2. Allocations for Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights of the Partners
among themselves, items of Partnership income, gain, loss, deduction, amount
realized and basis (computed in accordance with Section 5.1(b)) shall be
allocated among the Partners in each Taxable Period as provided in clauses (a)
through (d) of this Section 5.2.
(a) Net Income. After giving effect to the allocations set forth
in Sections 5.2(c) and 5.2(d), Net Income for each Taxable Period and all items
of Partnership income, gain, loss and deduction taken into account in computing
Net Income for such Taxable Period shall be allocated as follows:
(i) First, 100% to Nonaffiliated Partner until the
aggregate Net Income allocated to Nonaffiliated Partner pursuant to
this Section 5.2(a)(i) for the current Taxable Period and all previous
Taxable Periods is equal to the cumulative amount of cash distributed
to Nonaffiliated Partner pursuant to Section 6.1(b)(i) during the
current and all previous Taxable Periods;
(ii) Second, 1% to General Partner and 99% to Affiliated
Partner until the aggregate Net Income allocated to each of General
Partner and Affiliated Partner pursuant to this Section 5.2(a)(ii) for
the current Taxable Period and all previous Taxable Periods is equal
to the cumulative amount of cash distributed to each of General
Partner and Affiliated Partner pursuant to Section 6.1(b)(ii) during
the current and all previous Taxable Periods; and
(iii) Finally, any remaining amount of Net Income shall be
allocated 1% to General Partner, 1% to Nonaffiliated Partner and 98%
to Affiliated Partner.
(b) Net Losses. After giving effect to the allocations set forth
in Sections 5.2(c) and 5.2(d), Net Losses for each Taxable Period and all items
of Partnership income, gain, loss and
-8-
<PAGE> 13
deduction taken into account in computing Net Losses for such Taxable Period
shall be allocated 1% to General Partner and 99% to Affiliated Partner.
(c) Other Allocations. Notwithstanding any other provision of
this Section 5.2, the following allocations shall be made for such Taxable
Period:
(i) Protective Minimum Gain Chargeback. Partnership does
not intend to incur any nonrecourse liabilities. However, except as
otherwise provided in Section 1.704-2(f) of the Treasury Regulations,
notwithstanding any other provision of this Section 5, if there is a
net decrease in Partnership minimum gain (as defined in Treasury
Regulation Section 1.704-2(b)) during any Taxable Period of
Partnership, each Partner shall be allocated items of income and gain
for such period (and, if necessary, subsequent periods) in an amount
equal to such Partner's share of the net decrease in Partnership
minimum gain, determined in accordance with Treasury Regulation
Section 1.704-2(g). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts allocable to
each Partner pursuant thereto and shall be determined in accordance
with Treasury Regulation Sections 1.704-2(f)(6) and 1.704-2(j)(2).
This Section 5.2(c)(i) is intended to comply with the minimum gain
chargeback requirement of Treasury Regulation 1.704-2(f) and shall be
interpreted so as to be consistent therewith.
(ii) Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions
described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4),
1.704- 1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6), items of
Partnership income or gain shall be specially allocated to such
Partner in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations promulgated under Section 704(b)
of the Code, the deficit balance, if any, in its Adjusted Capital
Account created by such adjustments, allocations or distributions as
quickly as possible unless such deficit balance will otherwise be
eliminated pursuant to Section 5.2(c)(i).
(iii) Gross Income Allocations. In the event any Partner
has a deficit balance in its Capital Account at the end of any Taxable
Period that is in excess of the amount such Partner is deemed to be
obligated to restore pursuant to Treasury Regulation Sections
1.704-2(g) and 1.704-2(i)(5), such Partner shall be specially
allocated items of Partnership income and gain in the amount of such
excess as quickly as possible; provided, that an allocation pursuant
to this Section 5.2(c)(iii) shall be made only if and to the extent
that such Partner would have a deficit Capital Account in excess of
such amount after all other allocations provided for in this Section
5.2(c) have been tentatively made as if this Section 5.2(c)(iii) were
not in this Partnership Agreement.
-9-
<PAGE> 14
(iv) Nonrecourse Liabilities. For purposes of Treasury
Regulation Section 1.752-3(a)(3), the Partners agree that Nonrecourse
Liabilities of Partnership (and all nonrecourse deductions within the
meaning of Treasury Regulation Section 1.704-2(b)(1)) shall be
allocated to Nonaffiliated Partner.
(v) Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Property pursuant to
Section 734(b) or 743(b) of the Code is required, pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of such Property) or loss (if the
adjustment decreases such basis), and such item of gain or loss shall
be specially allocated to the Partners in a manner consistent with the
manner in which their Capital Accounts are required to be adjusted
pursuant to such section of the Treasury Regulations.
(vi) Depreciation, Amortization and Interest.
(A) Nonaffiliated Partner. Notwithstanding
anything to the contrary contained herein, Nonaffiliated
Partner shall be allocated all depreciation or other cost
recovery deductions attributable to the Initial Units, all
interest deductions attributable to the liabilities described
in Section 5.2(c)(iv) and all deductions attributable to the
Transaction Costs (including organizational expenses described
in Section 8.7) funded by the Nonaffiliated Partner with
amounts described in Section 2.2 and 2.3(a) of the
Participation Agreement.
(B) General Partner and Affiliated Partner.
Subject to Section 5.2(c)(vi)(C), all depreciation or other
cost recovery deductions attributable to any Property other
than the Initial Units and all deductions attributable to
Expenses shall be allocated 1% to General Partner and 99% to
Affiliated Partner.
(C) Initial Units. Notwithstanding anything to
the contrary contained herein, if any Initial Unit is
distributed by Partnership, destroyed, disposed of, replaced
with a Replacement Unit or otherwise rendered nondepreciable
(or subject to a deferred depreciation schedule) for any
reason, and at such time Nonaffiliated Partner has not been
allocated cumulative depreciation and/or loss attributable to
such Initial Units equal to the Equipment Value of the Initial
Unit, Nonaffiliated Partner shall be allocated depreciation,
cost recovery or other deductions of Partnership equal in
timing and amount to the timing and amount of the depreciation
or cost recovery deductions Nonaffiliated Partner would have
-10-
<PAGE> 15
been allocated had such Initial Unit not been distributed by
Partnership, destroyed, disposed of, replaced or otherwise
rendered nondepreciable for any reason.
(D) Noncash Income. Except as required by
Section 5.2(c)(i), (ii) or (iii), any noncash income
recognized by the Partnership shall be allocated 1% to General
Partner and 99% to Affiliated Partner.
(E) Other Allocations. Provided that such
allocation in the opinion of Tax Counsel does not constitute
an improper allocation, Nonaffiliated Partner shall be
allocated additional depreciation, cost recovery or other
deductions otherwise allocable to other than Nonaffiliated
Partner to the extent that depreciation or cost recovery
deductions allocated to Nonaffiliated Partner pursuant to
Sections 5.2(c)(vi)(A) and (C) are insufficient to provide for
Original Allocations. For this purpose, Original Allocations
shall mean depreciation or cost recovery deductions allocated
to Nonaffiliated Partner as provided in Section 5.2(c)(vi)(A)
and (C) in timing and amount up to the timing and amount of
such deductions had any distribution under Section 6.1(a)
occurred on June 30, 1997 (as determined by General Partner
and agreed to by Nonaffiliated Partner).
(vii) Casualty or Other Loss. Any casualty or other loss
realized by Partnership attributable to any Initial Unit (or
Replacement Unit, to the extent of the loss that would have been
allocated to Nonaffiliated Partner if the Initial Unit for which such
Replacement Unit had been substituted had remained as depreciable
Property) shall be allocated 100% to Nonaffiliated Partner, but only
to the extent that Nonaffiliated Partner has not received a loss or
deduction allocation pursuant to Section 5.2(c)(vi)(C) with respect
thereto.
(d) Liquidation or Sale. Upon a liquidation of Partnership
pursuant to Section 11 or a sale of an Initial Unit or Replacement Unit, all
items of income, gain, loss or deduction attributable to any Initial Unit or
Replacement Unit recognized or deemed recognized by Partnership therefrom shall
be allocated 100% to Nonaffiliated Partner. All other gain or loss upon
liquidation of the Partnership or sale of Property other than an Initial Unit
or Replacement Unit shall be allocated 1% to General Partner and 99% to
Affiliated Partner.
5.3. Allocations for Tax Purposes (a) Except as otherwise provided
herein, for federal income tax purposes, each item of Partnership income, gain,
loss and deduction shall be allocated among the Partners in the same manner as
its correlative item of Partnership "book" income, gain, loss or deduction is
allocated pursuant to Section 5.2.
-11-
<PAGE> 16
(b) Any gain allocated to the Partners upon the sale or other
taxable disposition of any Property shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 5.3,
be characterized as Recapture Income in the same proportions and to the same
extent as such Partners (or their predecessors in interest) have been allocated
any deductions directly or indirectly giving rise to the treatment of such
gains as Recapture Income.
(c) All items of income, gain, loss, deduction and credit
recognized by Partnership for federal income tax purposes and allocated to the
Partners in accordance with the provisions hereof shall be determined without
regard to any election under Section 754 of the Code which may be made by
Partnership; provided, however, that such allocations, once made, shall be
adjusted as necessary or appropriate to take into account those adjustments
permitted or required by Sections 734 and 743 of the Code.
SECTION 6. DISTRIBUTIONS.
6.1. Distributions of Cash. (a) Initial Cash held by the
Partnership after the Commencement Date may be distributed to General Partner
and Affiliated Partner, if not otherwise required to be paid by Partnership or
distributed in accordance with this Section 6, but not in excess of 99% of the
Capital Account of General Partner and Affiliated Partner, respectively, at the
time of such distribution.
(b) On each Distribution Date occurring during the Transaction
Term prior to the commencement of the dissolution and liquidation of
Partnership, Available Cash shall be distributed as follows:
(i) First, 100% to Nonaffiliated Partner in an amount
equal to the Priority Distribution to be distributed on such
Distribution Date;
(ii) Second, 1% to General Partner and (ii) 99% to
Affiliated Partner until an amount of cash equal to $20,000,000 has
been distributed with respect to each Partnership fiscal year pursuant
to this Section 6.1(b)(ii), beginning June 30, 1997; and
(iii) Thereafter, 1% to Nonaffiliated Partner, 1% to
General Partner, and 98% to Affiliated Partner.
Priority Distributions shall be subject to reduction in the manner provided in
Schedule I.
(c) On the date specified in this Section 6.1(c), Supplemental
Priority Distributions of Available Cash shall be made 100% to Nonaffiliated
Partner in an amount equal to the
-12-
<PAGE> 17
Supplemental Priority Distribution, if any, that is distributable on such date.
"Supplemental Priority Distribution" means, without duplication, the following
amounts: (i) with respect to any Event of Loss as to which General Partner has
made a Nonreplacement Election pursuant to Section 7.2(c), an amount, with
respect to each Unit subject to such Nonreplacement Election, equal to the
Disposition Value thereof determined as of such date and (ii) with respect to
any Reduction Election made by General Partner pursuant to Section 7.2(e), the
sum of (A) an amount, with respect to each Unit subject to such Reduction
Election, equal to the greater of the Disposition Value thereof determined as
of such date or the Fair Market Value thereof, determined as of such date, plus
(B) any Premium due in accordance with the Indenture and (iii) with respect to
any Expenses of the kind described in clause (v) of the definition of Expenses
set forth in Section 4.4(b), the amount of such Expenses. The amount of the
Supplemental Priority Distribution distributable pursuant to Section 6.1(c)(i)
shall be reduced by the amount, if any, of insurance proceeds and other similar
amounts with respect to such Event of Loss received by Indenture Trustee, which
shall be deemed to be distributed to and for the benefit of Nonaffiliated
Partner in connection with such Event of Loss, and the amount of the
Supplemental Priority Distribution distributable pursuant to Section
6.1(c)(ii)(A) shall be reduced by the amount, if any, of sales proceeds and
other similar amounts with respect to such Reduction Election received by
Indenture Trustee, which shall be deemed to be distributed to and for the
benefit of Nonaffiliated Partner in connection with such Reduction Election.
Supplemental Priority Distributions shall be made (x) in the case of an Event
of Loss as to which General Partner has made a Nonreplacement Election pursuant
to Section 7.2(e), on or prior to the date specified for such distribution
pursuant to Section 5.12 of the Participation Agreement, (y) in the case of a
Reduction Election, on or prior to the effective date for such Reduction
Election and (z) in the case of any Expenses distributable pursuant to Section
6.1(c)(iii), the date of the actual distribution relating to or giving rise to
such Expenses.
(d) During the existence of any BJ Event of Default, upon the
election by Nonaffiliated Partner to receive a distribution in the amount
specified in this Section 6.1(d) (a "Special Distribution"), a distribution
shall be made to Nonaffiliated Partner on the date specified in the notice of
election (which date shall be not earlier than 10 days after the date of such
notice (the "Special Distribution Date")), at its election of either (A) an
amount equal to the sum of (1) the Disposition Values of all Units determined
either (x) if such Special Distribution Date is a Distribution Date, as of such
Distribution Date or (y) otherwise, as of the immediately preceding
Distribution Date, plus (2) to the extent not theretofore distributed, Priority
Distributions distributable pursuant to Section 6.1(b)(i) on or before such
Distribution Date, plus (3) applicable Expenses, if any, or (B) a distribution
in kind of all of the Units (excluding any Severable Modifications that are
Optional Modifications).
(e) As used in this Section 6.1, "Available Cash" means all cash
and cash equivalents of the Partnership on hand at the end of such Distribution
Period, less the amount of any cash
-13-
<PAGE> 18
reserves established by General Partner and necessary (i) to provide for the
proper conduct of the business of the Partnership (including reserves for
capital expenditures) subsequent to such Distribution Period, (ii) to comply
with applicable law or the Basic Documents, and (iii) to provide funds for any
Supplemental Priority Distributions and Special Distributions reasonably
expected by General Partner to become distributable prior to the next
succeeding Distribution Date.
(f) Each distribution of cash to Nonaffiliated Partner pursuant to
this Section 6.1 shall be made by Partnership on behalf of Nonaffiliated
Partner directly to Indenture Trustee in accordance with the Indenture (or, if
the Lien of the Indenture has been discharged, directly to Nonaffiliated
Partner Trustee). Each such distribution shall be made no later than 11:00
a.m. New York City time on the applicable date for such distribution by the
transfer of funds consisting of lawful currency of the United States of America
to, so long as the Lien of the Indenture exists, Indenture Trustee at the times
and in the funds of the type specified in this Section 6.1 at the office of
Indenture Trustee at Boston, Massachusetts (ABA No. 011000028, Account No.
99003147, for further credit to BJ Services HT5660), or at such other location
in the United States of America as Indenture Trustee may otherwise direct.
6.2. Distributions in Kind. If Nonaffiliated Partner has elected
pursuant to Section 7.5(e) to receive a distribution in kind of a Unit that is
subject to a Reduction Election, General Partner shall cause any Unit with
respect to which Nonaffiliated Partner has made such election to be distributed
to Nonaffiliated Partner, provided, that (a) all amounts due and owing have
been paid under the Indenture with respect to such Reduction Election, (b) no
Supplemental Priority Distribution shall be distributable pursuant to Section
6.1(c)(ii)(A) with respect to such Reduction Election and (c) any such
distribution in kind is reported on the federal income tax return of the
Partnership in a manner that does not require the disclosures required in
Treasury Regulation Section 1.707-3(c)(2).
SECTION 7. MANAGEMENT AND OPERATION OF BUSINESS.
7.1. Management. Except as otherwise provided in Sections 7.4 and
7.5 or as otherwise limited by this Partnership Agreement, the overall
management and control of the business and affairs of Partnership shall be
exclusively vested in General Partner, and the Limited Partners shall have no
right of control or management power over the business and affairs of
Partnership. General Partner shall in its capacity as the general partner of
Partnership conduct the business and affairs of Partnership, including the
execution, delivery and performance of Partnership contracts. Each decision of
General Partner within the scope of its authority as provided in this Section
Seven shall bind Partnership and each Partner.
-14-
<PAGE> 19
7.2. Operations. (a) Except as otherwise provided in or limited by
this Partnership Agreement, General Partner shall be responsible for day-to-day
operations of Partnership and shall make all decisions and do all things
necessary or appropriate in the conduct thereof without the need for the
consent of the other Partners.
(b) In furtherance of its responsibilities and except as otherwise
provided in or limited by this Partnership Agreement (including Section 7.4),
General Partner shall have full power and authority to exercise solely for the
benefit and on behalf of Partnership the following powers:
(i) holding Property and acting for Partnership in
respect of such Property with all Government Authorities and other
third parties;
(ii) disposing of any part of the Property, any interest
therein, or any interest payable therefrom for such consideration and
on such terms as General Partner determines to be in the best
interests of Partnership, in each case, in accordance with the terms
of the Basic Documents to which Partnership is a party;
(iii) bringing, defending, paying, collecting, settling, or
arbitrating lawsuits by or against Partnership, any Property, or a
Partner in the name of and on behalf of Partnership;
(iv) executing, delivering and performing its obligations
as General Partner and on behalf of the Partnership under the Basic
Documents to which Partnership is a party;
(v) surrendering or abandoning any Property, with or
without consideration therefor, in each case, in accordance with the
terms of the Basic Documents to which Partnership is a party; and
(vi) taking any other action that is necessary or
appropriate for the fulfillment of its responsibilities as General
Partner and not inconsistent with the terms of the Basic Documents.
(c) Following an Event of Loss with respect to a Unit or Units,
subject to the provisions of this Section 7.2(c) and so long as no BJ Default
or BJ Event of Default exists, General Partner shall have full power and
authority, on behalf of Partnership, to elect (i) to replace or cause the
replacement of such Unit or Units or (ii) to make a Supplemental Priority
Distribution with respect to such Unit or Units in the amount provided in
Section 6.1(c)(i) and (iii) (a "Nonreplacement Election"), in each case, in
accordance with Section 5.12 of the Participation Agreement. If a BJ Default
or BJ Event of Default exists or if General Partner fails,
-15-
<PAGE> 20
within 30 days following such Event of Loss, to comply in full with the
provisions of Sections 5.12(i) of the Participation Agreement, then General
Partner shall be deemed to have made a Nonreplacement Election.
(d) Subject to the provisions of this Section 7.2(d) and so long
as no BJ Default or BJ Event of Default exists, General Partner shall have full
power and authority, on behalf of Partnership, to elect to substitute or cause
the substitution of a Unit or Units for Replacement Units (a "Substitution
Election"), provided that any such Substitution Election shall not be effective
with respect to any such Unit or Units unless and until General Partner
complies in full with the provisions of Section 5.11 of the Participation
Agreement.
(e) Subject to the provisions of this Section 7.2(e) and the last
sentence of Section 8.4 and so long as no BJ Default or BJ Event of Default
exists, General Partner shall have full power and authority, on behalf of
Partnership, to elect to distribute or otherwise dispose of a Unit or Units
constituting 10% or more of Equipment Value (as of the Commencement Date) (a
"Reduction Election"), provided that (i) Partnership makes a Supplemental
Priority Distribution with respect to such Unit or Units in the amount provided
in Section 6.1(c)(ii) and (iii) and (ii) any such Reduction Election shall not
be effective with respect to any such Unit or Units unless and until General
Partner complies in full with the provisions of Sections 5.16, 5.17 and 5.18 of
the Participation Agreement.
7.3. Finance. Except as otherwise provided in or limited by this
Partnership Agreement, General Partner shall have all powers and authority
necessary to administer and manage the finances of Partnership (other than
those functions specifically delegated to the Tax Matters Partner, if different
than General Partner), including, without limitation, the authority to
establish, maintain and close Partnership bank accounts and to manage the cash
of Partnership in accordance with the cash management practices used by General
Partner and its Affiliates in the ordinary course of their other businesses,
including, without limitation, providing loans and advances to General Partner
in amounts not then required by Partnership to make Priority Distributions,
Supplemental Priority Distributions or Special Distributions.
7.4. Unanimous Consent of Partners. Notwithstanding any other
provision of this Partnership Agreement, other than the provisions of Section
7.5(d), which shall govern after the occurrence and during the continuance of a
BJ Default or BJ Event of Default, and other than Section 7.5(c), a matter
within the scope of the following actions shall require the unanimous consent
of all Partners (a "Unanimous Consent"). Except in compliance with the previous
sentence, neither General Partner nor any other Partner shall take any act,
expend any sum, make any decision or incur any obligation on Partnership's
behalf with respect to any of the matters set forth in this Section 7.4:
-16-
<PAGE> 21
(a) any amendment, waiver or modification of or consent under the
Services Agreement (with respect to the provisions listed in Section 11.2
thereof), the O&M Agreement or any of the other Basic Documents to which
Partnership is a party;
(b) subject to Section 7.5(c), the exercise of any right or
remedy, the performance of any act or provision of any notice under the
Services Agreement, the O&M Agreement or any other Basic Document to which the
Partnership is a party;
(c) any sale or other disposition of all or substantially all of
the Units or Property;
(d) any incurrence of any debt of Partnership for borrowed money;
(e) any grant of any lien on the Units or any other Property,
other than Permitted Liens; or
(f) any consent to assignment of the Services Agreement by Service
Taker or Partnership, or consent to assignment of the O&M Agreement by Operator
or Partnership, except that if no BJ Default or BJ Event of Default exists,
Service Taker or Operator, as the case may be, may assign its rights under the
Services Agreement and the O&M Agreement, respectively, to any U.S. subsidiary
of Guarantor, so long as (i) Service Taker or Operator, as the case may be,
remains primarily liable under the Services Agreement or the O&M Agreement, as
the case may be, (ii) the Guaranty remains in full force and effect and (iii)
such assignment otherwise complies with the provisions of Sections 9.1 and 9.2
of the Services Agreement or Sections 19.2 and 19.3 of the O&M Agreement, as
the case may be.
7.5. Rights of Nonaffiliated Partner. (a) Nonaffiliated Partner
shall have access to the Units at all reasonable times at its sole risk, to
inspect or observe operations, and shall have access at reasonable times to
information pertaining to the development or operation thereof, including the
Books and Records relating thereto.
(b) If none of the ET Right, the FT Right or the RT Right is
exercised, Nonaffiliated Partner, to the exclusion of all other Partners, will
have the right, but not the obligation, within 30 days after the termination of
the Transaction Term, to cause the dissolution of Partnership.
(c) At all times, Nonaffiliated Partner shall have the right, to
the exclusion of the other Partners, to declare and/or provide notice of a
default or an event of default under the O&M Agreement, the Services Agreement
and/or any other Basic Document to which Partnership is a party.
-17-
<PAGE> 22
(d) Notwithstanding any other provision of this Partnership
Agreement, upon the occurrence and during the continuance of a BJ Default or BJ
Event of Default (which, for the purposes of this Section 7.5(c), shall be
deemed to create an actual or potential conflict of interest as to General
Partner and Affiliated Partner), Nonaffiliated Partner shall have the sole vote
and right, to the exclusion of all other Partners, pursuant to Section
17-303(b) of the Delaware Act, to take or to cause to be taken, on behalf of
Partnership, any and all of the acts and to make any and all of the
determinations stated in this Section 7.5(c):
(i) the exercise of any option or right stated in, or the
approval, execution and delivery of any renewal, extension, amendment,
waiver or modification of or consent under, the Services Agreement,
the O&M Agreement and/or any of the other Basic Documents to which the
Partnership is a party;
(ii) any consent to assignment of the Services Agreement by Service
Taker or Partnership, or consent to assignment of the O&M Agreement by
Operator or Partnership;
(iii) any exercise of the right of Partnership to require the
surrender of the Units under the O&M Agreement;
(iv) any assertion of Partnership's rights against manufacturers or
sellers of the Units and the prosecution thereof for the benefit of
the Partnership;
(v) any exercise of the right of Partnership to enforce, declare a
default under, terminate or exercise the remedies stated in or
available under the Services Agreement, the O&M Agreement and/or any
of the other Basic Documents to which Partnership is a party;
(vi) any sale, exchange, lease, mortgage, assignment, pledge or
other transfer of, or the grant of a security interest in, one or more
Units or the Property; and
(vii) any incurrence, renewal, refinancing or payment or other
discharge of indebtedness by Partnership.
(e) In the event that General Partner makes a Reduction Election
pursuant to Section 7.2(e), Nonaffiliated Partner shall have the right, but not
the obligation, to elect pursuant to Section 5.17(b) of the Participation
Agreement, to receive a distribution in kind of each Unit subject to such
Reduction Election.
-18-
<PAGE> 23
(f) In no event shall Nonaffiliated Partner be deemed a general
partner or become liable for any liabilities of the Partnership by reason of
having or having exercised the rights stated in Section 7.4 and this Section
7.5.
7.6. Delegation of Authority. Each Partner shall have the right to
delegate or assign any of its powers or obligations hereunder to any of its
duly authorized officers and employees and any duly appointed agents (which may
include any other Partner). Each such officer, employee and agent shall, to
the extent provided by the appointing Partner, have the full power and
authority to perform every act which is permitted or required to be taken by
the appointing Partner under this Partnership Agreement. General Partner may
exercise its powers under this Partnership Agreement on behalf of Partnership
either in the name of Partnership or in its own name, as determined by General
Partner in its sole discretion. General Partner reserves the right to act on
behalf of Partnership without disclosing its capacity as General Partner of
Partnership.
7.7. Dealings with Partners and Affiliates. Except as otherwise
provided in this Partnership Agreement, the fact that any Person (a) engaged by
Partnership to render or perform a service for Partnership, (b) from which
Partnership may buy merchandise or property of any kind or character or (c)
with which Partnership may otherwise deal is a Partner or an Affiliate of a
Partner shall not prohibit Partnership from dealing with the same; provided,
however, that the price and terms for such service, merchandise or other
property shall be commercially reasonable and substantially the same as those
to which unaffiliated Persons would agree.
7.8. Liability of Limited Partner. No Limited Partner shall be
liable for the debts, liabilities, contracts or any other obligations of
Partnership (except to the extent of such Limited Partner's Capital
Contributions made or required under Section 4), or for the debts or
liabilities of any other Partner. No Limited Partner shall be required to
provide any loans to Partnership.
SECTION 8. ACCOUNTING AND TAX MATTERS.
8.1. Accrual Basis. General Partner shall maintain the books and
records of Partnership, which shall be maintained for federal income tax
purposes in accordance with the accrual method of accounting and for financial
reporting purposes on the accrual basis in accordance with GAAP. Any Partner
may request an inspection of the facilities and records of Partnership,
provided that any such inspections shall occur during normal business hours and
that costs of any such inspections shall be paid by the inspecting Partner.
8.2. Fiscal Year. The fiscal year of Partnership shall be the
calendar year.
-19-
<PAGE> 24
8.3. Reports and Certificates. (a) As soon as practicable, but in
no event later than 120 days after the close of each fiscal year of
Partnership, General Partner shall cause to be mailed to each Partner an annual
report containing financial statements of Partnership for such fiscal year of
Partnership, presented in accordance with GAAP, including a balance sheet and
statements of operations, Partners' equity and Partners' Capital Accounts.
(b) As soon as practicable, but in no event later than 45 days
after the end of each quarter, General Partner shall cause to be mailed to each
Partner a report containing unaudited statements of operations and a balance
sheet of Partnership, and such other information as may be required by
applicable law, regulation or rule.
(c) General Partner shall cause to be mailed to Nonaffiliated
Partner the Officer's Certificates and opinions of counsel required pursuant to
the Participation Agreement.
8.4. Preparation of Tax Returns. General Partner shall arrange for
and hereby initially delegates to the Tax Matters Partner the responsibility to
arrange for the preparation and timely filing of all returns of Partnership
income, gains, losses, deductions and other items required of Partnership for
federal, state and local income tax purposes. The General Partner shall also
use all reasonable efforts to furnish, on or before the June 1 following the
close of each taxable year of Partnership, the tax information reasonably
required by each Partner for federal, state and local income tax reporting
purposes and to cooperate with each Partner to reconcile any inconsistencies.
The classification, realization and recognition of Partnership income, gains,
losses and deductions and other items shall be on the accrual method of
accounting for federal income tax purposes. The taxable year of Partnership
shall be the calendar year. General Partner shall treat the distributions
described in Section 6.1(a) and 6.2, if any, on its federal income tax returns
in a manner that does not require the disclosure required in Treasury
Regulation Sections 1.707-3(c)(2).
8.5. Tax Elections. Except as otherwise provided herein, the Tax
Matters Partner, upon Notice to and consent by the other Partners, shall make
any available election pursuant to the Code; provided, however, that the Tax
Matters Partner shall make the election on behalf of Partnership under Section
754 of the Code in accordance with applicable regulations thereunder. The Tax
Matters Partner, upon Notice to and consent by the other Partners, shall seek
to revoke any such election (including, without limitation, the election under
Section 754 of the Code) upon the Tax Matters Partner's determination that such
revocation is in the best interests of the Partners.
8.6. Tax Controversies. (a) General Partner shall have the
authority to designate the Tax Matters Partner (as defined in Section 6231 of
the Code). General Partner is initially designated the Tax Matters Partner.
The Tax Matters Partner shall have the authority to extend
-20-
<PAGE> 25
the statute of limitations for assessment of tax deficiencies against the
Partners with respect to adjustments to Partnership's federal, state, local or
foreign tax returns, and to the extent provided in Sections 6221 through 6231
of the Code, to represent Partnership and the Partners before taxing
authorities or courts of competent jurisdiction in tax matters affecting
Partnership and the Partners in their capacities as partners of Partnership,
and to file any tax returns and execute any agreements or other documents
relating to or affecting such tax matters, including agreements or other
documents that bind the Partners with respect to such tax matters or otherwise
affect the rights of Partnership and the Partners; provided that, to the extent
any such extension, agreement, election or document might have a material
effect on any Partner, such Partner must consent in writing to such extension,
agreement, election or document and the Tax Matters Partner must reasonably
consult with such Partner in any discussions or negotiations with the relevant
taxing authority associated with such agreement or document. Each Partner
agrees to cooperate with General Partner and the Tax Matters Partner and to do
or refrain from doing any or all things reasonably required by General Partner
and the Tax Matters Partner and to conduct such proceedings. Notwithstanding
the foregoing, the Tax Matters Partner shall not be permitted to control any
contest (including at the audit level) relating to any item which could result
in a payment under the Tax Indemnity Agreement unless such Tax Matters Partner
has provided to each Beneficiary a written statement acknowledging that none of
the events described in Section 6 of the Tax Indemnity Agreement is relevant to
such contest.
(b) The Tax Matters Partner shall keep each Partner informed of
all administrative and judicial proceedings, as required by Section 6223(g) of
the Code, and shall furnish each Partner who so requests in writing a copy of
each notice or other communication related to Partnership's taxes received by
the Tax Matters Partner in its capacity as Tax Matters Partner. If any Partner
intends to file a notice of inconsistent treatment under Section 6222(b) of the
Code, such Partner shall, prior to the filing of such notice, provide Notice to
the Tax Matters Partner of such intent and the manner in which the Partner's
intended treatment of Partnership item is (or may be) inconsistent with the
treatment of that item by Partnership.
8.7. Organizational Expenses. Partnership shall elect to deduct
expenses, if any, incurred by it in organizing Partnership ratably over a
60-month period as provided in Section 709 of the Code.
8.8. Requests for Administrative Adjustment. No Partner shall file
a request pursuant to Section 6227 of the Code for an administrative adjustment
of Partnership items for any Partnership Taxable Period without first notifying
all other Partners. If all other Partners agree with the requested adjustment,
the Tax Matters Partner shall file the request for the administrative
adjustment on behalf of Partnership. If unanimous consent is not obtained from
all Partners within 30 days from such Notice, or within the period required to
timely file the
-21-
<PAGE> 26
request for administrative adjustment, if shorter, any Partner, including the
Tax Matters Partner, may file a request for administrative adjustment on its
own behalf.
SECTION 9. RIGHTS TO PURCHASE THE PARTNERSHIP INTEREST OF
NONAFFILIATED PARTNER.
9.1. ET Right. On the ET Date, so long as no BJ Default or BJ
Event of Default exists, upon irrevocable written notice given not less than
120 days before the ET Date, General Partner or its designee will have the
exclusive right to purchase all, but not less than all, of the Partnership
Interest of Nonaffiliated Partner (the "ET Right") by paying the ET Price, so
long as the Lien of the Indenture exists, directly to Indenture Trustee on
behalf of Nonaffiliated Partner in the manner set forth in Section 6.1(f) and
thereafter to Nonaffiliated Partner.
9.2. FT Right. If the ET Right is not exercised, so long as no BJ
Default or BJ Event of Default exists, upon irrevocable written notice given
not less than 120 days before the end of the Base Term, General Partner or its
designee will have the exclusive right (the "FT Right") at the end of the Base
Term to purchase all, but not less than all, of the Partnership Interest of
Nonaffiliated Partner by paying the FT Price.
9.3. RT Right. If neither the ET Right nor the FT Right is
exercised and no BJ Default or BJ Event of Default exists, and if the Renewal
Term is in effect as specified in Section 12.3 of the Services Agreement,
General Partner or its designee will have the exclusive right (the "RT Right")
at the end of the Renewal Term, upon irrevocable written notice given not less
than 120 days before the end of the Renewal Term, to purchase all, but not less
than all, of the Partnership Interest of Nonaffiliated Partner by paying the RT
Price.
9.4. Purchase and Closing Procedures. The closing of any purchase
of the Partnership Interest of Nonaffiliated Partner in accordance with this
Section 9 shall take place on the ET Date in the case of the ET Right, on the
FT Date in the case of the FT Right and on the RT Date in the case of the RT
Right. General Partner agrees that, without limiting Section 2.6(b) of the
Participation Agreement, it will reimburse Nonaffiliated Partner, Nonaffiliated
Partner Trustee, Indenture Trustee and each Participant for all out-of-pocket
costs and expenses (including, without limitation, reasonable legal fees
(including internal counsel fees) and expenses) incurred by any such Person in
connection with any such exercise and purchase. On the ET Date, the FT Date or
the RT Date, as the case may be, subject to receipt by Indenture Trustee (or,
if the Lien of the Indenture has been discharged, Nonaffiliated Partner
Trustee) of all amounts owing to Indenture Trustee or distributable to
Nonaffiliated Partner pursuant to Sections 9.1, 9.2 and 9.3 and to the
following sentence (except any such amounts representing future distributions
and obligations), Nonaffiliated Partner shall, without recourse or warranty
(except as to the absence
-22-
<PAGE> 27
of any Liens attributable to Nonaffiliated Partner), sell and transfer all of
its Partnership Interest to General Partner or its designee, and no Priority
Distributions shall be distributable in relation to such Partnership Interest
with respect to time periods occurring after the ET Date, the FT Date or the RT
Date, as the case may be. Simultaneously with the payment of the ET Price, the
FT Price or the RT Price, as the case may be, distributions shall be made by
Partnership on behalf of Nonaffiliated Partner directly to Indenture Trustee in
the manner set forth in Section 6.1(f) (or if the Lien of the Indenture has
been discharged, Nonaffiliated Partner Trustee) in an amount equal to (i) all
Priority Distributions attributable to time periods occurring prior to and
including the ET Date, the FT Date or the RT Date, as the case may be, plus
(ii) with respect to any exercise of the ET Right, Supplemental Priority
Distributions equal to any applicable Expenses.
SECTION 10. TRANSFER OF THE PARTNERSHIP INTEREST; CERTIFICATES.
10.1 Permitted Transfers. (a) Except as expressly permitted in
Section 10.1(b) with respect to certain Transfers by a Partner, no Partner
shall Transfer all or any part of its Partnership Interest without the
unanimous written consent of the other Partners, and any attempt to do so shall
be void. The giving of such consent in any one or more instances shall not
limit or waive the need for such consent in any other or subsequent instances.
Each of the Partners hereby agrees that, without the unanimous written consent
of all of the Partners, it shall not otherwise assign or convey its rights
under the Partnership Agreement except as expressly permitted by and subject to
the provisions of the Basic Documents.
(b) Notwithstanding the provisions of Section 10.1(a), but subject
to the provisions of Sections 10.4 and 10.5, General Partner or Affiliated
Partner from time to time may, without the consent of the other Partners,
transfer all but not less than all of its Partnership Interest to any U.S.
subsidiary of Guarantor, provided that no BJ Default or BJ Event of Default
exists and the Guaranty remains in full force and effect.
(c) Notwithstanding the provisions of Section 10.1(a), but subject
to the provisions of Sections 10.4 and 10.5, Nonaffiliated Partner from time to
time may, without the consent of the other Partners, (i) transfer all but not
less than all of its Partnership Interest to any successor trustee under the
Basic Documents and (ii) make an assignment to Indenture Trustee in accordance
with the Indenture.
10.2. Rights Transferred. Any Transfer shall entitle the Partner
Transferee to receive, to the extent assigned, allocations of income or loss
and distributions of Property that would otherwise have been allocated or
distributed to the Transferor Partner, but shall not entitle the Partner
Transferee to become a substituted general partner or limited partner of
Partnership, as the case may be, or further to assign its Partnership Interest
(other than back to the Transferor
-23-
<PAGE> 28
Partner or to another Partner Transferee in accordance with and subject to the
provisions of this Partnership Agreement) without the unanimous written consent
of the Partners. Absent such consent of the Partners, the Transferor Partner
will be allowed to act at the direction of the Partner Transferee in exercising
all residual rights and powers attendant to the ownership of the transferred
the Partnership Interest, to the extent that any such arrangement is agreed to
by such Transferor Partner.
10.3. No Release from Obligations. Unless otherwise agreed to by
the unanimous written consent of the Partners, no transfer of a Partner's
Partnership Interest or any portion thereof shall release such Partner from
liability for its obligations under this Partnership Agreement.
10.4. Agreements with Partner Transferees. Notwithstanding any
provision to the contrary, no transfer of a Partnership Interest shall be made
or entitle such Partner Transferee to any benefits or rights hereunder until
the following conditions are satisfied:
(a) The proposed Partner Transferee delivers to the other Partners
an agreement in writing to assume and be bound by all the obligations of the
Transferor Partner and to be subject to all the restrictions to which the
Transferor Partner is subject under the terms of this Partnership Agreement or
under any further agreement with respect to Partnership or which then requires
that the Transferor Partner be or become a party; and
(b) The Partner Transferee delivers to the other Partners a legal
opinion rendered by legal counsel, acceptable to the other Partners, that such
Transfer will not jeopardize the status of Partnership as a partnership for
federal income tax purposes, violate, or cause Partnership to violate, any
applicable law or governmental rule or regulation, including any applicable
federal or state securities law, or cause Partnership to be subject to any
reporting requirements of any applicable federal or state securities laws. In
the event that a Partner's Partnership Interest is transferred by operation of
law, and the Partner Transferee fails to comply with the provisions of this
Section 10.4 within 30 days of the date such transfer is consummated, such
failure shall entitle the other Partners to treat such failure as an Event of
Dissolution under this Partnership Agreement.
10.5. Allocations Between Transferor Partner and Partner Transferee.
All items of Partnership income, gain, loss and deduction attributable to any
Partnership Interest subject to a Transfer, and any distributions made with
respect thereto, shall be allocated between the Transferor Partner and the
Partner Transferee in proportion to the number of days in the Taxable Period
before and after the transfer unless such a method is not authorized under the
Code in which case the allocation shall be in accordance with any reasonable
method applied by General Partner which complies with Section 706 of the Code.
-24-
<PAGE> 29
10.6. Certificates. Upon Partnership's issuance of a Partnership
Interest to any Partner, at the request of any such Partner, Partnership shall
issue one or more Certificates in the name of such Partner evidencing the
Partnership Interest being so issued. Certificates shall be executed on behalf
of Partnership by an officer of the General Partner on behalf of the
Partnership.
10.7. Consent to Lien of the Indenture; Exercise of Remedies. (a)
Each of the Partners hereby confirms that concurrently with the execution and
delivery of this Partnership Agreement, Partnership, Nonaffiliated Partner and
Indenture Trustee have executed and delivered the Indenture. Pursuant to the
Indenture, Partnership assigns to Indenture Trustee, as collateral security,
and grants to Indenture Trustee a security interest in and to, the Units (among
other things), and Nonaffiliated Partner assigns to Indenture Trustee, as
collateral security, and grants to Indenture Trustee a security interest in and
to Nonaffiliated Partner's Partnership Interest and its right, title and
interest under this Partnership Agreement, including, without limitation,
certain rights Nonaffiliated Partner may exercise or cause to be exercised in
accordance with this Partnership Agreement and the right to receive Priority
Distributions, Supplemental Priority Distributions and Special Distributions
(among other things), to which assignment pursuant to the Indenture each of the
Partners hereby consents. In the event that Indenture Trustee or its designee
acquires the Partnership Interest of Nonaffiliated Partner or Indenture Trustee
forecloses on and sells or otherwise disposes of the Partnership Interest of
Nonaffiliated Partner, the Partners hereby agree that (i) none of the
restrictions on transfer of a Partnership Interest set forth in this Section 10
shall apply to such subsequent holder of the Partnership Interest of
Nonaffiliated Partner and (ii) such subsequent holder of Nonaffiliated
Partner's Partnership Interest, upon the request of such holder, shall be,
without any further consent or approval by any Partner, admitted to the
Partnership as a limited partner and shall be entitled to exercise all the
rights of a limited partner under this Partnership Agreement.
(b) Until General Partner receives written Notice from Indenture
Trustee that the Lien of the Indenture is discharged in accordance with the
terms thereof (i) no amendment or modification of, or waiver by or consent of
Nonaffiliated Partner in respect of, any of the provisions of this Partnership
Agreement, the O&M Agreement, the Services Agreement or any of the other Basic
Documents to which Partnership is a party shall be effective unless Indenture
Trustee joins in such amendment, modification, waiver or consent or gives its
prior written consent thereto, (ii) except as otherwise expressly provided in
the Indenture, Indenture Trustee shall have the right to exercise all rights,
privileges and remedies (either in its own name or in the name of Partnership
or Nonaffiliated Partner for the use of and benefit of Indenture Trustee) which
by the terms of this Partnership Agreement or by applicable law are permitted
or provided to be exercised by the Partnership or Nonaffiliated Partner and
(iii) Indenture Trustee shall be provided with all notices, reports and
documents required to be provided to Nonaffiliated Partner hereunder (except
for the tax return of Nonaffiliated Partner).
-25-
<PAGE> 30
SECTION 11. DISSOLUTION.
11.1. Events of Dissolution. Partnership shall not be dissolved by
the admission of a Person to Partnership as a Partner or by the withdrawal of a
Partner. Except as expressly provided in Section 7.5(b) and in this Section
11.1, no Partner shall have the right to dissolve Partnership by its express
will. Partnership shall be dissolved upon the first to occur of any of the
following events:
(a) a BJ Event of Default occurs and is continuing and
Nonaffiliated Partner elects to dissolve Partnership;
(b) Nonaffiliated Partner elects to dissolve Partnership
in accordance with Section 7.5(b);
(c) the Partners unanimously agree to dissolve
Partnership;
(d) any event occurs and is continuing that makes it
unlawful for Partnership's business to be continued and Nonaffiliated
Partner elects to dissolve Partnership; or
(e) Partnership's term expires on the date provided in
Section 2.4.
To the extent permitted under the Delaware Act, the business of Partnership may
be continued by the written consent of all the Partners within 90 days
following the occurrence of any event set forth in this Section 11.1.
11.2. Covenant Not to Cause Dissolution of Partnership. Each
Partner covenants and agrees that it will not cause a dissolution of the
Partnership, directly, or indirectly, by (i) taking, or failing to take, any
action that would result in the dissolution or Bankruptcy of such Partner or
which would permit a trustee or receiver to acquire control of a Partner's
affairs or (ii) breaching any provision of this Partnership Agreement.
11.3. Winding-Up; Liquidator. (a) Upon dissolution of Partnership,
Partnership shall immediately commence to wind up its affairs and a Liquidator
approved by Nonaffiliated Partner shall promptly proceed to liquidate the
business of Partnership.
(b) The Liquidator shall have and may exercise, without further
authorization or consent of any of the Partners, all of the powers conferred
upon the Partners (including, without limitation, General Partner) under the
terms of this Partnership Agreement to the extent
-26-
<PAGE> 31
necessary or desirable in the good faith judgment of the Liquidator to carry
out the duties and functions of the Liquidator hereunder for and during such
period of time as shall be reasonably required in the good faith judgment of
the Liquidator to complete the winding-up and liquidation of Partnership as
provided for herein. The Liquidator, if other than General Partner, shall be
entitled to receive such compensation for its services as may be approved by
Nonaffiliated Partner. Each Partner hereby waives any claim it may acquire
against the Liquidator which may arise out of the management by the Liquidator
of Partnership in such circumstances, so long as such Liquidator acts in good
faith.
11.4. Liquidation. The Liquidator shall liquidate the Property and
apply and distribute the proceeds from such liquidation in the following order
of priority:
(a) first, in payment of debts and obligations of
Partnership owed to its creditors (including debts and obligations of
Partnership owed to Partners and their Affiliates), in the order of
priority provided by law;
(b) second, to the creation of a reserve of cash or other
Property for contingent liabilities in amount, if any, determined by
the Liquidator to be appropriate for such purposes; and
(c) third, to the Partners in proportion to and to the
extent of the positive balances in their respective Capital Accounts,
after taking into account all Capital Account adjustments provided for
in this Partnership Agreement.
11.5. Distributions in Kind. Notwithstanding the provisions of
Section 11.4 which require the Liquidator to liquidate the Property, the
Liquidator will, at the request of the Nonaffiliated Partner, distribute to the
Partners, in lieu of cash, non-cash Property. Any such distributions in kind
shall be subject to any debts or obligations which are secured by such Property
and any agreements governing the operation of such Property at such time. The
Liquidator shall determine the fair market value of any Property distributed in
kind using such reasonable method of valuation as it may adopt.
11.6. Borrowings. If Partnership has insufficient cash to make the
payments and distributions required by Sections 11.4, the Liquidator may, at
the request of Nonaffiliated Partner, in lieu of liquidating certain of the
non-cash Property, cause Partnership to borrow money with recourse solely to
the non-cash Property to be distributed in kind pursuant to Section 11.5.
11.7. Reasonable Time for Winding-Up. A reasonable time shall be
allowed the Liquidator for the orderly winding-up of the business and affairs
of Partnership and the
-27-
<PAGE> 32
liquidation of the Property pursuant to Section 11.4 to the extent necessary to
minimize any losses otherwise attendant upon such winding-up.
SECTION 12. ACTIVITIES OF PARTNERS.
12.1. Right to Engage in Independent Conduct. Each of the Partners
and each of their Affiliates reserves and retains the right to engage, directly
or indirectly, in all businesses and activities of any kind whatsoever
(irrespective of whether the same may be in competition with the business
activities of Partnership) and to acquire and own all assets, however acquired
and wherever situated, and to receive compensation or profit therefrom, for
their own respective accounts and without in any manner being obligated to
disclose such businesses, activities, assets, compensation or profit to the
other Partners or to Partnership. Neither Partnership nor any Partner shall
have any rights in or to any businesses, opportunities, activities, assets,
compensation or profits of any other Partner or any Affiliate thereof, and as a
material part of the consideration for the execution of this Partnership
Agreement, each Partner hereby waives, relinquishes and renounces any such
rights or claims of participation. No Partner shall be required to submit any
investment or business opportunities to Partnership for purposes of possible
acquisition by Partnership or otherwise. General Partner shall be required to
devote only such time to the affairs of Partnership as may be necessary or
appropriate to manage and operate Partnership.
12.2. Matters Concerning General Partner. (a) General Partner
hereby covenants and agrees to take all necessary or appropriate actions to
cause the distributions to Nonaffiliated Partner to be made in accordance with
and pursuant to the provisions of Section 6.
(b) General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties, including, without limitation,
Nonaffiliated Partner Trustee and the Indenture Trustee.
(c) Any standard of care and duty imposed by the Delaware Act or
any applicable law, rule or regulation shall be modified, waived or limited as
required to permit General Partner to act under this Partnership Agreement or
any other agreement contemplated by this Partnership Agreement and to make any
decision pursuant to the authority prescribed in this Partnership Agreement, so
long as such action is reasonably believed by General Partner to be in, or not
inconsistent with, the best interests of Partnership.
-28-
<PAGE> 33
SECTION 13. GENERAL PROVISIONS.
13.1. Complete Agreement; Amendment. This Partnership Agreement,
together with the Exhibits, Schedules and Appendices hereto, constitutes the
entire agreement between the parties with respect to the subject matter thereof
and supersedes all prior agreements, representations, warranties, statements,
promises and understandings, whether oral or written, with respect to the
subject matter hereof. Each Limited Partner hereby agrees that the General
Partner, with notice to but without approval of any Limited Partner, may
execute, deliver, file and record any documents that may be required in
connection with this Partnership Agreement: (i) if necessary or advisable to
qualify or continue the qualification of the Partnership as a limited
partnership or a partnership in which the Limited Partners have limited
liability under the laws of any state or to ensure that the Partnership will
not be treated as an association taxable as a corporation or otherwise taxed as
an entity for federal income tax purposes; or (ii) if necessary or advisable to
satisfy any requirements, conditions or guidelines contained in any opinion,
directive, order, ruling or regulation of any federal or state agency, judicial
authority or other Government Authority or contained in any federal or state
statute (including the Delaware Act). Notwithstanding the foregoing, this
Partnership Agreement may not be amended, altered or modified except by a
writing signed by all of the Partners.
13.2. Notices. Unless otherwise expressly specified or permitted by
the terms hereof, all communications and notices provided for herein shall be
in writing, and any such notice shall become effective when received (and
notices given pursuant to clause (b) of the immediately following sentence
shall be deemed received three days after being deposited in the mail). Any
written notice shall be by (a) personal delivery thereof, including, without
limitation, by overnight mail and courier service, (b) United States mail,
certified, postage prepaid, return receipt requested or (c) facsimile
transmission, in each case, effective upon receipt (or, in the case of clause
(c), as evidenced by the receipt of electronic confirmation of the addressee's
receipt) and in each case addressed to the following Person at its respective
address set forth below or at such other address as such Person may from time
to time designate by written notice to the other Persons listed below,
forwarded in the manner set forth in this Section 13.2:
If to General Partner:
BJ Services Company, U.S.A.
5500 Northwest Central Drive
Houston, Texas 77092
Attention: Mr. T. M. Whichard
Facsimile: (713) 895-5420
Telephone: (713) 895-5847
-29-
<PAGE> 34
If to Affiliated Partner:
BJ Services, L.L.C.
1431 South Union Avenue
Bakersfield, California 93307
Facsimile: (805) 834-4575
Telephone: (800) 234-6487
If to Nonaffiliated Partner:
First Security Bank, National Association,
as Nonaffiliated Partner Trustee
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Facsimile: (801) 246-5053
Telephone: (801) 246-5630
With copy to Indenture Trustee:
State Street Bank and Trust Company
Corporate Trust Division
Two International Place, 4th Floor
Boston, Massachusetts 02110
Facsimile: (617) 664-5297
Telephone: (617) 664-5666
Promptly after Partnership or General Partner receives any notice from Operator
or Service Taker, General Partner will cause any such notice to be forwarded to
Nonaffiliated Partner.
13.3. Severability. If any of the provisions of this Partnership
Agreement are held by any court of competent jurisdiction to contravene, or to
be invalid under, the laws of any political body having jurisdiction over the
subject matter hereof, such contravention or invalidity shall not invalidate
the entire Partnership Agreement. Instead, this Partnership Agreement shall be
construed as if it did not contain the particular provision or provisions held
to be invalid, and an equitable adjustment shall be made and necessary
provisions added so as to give effect to the intention of the Partners as
expressed in this Partnership Agreement at the time of execution of this
Partnership Agreement and of any amendments hereto.
-30-
<PAGE> 35
13.4. Successor and Assigns. Except as provided herein to the
contrary, this Partnership Agreement shall be binding upon and inure to the
benefit of the parties signatory hereto, their respective heirs, executors,
legal representatives, permitted successors and permitted assigns.
13.5. Governing Law. This Partnership Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware,
excluding any conflicts-of-law rule or principle that might refer the
construction or interpretation of this Partnership Agreement to the laws of
another state.
13.6. Waiver. No consent or waiver, express or implied, by a
Partner to or of any breach or default by any other Partner in the performance
by such other Partner of its obligations hereunder shall be valid unless in
writing, and no such consent or waiver shall be deemed or construed to be a
consent or waiver to or of any other breach or default in the performance by
such other Partner of the same or any other obligations of such other Partner
hereunder. Failure on the part of a Partner to complain of any act or failure
to act of any other Partner or to declare the other Partner in default,
irrespective of how long such failure continues, shall not constitute a waiver
by such Partner of its rights hereunder. The giving of consent by a Partner in
any one instance shall not limit or waive the necessity to obtain such
Partner's consent in any future instance.
13.7. Headings; References; Interpretation. Titles of Sections are
for convenience only and neither limit nor amplify the provisions of this
Partnership Agreement. The words "hereof," "herein" and "hereunder" and words
of similar import, when used in this Partnership Agreement, shall refer to this
Partnership Agreement as a whole and not to any particular provision of this
Partnership Agreement. All references herein to Sections, Exhibits, Schedules
and Appendices shall, unless the context requires a different construction, be
deemed to be references to the Sections, Exhibits, Schedules and Appendices to
this Partnership Agreement. All personal pronouns used in this Partnership
Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders, and the singular shall include the plural and vice
versa. The use herein of the word "including" following any general statement,
term or matter, shall not be construed to limit such statement, term or matter
to the specific items or matters, whether or not non-limiting language (such as
"without limitation" or "but not limited to," or words of similar import) is
used with reference thereto, but rather shall be deemed to refer to all other
items or matters that could reasonably fall within the broadest possible scope
of such general statement, term or matter.
13.8. Counterparts. This Partnership Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original and
all of which shall constitute one and the same agreement.
-31-
<PAGE> 36
13.9. Further Assurances. Each party hereto agrees to do all acts
and things and to make, execute and deliver such written instruments, as shall
from time to time be reasonably required to carry out the terms and provisions
of this Partnership Agreement.
13.10. Nonrecourse. The parties hereto expressly agree that no
undertaking or agreement made in this Partnership Agreement on the part of any
Partner was made or intended to be made as a personal or individual undertaking
or agreement on the part of any partner, incorporator, stockholder, director,
officer or agent (past, present or future) of such Partner, and no personal or
individual liability or responsibility is assumed by, nor shall any recourse at
any time be asserted or enforced against, any such partner, incorporator,
stockholder, director, officer or agent, all of which recourse (whether at
common law, in equity, by statute or otherwise) is hereby forever waived and
released.
13.11. Waiver of Right of Partition. To the maximum extent permitted
by law, each Partner waives any right to partition the Property.
13.12. No Third Party Rights. The provisions of this Partnership
Agreement are intended to bind the Partners as to each other and are not
intended to and do not create rights in any other Person and no Person is or is
intended to be a third party beneficiary of any of the provisions of this
Partnership Agreement.
-32-
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Partnership Agreement as of the day and year first above
written.
GENERAL PARTNER:
BJ SERVICES COMPANY, U.S.A.
By: /s/ T. M. Whichard
---------------------------------
T. M. Whichard
Treasurer
ORGANIZATIONAL LIMITED PARTNER:
/s/ Taylor M. Whichard, III
------------------------------------
TAYLOR M. WHICHARD, III
NONAFFILIATED PARTNER:
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual
capacity, but solely as Nonaffiliated
Partner Trustee of BJ Services
Trust No. 1997-1
By: /s/ Val T. Orton
---------------------------------
Val T. Orton
Vice President
AFFILIATED PARTNER:
BJ SERVICES, L.L.C.
By: /s/ T. M. Whichard
---------------------------------
T. M. Whichard
President
-33-
<PAGE> 38
SCHEDULE I
OMITTED
-34-
<PAGE> 39
SUPPLEMENT NO. 1
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
AUGUST 7, 1997
THIS SUPPLEMENT NO. 1 (this "Partnership Agreement Supplement") to the
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF BJ SERVICES EQUIPMENT,
L.P. (as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time, the "Partnership Agreement") entered into
as of August 7, 1997, is made and entered into by and among BJ Services
Company, U.S.A., a Delaware corporation ("BJ USA"), as general partner, BJ
SERVICES, L.L.C., a Delaware limited liability company, as Affiliated Partner,
and First Security Bank, National Association, not in its individual capacity,
but solely as Nonaffiliated Partner Trustee of BJ Services Trust No. 1997-1
("Nonaffiliated Partner"). In consideration of the covenants, conditions and
agreements contained herein, the parties agree that the Units subject to the
Partnership Agreement, from and after the date hereof, shall include the Units
described in Schedule I to this Supplement.
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Partnership Agreement Supplement as of the day and year first
above written.
GENERAL PARTNER:
BJ SERVICES COMPANY, U.S.A.
By: /s/ T. M. Whichard
-------------------------------
T. M. Whichard
Treasurer
NONAFFILIATED PARTNER:
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual
capacity, but solely as
Nonaffiliated Partner Trustee of BJ
Services Trust No. 1997-1
By: /s/ Val T. Orton
-------------------------------
Val T. Orton
Vice President
AFFILIATED PARTNER:
BJ SERVICES, L.L.C.
By: /s/ T. M. Whichard
-------------------------------
T. M. Whichard
President
-2-
<PAGE> 41
APPENDIX A
DEFINITIONS
General Provisions
The following terms shall have the following meanings for all purposes
of the Basic Documents referred to below, unless otherwise defined in a Basic
Document or the context thereof otherwise requires. Such meanings shall be
equally applicable to both the singular and the plural forms of the terms
herein defined. In case of any conflict between the provisions hereof and the
provisions of the main body of any Basic Document, the provisions of the main
body of such Basic Document shall control the construction of such Basic
Document.
Unless the context otherwise requires, (i) references to agreements
shall be deemed to mean and include such agreements as amended, supplemented
and otherwise modified from time to time, (ii) references to parties to
agreements shall be deemed to include the permitted successors and assigns of
such parties, (iii) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to the Basic Document as a whole in which such
words are used and not to any particular Section, Subsection or other
subdivision of such Basic Document and (iv) all references in a Basic Document
to Sections, Exhibits, Schedules and Appendices refer to Sections, Exhibits,
Schedules and Appendices of such Basic Document unless otherwise indicated.
Defined Terms
"Additional Service Payments" -- as defined in Section 3.4 of the
Services Agreement.
<PAGE> 42
"Additional Services" -- as defined in Section 2.1 of the Services
Agreement.
"Adjusted Capital Account" -- the Capital Account maintained for each
Partner as of the end of each taxable year of Partnership, (a) increased by any
amounts that such Partner is obligated to restore under the standards set by
Treasury Regulation Section 1.704- 1(b)(2)(ii)(c)(or is deemed obligated to
restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and
(b) decreased by (i) the amount of all losses and deductions that, as of the
end of such taxable year, are reasonably expected to be allocated to such
Partner in subsequent years under Sections 704(e)(2) and 706(d) of the Code and
Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all
distributions that, as of the end of such taxable year, are reasonably expected
to be made to such Partner in subsequent years in accordance with the
Partnership Agreement to the extent they exceed offsetting increases to such
Partner's Capital Account that are reasonably expected to occur during (or
before) the year in which such distributions are reasonably expected to be made
(other than increases as a result of a minimum gain chargeback pursuant to
Section 5.2(c)(i) of the Partnership Agreement). The foregoing definition of
Adjusted Capital Account is intended to comply with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
"Affiliate" of any Person -- any other Person which directly or
indirectly controls, or is controlled by, or is under a common control with,
such Person. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise, and the term "controlled" shall have a meaning correlative to the
foregoing.
"Affiliated Partner" -- as defined in the caption of the Participation
Agreement.
"After-Tax Basis" -- (i) in the case of any amount being paid to any
Tax Indemnitee or Indemnified Person, an amount which, after deduction of all
Taxes imposed upon such Tax Indemnitee or Indemnified Person that would not
have been imposed but for the receipt or accrual of such amount (or the receipt
or accrual of
-2-
<PAGE> 43
amounts paid by reason of a "gross-up" provision), is equal to the amount
required to be paid under the applicable Basic Document and (ii) in the case of
any amount being paid by any Tax Indemnitee, an amount which, after deduction
of all Taxes saved by such Tax Indemnitee that would not have been saved but
for the payment or accrual of the obligation to pay such amount (or the payment
or accrual of the obligation to pay amounts by reason of a "gross-up"
provision) is equal to the amount to be paid under the applicable Basic
Document. All computations for the purposes hereof shall be based on the
highest applicable tax rates in effect in the applicable jurisdiction on the
date payment is made or accrued, as the case may be.
"Agreed Value" of any Contributed Property -- the fair market value of
such property or other consideration at the time of contribution as determined
by General Partner using such reasonable method of valuation as it may adopt;
except that if any Limited Partner disputes the fair market value of any
Contributed Property as so determined by General Partner, the fair market value
of such Contributed Property shall be determined by a Contributed Property
Appraisal.
"Appraisal" -- the report of Arthur Andersen containing the opinions
described in Section 4.2(a) of the Participation Agreement, and otherwise in
form and substance reasonably satisfactory to Beneficiaries.
"Assigned Agreements" -- the Partnership Agreement, the Contribution
Agreements and the Guaranty.
"Attorney-in-Fact" -- as defined in Section 2.3(b) of the Partnership
Agreement.
"Available Cash" -- as defined in Section 6.1(e) of the Partnership
Agreement.
"Bank Guaranties" -- the Guaranty Agreements dated as of August 7,
1996, executed by each of BJ USA, BJ Service International, Inc., a Delaware
corporation, and BJ Services Company Middle East, a Delaware corporation, each
in favor of the Agents (as defined in the BJ Credit Agreement) and the Banks
(as defined in the BJ Credit Agreement).
-3-
<PAGE> 44
"Bankruptcy" -- an event described in clause (g) or clause (h) of the
definition of "BJ Event of Default."
"Bankrupt Beneficiary" -- as defined in Section 8.3(e)(i)(4) of the
Indenture.
"Bankrupt BJ Entity" -- (a) Service Taker, if a Services Event of
Default described in Section 6.1(d) or (e) exists, (b) Operator, if an O&M
Event of Default described in Section 14.1(d) or (e) exists, (c) Partnership,
if a BJ Event of Default described in clause (g) or (h) of the definition
thereof exists with respect to Partnership, (d) Affiliated Partner, if a BJ
Event of Default described in clause (g) or (h) of the definition thereof
exists with respect to Affiliated Partner, (e) General Partner, if a BJ Event
of Default described in clause (g) or (h) of the definition thereof exists with
respect to General Partner, and (f) BJ USA if a BJ Event of Default described
in clause (g) or (h) of the definition thereof exists with respect to BJ USA.
"Bankruptcy Code" -- the United States Bankruptcy Reform Act of 1978,
as amended from time to time, 11 U.S.C. Section 101 et seq.
"Base Services" -- as defined in Section 2.1 of the Services
Agreement.
"Base Term" -- the period from the Commencement Date to the Base Term
Expiration Date.
"Base Term Expiration Date" -- as defined in Section 4.2(a)(iv) of the
Participation Agreement.
"Basic Documents" -- the Participation Agreement, the Contribution
Agreements, the Trust Agreement, the Notes, the Partnership Agreement
(including each Partnership Agreement Supplement), the O&M Agreement (including
each O&M Agreement Supplement), the Services Agreement, the Guaranty, the
Indenture (including each Indenture Supplement) and the Tax Indemnity
Agreement.
"Beneficial Interest" -- the interest of a Beneficiary under the Trust
Agreement.
"Beneficiaries' Agreements" -- the Basic Documents to which the
Beneficiaries are or will be a party.
-4-
<PAGE> 45
"Beneficiaries' Certificate" -- as defined in Section 2.4(a) of the
Participation Agreement.
"Beneficiary" -- each Person listed as a Beneficiary in Schedule 1 to
the Participation Agreement and each Person that becomes a Beneficiary pursuant
to Section 6.1 of the Participation Agreement.
"Beneficiary Bankruptcy" -- as defined in Section 8.3(e)(i)(4) of the
Indenture.
"BJ Credit Agreement" -- the Amended and Restated Credit Agreement
dated as of August 7, 1996, among BJ Services Company, BJ Services Company,
U.S.A., BJ Service International, Inc., BJ Services Company Middle East, Nowsco
Well Service Ltd. and the other Subsidiary Borrowers from time to time parties
thereto, Bank of America National Trust and Savings Association, individually,
as U.S. Agent, as Letter of Credit Issuing Bank and as Swing Loan Bank, Bank of
America Canada, individually and as Canadian Agent, The Chase Manhattan Bank,
individually and as Senior Co-Agent, Bank of Montreal, Royal Bank of Canada,
Toronto-Dominion (Texas), Inc., Credit Lyonnais New York Branch and Wells Fargo
Bank (Texas), National Association, each individually and as Co-Agent, and the
other financial institutions from time to time parties thereto.
"BJ Default" -- an event which with notice or the lapse of time or
both would become a BJ Event of Default.
"BJ Event of Default" -- any one or more of the following if
continuing at the time of determination:
(a) a Services Event of Default under Section 6.1(b),
(c), (d), (e) or (f) of the Services Agreement;
(b) an O&M Event of Default;
(c) a Guarantor Event of Default;
(d) General Partner or Affiliated Partner fails to make
any capital contribution under the Partnership Agreement or pay any
other amount under Sections 5.12, 5.16, 5.17, 5.18 or 5.22 of the
Participation Agreement or Partnership fails to make and/or General
Partner fails to cause Partnership to make any Priority Distribution,
Supplemental Priority Distribution
-5-
<PAGE> 46
or Special Distribution, in each case, within 5 Business Days after
the same becomes payable or distributable;
(e) Partnership, General Partner, Affiliated Partner or
BJ USA fails to make any payment or distribution (other than as
described in clause (d) above) under any Basic Document, other than
the O&M Agreement and the Services Agreement (except that any failure
to pay or distribute to Nonaffiliated Partner Trustee (in its
individual or trust capacity) or any Beneficiary when due or
distributable any amount constituting Excepted Property shall not
constitute a BJ Event of Default before the discharge of the Lien of
the Indenture in accordance with the terms thereof) after the same
becomes due or distributable and such failure continues unremedied for
30 days after receipt by Partnership, General Partner, Affiliated
Partner or BJ USA, as the case may be, of written notice of such
failure from Nonaffiliated Partner Trustee, any Beneficiary, Indenture
Trustee or any Holder;
(f) any representation made by Partnership, General
Partner, Affiliated Partner or BJ USA in any Basic Document, other
than the O&M Agreement and the Services Agreement, or in any other
document or certificate furnished by Partnership, General Partner,
Affiliated Partner or BJ USA (or a Responsible Officer of Partnership,
General Partner, Affiliated Partner or BJ USA) pursuant to the Basic
Documents, other than the O&M Agreement and the Services Agreement,
was untrue or incorrect in any material respect as of the date of
making thereof;
(g) Partnership, General Partner, Affiliated Partner or
BJ USA (i) commences a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect, or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or (ii) consents to any such relief
or to the appointment of or taking possession by any such official in
any voluntary case or other proceeding commenced against it, or (iii)
generally fails to pay, or admits in writing its inability to pay, its
debts as they come due, or (iv) makes a general assignment for the
benefit of creditors,
-6-
<PAGE> 47
or (v) takes any corporate action to authorize or in furtherance of
any of the foregoing;
(h) an involuntary case or other proceeding is commenced
against Partnership, General Partner, Affiliated Partner or BJ USA
seeking liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect, or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding remains undismissed and unstayed for a period of 60 days;
(i) any events of dissolution under Section 11 of the
Partnership Agreement; or
(j) Partnership, General Partner, Affiliated Partner or
BJ USA fails to observe or perform any of its covenants or agreements
(other than those described in the foregoing clauses of this
definition) to be observed or performed by it under any Basic
Document, other than the O&M Agreement and the Services Agreement, and
the failure continues unremedied for 30 days after notice from
Nonaffiliated Partner Trustee, any Beneficiary, Indenture Trustee or
any Holder to Partnership, General Partner, Affiliated Partner or BJ
USA, as the case may be, specifying the failure and demanding the same
to be remedied; except that, if the failure is capable of being
remedied and the remedy does not involve the payment of money alone,
no such failure shall constitute a BJ Event of Default so long as
Partnership, General Partner, Affiliated Partner or BJ USA, as the
case may be, is diligently proceeding to remedy the failure, but in no
event shall the failure continue unremedied for a period in excess of
the lesser of 120 days from the notice referred to above and the
remaining number of days in the Transaction Term.
"BJ Note Agreements" -- the two Note Agreements, each dated as of
August 1, 1991, one being by and among Guarantor, BJ USA, BJ Service
International, Inc., BJ Services Company Middle East (collectively, the "BJ
Note Debtors") and Connecticut Mutual Life Insurance Company, and the other
being by and between the BJ Note Debtors and Principal Mutual Life Insurance
Company, collectively
-7-
<PAGE> 48
providing for the issuance of $30,000,000 of 9.2% Senior Notes due August 1,
1998, each as amended.
"BJ Remedy" -- as defined in Section 8.3(a) of the Indenture.
"BJ Services Company" -- BJ Services Company, a Delaware corporation,
and the parent corporation of BJ USA.
"BJ USA" -- as defined in the caption of the Participation Agreement.
"BJ USA Agreements" -- the Basic Documents to which BJ USA is or will
be a party.
"BJ USA's Tax Counsel" -- Andrews and Kurth L.L.P. or such other
nationally recognized law firm reasonably acceptable to Beneficiaries.
"Books and Records" -- books and records of account in which are
entered all matters relating to Partnership, including all income,
expenditures, assets and liabilities thereof.
"Business Day" -- any day other than a Saturday, Sunday or a day on
which commercial banking institutions are authorized or required by law,
regulation or executive order to be closed in San Francisco, California, New
York, New York, Houston, Texas, the city and state (if different from the
foregoing) in which the principal corporate trust office of Nonaffiliated
Partner Trustee is located, or, until the Lien of the Indenture is discharged,
the city and state (if different from the foregoing) in which the principal
corporate trust office of Indenture Trustee is located.
"Capital Account" -- the capital account established and maintained
for each Partner as provided in Section 5.1 of the Partnership Agreement.
"Capital Contribution" -- the Net Agreed Value of Contributed Property
that a Partner contributes to the Partnership pursuant to Section 4.1 or 4.2 of
the Partnership Agreement.
"Carrying Value" -- with respect to any Property, the Agreed Value of
such Property reduced (but not below zero) by all depreciation, amortization
and cost recovery deductions charged to the Capital Accounts. The Carrying
Value of any Property shall be
-8-
<PAGE> 49
adjusted from time to time in accordance with Section 5.1(d) of the Partnership
Agreement and to reflect changes, additions or other adjustments to the
Carrying Value for dispositions and acquisitions of Properties, as deemed
appropriate by the Partners.
"Category A Priority Distribution" -- for each Distribution Date, a
Priority Distribution in the amount set forth opposite such date under the
heading "Category A" on Schedule 1 to the Partnership Agreement.
"Category B Priority Distribution" -- for each Distribution Date, a
Priority Distribution in the amount set forth opposite such date under the
heading "Category B" on Schedule 1 to the Partnership Agreement.
"Claims" -- as defined in Section 7.2(a) of the Participation
Agreement.
"Cleanup" -- all actions required to: (1) cleanup, remove, treat or
remediate Hazardous Substances in the indoor or outdoor environment; (2)
prevent the Release of Hazardous Substances so that they do not migrate,
endanger or threaten to endanger public health or welfare of the indoor or
outdoor environment; (3) perform pre-remedial studies and investigations and
post-remedial monitoring and care; or (4) respond to any government requests
for information or documents in any way relating to cleanup, removal, treatment
or remediation or potential cleanup, removal, treatment or remediation of
Hazardous Substances in the indoor or outdoor environment.
"Closing" -- as defined in Section 2.4(a) of the Participation
Agreement.
"Code" -- the Internal Revenue Code of 1986, as amended from time to
time, or any successor law.
"Commencement Date" -- as defined in Section 2.4(a) of the
Participation Agreement.
"Commitment" -- with respect to a Beneficiary, its obligation to make
an investment in Nonaffiliated Partner pursuant to Section 2.2(a) of the
Participation Agreement.
-9-
<PAGE> 50
"Competitor" -- any Person who is engaged, or an Affiliate of a Person
who is engaged, or any Person who has an interest in a partnership, joint
venture, corporation, trust, limited liability company, association, or
unincorporated organization that is engaged in providing maintenance services
for oil and natural gas wells; except that in no event shall any Note Purchaser
or any bank, bank holding company, savings and loan association, fraternal
benefit society, pension, retirement or profit sharing trust or fund, insurance
company, securities broker or securities dealer or any leasing company or other
financial institution or any Affiliate of any of the foregoing, be (i) deemed a
Competitor or (ii) restricted from any purchase of or holding an ownership
interest in any security of a Competitor for passive investment purposes.
"Confirmation" -- as defined in Section 2.4(c) of the Participation
Agreement.
"Consolidated Stockholders' Equity" -- the par or stated value of the
stock of the Guarantor and its Subsidiaries plus paid-in capital plus retained
earnings, all as shown on the consolidated balance sheet of Guarantor and its
Subsidiaries prepared in accordance with GAAP.
"Consolidated Subsidiary" -- at any time, any Subsidiary the accounts
of which, in accordance with GAAP, would be consolidated with those of
Guarantor in its consolidated financial statements if such statements were
prepared as of such date.
"Contributed Property" -- each item of Property, in such form as may
be permitted by the Delaware Act, contributed to Partnership.
"Contributed Property Appraisal" -- with respect to any Contributed
Property, the determination of fair market value by an appraiser selected by
the Partners, or, if the Partners cannot agree upon an appraiser, then the
General Partner and the Affiliated Partner shall together appoint one appraiser
and the Nonaffiliated Partner shall appoint one appraiser, and such appraisers
shall select a single appraiser, which appraiser shall determine the fair
market value of such Contributed Property; except that the Agreed Value of any
property deemed contributed to the Partnership for federal income tax purposes
upon termination and reconstitution thereof pursuant to Section 708 of the Code
-10-
<PAGE> 51
shall be determined in accordance with Section 5.1(d) of the Partnership
Agreement.
"Contribution Agreement" -- the Contribution and Conveyance Agreement
dated as of August 1, 1997, and each other Contribution and Conveyance
Agreement dated the date that any Replacement Unit or any other Unit becomes
property of Partnership pursuant to the Partnership Agreement (and the Lien of
the Indenture, if the Indenture is in effect), from BJ USA or Affiliated
Partner to Partnership covering the Units delivered to Partnership before, and
owned by Partnership on, the Commencement Date or such Replacement Unit or any
other Unit, as the case may be, substantially in the form of Exhibit C to the
Participation Agreement.
"Co-Registrar" -- as defined in Section 2.3 of the Indenture.
"Current Principal Amount" -- with respect to a Note as of any
relevant date, the original principal amount of such Note reduced by the amount
of principal paid with respect to such Note on or before such date.
"Customers" -- as defined in Recital A of the Participation Agreement.
"Debt" -- the indebtedness evidenced by the Notes.
"Debt Rate" -- with respect to any Note, a rate of interest equal to
7.33% per annum (computed on the basis of a year of 360 days consisting of
twelve 30-day months).
"Default Payment Date" -- as defined in Section 5.22 of the
Participation Agreement.
"Delaware Act" -- the Delaware Revised Uniform Limited Partnership
Act, 6. Del. C. 1953, Section 17-101 et seq., as amended from time to time,
and any successor thereto.
"Determination Date" -- each of the dates set forth on Schedule 5 to
the Participation Agreement and during the Renewal Term, the 30th calendar day
of each December and June.
"Discount Rate" -- a per annum rate equal to the Debt Rate.
-11-
<PAGE> 52
"Disposition Value" -- for any Unit as of any Determination Date, the
amount determined by multiplying the Equipment Value for such Unit by the
percentage set forth in Schedule 5 to the Participation Agreement opposite the
Determination Date on which such Disposition Value is being determined.
Anything contained in the Trust Agreement or the Participation Agreement to the
contrary notwithstanding, Disposition Value for such Unit on the date of
payment thereof (both before and after any adjustment pursuant to Section 2.7
of the Participation Agreement), under any circumstances and in any event, will
be an amount which will be at least sufficient to pay in full as of the date of
payment thereof, the portion of the unpaid principal of the Notes which is
related to such Unit, together with all unpaid interest accrued to the date on
which such amount is paid in accordance with the terms thereof.
"Distribution" -- a Priority Distribution, a Supplemental Priority
Distribution or a Special Distribution.
"Distribution Date" -- each date listed on Schedule 1 to the
Partnership Agreement.
"Distribution Period" -- the six-month period beginning on the day
following a Distribution Date and ending on the next succeeding Distribution
Date.
"Environmental Claim" -- any claim, action, cause of action,
investigation or notice (written or oral) by any Person alleging potential
liability (including, without limitation, potential liability for investigatory
costs, Cleanup costs, government response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of, based on or
resulting from (a) the presence, or Release into the indoor or outdoor
environment, of any Hazardous Substances at any location, whether or not owned
or operated by Partnership, BJ USA or Operator or (b) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
"Environmental Law" -- any and all Federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements of any Government Authority regulating, relating to or imposing
liability standards of conduct concerning any Hazardous Substances or pollution
or environmental protection, as now or may at any time hereafter be in effect,
including, without limitation, the Clean Water Act, the
-12-
<PAGE> 53
Comprehensive Environmental Response, Compensation and Liability Act, the
Superfund Amendments and Reauthorization Act of 1986, the Emergency Planning
and Community Right to Know Act, the Resource Conservation and Recovery Act,
the Safe Drinking Water Act, and the Toxic Substances Control Act, together, in
each case, with each amendment, supplement or other modification thereto, and
the regulations promulgated thereunder and all substitutions therefor.
"Equipment Value" -- (a) for any Unit owned by Partnership on the
Commencement Date, the amount for such Unit specified on the Appraisal as of
the Commencement Date and as set forth on Schedule 3 to the Participation
Agreement, and (b) for any Unit contributed to Partnership on any other date,
the Fair Market Value of such Unit, as certified by General Partner pursuant to
Section 5.13 of the Participation Agreement or as otherwise determined in
accordance with the definition of "Fair Market Value", in each case, determined
as of the date of contribution.
"ERISA" -- the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor law.
"ERISA Affiliate" -- any corporation or trade or business that:
(a) is a member of the same controlled group of
corporations (within the meaning of section 414(b) of the Code) as BJ
USA; or
(b) is under common control (within the meaning of
section 414(c) of the Code) with BJ USA.
"ERISA Plan" -- as defined in Section 3.4(i) of the Participation
Agreement.
"ET Date" -- as set forth on Schedule 8 to the Participation
Agreement.
"ET Price" -- an amount equal to the product of the percentage set
forth for the ET Date on Schedule 8 to the Participation Agreement multiplied
by the Equipment Value of the Units then owned by Partnership, plus any Premium
payable pursuant to the Indenture.
"ET Right" -- as defined in Section 9.1 of the Partnership Agreement.
-13-
<PAGE> 54
"Event of Loss" -- as defined in Section 11.1 of the O&M Agreement.
"Excepted Property" --
(a) any indemnity payable to Nonaffiliated Partner
Trustee, Indenture Trustee, any Beneficiary or their respective
directors, officers, employees, agents, successors, assigns (other
than Indenture Trustee as assignee) or affiliates pursuant to Section
7 of the Participation Agreement;
(b) any proceeds of insurance payable to Nonaffiliated
Partner Trustee or any Beneficiary under insurance maintained by
Nonaffiliated Partner Trustee or any Beneficiary in addition to the
insurance required to be maintained by Operator pursuant to the terms
of the O&M Agreement, and any proceeds of liability insurance policies
carried for the benefit of Nonaffiliated Partner Trustee or any
Beneficiary by or Operator pursuant to Section 12 of the O&M Agreement
or by any other Person;
(c) the Tax Indemnity Agreement and all payments or
advances required to be made thereunder by or to Guarantor;
(d) any rights against BJ USA, General Partner, Operator,
Service Taker, Partnership or Guarantor acquired by subrogation to the
rights of Indenture Trustee pursuant to cure of defaults of BJ USA,
General Partner, Operator, Service Taker, Partnership or Guarantor,
and any amounts payable by BJ USA, General Partner, Operator, Service
Taker, Partnership or Guarantor to reimburse Nonaffiliated Partner
Trustee or any Beneficiary for payments made by it in respect of their
obligations under the Basic Documents, so long as such cures and
payments are made in accordance with the Indenture;
(e) any amounts payable to any Beneficiary by a
transferee as the purchase price for all or any portion of its
interest permitted by Section 6.1 of the Participation Agreement;
(f) all right, title and interest of Nonaffiliated
Partner Trustee or any Beneficiary in any collateral that has been
released from the security interest and assignment of the
-14-
<PAGE> 55
Indenture whether by satisfaction of the obligations of Nonaffiliated
Partner Trustee hereunder and under the Notes or otherwise pursuant to
terms of the Indenture;
(g) any Taxes payable to Partnership or Nonaffiliated
Partner pursuant to the Participation Agreement;
(h) the rights of Nonaffiliated Partner Trustee,
Indenture Trustee and any Beneficiary to pursue legal remedies to
compel payment by BJ USA, General Partner, Operator, Service Taker or
Partnership of any of the amounts referred to in the foregoing clauses
(i)through (g) or enforce the agreements of BJ USA, General Partner,
Operator, Service Taker or Partnership related thereto, except that
the rights referred to in this clause (h) shall not be deemed to
include the exercise of any remedies in the Partnership Agreement, the
Services Agreement, the O&M Agreement or the Participation Agreement
other than the right to proceed by appropriate court action or
actions, either at law or in equity, to enforce performance by BJ USA,
General Partner, Operator, Service Taker or Partnership of the
applicable covenants or to recover damages for the breach thereof;
(i) the right to consent or withhold consent to any
amendment, modification or waiver of the Partnership Agreement, the
O&M Agreement, the Participation Agreement or the Services Agreement
or any other document solely in respect of Excepted Property; and
(j) the right to consent or withhold consent to
declaration by Indenture Trustee of a BJ Event of Default solely in
respect of Excepted Property;
(k) any Form K-1 (or similar substitute form) required or
permitted to be given to Nonaffiliated Partner Trustee or Partnership.
"Excess Amount" -- as defined in Section 2.9(c) of the Indenture.
"Expenses" -- as defined in Section 4.4(b) of the Partnership
Agreement.
-15-
<PAGE> 56
"Expiration Date" -- as defined in Section 2.8(b) of the Participation
Agreement.
"Fair Market Rental Value" or "Fair Market Value" -- with respect to
all Units (or portions thereof for purposes of Section 5.13 of the
Participation Agreement) with respect to which a determination is being made,
the cash rent or cash price obtainable for such Units (or portions thereof for
purposes of Section 5.13 of the Participation Agreement) in an arm's-length
lease or sale between an informed and willing lessee or purchaser/user
(including, without limitation, BJ USA and any lessee or buyer in possession of
the Units which is the subject of this transaction and including a
purchaser/user in possession and other than a dealer in used equipment of a
type similar to the Units) under no compulsion to lease or purchase, as the
case may be, and an informed and willing lessor or seller, under no compulsion
to lease or sell, as the case may be. Except for determinations for the
purposes of Section 5.22 of the Participation Agreement, Fair Market Rental
Value and Fair Market Value shall be determined upon the assumption that each
Unit is in the condition and repair required under the O&M Agreement, free of
any Liens other than Nonaffiliated Partner Liens, and in service. For purposes
of Section 5.22 of the Participation Agreement, determinations of Fair Market
Rental Value and Fair Market Value shall be determined upon the assumption that
each Unit is to be leased or sold on an "as-is, where-is" basis. If the
parties are unable to agree upon a Fair Market Rental Value or a Fair Market
Value within 30 days after receipt of General Partner's certification as to
Fair Market Value pursuant to Section 5.13 of the Participation Agreement or,
unless Nonaffiliated Partner otherwise consents, if Fair Market Rental Value or
Fair Market Value is to be determined for the purposes of Section 5.22 of the
Participation Agreement, such value shall be determined by the following
appraisal procedure, determinations under which shall be conclusively binding
on all parties:
(I) If the appraisal procedure is used for any purpose other than
Section 5.22 of the Participation Agreement, Nonaffiliated Partner Trustee,
within 10 days after the 30-day period after receipt of General Partner's
certification as to Fair Market Value pursuant to Section 5.13 of the
Participation Agreement, will provide BJ USA the names of appraisers that would
be satisfactory to Nonaffiliated Partner Trustee, and Nonaffiliated Partner
Trustee and BJ USA will consult with the intent of selecting a mutually
acceptable appraiser. If a mutually acceptable appraiser is
-16-
<PAGE> 57
selected, the Fair Market Rental Value and/or the Fair Market Value, as the
case may be, shall be determined by such appraiser and set forth in a written
appraisal that is in compliance with the "Uniform Standards of Professional
Appraisal Practice" of the Appraisal Standards Board of the Appraisal
Foundation. If BJ USA and Nonaffiliated Partner Trustee are unable to agree
upon a single appraiser within 10 days after Nonaffiliated Partner Trustee
provides BJ USA with the names of appraisers, either party can file with the
American Arbitration Association to provide a list of qualified and certified
appraisers of recognized standing and knowledgeable in equipment of the type
then owned by the Partnership within 15 days of such filing. Within 10 days of
receipt of such list, Nonaffiliated Partner Trustee and BJ USA shall list in
order of preference their respective choices for appraisers and the appraiser
that is most preferred by both Nonaffiliated Partner Trustee and BJ USA (or, if
two appraisers are preferred equally by Nonaffiliated Partner Trustee and BJ
USA, the appraiser that is most preferred by both parties but chosen by
Nonaffiliated Partner Trustee) shall perform the appraisal and set forth Fair
Market Rental Value or Fair Market Value in a written appraisal that is in
compliance with the "Uniform Standards of Appraisal Practice" of the Appraisal
Foundation. BJ USA shall bear the cost of all appraisers.
(II) If the appraisal procedure is used for the purpose of Section
5.22 of the Participation Agreement, Nonaffiliated Partner Trustee shall select
an independent appraiser of recognized standing and knowledgeable in equipment
of the type then owned by the Partnership. Such appraisal shall be made within
15 days of appointment. BJ USA shall bear the cost of such appraisal.
Notwithstanding any of the foregoing, for the purposes of Section 5.22 of the
Participation Agreement, the Fair Market Rental Value or the Fair Market Value,
as the case may be, shall be zero with respect to any Unit if Nonaffiliated
Partner Trustee theretofore has not been able to recover possession of such
Unit in accordance with the terms of Section 15.1(b) of the O&M Agreement.
"Final Determination" -- (i) a decision, judgment, decree or other
order by any court of competent jurisdiction, which decision, judgment, decree
or other order has become final (i.e., the earliest of when all allowable
appeals by either party to the action (or with respect to any Beneficiary, only
such appeals as are required by Section 7 of the Tax Indemnity Agreement or
Section 7 of the Participation Agreement) are exhausted or the time for
-17-
<PAGE> 58
filing such appeal expires), (ii) a closing agreement entered into under
Section 7121 of the Code (or any successor provision) or any other binding
settlement agreement entered into in connection with an administrative or
judicial proceeding, in any case with the consent of BJ USA (in the case of the
Tax Indemnity Agreement, subject to the conditions of Section 7(d)), or (iii)
the expiration of the time for instituting an initial suit with respect to a
claimed deficiency or for instituting a claim for refund or if such a claim was
filed, the expiration of the time for instituting suit with respect thereto.
"First Security" -- as defined in Section 3.1 of the Participation
Agreement.
"FT Price" -- an amount equal to the product of (a) 32% multiplied by
(b) the Equipment Value of the Units owned by Partnership on the Base Term
Expiration Date.
"FT Right" -- as defined in Section 9.2 of the Partnership Agreement.
"GAAP" -- generally accepted accounting principles, consistently
applied, as 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.
"General Partner" -- BJ USA, as general partner of Partnership.
"Government Actions" -- all consents, approvals or authorizations of,
or filings, registrations or qualifications with, or the giving of notice or
taking of any other action with respect to, any Government Authority.
"Government Authority" -- any applicable Federal, state, county,
municipal or other United States Federal, state or local government, judicial
or regulatory authority, agency, board, body, commission, instrumentality,
court arbitrator, panel of arbitrators or quasi-government authority.
"Guarantor" -- as defined in the caption of the Participation
Agreement.
-18-
<PAGE> 59
"Guarantor Agreement" -- the Basic Documents to which Guarantor is or
will be a party.
"Guarantor Default" -- an event which with notice or the lapse of time
or both would become a Guarantor Event of Default.
"Guarantor Event of Default" -- the following events (whether any such
event is voluntary or involuntary or comes about or is effected by operation of
law or pursuant to or in compliance with any judgment, decree or order of any
court or of any order, rule or regulation of any administrative or government
body):
(a) Guarantor fails to make any payment under the
Guaranty when due (except that any failure to pay to Nonaffiliated
Partner Trustee (in its individual or trust capacity) or any
Beneficiary when due any amounts constituting Excepted Property shall
not constitute a Guarantor Event of Default before the discharge of
the Lien of the Indenture in accordance with the terms thereof);
(b) Guarantor fails to make any other payment under the
Basic Documents (except that any failure to pay any amount owed by
Guarantor under the Tax Indemnity Agreement or any failure of
Guarantor to pay to Nonaffiliated Partner Trustee (in its individual
or trust capacity) or any Beneficiary when due any amount constituting
Excepted Property shall not constitute a Guarantor Event of Default
before the discharge of the Lien of the Indenture in accordance with
the terms thereof) after the same becomes due and such failure
continues unremedied for 30 days after receipt by Guarantor of written
notice of such failure from Nonaffiliated Partner Trustee, any
Beneficiary, Indenture Trustee or any Holder;
(c) any representation made by Guarantor in any Basic
Document or in any other document or certificate furnished by
Guarantor (or a Responsible Officer of Guarantor) pursuant to the
Basic Documents (other than the representations set forth in the Tax
Indemnity Agreement) was untrue or incorrect in any material respect
as of the date of making thereof;
(d) Guarantor (i) commences a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect, or
-19-
<PAGE> 60
seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its
property, or (ii) consents to any such relief or to the appointment of
or taking possession by any such official in any voluntary case or
other proceeding commenced against it, or (iii) generally fails to
pay, or admits in writing its inability to pay, its debts as they come
due, or (iv) makes a general assignment for the benefit of creditors,
or (v) takes any corporate action to authorize or in furtherance of
any of the foregoing;
(e) an involuntary case or other proceeding is commenced
against Guarantor seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect, or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and
such involuntary case or other proceeding remains undismissed and
unstayed for a period of 60 days; or
(f) Guarantor fails to observe or perform any of its
covenants or agreements (other than those described in the foregoing
clauses of this definition) to be observed or performed by Guarantor
under the Guaranty or any other Basic Document (other than the Tax
Indemnity Agreement) and the failure continues unremedied for 30 days
after notice from Nonaffiliated Partner Trustee, any Beneficiary,
Indenture Trustee or any Holder to Guarantor, specifying the failure
and demanding the same to be remedied; except that, if the failure is
capable of being remedied and the remedy does not involve the payment
of money alone, no such failure shall constitute a Guarantor Event of
Default so long as Guarantor is diligently proceeding to remedy the
failure, but in no event shall the failure continue unremedied for a
period in excess of the lesser of 120 days from the notice referred to
above and the remaining number of days in the Transaction Term.
"Guaranty" -- the Guaranty dated as of August 7, 1997, from Guarantor.
"Hazardous Substances" -- (i) petroleum product, petroleum, crude oil
or any fraction thereof, asbestos, radon, explosives, radioactive materials,
hazardous wastes or substances (including
-20-
<PAGE> 61
polychlorinated biphenyls), or toxic wastes or substances; (ii) any other
wastes, materials or pollutants defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste" or "toxic substances" as defined
under any applicable Environmental Laws; or (iii) any other pollutants or
contaminants which are regulated under any Environmental Law.
"Holders" -- each Note Purchaser, or if such Note Purchaser transfers
its interest in accordance with the Basic Documents, the transferee of such
Note Purchaser.
"Income Taxes" -- as defined in Section 7.1(c)(i) of the Participation
Agreement.
"Indemnified Person" -- as defined in Section 7.2(b) of the
Participation Agreement.
"Indenture" or "Trust Indenture" -- the Trust Indenture and Security
Agreement dated as of August 7, 1997 among Nonaffiliated Partner Trustee, in
the capacities described therein, Partnership and Indenture Trustee. Such
terms shall include each Indenture Supplement entered into pursuant to the
Indenture.
"Indenture Default" -- an Indenture Event of Default or an event which
with notice or the lapse of time or both would become an Indenture Event of
Default.
"Indenture Estate" -- as defined in the Granting Clause of the
Indenture.
"Indenture Event of Default" -- as defined in Section 8.1 of the
Indenture.
"Indenture Supplement" -- (i) an Indenture Supplement substantially in
the form of Exhibit B to the Indenture, among Nonaffiliated Partner Trustee, in
the capacities described therein, Partnership and Indenture Trustee, dated the
Commencement Date or the date that any Replacement Unit or any other Unit is
subjected to the Lien and security interest of the Indenture, and covering the
Units related to the Commencement Date or such Replacement Unit or such other
Unit, as the case may be, or (ii) any supplement or amendment entered into from
time to time among Nonaffiliated
-21-
<PAGE> 62
Partner Trustee, in the capacities described therein, Partnership and Indenture
Trustee.
"Indenture Trustee" -- State Street Bank and Trust Company, a
Massachusetts trust company, as trustee under the Indenture.
"Indenture Trustee Agreements" -- the Basic Documents to which ITC
and/or Indenture Trustee are or will be a party.
"Initial Cash" -- cash contributed to Partnership by Nonaffiliated
Partner on the Commencement Date.
"Initial Operating Payment" -- as defined in Section 3.2(a) of the O&M
Agreement.
"Initial Partnership Agreement" -- the Agreement of Limited
Partnership of BJ Services Equipment, L.P. dated as of June 25, 1997 between
General Partner, as general partner thereof, and Organizational Limited
Partner, as limited partner thereof.
"Initial Services Payment" -- as defined in Section 3.2 of the
Services Agreement.
"Initial Units" - the Units described in the Indenture Supplement,
Partnership Agreement Supplement and O&M Agreement Supplement on the
Commencement Date.
"Insured Risks and Losses" -- such risks and losses as are specified
in the O&M Agreement.
"Interests" -- as defined in Section 3.5(d) of the Participation
Agreement.
"Investment Grade" -- as defined in Section 12.2 of the O&M Agreement.
"Investments" -- with respect to any Person, any direct or indirect
purchase or other acquisition by such Person of stock or other securities of
any other Person, or any direct or indirect loan, advance or capital
contribution by such Person to any other Person; including, without limitation,
any direct or indirect contribution by such Person of property to a joint
venture, partnership or other business entity in which such Person retains an
interest.
-22-
<PAGE> 63
"ITC" -- as defined in Section 3.3 of the Participation Agreement.
"Late Rate" -- with respect to the portion of any payment that would
be required to be distributed to the Holders pursuant to the Indenture or
otherwise under the Basic Documents, Nonaffiliated Partner (whether directly or
pursuant to the Indenture), Beneficiaries or Nonaffiliated Partner Trustee, in
its individual capacity, the rate per annum (calculated on the basis of a 360-
day year consisting of twelve 30-day months) equal to the lesser of (a) 2% over
the Debt Rate and (b) the maximum interest rate from time to time permitted by
law.
"Lien" -- any mortgage, pledge, security interest, lien, encumbrance,
lease, disposition of title or other charge of any kind on a Unit or any part
thereof.
"Limited Partners" -- Affiliated Partner and Nonaffiliated Partner and
"Limited Partner" means any of the Limited Partners.
"Liquidator" -- the Person or committee approved pursuant to the
provisions of Section 11.3(b) of the Partnership Agreement who performs the
functions described therein.
"Majority In Interest" -- as of a particular date of determination,
with respect to any action or decision of the Holders, the Holders of more than
50% in aggregate principal unpaid amount of the Outstanding Notes, if any.
"Material Adverse Effect" -- an adverse effect on the business,
properties, financial condition or results of operation of Partnership, BJ USA,
Affiliated Partner, Guarantor or Operator, taken as a whole, that would
materially jeopardize the ability of Partnership, BJ USA, Affiliated Partner,
Guarantor or Operator to perform their obligations set forth in the Basic
Documents.
"Maturity Date" -- with respect to the Notes, the date specified as
the maturity therefor in the Indenture.
"Minimum Services Payment" -- as defined in Section 3.3 of the
Services Agreement.
"Modification" -- as defined in Section 9.2 of the O&M Agreement.
-23-
<PAGE> 64
"Multiemployer Plan" -- any "multiemployer plan" (as defined in
section 3 of ERISA) in respect of which BJ USA or any ERISA Affiliate is an
"employer" (as defined in section 3 of ERISA).
"Net Agreed Value" -- (a) in the case of any Contributed Property, the
Agreed Value of such Contributed Property reduced by the total amount in the
aggregate of any and all liabilities either assumed by Partnership upon such
contribution or to which such Contributed Property is subject when contributed,
and (b) in the case of any Property distributed to a Partner, Partnership's
Carrying Value of such Property at the time such Property is distributed,
reduced by the total amount in the aggregate of any and all indebtedness either
assumed by such Partner upon such distribution or to which such Property is
subject at the time of distribution, in either case, as determined under
Section 752 of the Code.
"Net Economic Return" -- The applicable Beneficiary's initial (a)
anticipated net after-tax yield for each of the periods beginning with the
Commencement Date through the end of the Base Term and the Commencement Date
through the ET Date, reflected in the computations of Priority Distributions,
and ET Price set forth in Schedules 4 and 8 to the Participation Agreement and
Schedules 2 (and each subschedule thereto) and 4 to the Trust Agreement, (b)
anticipated aggregate after-tax cash flow computed utilizing the multiple
investment sinking fund method of analysis and the same assumptions (including,
without limitation, the Tax Assumptions) as used by the applicable Beneficiary
in making the computations of Priority Distributions and ET Price set forth in
Schedules 4 and 8 to the Participation Agreement and Schedules 2 (and each
subschedule thereto) and 4 to the Trust Agreement and (c) the anticipated net
after-tax book yield through the Base Term.
"Net Equity of the Partnership" -- as of any date, the amount by which
the fair market value of the Property of Partnership as of such date, as
determined in the reasonable judgment of the General Partner using such
reasonable method of valuation as it may choose, exceeds the aggregate
liabilities of the Partnership as of such date, as determined in accordance
with GAAP.
"Net Income" -- for any Taxable Period, the excess, if any, of
Partnership's items of income and gain for such Taxable Period over
Partnership's items of loss and deduction for such Taxable Period. The items
included in the calculation of Net Income shall be
-24-
<PAGE> 65
determined in accordance with Section 5.1(b) of the Partnership Agreement, but
shall not include any items specially allocated under Section 5.2(c) or Section
5.2(d) of the Partnership Agreement.
"Net Loss" -- for any Taxable Period, the excess, if any, of
Partnership's items of loss and deduction for such Taxable Period over
Partnership's items of income and gain for such Taxable Period. The items
included in the calculation of Net Loss shall be determined in accordance with
Section 5.1(b) of the Partnership Agreement, but shall not include any items
specially allocated under Section 5.2(c) or Section 5.2(d) of the Partnership
Agreement.
"Net Sales Proceeds" -- the proceeds realized from any sale of any one
or more of the Units, less the expenses related to such sale.
"Nonaffiliated Partner" -- as defined in the caption of the
Partnership Agreement.
"Nonaffiliated Partner Liens" -- any Lien on the Units or other
portions of the Trust Estate arising as a result of (i) claims against
Nonaffiliated Partner Trustee (in its individual capacity), Indenture Trustee
(in its individual capacity) or any Beneficiary, not related to the
transactions contemplated by the Basic Documents or which are not indemnified
against by BJ USA pursuant to the Participation Agreement or the Tax Indemnity
Agreement, or (ii) acts or omissions of Nonaffiliated Partner Trustee (in its
individual capacity), Indenture Trustee (in its individual capacity) or any
Beneficiary, not related to the transactions contemplated by the Basic
Documents or in breach of any covenant or agreement of such Person set forth in
any of the Basic Documents or which are not indemnified against by BJ USA
pursuant to the Participation Agreement or the Tax Indemnity Agreement, or
(iii) taxes imposed against Nonaffiliated Partner Trustee (in its individual
capacity or as Nonaffiliated Partner Trustee), Indenture Trustee (in its
individual capacity) or any Beneficiary or the Trust Estate which are not
indemnified against by BJ USA pursuant to the Participation Agreement or by
Guarantor under the Tax Indemnity Agreement, or (iv) claims against
Nonaffiliated Partner, Indenture Trustee or any Beneficiary arising out of the
transfer (whether voluntary or involuntary) by Nonaffiliated Partner Trustee,
Indenture Trustee (without the consent of BJ USA and
-25-
<PAGE> 66
Nonaffiliated Partner Trustee), or any Beneficiary (without the consent of BJ
USA and Indenture Trustee) of all or any portion of their respective interests
in Partnership, the Units, the Indenture Estate, the Trust Estate or the Basic
Documents, other than a transfer pursuant to Section 9 or 11 of the Partnership
Agreement, Section 5.12, 5.13, 5.16, 5.17, 5.18 or 5.22 of the Participation
Agreement, Section 7.1 of the Services Agreement or Section 15.1 of the O&M
Agreement or in connection with or with respect to an Indenture Event of
Default.
"Nonaffiliated Partner Trustee" -- First Security Bank, National
Association, a national banking association, not in its individual capacity but
solely as Nonaffiliated Partner Trustee under the Trust Agreement.
"Nonaffiliated Partner Trustee Estate" -- as defined in Section 1.1 of
the Indenture.
"Nonaffiliated Partner Trustee Agreements" -- the Basic Documents to
which Nonaffiliated Partner Trustee, either in its individual capacity or as
Nonaffiliated Partner Trustee, is or will be a party.
"Nonaffiliated Partner Trustee's Net Economic Return" -- the weighted
average of the aggregate Net Economic Return of all Beneficiaries.
"Nonrecourse Liability" -- as defined in Treasury Regulation Sections
1.704-2(b)(3) and 1.752-1(a)(2).
"Nonreplacement Election" -- as defined in Section 7.2(e) of the
Partnership Agreement.
"Non-Severable Modification" -- any Modification that is not a
Required Modification or that is not readily removable without causing damage
to any Unit.
"Note Purchasers" -- the Note Purchasers named in the Participation
Agreement.
"Notes" -- the secured notes of Nonaffiliated Partner Trustee issued
under and pursuant to the Participation Agreement and the Indenture, including
any Notes issued in exchange therefor or replacement thereof pursuant to the
Indenture.
-26-
<PAGE> 67
"Notice of Delivery" -- as defined in Section 2.4(a) of the
Participation Agreement.
"Notices" -- all notices, communications or approvals that are
required or may be sent or given pursuant to the Basic Documents.
"O&M Agreement" -- the Operating and Maintenance Agreement dated as of
August 7, 1997 between Partnership and Operator. Such term shall include each
O&M Agreement Supplement entered into pursuant to the O&M Agreement.
"O&M Agreement Supplement" -- (i) an O&M Agreement Supplement
substantially in the form of Exhibit A to the O&M Agreement, between
Partnership and Operator, dated the Commencement Date or the date that any
Replacement Unit or any other Unit is subjected to the O&M Agreement, and
covering the Units related to the Commencement Date or such Replacement Unit or
such other Unit, as the case may be, or (ii) any supplement or amendment
entered into from time to time between Partnership and Operator.
"O&M Default" -- an event which with notice or the lapse of time or
both would become an O&M Event of Default.
"O&M Event of Default" -- as defined in Section 14.1 of the O&M
Agreement.
"O&M/Partnership Event of Default" -- as defined in Section 14.2 of
the O&M Agreement.
"Obligations" -- as defined in Section 1 of the Guaranty.
"Obligor" -- as defined in Section 1 of the Guaranty.
"Officer's Certificate" -- a certificate signed (i) in the case of BJ
USA, General Partner, Service Taker, Operator, Affiliated Partner or Guarantor,
by a Responsible Officer, (ii) in the case of any other corporation, by the
President, any Vice President, any Assistant Vice President, the Treasurer or
an Assistant Treasurer, (iii) in the case of a partnership, by the President,
any Vice President, the Treasurer or an Assistant Treasurer of a corporate
general partner, and (iv) in the case of a commercial bank or trust company, by
the President, any Vice President, any Trust Officer or any other officer
customarily performing the functions similar to those performed by the persons
who at the time shall be such
-27-
<PAGE> 68
officers, or to whom any corporate trust matter is referred because of his
knowledge of and familiarity with the particular subject.
"Operating Capacity" -- as defined in Section 2.1 of the Services
Agreement.
"Operating Payment Date" -- as defined in Section 3.2 of the O&M
Agreement.
"Operating Payments" -- as defined in Section 3.2 of the O&M
Agreement.
"Operator" -- as defined in the caption of the Participation
Agreement.
"Optional Modification" -- as defined in Section 9.2 of the O&M
Agreement.
"Organizational Limited Partner" -- as defined in the caption of the
Partnership Agreement.
"Outstanding" -- when used with respect to the Notes, as of any date
of determination, all Notes theretofore executed and delivered and
authenticated under the Indenture other than:
(a) Notes theretofore canceled by Indenture Trustee or
delivered to Indenture Trustee for cancellation pursuant to Section
2.7 of the Indenture or otherwise;
(b) Notes for whose payment (but only to the extent of
such payment) or prepayment money in the necessary amount has been
theretofore deposited with Indenture Trustee in trust for the Holders
with respect to such Notes; except that if such Notes are to be
redeemed or prepaid, notice of such redemption or prepayment has been
duly given pursuant to the Indenture or provision therefor
satisfactory to Indenture Trustee has been made; and
(c) Notes in exchange for or in lieu of which other Notes
have been authenticated, executed and delivered pursuant to the
Indenture;
except that in determining whether the Holders of the requisite aggregate
principal amount of Notes Outstanding have given any
-28-
<PAGE> 69
request, demand, authorization, declaration, direction, notice, consent or
waiver under the Indenture, Notes owned by or pledged to BJ USA, Guarantor,
Operator, Affiliated Partner, Nonaffiliated Partner Trustee or any Beneficiary
or any Affiliate of any thereof shall be disregarded and deemed not to be
Outstanding, except that, in determining whether Indenture Trustee shall be
protected in relying upon any such request, demand, authorization, declaration,
direction, notice, consent or waiver, only Notes which Indenture Trustee knows
to be so owned or so pledged shall be disregarded, and except if all Notes are
so owned or pledged. The foregoing exception shall not negate the prohibitions
set forth in Section 5.3 of the Participation Agreement.
"Participants" -- the Note Purchasers and Beneficiaries.
"Participating Party" -- as defined in the Guaranty.
"Participation Agreement" -- the Participation Agreement, dated as of
August 7, 1997, among BJ USA, Partnership, Operator, Affiliated Partner,
Nonaffiliated Partner Trustee, in the capacities described therein, Guarantor,
Beneficiaries, Note Purchasers and Indenture Trustee, in the capacities
described therein.
"Partner Transferee" -- any Person or entity, other than a Partner, to
whom a Transferor Partner purports to Transfer its Partnership Interest.
"Partners" -- General Partner, Affiliated Partner and Nonaffiliated
Partner, and "Partner" means any of the Partners.
"Partnership" -- BJ Services Equipment, L.P., a Delaware limited
partnership, which was established pursuant to the Initial Partnership
Agreement.
"Partnership Agreement" -- the Amended and Restated Agreement of
Limited Partnership of BJ Services Equipment, L.P., dated as of August 7, 1997
among General Partner, Affiliated Partner and Nonaffiliated Partner Trustee,
which amends and restates the Initial Partnership Agreement. Such term shall
include each Partnership Agreement Supplement entered into pursuant to the
Partnership Agreement.
-29-
<PAGE> 70
"Partnership Agreement Supplement" -- (i) a Partnership Agreement
Supplement, substantially in the form of Exhibit A to the Partnership
Agreement, dated the Commencement Date or the date that any Replacement Unit is
contributed to Partnership by General Partner or Affiliated Partner, among
General Partner, Affiliated Partner and Nonaffiliated Partner, covering the
Units owned by Partnership on the Commencement Date or related to such
Replacement Unit, or (ii) any supplement or amendment entered into from time to
time among General Partner, Affiliated Partner and Nonaffiliated Partner.
"Partnership Interest" -- a Partner's ownership interest in
Partnership and such Partner's rights and obligations under the Partnership
Agreement.
"Partnership Tax Return" -- the Federal Partnership Information Return
(together with all schedules required to be attached thereto) filed as IRS Form
1065, or any successor form.
"Parts" -- as defined in Section 8.3 of the O&M Agreement.
"Payment Amount" -- with respect to the Notes, the total amount of the
payment of principal due and payable on each Payment Date, expressed as a
percentage and set forth in the appropriate Indenture Supplement. As to any
single Note, "Payment Amount" -- the portion of total Payment Amount set forth
therein in dollar or percentage terms.
"Payment Date" -- with respect to both payments of principal and
interest for Notes, each December 30 and June 30, beginning on the first such
date to occur after the initial issuance of Notes.
"Payment Month" -- as defined in Section 3.3 of the Services Agreement
or Section 3.2(a) of the O&M Agreement.
"Payments" -- (i) in the O&M Agreement, the Operating Payments made by
Service Taker to Operator and (ii) in the Services Agreement, Minimum Service
Payments and Additional Service Payments.
"PBGC" -- as defined in Section 3.2(t)(ii)(C) of the Participation
Agreement.
-30-
<PAGE> 71
"Pension Plan" -- at any time, any "employee pension benefit plan" (as
defined in Section 3 of ERISA) maintained at such time by BJ USA or any ERISA
Affiliate for employees of BJ USA or such ERISA Affiliate, excluding any
Multiemployer Plan.
"Permitted Investments" -- (i) direct obligations of the United States
of America and agencies thereof for which the full faith and credit of the
United States is pledged, (ii) obligations fully guaranteed by the United
States of America, (iii) certificates of deposit issued by, or bankers'
acceptances of, or time deposits with, any bank, trust company or national
banking association (which may be Indenture Trustee) incorporated or doing
business under the laws of the United States of America or one of the States
thereof having combined capital and surplus and retained earnings of at least
$1,000,000,000 and having a rating assigned to the long-term unsecured debt of
such institutions by Standard & Poor's Corporation and Moody's Investors
Service, Inc. at least equal to AA and AA2, respectively, and (iv) commercial
paper of companies, banks, trust companies or national banking associations (in
each case excluding BJ USA and its Affiliates) incorporated or doing business
under the laws of the United States of America or one of the States thereof and
in each case having a rating assigned to such commercial paper by Standard &
Poor's Corporation or Moody's Investors Service, Inc. (or, if neither such
organization shall rate such commercial paper at any time, by any nationally
recognized rating organization in the United States of America) equal to the
highest rating assigned by such organization; except that if all of the above
investments are unavailable, the entire amount to be invested may be used to
purchase Federal Funds from an entity described in clause (iii) above and no
investment shall be eligible as a "Permitted Investment" unless the final
maturity or date of return of such investment is 90 days or less from the date
of purchase thereof.
"Permitted Liens" -- with respect to any Unit: (i) the interests of
Partnership under the Amended and Restated Partnership Agreement; (ii) the
interest of Operator under the O&M Agreement and the interest of Service Taker
under the Services Agreement; (iii) any Liens thereon for taxes, assessments,
levies, fees and other government and similar charges not due and payable or
the amount or validity of which is being contested in good faith by appropriate
proceedings so long as (a) there exists no material risk of sale, forfeiture or
loss of, or loss or interference with use or possession of, or diminution of
value, utility or useful
-31-
<PAGE> 72
life of, any Unit or any interest therein, or any risk of interference with the
payment of Priority Distributions, Supplemental Priority Distributions, Special
Distributions or any other amounts payable under the Basic Documents, (b) such
contest would not result in, or increase the risk of, the imposition of any
criminal liability on any Indemnified Person, (c) such contest would not
materially and adversely affect the rights, titles and interests of
Nonaffiliated Partner Trustee, Partnership or Indenture Trustee in or to any
Unit or any interest therein, and (d) appropriate reserves with respect thereto
are maintained in accordance with GAAP; (iv) any Liens of mechanics, suppliers,
vendors, materialmen, laborers, employees, repairmen and other like Liens
arising in the ordinary course of Partnership's business securing obligations
which are not due and payable or the amount or validity of which is being
contested in good faith by appropriate proceedings so long as (a) there exists
no material risk of sale, forfeiture or loss of, or loss or interference with
use or possession of, or diminution of value, utility or useful life of, any
Unit or any interest therein, or interference with the payment of Priority
Distributions, Supplemental Priority Distributions, Special Distributions or
any other amounts payable under the Basic Documents, (b) such contest would not
result in, or increase the risk of, the imposition of any criminal liability on
any Indemnified Person, (c) such contest would not materially and adversely
affect the rights, titles and interests of Nonaffiliated Partner Trustee,
Partnership or Indenture Trustee in or to any Unit or any interest therein, and
(d) appropriate reserves with respect thereto are maintained in accordance with
GAAP; (v) the Lien of the Indenture, and the respective rights of the Holders,
Indenture Trustee, Beneficiaries, Partnership and Nonaffiliated Partner Trustee
under the Basic Documents; (vi) Liens arising out of any judgment or award
against Partnership with respect to which an appeal or proceeding for review is
being taken in good faith and with respect to which there shall have been
secured a stay of execution pending such appeal or proceeding for review so
long as (a) there exists no material risk of sale, forfeiture or loss of, or
loss or interference with the use or possession of, or diminution of value,
utility or useful life of, any Unit or any interest therein, or any risk of
interference with the payment of Priority Distributions, Supplemental Priority
Distributions, Special Distributions or any other amounts payable under the
Basic Documents, (b) such contest would not result in, or increase the risk of,
the imposition of any criminal liability on any Indemnified Person, (c) such
contest would not materially and
-32-
<PAGE> 73
adversely affect the rights, titles and interests of Partnership, Nonaffiliated
Partner Trustee or Indenture Trustee in or to any Unit or any interest therein,
and (d) appropriate reserves with respect thereto are maintained in accordance
with GAAP; and (vii) salvage rights of insurers under insurance policies
maintained by Operator pursuant to Section 12 of the O&M Agreement.
"Person" -- an individual, partnership, joint venture, corporation,
trust, limited liability company, association or unincorporated organization,
and a government or agency or political subdivision thereof.
"Premium" -- as defined in Section 2.15 of the Indenture.
"Prepayment Date" -- the date on which the Notes are to be prepaid or
redeemed (or purchased in lieu of prepayment or redemption, as applicable)
pursuant to Section 6.1, 8.3(e)(iii) or 8.3(e)(iv) of the Indenture, which
date, unless otherwise stated in the Indenture, shall be a Payment Date.
"Prepayment Price" -- the price at which the Notes are to be prepaid
or redeemed (or purchased in lieu of prepayment or redemption, where
applicable), determined as of the applicable Prepayment Date, pursuant to
Section 6.1 or 8.3(e) of the Indenture, as the case may be.
"Priority Distribution" -- the amounts set forth on Schedule 1 to the
Partnership Agreement, Schedule 4 to the Participation Agreement and Schedule 2
to the Trust Agreement, which under any circumstances and in any event, will be
an amount at least sufficient to pay in full as of the date of payment thereof,
the principal amount of and interest on the Notes due on such date.
"Property" -- all assets owned directly, indirectly or beneficially by
Partnership at any date of determination, including, without limitation, all
cash, all personal property, and any item thereof.
"Proposed Removed Units" -- as defined in Section 5.16 of the
Participation Agreement.
"Reasonable Basis" -- a "reasonable basis" determined in accordance
with the principles of ABA Formal Opinion No. 85-352, or in the case guidance
is provided by the Treasury Department under
-33-
<PAGE> 74
Section 6662(d)(2)(B)(ii) of the Code which provides a different determination
thereof, which is applicable and which overrides ABA Formal Opinion No. 85-532,
such different determination shall be utilized.
"Rebuild" -- with respect to a Unit, replacement of all hoses
(hydraulic, water or other), air lines, bearings, rings, wiring and other
normal wear components with new components and refurbishment to the level
necessary to bring the Unit to manufacturers' specified operational performance
standards for the Unit.
"Recapture Income" -- any gain recognized by Partnership (computed
without regard to any adjustment required by Section 734 or 743 of the Code)
upon the disposition of any Property of Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such Property.
"Reduction Date" -- as defined in Section 5.16 of the Participation
Agreement.
"Reduction Election" -- as defined in Section 5.16 of the
Participation Agreement.
"Register" -- as defined in Section 2.3 of the Indenture.
"Registrar" -- as defined in Section 2.3 of the Indenture.
"Regulatory Change" -- any change after the date of the Indenture in
Federal, state or foreign law or regulations or the adoption or making after
such date of any interpretation, directive or request applying to a class of
financial institutions including any Holder of or under any Federal, state or
foreign law or regulation (whether or not having the force of law and whether
or not failure to comply therewith would be unlawful) by any court or
government or monetary authority charged with the interpretation or
administration thereof.
"Reimbursed Expense" -- as defined in Section 3.2(b) of the O&M
Agreement.
"Release" -- any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment
-34-
<PAGE> 75
(including, without limitation, ambient air, surface water, groundwater and
surface or subsurface strata) or into or out of any property, including the
movement of Hazardous Substances through or in the air, soil, surface water,
groundwater or property.
"Remaining Partnership Interest" -- Nonaffiliated Partner Trustee's
Partnership Interest less the aggregate Equipment Value of all Units purchased
from Partnership pursuant to Section 5.12(ii) of the Participation Agreement,
sold pursuant to Section 5.17 of the Participation Agreement or retained
pursuant to Section 5.18 of the Participation Agreement.
"Renewal Term" -- the period from the Base Term Expiration Date to the
date 2 years thereafter.
"Replaced Unit" -- as defined in Section 5.3 of the Indenture.
"Replacement Parts" -- Parts replaced in accordance with Section 8.3
of the O&M Agreement.
"Replacement Unit" -- an item of equipment that meets the standards
of Section 5.11 or 5.12, as the case may be, of the Participation Agreement, is
subject to the Partnership Agreement and the Lien of the Indenture and is
operated and maintained under the O&M Agreement.
"Required Modification" -- as defined in Section 9.1 of the O&M
Agreement.
"Responsible Officer" -- with respect to BJ USA, Affiliated Partner,
Operator or Guarantor, the President, the Treasurer, the Chief Executive
Officer, the Chief Financial Officer, the Chief Accounting Officer or the
General Counsel.
"RT Price" -- the fair market value of Nonaffiliated Partner Trustee's
Partnership Interest which will be deemed to equal 99% of the Fair Market Value
of the Units on the last day of the Renewal Term.
"RT Right" -- as defined in Section 9.3 of the Partnership Agreement.
"Scheduled Commencement Date" -- as defined in Section 2.8(b) of the
Participation Agreement.
-35-
<PAGE> 76
"Secured Obligations" -- as defined in the Granting Clause of the
Indenture.
"Securities Act" -- the Securities Act of 1933, as amended, or any
successor law.
"Senior Financial Officer" -- with respect to BJ USA, the Chief
Financial Officer, the Chief Accounting officer or the Treasurer.
"Service Payment" -- all Minimum Service Payments and Additional
Service Payments.
"Service Taker" -- BJ USA, as Service Taker under the Services
Agreement.
"Services" -- as defined in Section 2.1 of the Services Agreement.
"Services Agreement" -- the Amended and Restated Services Agreement
dated as of August 7, 1997 between Service Taker and Partnership.
"Services Event of Default" -- as defined in Section 6.1 of the
Services Agreement.
"Services/Partnership Event of Default" -- as defined in Section 6.2
of the Services Agreement.
"Services Payment Date" -- as defined in Section 3.3 of the Services
Agreement.
"Settlement Date" -- as defined in Section 5.12 of the Participation
Agreement.
"Severable Modification" -- any Modification other than a
Non-Severable Modification.
"Special Distribution" -- as defined in Section 6.1(d) of the
Partnership Agreement.
"Subsidiary" of any Person -- any Person of which more than 50% of the
voting stock or other equity interests (in case of Persons other than
corporations) is owned or controlled, directly or indirectly, by such Person,
or one or more Subsidiaries of the
-36-
<PAGE> 77
Person or a combination thereof. Unless the context otherwise clearly
requires, references in the Basic Documents to a "Subsidiary" refer to a
Subsidiary of Guarantor. "Subsidiaries" of Guarantor shall include all
Consolidated Subsidiaries (except to the extent otherwise specifically provided
in the Basic Documents).
"Substitution Election" -- as defined in Section 7.2(d) of the
Partnership Agreement.
"Supplemental Contributions" -- as defined in Section 4.4(c) of the
Partnership Agreement.
"Supplemental Priority Distributions" -- as defined in Section 6.1(c)
of the Partnership Agreement.
"Tax Adjustment" -- as defined in Section 5.1(e) of the Partnership
Agreement.
"Tax Assumptions" -- as defined in Section 1.1 of the Tax Indemnity
Agreement.
"Tax Counsel" -- Mayer, Brown & Platt or any other independent firm of
attorneys nationally recognized as being expert in tax matters selected by
Beneficiaries and reasonably acceptable to BJ USA.
"Tax Indemnitee" -- as defined in Section 7.1(a) of the Participation
Agreement.
"Tax Indemnity Agreement" -- each Tax Indemnity Agreement, dated as of
August 7, 1997, between Guarantor and each Beneficiary.
"Tax Matters Partner" -- the Partner designated as such from time to
time pursuant to Section 8.6 of the Partnership Agreement.
"Taxable Period" -- a calendar year (or short period) for which a
Partnership Tax Return is required to be filed for the Partnership; except that
the Partnership's first Taxable Period shall begin on the Commencement Date and
shall end on December 31, 1997 (or any earlier date marking the end of the
period including the Commencement Date for which a Partnership Tax Return is
required to be filed for the Partnership).
-37-
<PAGE> 78
"Taxes" -- as defined in Section 7.1(b) of the Participation
Agreement.
"Third Party Claim" -- any claim, demand, action, cause of action,
judgment, assessment, compromise, settlement or decree, made by or in favor of
any party other than the Partnership or its partners in respect of any personal
injury or property damage.
"Total Equipment Value" -- the Equipment Value of the Units up to a
maximum of $100,000,000.
"Transaction Costs" -- as defined in Section 2.6(a) of the
Participation Agreement.
"Transaction Term" -- unless earlier terminated, the Base Term and, if
General Partner causes Partnership to exercise its option to renew the O&M
Agreement and Services Agreement pursuant to Sections 22.2 and 12.3,
respectively, thereof, the Renewal Term.
"Transaction Term Expiration Date" -- as defined in Section 4.2(a)(ii)
of the Participation Agreement.
"Transfer" -- a sale, assignment, transfer, contribution, mortgage or
other encumbrance of a Partnership Interest, or a sufferance of any third party
to sell, assign, transfer, contribute, mortgage, charge or otherwise encumber a
Partnership Interest, or a contract to do or permit any of the foregoing,
whether voluntarily or by operation of law.
"Transferee" -- as defined in Section 6.1(a) of the Participation
Agreement.
"Transferor Partner" -- any Partner desiring to Transfer its
Partnership Interest or any portion thereof pursuant to the provisions of
Article Ten of the Partnership Agreement.
"Treasury Regulations" -- proposed, temporary and final treasury
regulations promulgated under the Code as of the effective date hereof and any
successor provisions thereto.
"Trust" -- BJ Services Trust No. 1997-1, as provided in Section 11.12
of the Trust Agreement.
-38-
<PAGE> 79
"Trust Agreement" -- the Trust Agreement dated as of August 7, 1997
among Beneficiaries and First Security.
"Trust Estate" -- as defined in Section 2.2 of the Trust Agreement.
"Trust Expenses" -- as defined in Section 6.1 of the Trust Agreement.
"Trust Tax Matters Partner" -- as defined in Section 12.7 of the Trust
Agreement.
"Trustee" -- each of Nonaffiliated Partner Trustee or Indenture
Trustee and "Trustees" -- Nonaffiliated Partner Trustee and Indenture Trustee,
collectively.
"Trustee Documents" -- as defined in Section 2.1 of the Trust
Agreement.
"U.C.C." -- the Uniform Commercial Code in effect in the applicable
jurisdiction.
"Unanimous Consent" -- as defined in Section 7.4 of the Partnership
Agreement.
"Unit" -- one of the Units.
"Units" -- collectively the heavy duty truck tractors and truck
trailers, in each case with the equipment installed thereon on the Commencement
Date, each tractor or trailer, as the case may be, configured to operate on a
standalone basis or in conjunction with other Units and provide any of the
Services, or a combination thereof, and the other items of equipment, all as
more particularly described in Schedule 3 to the Participation Agreement and
each Partnership Agreement Supplement, Indenture Supplement and O&M Agreement
Supplement together with any and all appliances, Parts, instruments,
accessories, furnishings, other equipment, accessions, additions, improvements,
substitutions and replacements from time to time incorporated or installed in
or on any item thereof (other than any Severable Modifications that are not
Required Modifications) and any and all appliances, parts, instruments,
accessories, furnishings and other equipment title to which vests in, and which
is the property of, Partnership pursuant to the terms of the Partnership
Agreement.
-39-
<PAGE> 80
"Unrealized Gain" attributable to any item of Property -- as of any
date of determination, the excess, if any, of (a) the fair market value of such
Property as of such date (as determined under Section 5.1(d) of the Partnership
Agreement) over (b) the Carrying Value of such Property as of such date (before
any adjustment to be made pursuant to Section 5.1(d) of the Partnership
Agreement as of such date).
"Unrealized Loss" attributable to any item of Property -- as of any
date of determination, the excess, if any, of (a) the Carrying Value of such
Property as of such date (before any adjustment to be made pursuant to Section
5.1(d) of the Partnership Agreement as of such date) over (b) the fair market
value of such Property as of such date (as determined under Section 5.1(d) of
the Partnership Agreement).
-40-
<PAGE> 1
EXHIBIT 10.17
INDENTURE SUPPLEMENT NO. 1 dated as of August 8, 1997, between First
Security Bank, National Association, a national banking association, not in its
individual capacity, but solely as Nonaffiliated Partner Trustee ("Nonaffiliated
Partner Trustee") under the Trust Agreement dated as of August 7, 1997 between
Beneficiaries named therein and First Security Bank, National Association, BJ
Services Equipment, L.P., a Delaware Limited Partnership ("Partnership"), and
State Street Bank and Trust Company, a Massachusetts trust company, as Indenture
Trustee (the "Indenture Trustee") under the Trust Indenture and Security
Agreement dated as of August 7, 1997 (together with all amendments and
supplements heretofore entered into, the "Indenture"), among Nonaffiliated
Partner Trustee, Partnership and Indenture Trustee. Unless otherwise defined
herein, capitalized terms used herein shall have the meanings specified in the
Participation Agreement.
R E C I T A L S:
A. The Indenture provides for the execution and delivery of
Indenture Supplements thereto substantially in the form hereof which shall
particularly describe the Units, by having attached thereto a copy of the
applicable Partnership Agreement Supplement and O&M Agreement Supplement and
shall specifically submit such Units to the Lien of the Indenture and this
Indenture Supplement.
B. The Indenture relates to the Units described in the copy of
the Partnership Agreement Supplement and O&M Agreement Supplement of even date
herewith attached hereto as Exhibits A and B, respectively, and made a part
hereof.
NOW, THEREFORE, in order further to secure the prompt payment of the
principal of, Premium, if any, and interest on the Notes from time to time
Outstanding in accordance with the terms thereof under the Indenture (including
those Outstanding under this Indenture Supplement) and to secure the payment,
performance and observance by Nonaffiliated Partner Trustee and Partnership of
all the agreements, covenants and provisions for the benefit of the Holders and
Indenture Trustee contained in the Indenture and in the Basic Documents to
which Partnership or Nonaffiliated Partner Trustee is a party (collectively,
the "Secured Obligations") and for the uses and purposes and subject to the
terms and provisions of the Indenture and this Indenture Supplement,
<PAGE> 2
(i) Nonaffiliated Partner Trustee has granted, bargained,
sold, assigned, transferred, conveyed, pledged and confirmed, and does
hereby grant, bargain, sell, assign, transfer, convey, pledge, and
confirm, unto Indenture Trustee, its successors and assigns, for the
security and benefit of the Holders from time to time and Indenture
Trustee, and grants a security interest in and lien on, all estate,
right, title and interest of Nonaffiliated Partner Trustee in, to and
under (A) the Partnership Agreement and Nonaffiliated Partner Trustee's
Partnership Interest under the Partnership Agreement (including all
instruments or certificates owned or held by or established in favor
of Nonaffiliated Partner Trustee with respect to such Partnership
Interest) and all rights, authority, powers and privileges of
Nonaffiliated Partner Trustee as a holder of such Partnership Interest
and all payments and distributions thereunder of whatever kind or
character and whether in cash or other property, at any time made or
distributable to Nonaffiliated Partner Trustee thereunder or in
respect thereof, whether due or to become due and whether representing
profits, distributions, repayments of capital contributions or
otherwise (including all amounts of Priority Distributions,
Supplemental Priority Distributions, Special Distributions,
Disposition Value, ET Price, FT Price and payments of any kind
required to be made to Nonaffiliated Partner Trustee thereunder),
including, without limitation, the immediate and continuing right of
Nonaffiliated Partner Trustee to receive and collect all distributions
and any other payments or other amounts and the right of Nonaffiliated
Partner Trustee to exercise any election or option or to make any
decision or determination or to give or receive any notice, consent,
waiver or approval or to consent to any amendment, modification or
waiver or to make any claims or demands under or to take any other
action provided under or in respect of the Partnership Agreement, the
Services Agreement or the O&M Agreement or to accept surrender of any
Unit or Units, including all the rights and powers and remedies of
Nonaffiliated Partner Trustee to the exclusion of General Partner and
any other Partner, to declare the O&M Agreement and the Services
Agreement to be in default, to terminate such agreements and exercise
all rights and remedies thereunder and under the Partnership
Agreement, including, without limitation, the commencement, conduct
and consummation of legal, administrative and other proceedings as
permitted thereunder or by law and the liquidation of Partnership and
- 2 -
<PAGE> 3
all rights and powers of Nonaffiliated Partner Trustee to the
exclusion of General Partner and any other Partner following a BJ
Event of Default to amend, modify or waive such agreements and to
exercise the other rights contained in Section 7 of the Partnership
Agreement; and (B) all other rights, remedies and other property
described in Section 1.1(i) of the Indenture; and
(ii) Partnership has granted, bargained, sold, assigned,
transferred, conveyed, pledged and confirmed, and does hereby grant,
bargain, sell, assign, transfer, convey, pledge, and confirm, unto
Indenture Trustee, its successors and assigns, for the security and
benefit of the Holders from time to time and Indenture Trustee, and
grants a security interest in and lien on, all estate, right, title
and interest of Nonaffiliated Partner Trustee in, to and under (i) the
Units and all replacements thereof and substitutions therefor in which
Partnership shall from time to time acquire an interest under the
Contribution Agreements and the Partnership Agreement as more
particularly described in the copy of the Partnership Agreement
Supplement and O&M Agreement Supplement attached hereto as Exhibits A
and B, respectively, and (ii) all other rights, remedies and other
property described in Section 1.1(ii) of the Indenture.
BUT SUBJECT, HOWEVER, TO THE EXCLUSIONS AND LIMITATIONS SET FORTH IN
THE INDENTURE, SUCH EXCLUSIONS INCLUDING, any and all Excepted Property now
existing or hereafter arising.
TO HAVE AND TO HOLD all and singular the aforesaid property unto
Indenture Trustee, its successors and assigns, in trust for the benefit and
security of the Holders from time to time, without any preference, priority or
distinction of any one Note over any other Note under the Indenture, and for
the benefit and security of Indenture Trustee and for the uses and purposes and
subject to the terms and provisions set forth in the Indenture.
It is the intention of the parties hereto that all Notes issued and
Outstanding under the Indenture rank on a parity with each other Note and that,
as to each other Note, they be secured equally and ratably by the collateral
described herein and in other Indenture Supplements, without preference,
priority or distinction of any one thereof over any other by reason of
difference in time of issuance or otherwise.
- 3 -
<PAGE> 4
The Notes issued under this Indenture Supplement shall be designated
as Secured Notes. The Notes shall be substantially in the form set forth in
Exhibit A to the Indenture. The Notes issued under this Indenture Supplement
shall be dated the date of issuance thereof and shall bear interest at a rate
of 7.33% per annum. The principal of each Note shall be payable as indicated
in Exhibit C hereto.
This Supplement shall be construed as supplemental to the Indenture
and shall form a part of it, and this Indenture Supplement is hereby
incorporated by reference therein and the Indenture is hereby ratified,
approved and confirmed.
This Supplement may be executed by Nonaffiliated Partner Trustee and
Indenture Trustee in separate counterparts, each of which when so executed and
delivered is an original, but all such counterparts shall together constitute
but one and the same Supplement.
AND FURTHER, Nonaffiliated Partner Trustee and Partnership hereby
acknowledge that the Units referred to in the aforesaid Partnership Agreement
Supplement and O&M Agreement Supplement attached hereto and made a part hereof
have been delivered to Partnership and are included in the property of
Partnership covered by all the applicable terms and conditions of the
Partnership Agreement, subject to the pledge or mortgage thereof under the
Indenture.
THIS INDENTURE SUPPLEMENT AND THE NOTES SHALL BE IN ALL RESPECTS
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE FOR CONTRACTS ENTERED INTO
AND TO BE PERFORMED WITHIN NEW YORK, EXCEPT TO THE EXTENT THAT MATTERS RELATING
TO PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY
INTERESTS GRANTED BY THE BASIC DOCUMENTS ARE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE UNIFORM COMMERCIAL CODE OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
- 4 -
<PAGE> 5
IN WITNESS WHEREOF Nonaffiliated Partner Trustee, Partnership and
Indenture Trustee have caused this INDENTURE SUPPLEMENT NO. 1 to be duly
executed by their respective officers thereunto duly authorized, as of the day
and year first above written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Nonaffiliated Partner Trustee
By: /s/
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-1
<PAGE> 6
BJ SERVICES EQUIPMENT, L.P.
By: BJ SERVICES COMPANY, U.S.A.,
its general partner
By: /s/
------------------------------------
Name:
----------------------------
Title:
---------------------------
S-2
<PAGE> 7
STATE STREET BANK AND TRUST COMPANY,
as Indenture Trustee
By: /s/
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-3
<PAGE> 8
APPENDIX A
DEFINITIONS
General Provisions
The following terms shall have the following meanings for all purposes
of the Basic Documents referred to below, unless otherwise defined in a Basic
Document or the context thereof otherwise requires. Such meanings shall be
equally applicable to both the singular and the plural forms of the terms
herein defined. In case of any conflict between the provisions hereof and the
provisions of the main body of any Basic Document, the provisions of the main
body of such Basic Document shall control the construction of such Basic
Document.
Unless the context otherwise requires, (i) references to agreements
shall be deemed to mean and include such agreements as amended, supplemented
and otherwise modified from time to time, (ii) references to parties to
agreements shall be deemed to include the permitted successors and assigns of
such parties, (iii) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to the Basic Document as a whole in which such
words are used and not to any particular Section, Subsection or other
subdivision of such Basic Document and (iv) all references in a Basic Document
to Sections, Exhibits, Schedules and Appendices refer to Sections, Exhibits,
Schedules and Appendices of such Basic Document unless otherwise indicated.
Defined Terms
"Additional Service Payments" -- as defined in Section 3.4 of the
Services Agreement.
<PAGE> 9
"Additional Services" -- as defined in Section 2.1 of the Services
Agreement.
"Adjusted Capital Account" -- the Capital Account maintained for each
Partner as of the end of each taxable year of Partnership, (a) increased by any
amounts that such Partner is obligated to restore under the standards set by
Treasury Regulation Section 1.704- 1(b)(2)(ii)(c)(or is deemed obligated to
restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and
(b) decreased by (i) the amount of all losses and deductions that, as of the
end of such taxable year, are reasonably expected to be allocated to such
Partner in subsequent years under Sections 704(e)(2) and 706(d) of the Code and
Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all
distributions that, as of the end of such taxable year, are reasonably expected
to be made to such Partner in subsequent years in accordance with the
Partnership Agreement to the extent they exceed offsetting increases to such
Partner's Capital Account that are reasonably expected to occur during (or
before) the year in which such distributions are reasonably expected to be made
(other than increases as a result of a minimum gain chargeback pursuant to
Section 5.2(c)(i) of the Partnership Agreement). The foregoing definition of
Adjusted Capital Account is intended to comply with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
"Affiliate" of any Person -- any other Person which directly or
indirectly controls, or is controlled by, or is under a common control with,
such Person. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise, and the term "controlled" shall have a meaning correlative to the
foregoing.
"Affiliated Partner" -- as defined in the caption of the Participation
Agreement.
"After-Tax Basis" -- (i) in the case of any amount being paid to any
Tax Indemnitee or Indemnified Person, an amount which, after deduction of all
Taxes imposed upon such Tax Indemnitee or Indemnified Person that would not
have been imposed but for the receipt or accrual of such amount (or the receipt
or accrual of
-2-
<PAGE> 10
amounts paid by reason of a "gross-up" provision), is equal to the amount
required to be paid under the applicable Basic Document and (ii) in the case of
any amount being paid by any Tax Indemnitee, an amount which, after deduction
of all Taxes saved by such Tax Indemnitee that would not have been saved but
for the payment or accrual of the obligation to pay such amount (or the payment
or accrual of the obligation to pay amounts by reason of a "gross-up"
provision) is equal to the amount to be paid under the applicable Basic
Document. All computations for the purposes hereof shall be based on the
highest applicable tax rates in effect in the applicable jurisdiction on the
date payment is made or accrued, as the case may be.
"Agreed Value" of any Contributed Property -- the fair market value of
such property or other consideration at the time of contribution as determined
by General Partner using such reasonable method of valuation as it may adopt;
except that if any Limited Partner disputes the fair market value of any
Contributed Property as so determined by General Partner, the fair market value
of such Contributed Property shall be determined by a Contributed Property
Appraisal.
"Appraisal" -- the report of Arthur Andersen containing the opinions
described in Section 4.2(a) of the Participation Agreement, and otherwise in
form and substance reasonably satisfactory to Beneficiaries.
"Assigned Agreements" -- the Partnership Agreement, the Contribution
Agreements and the Guaranty.
"Attorney-in-Fact" -- as defined in Section 2.3(b) of the Partnership
Agreement.
"Available Cash" -- as defined in Section 6.1(e) of the Partnership
Agreement.
"Bank Guaranties" -- the Guaranty Agreements dated as of August 7,
1996, executed by each of BJ USA, BJ Service International, Inc., a Delaware
corporation, and BJ Services Company Middle East, a Delaware corporation, each
in favor of the Agents (as defined in the BJ Credit Agreement) and the Banks
(as defined in the BJ Credit Agreement).
-3-
<PAGE> 11
"Bankruptcy" -- an event described in clause (g) or clause (h) of the
definition of "BJ Event of Default."
"Bankrupt Beneficiary" -- as defined in Section 8.3(e)(i)(4) of the
Indenture.
"Bankrupt BJ Entity" -- (a) Service Taker, if a Services Event of
Default described in Section 6.1(d) or (e) exists, (b) Operator, if an O&M
Event of Default described in Section 14.1(d) or (e) exists, (c) Partnership,
if a BJ Event of Default described in clause (g) or (h) of the definition
thereof exists with respect to Partnership, (d) Affiliated Partner, if a BJ
Event of Default described in clause (g) or (h) of the definition thereof
exists with respect to Affiliated Partner, (e) General Partner, if a BJ Event
of Default described in clause (g) or (h) of the definition thereof exists with
respect to General Partner, and (f) BJ USA if a BJ Event of Default described
in clause (g) or (h) of the definition thereof exists with respect to BJ USA.
"Bankruptcy Code" -- the United States Bankruptcy Reform Act of 1978,
as amended from time to time, 11 U.S.C. Section 101 et seq.
"Base Services" -- as defined in Section 2.1 of the Services
Agreement.
"Base Term" -- the period from the Commencement Date to the Base Term
Expiration Date.
"Base Term Expiration Date" -- as defined in Section 4.2(a)(iv) of the
Participation Agreement.
"Basic Documents" -- the Participation Agreement, the Contribution
Agreements, the Trust Agreement, the Notes, the Partnership Agreement
(including each Partnership Agreement Supplement), the O&M Agreement (including
each O&M Agreement Supplement), the Services Agreement, the Guaranty, the
Indenture (including each Indenture Supplement) and the Tax Indemnity
Agreement.
"Beneficial Interest" -- the interest of a Beneficiary under the Trust
Agreement.
"Beneficiaries' Agreements" -- the Basic Documents to which the
Beneficiaries are or will be a party.
-4-
<PAGE> 12
"Beneficiaries' Certificate" -- as defined in Section 2.4(a) of the
Participation Agreement.
"Beneficiary" -- each Person listed as a Beneficiary in Schedule 1 to
the Participation Agreement and each Person that becomes a Beneficiary pursuant
to Section 6.1 of the Participation Agreement.
"Beneficiary Bankruptcy" -- as defined in Section 8.3(e)(i)(4) of the
Indenture.
"BJ Credit Agreement" -- the Amended and Restated Credit Agreement
dated as of August 7, 1996, among BJ Services Company, BJ Services Company,
U.S.A., BJ Service International, Inc., BJ Services Company Middle East, Nowsco
Well Service Ltd. and the other Subsidiary Borrowers from time to time parties
thereto, Bank of America National Trust and Savings Association, individually,
as U.S. Agent, as Letter of Credit Issuing Bank and as Swing Loan Bank, Bank of
America Canada, individually and as Canadian Agent, The Chase Manhattan Bank,
individually and as Senior Co-Agent, Bank of Montreal, Royal Bank of Canada,
Toronto-Dominion (Texas), Inc., Credit Lyonnais New York Branch and Wells Fargo
Bank (Texas), National Association, each individually and as Co-Agent, and the
other financial institutions from time to time parties thereto.
"BJ Default" -- an event which with notice or the lapse of time or
both would become a BJ Event of Default.
"BJ Event of Default" -- any one or more of the following if
continuing at the time of determination:
(a) a Services Event of Default under Section 6.1(b),
(c), (d), (e) or (f) of the Services Agreement;
(b) an O&M Event of Default;
(c) a Guarantor Event of Default;
(d) General Partner or Affiliated Partner fails to make
any capital contribution under the Partnership Agreement or pay any
other amount under Sections 5.12, 5.16, 5.17, 5.18 or 5.22 of the
Participation Agreement or Partnership fails to make and/or General
Partner fails to cause Partnership to make any Priority Distribution,
Supplemental Priority Distribution
-5-
<PAGE> 13
or Special Distribution, in each case, within 5 Business Days after
the same becomes payable or distributable;
(e) Partnership, General Partner, Affiliated Partner or
BJ USA fails to make any payment or distribution (other than as
described in clause (d) above) under any Basic Document, other than
the O&M Agreement and the Services Agreement (except that any failure
to pay or distribute to Nonaffiliated Partner Trustee (in its
individual or trust capacity) or any Beneficiary when due or
distributable any amount constituting Excepted Property shall not
constitute a BJ Event of Default before the discharge of the Lien of
the Indenture in accordance with the terms thereof) after the same
becomes due or distributable and such failure continues unremedied for
30 days after receipt by Partnership, General Partner, Affiliated
Partner or BJ USA, as the case may be, of written notice of such
failure from Nonaffiliated Partner Trustee, any Beneficiary, Indenture
Trustee or any Holder;
(f) any representation made by Partnership, General
Partner, Affiliated Partner or BJ USA in any Basic Document, other
than the O&M Agreement and the Services Agreement, or in any other
document or certificate furnished by Partnership, General Partner,
Affiliated Partner or BJ USA (or a Responsible Officer of Partnership,
General Partner, Affiliated Partner or BJ USA) pursuant to the Basic
Documents, other than the O&M Agreement and the Services Agreement,
was untrue or incorrect in any material respect as of the date of
making thereof;
(g) Partnership, General Partner, Affiliated Partner or
BJ USA (i) commences a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect, or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or (ii) consents to any such relief
or to the appointment of or taking possession by any such official in
any voluntary case or other proceeding commenced against it, or (iii)
generally fails to pay, or admits in writing its inability to pay, its
debts as they come due, or (iv) makes a general assignment for the
benefit of creditors,
-6-
<PAGE> 14
or (v) takes any corporate action to authorize or in furtherance of
any of the foregoing;
(h) an involuntary case or other proceeding is commenced
against Partnership, General Partner, Affiliated Partner or BJ USA
seeking liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect, or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding remains undismissed and unstayed for a period of 60 days;
(i) any events of dissolution under Section 11 of the
Partnership Agreement; or
(j) Partnership, General Partner, Affiliated Partner or
BJ USA fails to observe or perform any of its covenants or agreements
(other than those described in the foregoing clauses of this
definition) to be observed or performed by it under any Basic
Document, other than the O&M Agreement and the Services Agreement, and
the failure continues unremedied for 30 days after notice from
Nonaffiliated Partner Trustee, any Beneficiary, Indenture Trustee or
any Holder to Partnership, General Partner, Affiliated Partner or BJ
USA, as the case may be, specifying the failure and demanding the same
to be remedied; except that, if the failure is capable of being
remedied and the remedy does not involve the payment of money alone,
no such failure shall constitute a BJ Event of Default so long as
Partnership, General Partner, Affiliated Partner or BJ USA, as the
case may be, is diligently proceeding to remedy the failure, but in no
event shall the failure continue unremedied for a period in excess of
the lesser of 120 days from the notice referred to above and the
remaining number of days in the Transaction Term.
"BJ Note Agreements" -- the two Note Agreements, each dated as of
August 1, 1991, one being by and among Guarantor, BJ USA, BJ Service
International, Inc., BJ Services Company Middle East (collectively, the "BJ
Note Debtors") and Connecticut Mutual Life Insurance Company, and the other
being by and between the BJ Note Debtors and Principal Mutual Life Insurance
Company, collectively
-7-
<PAGE> 15
providing for the issuance of $30,000,000 of 9.2% Senior Notes due August 1,
1998, each as amended.
"BJ Remedy" -- as defined in Section 8.3(a) of the Indenture.
"BJ Services Company" -- BJ Services Company, a Delaware corporation,
and the parent corporation of BJ USA.
"BJ USA" -- as defined in the caption of the Participation Agreement.
"BJ USA Agreements" -- the Basic Documents to which BJ USA is or will
be a party.
"BJ USA's Tax Counsel" -- Andrews and Kurth L.L.P. or such other
nationally recognized law firm reasonably acceptable to Beneficiaries.
"Books and Records" -- books and records of account in which are
entered all matters relating to Partnership, including all income,
expenditures, assets and liabilities thereof.
"Business Day" -- any day other than a Saturday, Sunday or a day on
which commercial banking institutions are authorized or required by law,
regulation or executive order to be closed in San Francisco, California, New
York, New York, Houston, Texas, the city and state (if different from the
foregoing) in which the principal corporate trust office of Nonaffiliated
Partner Trustee is located, or, until the Lien of the Indenture is discharged,
the city and state (if different from the foregoing) in which the principal
corporate trust office of Indenture Trustee is located.
"Capital Account" -- the capital account established and maintained
for each Partner as provided in Section 5.1 of the Partnership Agreement.
"Capital Contribution" -- the Net Agreed Value of Contributed Property
that a Partner contributes to the Partnership pursuant to Section 4.1 or 4.2 of
the Partnership Agreement.
"Carrying Value" -- with respect to any Property, the Agreed Value of
such Property reduced (but not below zero) by all depreciation, amortization
and cost recovery deductions charged to the Capital Accounts. The Carrying
Value of any Property shall be
-8-
<PAGE> 16
adjusted from time to time in accordance with Section 5.1(d) of the Partnership
Agreement and to reflect changes, additions or other adjustments to the
Carrying Value for dispositions and acquisitions of Properties, as deemed
appropriate by the Partners.
"Category A Priority Distribution" -- for each Distribution Date, a
Priority Distribution in the amount set forth opposite such date under the
heading "Category A" on Schedule 1 to the Partnership Agreement.
"Category B Priority Distribution" -- for each Distribution Date, a
Priority Distribution in the amount set forth opposite such date under the
heading "Category B" on Schedule 1 to the Partnership Agreement.
"Claims" -- as defined in Section 7.2(a) of the Participation
Agreement.
"Cleanup" -- all actions required to: (1) cleanup, remove, treat or
remediate Hazardous Substances in the indoor or outdoor environment; (2)
prevent the Release of Hazardous Substances so that they do not migrate,
endanger or threaten to endanger public health or welfare of the indoor or
outdoor environment; (3) perform pre-remedial studies and investigations and
post-remedial monitoring and care; or (4) respond to any government requests
for information or documents in any way relating to cleanup, removal, treatment
or remediation or potential cleanup, removal, treatment or remediation of
Hazardous Substances in the indoor or outdoor environment.
"Closing" -- as defined in Section 2.4(a) of the Participation
Agreement.
"Code" -- the Internal Revenue Code of 1986, as amended from time to
time, or any successor law.
"Commencement Date" -- as defined in Section 2.4(a) of the
Participation Agreement.
"Commitment" -- with respect to a Beneficiary, its obligation to make
an investment in Nonaffiliated Partner pursuant to Section 2.2(a) of the
Participation Agreement.
-9-
<PAGE> 17
"Competitor" -- any Person who is engaged, or an Affiliate of a Person
who is engaged, or any Person who has an interest in a partnership, joint
venture, corporation, trust, limited liability company, association, or
unincorporated organization that is engaged in providing maintenance services
for oil and natural gas wells; except that in no event shall any Note Purchaser
or any bank, bank holding company, savings and loan association, fraternal
benefit society, pension, retirement or profit sharing trust or fund, insurance
company, securities broker or securities dealer or any leasing company or other
financial institution or any Affiliate of any of the foregoing, be (i) deemed a
Competitor or (ii) restricted from any purchase of or holding an ownership
interest in any security of a Competitor for passive investment purposes.
"Confirmation" -- as defined in Section 2.4(c) of the Participation
Agreement.
"Consolidated Stockholders' Equity" -- the par or stated value of the
stock of the Guarantor and its Subsidiaries plus paid-in capital plus retained
earnings, all as shown on the consolidated balance sheet of Guarantor and its
Subsidiaries prepared in accordance with GAAP.
"Consolidated Subsidiary" -- at any time, any Subsidiary the accounts
of which, in accordance with GAAP, would be consolidated with those of
Guarantor in its consolidated financial statements if such statements were
prepared as of such date.
"Contributed Property" -- each item of Property, in such form as may
be permitted by the Delaware Act, contributed to Partnership.
"Contributed Property Appraisal" -- with respect to any Contributed
Property, the determination of fair market value by an appraiser selected by
the Partners, or, if the Partners cannot agree upon an appraiser, then the
General Partner and the Affiliated Partner shall together appoint one appraiser
and the Nonaffiliated Partner shall appoint one appraiser, and such appraisers
shall select a single appraiser, which appraiser shall determine the fair
market value of such Contributed Property; except that the Agreed Value of any
property deemed contributed to the Partnership for federal income tax purposes
upon termination and reconstitution thereof pursuant to Section 708 of the Code
-10-
<PAGE> 18
shall be determined in accordance with Section 5.1(d) of the Partnership
Agreement.
"Contribution Agreement" -- the Contribution and Conveyance Agreement
dated as of August 1, 1997, and each other Contribution and Conveyance
Agreement dated the date that any Replacement Unit or any other Unit becomes
property of Partnership pursuant to the Partnership Agreement (and the Lien of
the Indenture, if the Indenture is in effect), from BJ USA or Affiliated
Partner to Partnership covering the Units delivered to Partnership before, and
owned by Partnership on, the Commencement Date or such Replacement Unit or any
other Unit, as the case may be, substantially in the form of Exhibit C to the
Participation Agreement.
"Co-Registrar" -- as defined in Section 2.3 of the Indenture.
"Current Principal Amount" -- with respect to a Note as of any
relevant date, the original principal amount of such Note reduced by the amount
of principal paid with respect to such Note on or before such date.
"Customers" -- as defined in Recital A of the Participation Agreement.
"Debt" -- the indebtedness evidenced by the Notes.
"Debt Rate" -- with respect to any Note, a rate of interest equal to
7.33% per annum (computed on the basis of a year of 360 days consisting of
twelve 30-day months).
"Default Payment Date" -- as defined in Section 5.22 of the
Participation Agreement.
"Delaware Act" -- the Delaware Revised Uniform Limited Partnership
Act, 6. Del. C. 1953, Section 17-101 et seq., as amended from time to time,
and any successor thereto.
"Determination Date" -- each of the dates set forth on Schedule 5 to
the Participation Agreement and during the Renewal Term, the 30th calendar day
of each December and June.
"Discount Rate" -- a per annum rate equal to the Debt Rate.
-11-
<PAGE> 19
"Disposition Value" -- for any Unit as of any Determination Date, the
amount determined by multiplying the Equipment Value for such Unit by the
percentage set forth in Schedule 5 to the Participation Agreement opposite the
Determination Date on which such Disposition Value is being determined.
Anything contained in the Trust Agreement or the Participation Agreement to the
contrary notwithstanding, Disposition Value for such Unit on the date of
payment thereof (both before and after any adjustment pursuant to Section 2.7
of the Participation Agreement), under any circumstances and in any event, will
be an amount which will be at least sufficient to pay in full as of the date of
payment thereof, the portion of the unpaid principal of the Notes which is
related to such Unit, together with all unpaid interest accrued to the date on
which such amount is paid in accordance with the terms thereof.
"Distribution" -- a Priority Distribution, a Supplemental Priority
Distribution or a Special Distribution.
"Distribution Date" -- each date listed on Schedule 1 to the
Partnership Agreement.
"Distribution Period" -- the six-month period beginning on the day
following a Distribution Date and ending on the next succeeding Distribution
Date.
"Environmental Claim" -- any claim, action, cause of action,
investigation or notice (written or oral) by any Person alleging potential
liability (including, without limitation, potential liability for investigatory
costs, Cleanup costs, government response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of, based on or
resulting from (a) the presence, or Release into the indoor or outdoor
environment, of any Hazardous Substances at any location, whether or not owned
or operated by Partnership, BJ USA or Operator or (b) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
"Environmental Law" -- any and all Federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements of any Government Authority regulating, relating to or imposing
liability standards of conduct concerning any Hazardous Substances or pollution
or environmental protection, as now or may at any time hereafter be in effect,
including, without limitation, the Clean Water Act, the
-12-
<PAGE> 20
Comprehensive Environmental Response, Compensation and Liability Act, the
Superfund Amendments and Reauthorization Act of 1986, the Emergency Planning
and Community Right to Know Act, the Resource Conservation and Recovery Act,
the Safe Drinking Water Act, and the Toxic Substances Control Act, together, in
each case, with each amendment, supplement or other modification thereto, and
the regulations promulgated thereunder and all substitutions therefor.
"Equipment Value" -- (a) for any Unit owned by Partnership on the
Commencement Date, the amount for such Unit specified on the Appraisal as of
the Commencement Date and as set forth on Schedule 3 to the Participation
Agreement, and (b) for any Unit contributed to Partnership on any other date,
the Fair Market Value of such Unit, as certified by General Partner pursuant to
Section 5.13 of the Participation Agreement or as otherwise determined in
accordance with the definition of "Fair Market Value", in each case, determined
as of the date of contribution.
"ERISA" -- the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor law.
"ERISA Affiliate" -- any corporation or trade or business that:
(a) is a member of the same controlled group of
corporations (within the meaning of section 414(b) of the Code) as BJ
USA; or
(b) is under common control (within the meaning of
section 414(c) of the Code) with BJ USA.
"ERISA Plan" -- as defined in Section 3.4(i) of the Participation
Agreement.
"ET Date" -- as set forth on Schedule 8 to the Participation
Agreement.
"ET Price" -- an amount equal to the product of the percentage set
forth for the ET Date on Schedule 8 to the Participation Agreement multiplied
by the Equipment Value of the Units then owned by Partnership, plus any Premium
payable pursuant to the Indenture.
"ET Right" -- as defined in Section 9.1 of the Partnership Agreement.
-13-
<PAGE> 21
"Event of Loss" -- as defined in Section 11.1 of the O&M Agreement.
"Excepted Property" --
(a) any indemnity payable to Nonaffiliated Partner
Trustee, Indenture Trustee, any Beneficiary or their respective
directors, officers, employees, agents, successors, assigns (other
than Indenture Trustee as assignee) or affiliates pursuant to Section
7 of the Participation Agreement;
(b) any proceeds of insurance payable to Nonaffiliated
Partner Trustee or any Beneficiary under insurance maintained by
Nonaffiliated Partner Trustee or any Beneficiary in addition to the
insurance required to be maintained by Operator pursuant to the terms
of the O&M Agreement, and any proceeds of liability insurance policies
carried for the benefit of Nonaffiliated Partner Trustee or any
Beneficiary by or Operator pursuant to Section 12 of the O&M Agreement
or by any other Person;
(c) the Tax Indemnity Agreement and all payments or
advances required to be made thereunder by or to Guarantor;
(d) any rights against BJ USA, General Partner, Operator,
Service Taker, Partnership or Guarantor acquired by subrogation to the
rights of Indenture Trustee pursuant to cure of defaults of BJ USA,
General Partner, Operator, Service Taker, Partnership or Guarantor,
and any amounts payable by BJ USA, General Partner, Operator, Service
Taker, Partnership or Guarantor to reimburse Nonaffiliated Partner
Trustee or any Beneficiary for payments made by it in respect of their
obligations under the Basic Documents, so long as such cures and
payments are made in accordance with the Indenture;
(e) any amounts payable to any Beneficiary by a
transferee as the purchase price for all or any portion of its
interest permitted by Section 6.1 of the Participation Agreement;
(f) all right, title and interest of Nonaffiliated
Partner Trustee or any Beneficiary in any collateral that has been
released from the security interest and assignment of the
-14-
<PAGE> 22
Indenture whether by satisfaction of the obligations of Nonaffiliated
Partner Trustee hereunder and under the Notes or otherwise pursuant to
terms of the Indenture;
(g) any Taxes payable to Partnership or Nonaffiliated
Partner pursuant to the Participation Agreement;
(h) the rights of Nonaffiliated Partner Trustee,
Indenture Trustee and any Beneficiary to pursue legal remedies to
compel payment by BJ USA, General Partner, Operator, Service Taker or
Partnership of any of the amounts referred to in the foregoing clauses
(i)through (g) or enforce the agreements of BJ USA, General Partner,
Operator, Service Taker or Partnership related thereto, except that
the rights referred to in this clause (h) shall not be deemed to
include the exercise of any remedies in the Partnership Agreement, the
Services Agreement, the O&M Agreement or the Participation Agreement
other than the right to proceed by appropriate court action or
actions, either at law or in equity, to enforce performance by BJ USA,
General Partner, Operator, Service Taker or Partnership of the
applicable covenants or to recover damages for the breach thereof;
(i) the right to consent or withhold consent to any
amendment, modification or waiver of the Partnership Agreement, the
O&M Agreement, the Participation Agreement or the Services Agreement
or any other document solely in respect of Excepted Property; and
(j) the right to consent or withhold consent to
declaration by Indenture Trustee of a BJ Event of Default solely in
respect of Excepted Property;
(k) any Form K-1 (or similar substitute form) required or
permitted to be given to Nonaffiliated Partner Trustee or Partnership.
"Excess Amount" -- as defined in Section 2.9(c) of the Indenture.
"Expenses" -- as defined in Section 4.4(b) of the Partnership
Agreement.
-15-
<PAGE> 23
"Expiration Date" -- as defined in Section 2.8(b) of the Participation
Agreement.
"Fair Market Rental Value" or "Fair Market Value" -- with respect to
all Units (or portions thereof for purposes of Section 5.13 of the
Participation Agreement) with respect to which a determination is being made,
the cash rent or cash price obtainable for such Units (or portions thereof for
purposes of Section 5.13 of the Participation Agreement) in an arm's-length
lease or sale between an informed and willing lessee or purchaser/user
(including, without limitation, BJ USA and any lessee or buyer in possession of
the Units which is the subject of this transaction and including a
purchaser/user in possession and other than a dealer in used equipment of a
type similar to the Units) under no compulsion to lease or purchase, as the
case may be, and an informed and willing lessor or seller, under no compulsion
to lease or sell, as the case may be. Except for determinations for the
purposes of Section 5.22 of the Participation Agreement, Fair Market Rental
Value and Fair Market Value shall be determined upon the assumption that each
Unit is in the condition and repair required under the O&M Agreement, free of
any Liens other than Nonaffiliated Partner Liens, and in service. For purposes
of Section 5.22 of the Participation Agreement, determinations of Fair Market
Rental Value and Fair Market Value shall be determined upon the assumption that
each Unit is to be leased or sold on an "as-is, where-is" basis. If the
parties are unable to agree upon a Fair Market Rental Value or a Fair Market
Value within 30 days after receipt of General Partner's certification as to
Fair Market Value pursuant to Section 5.13 of the Participation Agreement or,
unless Nonaffiliated Partner otherwise consents, if Fair Market Rental Value or
Fair Market Value is to be determined for the purposes of Section 5.22 of the
Participation Agreement, such value shall be determined by the following
appraisal procedure, determinations under which shall be conclusively binding
on all parties:
(I) If the appraisal procedure is used for any purpose other than
Section 5.22 of the Participation Agreement, Nonaffiliated Partner Trustee,
within 10 days after the 30-day period after receipt of General Partner's
certification as to Fair Market Value pursuant to Section 5.13 of the
Participation Agreement, will provide BJ USA the names of appraisers that would
be satisfactory to Nonaffiliated Partner Trustee, and Nonaffiliated Partner
Trustee and BJ USA will consult with the intent of selecting a mutually
acceptable appraiser. If a mutually acceptable appraiser is
-16-
<PAGE> 24
selected, the Fair Market Rental Value and/or the Fair Market Value, as the
case may be, shall be determined by such appraiser and set forth in a written
appraisal that is in compliance with the "Uniform Standards of Professional
Appraisal Practice" of the Appraisal Standards Board of the Appraisal
Foundation. If BJ USA and Nonaffiliated Partner Trustee are unable to agree
upon a single appraiser within 10 days after Nonaffiliated Partner Trustee
provides BJ USA with the names of appraisers, either party can file with the
American Arbitration Association to provide a list of qualified and certified
appraisers of recognized standing and knowledgeable in equipment of the type
then owned by the Partnership within 15 days of such filing. Within 10 days of
receipt of such list, Nonaffiliated Partner Trustee and BJ USA shall list in
order of preference their respective choices for appraisers and the appraiser
that is most preferred by both Nonaffiliated Partner Trustee and BJ USA (or, if
two appraisers are preferred equally by Nonaffiliated Partner Trustee and BJ
USA, the appraiser that is most preferred by both parties but chosen by
Nonaffiliated Partner Trustee) shall perform the appraisal and set forth Fair
Market Rental Value or Fair Market Value in a written appraisal that is in
compliance with the "Uniform Standards of Appraisal Practice" of the Appraisal
Foundation. BJ USA shall bear the cost of all appraisers.
(II) If the appraisal procedure is used for the purpose of Section
5.22 of the Participation Agreement, Nonaffiliated Partner Trustee shall select
an independent appraiser of recognized standing and knowledgeable in equipment
of the type then owned by the Partnership. Such appraisal shall be made within
15 days of appointment. BJ USA shall bear the cost of such appraisal.
Notwithstanding any of the foregoing, for the purposes of Section 5.22 of the
Participation Agreement, the Fair Market Rental Value or the Fair Market Value,
as the case may be, shall be zero with respect to any Unit if Nonaffiliated
Partner Trustee theretofore has not been able to recover possession of such
Unit in accordance with the terms of Section 15.1(b) of the O&M Agreement.
"Final Determination" -- (i) a decision, judgment, decree or other
order by any court of competent jurisdiction, which decision, judgment, decree
or other order has become final (i.e., the earliest of when all allowable
appeals by either party to the action (or with respect to any Beneficiary, only
such appeals as are required by Section 7 of the Tax Indemnity Agreement or
Section 7 of the Participation Agreement) are exhausted or the time for
-17-
<PAGE> 25
filing such appeal expires), (ii) a closing agreement entered into under
Section 7121 of the Code (or any successor provision) or any other binding
settlement agreement entered into in connection with an administrative or
judicial proceeding, in any case with the consent of BJ USA (in the case of the
Tax Indemnity Agreement, subject to the conditions of Section 7(d)), or (iii)
the expiration of the time for instituting an initial suit with respect to a
claimed deficiency or for instituting a claim for refund or if such a claim was
filed, the expiration of the time for instituting suit with respect thereto.
"First Security" -- as defined in Section 3.1 of the Participation
Agreement.
"FT Price" -- an amount equal to the product of (a) 32% multiplied by
(b) the Equipment Value of the Units owned by Partnership on the Base Term
Expiration Date.
"FT Right" -- as defined in Section 9.2 of the Partnership Agreement.
"GAAP" -- generally accepted accounting principles, consistently
applied, as 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.
"General Partner" -- BJ USA, as general partner of Partnership.
"Government Actions" -- all consents, approvals or authorizations of,
or filings, registrations or qualifications with, or the giving of notice or
taking of any other action with respect to, any Government Authority.
"Government Authority" -- any applicable Federal, state, county,
municipal or other United States Federal, state or local government, judicial
or regulatory authority, agency, board, body, commission, instrumentality,
court arbitrator, panel of arbitrators or quasi-government authority.
"Guarantor" -- as defined in the caption of the Participation
Agreement.
-18-
<PAGE> 26
"Guarantor Agreement" -- the Basic Documents to which Guarantor is or
will be a party.
"Guarantor Default" -- an event which with notice or the lapse of time
or both would become a Guarantor Event of Default.
"Guarantor Event of Default" -- the following events (whether any such
event is voluntary or involuntary or comes about or is effected by operation of
law or pursuant to or in compliance with any judgment, decree or order of any
court or of any order, rule or regulation of any administrative or government
body):
(a) Guarantor fails to make any payment under the
Guaranty when due (except that any failure to pay to Nonaffiliated
Partner Trustee (in its individual or trust capacity) or any
Beneficiary when due any amounts constituting Excepted Property shall
not constitute a Guarantor Event of Default before the discharge of
the Lien of the Indenture in accordance with the terms thereof);
(b) Guarantor fails to make any other payment under the
Basic Documents (except that any failure to pay any amount owed by
Guarantor under the Tax Indemnity Agreement or any failure of
Guarantor to pay to Nonaffiliated Partner Trustee (in its individual
or trust capacity) or any Beneficiary when due any amount constituting
Excepted Property shall not constitute a Guarantor Event of Default
before the discharge of the Lien of the Indenture in accordance with
the terms thereof) after the same becomes due and such failure
continues unremedied for 30 days after receipt by Guarantor of written
notice of such failure from Nonaffiliated Partner Trustee, any
Beneficiary, Indenture Trustee or any Holder;
(c) any representation made by Guarantor in any Basic
Document or in any other document or certificate furnished by
Guarantor (or a Responsible Officer of Guarantor) pursuant to the
Basic Documents (other than the representations set forth in the Tax
Indemnity Agreement) was untrue or incorrect in any material respect
as of the date of making thereof;
(d) Guarantor (i) commences a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect, or
-19-
<PAGE> 27
seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its
property, or (ii) consents to any such relief or to the appointment of
or taking possession by any such official in any voluntary case or
other proceeding commenced against it, or (iii) generally fails to
pay, or admits in writing its inability to pay, its debts as they come
due, or (iv) makes a general assignment for the benefit of creditors,
or (v) takes any corporate action to authorize or in furtherance of
any of the foregoing;
(e) an involuntary case or other proceeding is commenced
against Guarantor seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect, or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and
such involuntary case or other proceeding remains undismissed and
unstayed for a period of 60 days; or
(f) Guarantor fails to observe or perform any of its
covenants or agreements (other than those described in the foregoing
clauses of this definition) to be observed or performed by Guarantor
under the Guaranty or any other Basic Document (other than the Tax
Indemnity Agreement) and the failure continues unremedied for 30 days
after notice from Nonaffiliated Partner Trustee, any Beneficiary,
Indenture Trustee or any Holder to Guarantor, specifying the failure
and demanding the same to be remedied; except that, if the failure is
capable of being remedied and the remedy does not involve the payment
of money alone, no such failure shall constitute a Guarantor Event of
Default so long as Guarantor is diligently proceeding to remedy the
failure, but in no event shall the failure continue unremedied for a
period in excess of the lesser of 120 days from the notice referred to
above and the remaining number of days in the Transaction Term.
"Guaranty" -- the Guaranty dated as of August 7, 1997, from Guarantor.
"Hazardous Substances" -- (i) petroleum product, petroleum, crude oil
or any fraction thereof, asbestos, radon, explosives, radioactive materials,
hazardous wastes or substances (including
-20-
<PAGE> 28
polychlorinated biphenyls), or toxic wastes or substances; (ii) any other
wastes, materials or pollutants defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste" or "toxic substances" as defined
under any applicable Environmental Laws; or (iii) any other pollutants or
contaminants which are regulated under any Environmental Law.
"Holders" -- each Note Purchaser, or if such Note Purchaser transfers
its interest in accordance with the Basic Documents, the transferee of such
Note Purchaser.
"Income Taxes" -- as defined in Section 7.1(c)(i) of the Participation
Agreement.
"Indemnified Person" -- as defined in Section 7.2(b) of the
Participation Agreement.
"Indenture" or "Trust Indenture" -- the Trust Indenture and Security
Agreement dated as of August 7, 1997 among Nonaffiliated Partner Trustee, in
the capacities described therein, Partnership and Indenture Trustee. Such
terms shall include each Indenture Supplement entered into pursuant to the
Indenture.
"Indenture Default" -- an Indenture Event of Default or an event which
with notice or the lapse of time or both would become an Indenture Event of
Default.
"Indenture Estate" -- as defined in the Granting Clause of the
Indenture.
"Indenture Event of Default" -- as defined in Section 8.1 of the
Indenture.
"Indenture Supplement" -- (i) an Indenture Supplement substantially in
the form of Exhibit B to the Indenture, among Nonaffiliated Partner Trustee, in
the capacities described therein, Partnership and Indenture Trustee, dated the
Commencement Date or the date that any Replacement Unit or any other Unit is
subjected to the Lien and security interest of the Indenture, and covering the
Units related to the Commencement Date or such Replacement Unit or such other
Unit, as the case may be, or (ii) any supplement or amendment entered into from
time to time among Nonaffiliated
-21-
<PAGE> 29
Partner Trustee, in the capacities described therein, Partnership and Indenture
Trustee.
"Indenture Trustee" -- State Street Bank and Trust Company, a
Massachusetts trust company, as trustee under the Indenture.
"Indenture Trustee Agreements" -- the Basic Documents to which ITC
and/or Indenture Trustee are or will be a party.
"Initial Cash" -- cash contributed to Partnership by Nonaffiliated
Partner on the Commencement Date.
"Initial Operating Payment" -- as defined in Section 3.2(a) of the O&M
Agreement.
"Initial Partnership Agreement" -- the Agreement of Limited
Partnership of BJ Services Equipment, L.P. dated as of June 25, 1997 between
General Partner, as general partner thereof, and Organizational Limited
Partner, as limited partner thereof.
"Initial Services Payment" -- as defined in Section 3.2 of the
Services Agreement.
"Initial Units" - the Units described in the Indenture Supplement,
Partnership Agreement Supplement and O&M Agreement Supplement on the
Commencement Date.
"Insured Risks and Losses" -- such risks and losses as are specified
in the O&M Agreement.
"Interests" -- as defined in Section 3.5(d) of the Participation
Agreement.
"Investment Grade" -- as defined in Section 12.2 of the O&M Agreement.
"Investments" -- with respect to any Person, any direct or indirect
purchase or other acquisition by such Person of stock or other securities of
any other Person, or any direct or indirect loan, advance or capital
contribution by such Person to any other Person; including, without limitation,
any direct or indirect contribution by such Person of property to a joint
venture, partnership or other business entity in which such Person retains an
interest.
-22-
<PAGE> 30
"ITC" -- as defined in Section 3.3 of the Participation Agreement.
"Late Rate" -- with respect to the portion of any payment that would
be required to be distributed to the Holders pursuant to the Indenture or
otherwise under the Basic Documents, Nonaffiliated Partner (whether directly or
pursuant to the Indenture), Beneficiaries or Nonaffiliated Partner Trustee, in
its individual capacity, the rate per annum (calculated on the basis of a 360-
day year consisting of twelve 30-day months) equal to the lesser of (a) 2% over
the Debt Rate and (b) the maximum interest rate from time to time permitted by
law.
"Lien" -- any mortgage, pledge, security interest, lien, encumbrance,
lease, disposition of title or other charge of any kind on a Unit or any part
thereof.
"Limited Partners" -- Affiliated Partner and Nonaffiliated Partner and
"Limited Partner" means any of the Limited Partners.
"Liquidator" -- the Person or committee approved pursuant to the
provisions of Section 11.3(b) of the Partnership Agreement who performs the
functions described therein.
"Majority In Interest" -- as of a particular date of determination,
with respect to any action or decision of the Holders, the Holders of more than
50% in aggregate principal unpaid amount of the Outstanding Notes, if any.
"Material Adverse Effect" -- an adverse effect on the business,
properties, financial condition or results of operation of Partnership, BJ USA,
Affiliated Partner, Guarantor or Operator, taken as a whole, that would
materially jeopardize the ability of Partnership, BJ USA, Affiliated Partner,
Guarantor or Operator to perform their obligations set forth in the Basic
Documents.
"Maturity Date" -- with respect to the Notes, the date specified as
the maturity therefor in the Indenture.
"Minimum Services Payment" -- as defined in Section 3.3 of the
Services Agreement.
"Modification" -- as defined in Section 9.2 of the O&M Agreement.
-23-
<PAGE> 31
"Multiemployer Plan" -- any "multiemployer plan" (as defined in
section 3 of ERISA) in respect of which BJ USA or any ERISA Affiliate is an
"employer" (as defined in section 3 of ERISA).
"Net Agreed Value" -- (a) in the case of any Contributed Property, the
Agreed Value of such Contributed Property reduced by the total amount in the
aggregate of any and all liabilities either assumed by Partnership upon such
contribution or to which such Contributed Property is subject when contributed,
and (b) in the case of any Property distributed to a Partner, Partnership's
Carrying Value of such Property at the time such Property is distributed,
reduced by the total amount in the aggregate of any and all indebtedness either
assumed by such Partner upon such distribution or to which such Property is
subject at the time of distribution, in either case, as determined under
Section 752 of the Code.
"Net Economic Return" -- The applicable Beneficiary's initial (a)
anticipated net after-tax yield for each of the periods beginning with the
Commencement Date through the end of the Base Term and the Commencement Date
through the ET Date, reflected in the computations of Priority Distributions,
and ET Price set forth in Schedules 4 and 8 to the Participation Agreement and
Schedules 2 (and each subschedule thereto) and 4 to the Trust Agreement, (b)
anticipated aggregate after-tax cash flow computed utilizing the multiple
investment sinking fund method of analysis and the same assumptions (including,
without limitation, the Tax Assumptions) as used by the applicable Beneficiary
in making the computations of Priority Distributions and ET Price set forth in
Schedules 4 and 8 to the Participation Agreement and Schedules 2 (and each
subschedule thereto) and 4 to the Trust Agreement and (c) the anticipated net
after-tax book yield through the Base Term.
"Net Equity of the Partnership" -- as of any date, the amount by which
the fair market value of the Property of Partnership as of such date, as
determined in the reasonable judgment of the General Partner using such
reasonable method of valuation as it may choose, exceeds the aggregate
liabilities of the Partnership as of such date, as determined in accordance
with GAAP.
"Net Income" -- for any Taxable Period, the excess, if any, of
Partnership's items of income and gain for such Taxable Period over
Partnership's items of loss and deduction for such Taxable Period. The items
included in the calculation of Net Income shall be
-24-
<PAGE> 32
determined in accordance with Section 5.1(b) of the Partnership Agreement, but
shall not include any items specially allocated under Section 5.2(c) or Section
5.2(d) of the Partnership Agreement.
"Net Loss" -- for any Taxable Period, the excess, if any, of
Partnership's items of loss and deduction for such Taxable Period over
Partnership's items of income and gain for such Taxable Period. The items
included in the calculation of Net Loss shall be determined in accordance with
Section 5.1(b) of the Partnership Agreement, but shall not include any items
specially allocated under Section 5.2(c) or Section 5.2(d) of the Partnership
Agreement.
"Net Sales Proceeds" -- the proceeds realized from any sale of any one
or more of the Units, less the expenses related to such sale.
"Nonaffiliated Partner" -- as defined in the caption of the
Partnership Agreement.
"Nonaffiliated Partner Liens" -- any Lien on the Units or other
portions of the Trust Estate arising as a result of (i) claims against
Nonaffiliated Partner Trustee (in its individual capacity), Indenture Trustee
(in its individual capacity) or any Beneficiary, not related to the
transactions contemplated by the Basic Documents or which are not indemnified
against by BJ USA pursuant to the Participation Agreement or the Tax Indemnity
Agreement, or (ii) acts or omissions of Nonaffiliated Partner Trustee (in its
individual capacity), Indenture Trustee (in its individual capacity) or any
Beneficiary, not related to the transactions contemplated by the Basic
Documents or in breach of any covenant or agreement of such Person set forth in
any of the Basic Documents or which are not indemnified against by BJ USA
pursuant to the Participation Agreement or the Tax Indemnity Agreement, or
(iii) taxes imposed against Nonaffiliated Partner Trustee (in its individual
capacity or as Nonaffiliated Partner Trustee), Indenture Trustee (in its
individual capacity) or any Beneficiary or the Trust Estate which are not
indemnified against by BJ USA pursuant to the Participation Agreement or by
Guarantor under the Tax Indemnity Agreement, or (iv) claims against
Nonaffiliated Partner, Indenture Trustee or any Beneficiary arising out of the
transfer (whether voluntary or involuntary) by Nonaffiliated Partner Trustee,
Indenture Trustee (without the consent of BJ USA and
-25-
<PAGE> 33
Nonaffiliated Partner Trustee), or any Beneficiary (without the consent of BJ
USA and Indenture Trustee) of all or any portion of their respective interests
in Partnership, the Units, the Indenture Estate, the Trust Estate or the Basic
Documents, other than a transfer pursuant to Section 9 or 11 of the Partnership
Agreement, Section 5.12, 5.13, 5.16, 5.17, 5.18 or 5.22 of the Participation
Agreement, Section 7.1 of the Services Agreement or Section 15.1 of the O&M
Agreement or in connection with or with respect to an Indenture Event of
Default.
"Nonaffiliated Partner Trustee" -- First Security Bank, National
Association, a national banking association, not in its individual capacity but
solely as Nonaffiliated Partner Trustee under the Trust Agreement.
"Nonaffiliated Partner Trustee Estate" -- as defined in Section 1.1 of
the Indenture.
"Nonaffiliated Partner Trustee Agreements" -- the Basic Documents to
which Nonaffiliated Partner Trustee, either in its individual capacity or as
Nonaffiliated Partner Trustee, is or will be a party.
"Nonaffiliated Partner Trustee's Net Economic Return" -- the weighted
average of the aggregate Net Economic Return of all Beneficiaries.
"Nonrecourse Liability" -- as defined in Treasury Regulation Sections
1.704-2(b)(3) and 1.752-1(a)(2).
"Nonreplacement Election" -- as defined in Section 7.2(e) of the
Partnership Agreement.
"Non-Severable Modification" -- any Modification that is not a
Required Modification or that is not readily removable without causing damage
to any Unit.
"Note Purchasers" -- the Note Purchasers named in the Participation
Agreement.
"Notes" -- the secured notes of Nonaffiliated Partner Trustee issued
under and pursuant to the Participation Agreement and the Indenture, including
any Notes issued in exchange therefor or replacement thereof pursuant to the
Indenture.
-26-
<PAGE> 34
"Notice of Delivery" -- as defined in Section 2.4(a) of the
Participation Agreement.
"Notices" -- all notices, communications or approvals that are
required or may be sent or given pursuant to the Basic Documents.
"O&M Agreement" -- the Operating and Maintenance Agreement dated as of
August 7, 1997 between Partnership and Operator. Such term shall include each
O&M Agreement Supplement entered into pursuant to the O&M Agreement.
"O&M Agreement Supplement" -- (i) an O&M Agreement Supplement
substantially in the form of Exhibit A to the O&M Agreement, between
Partnership and Operator, dated the Commencement Date or the date that any
Replacement Unit or any other Unit is subjected to the O&M Agreement, and
covering the Units related to the Commencement Date or such Replacement Unit or
such other Unit, as the case may be, or (ii) any supplement or amendment
entered into from time to time between Partnership and Operator.
"O&M Default" -- an event which with notice or the lapse of time or
both would become an O&M Event of Default.
"O&M Event of Default" -- as defined in Section 14.1 of the O&M
Agreement.
"O&M/Partnership Event of Default" -- as defined in Section 14.2 of
the O&M Agreement.
"Obligations" -- as defined in Section 1 of the Guaranty.
"Obligor" -- as defined in Section 1 of the Guaranty.
"Officer's Certificate" -- a certificate signed (i) in the case of BJ
USA, General Partner, Service Taker, Operator, Affiliated Partner or Guarantor,
by a Responsible Officer, (ii) in the case of any other corporation, by the
President, any Vice President, any Assistant Vice President, the Treasurer or
an Assistant Treasurer, (iii) in the case of a partnership, by the President,
any Vice President, the Treasurer or an Assistant Treasurer of a corporate
general partner, and (iv) in the case of a commercial bank or trust company, by
the President, any Vice President, any Trust Officer or any other officer
customarily performing the functions similar to those performed by the persons
who at the time shall be such
-27-
<PAGE> 35
officers, or to whom any corporate trust matter is referred because of his
knowledge of and familiarity with the particular subject.
"Operating Capacity" -- as defined in Section 2.1 of the Services
Agreement.
"Operating Payment Date" -- as defined in Section 3.2 of the O&M
Agreement.
"Operating Payments" -- as defined in Section 3.2 of the O&M
Agreement.
"Operator" -- as defined in the caption of the Participation
Agreement.
"Optional Modification" -- as defined in Section 9.2 of the O&M
Agreement.
"Organizational Limited Partner" -- as defined in the caption of the
Partnership Agreement.
"Outstanding" -- when used with respect to the Notes, as of any date
of determination, all Notes theretofore executed and delivered and
authenticated under the Indenture other than:
(a) Notes theretofore canceled by Indenture Trustee or
delivered to Indenture Trustee for cancellation pursuant to Section
2.7 of the Indenture or otherwise;
(b) Notes for whose payment (but only to the extent of
such payment) or prepayment money in the necessary amount has been
theretofore deposited with Indenture Trustee in trust for the Holders
with respect to such Notes; except that if such Notes are to be
redeemed or prepaid, notice of such redemption or prepayment has been
duly given pursuant to the Indenture or provision therefor
satisfactory to Indenture Trustee has been made; and
(c) Notes in exchange for or in lieu of which other Notes
have been authenticated, executed and delivered pursuant to the
Indenture;
except that in determining whether the Holders of the requisite aggregate
principal amount of Notes Outstanding have given any
-28-
<PAGE> 36
request, demand, authorization, declaration, direction, notice, consent or
waiver under the Indenture, Notes owned by or pledged to BJ USA, Guarantor,
Operator, Affiliated Partner, Nonaffiliated Partner Trustee or any Beneficiary
or any Affiliate of any thereof shall be disregarded and deemed not to be
Outstanding, except that, in determining whether Indenture Trustee shall be
protected in relying upon any such request, demand, authorization, declaration,
direction, notice, consent or waiver, only Notes which Indenture Trustee knows
to be so owned or so pledged shall be disregarded, and except if all Notes are
so owned or pledged. The foregoing exception shall not negate the prohibitions
set forth in Section 5.3 of the Participation Agreement.
"Participants" -- the Note Purchasers and Beneficiaries.
"Participating Party" -- as defined in the Guaranty.
"Participation Agreement" -- the Participation Agreement, dated as of
August 7, 1997, among BJ USA, Partnership, Operator, Affiliated Partner,
Nonaffiliated Partner Trustee, in the capacities described therein, Guarantor,
Beneficiaries, Note Purchasers and Indenture Trustee, in the capacities
described therein.
"Partner Transferee" -- any Person or entity, other than a Partner, to
whom a Transferor Partner purports to Transfer its Partnership Interest.
"Partners" -- General Partner, Affiliated Partner and Nonaffiliated
Partner, and "Partner" means any of the Partners.
"Partnership" -- BJ Services Equipment, L.P., a Delaware limited
partnership, which was established pursuant to the Initial Partnership
Agreement.
"Partnership Agreement" -- the Amended and Restated Agreement of
Limited Partnership of BJ Services Equipment, L.P., dated as of August 7, 1997
among General Partner, Affiliated Partner and Nonaffiliated Partner Trustee,
which amends and restates the Initial Partnership Agreement. Such term shall
include each Partnership Agreement Supplement entered into pursuant to the
Partnership Agreement.
-29-
<PAGE> 37
"Partnership Agreement Supplement" -- (i) a Partnership Agreement
Supplement, substantially in the form of Exhibit A to the Partnership
Agreement, dated the Commencement Date or the date that any Replacement Unit is
contributed to Partnership by General Partner or Affiliated Partner, among
General Partner, Affiliated Partner and Nonaffiliated Partner, covering the
Units owned by Partnership on the Commencement Date or related to such
Replacement Unit, or (ii) any supplement or amendment entered into from time to
time among General Partner, Affiliated Partner and Nonaffiliated Partner.
"Partnership Interest" -- a Partner's ownership interest in
Partnership and such Partner's rights and obligations under the Partnership
Agreement.
"Partnership Tax Return" -- the Federal Partnership Information Return
(together with all schedules required to be attached thereto) filed as IRS Form
1065, or any successor form.
"Parts" -- as defined in Section 8.3 of the O&M Agreement.
"Payment Amount" -- with respect to the Notes, the total amount of the
payment of principal due and payable on each Payment Date, expressed as a
percentage and set forth in the appropriate Indenture Supplement. As to any
single Note, "Payment Amount" -- the portion of total Payment Amount set forth
therein in dollar or percentage terms.
"Payment Date" -- with respect to both payments of principal and
interest for Notes, each December 30 and June 30, beginning on the first such
date to occur after the initial issuance of Notes.
"Payment Month" -- as defined in Section 3.3 of the Services Agreement
or Section 3.2(a) of the O&M Agreement.
"Payments" -- (i) in the O&M Agreement, the Operating Payments made by
Service Taker to Operator and (ii) in the Services Agreement, Minimum Service
Payments and Additional Service Payments.
"PBGC" -- as defined in Section 3.2(t)(ii)(C) of the Participation
Agreement.
-30-
<PAGE> 38
"Pension Plan" -- at any time, any "employee pension benefit plan" (as
defined in Section 3 of ERISA) maintained at such time by BJ USA or any ERISA
Affiliate for employees of BJ USA or such ERISA Affiliate, excluding any
Multiemployer Plan.
"Permitted Investments" -- (i) direct obligations of the United States
of America and agencies thereof for which the full faith and credit of the
United States is pledged, (ii) obligations fully guaranteed by the United
States of America, (iii) certificates of deposit issued by, or bankers'
acceptances of, or time deposits with, any bank, trust company or national
banking association (which may be Indenture Trustee) incorporated or doing
business under the laws of the United States of America or one of the States
thereof having combined capital and surplus and retained earnings of at least
$1,000,000,000 and having a rating assigned to the long-term unsecured debt of
such institutions by Standard & Poor's Corporation and Moody's Investors
Service, Inc. at least equal to AA and AA2, respectively, and (iv) commercial
paper of companies, banks, trust companies or national banking associations (in
each case excluding BJ USA and its Affiliates) incorporated or doing business
under the laws of the United States of America or one of the States thereof and
in each case having a rating assigned to such commercial paper by Standard &
Poor's Corporation or Moody's Investors Service, Inc. (or, if neither such
organization shall rate such commercial paper at any time, by any nationally
recognized rating organization in the United States of America) equal to the
highest rating assigned by such organization; except that if all of the above
investments are unavailable, the entire amount to be invested may be used to
purchase Federal Funds from an entity described in clause (iii) above and no
investment shall be eligible as a "Permitted Investment" unless the final
maturity or date of return of such investment is 90 days or less from the date
of purchase thereof.
"Permitted Liens" -- with respect to any Unit: (i) the interests of
Partnership under the Amended and Restated Partnership Agreement; (ii) the
interest of Operator under the O&M Agreement and the interest of Service Taker
under the Services Agreement; (iii) any Liens thereon for taxes, assessments,
levies, fees and other government and similar charges not due and payable or
the amount or validity of which is being contested in good faith by appropriate
proceedings so long as (a) there exists no material risk of sale, forfeiture or
loss of, or loss or interference with use or possession of, or diminution of
value, utility or useful
-31-
<PAGE> 39
life of, any Unit or any interest therein, or any risk of interference with the
payment of Priority Distributions, Supplemental Priority Distributions, Special
Distributions or any other amounts payable under the Basic Documents, (b) such
contest would not result in, or increase the risk of, the imposition of any
criminal liability on any Indemnified Person, (c) such contest would not
materially and adversely affect the rights, titles and interests of
Nonaffiliated Partner Trustee, Partnership or Indenture Trustee in or to any
Unit or any interest therein, and (d) appropriate reserves with respect thereto
are maintained in accordance with GAAP; (iv) any Liens of mechanics, suppliers,
vendors, materialmen, laborers, employees, repairmen and other like Liens
arising in the ordinary course of Partnership's business securing obligations
which are not due and payable or the amount or validity of which is being
contested in good faith by appropriate proceedings so long as (a) there exists
no material risk of sale, forfeiture or loss of, or loss or interference with
use or possession of, or diminution of value, utility or useful life of, any
Unit or any interest therein, or interference with the payment of Priority
Distributions, Supplemental Priority Distributions, Special Distributions or
any other amounts payable under the Basic Documents, (b) such contest would not
result in, or increase the risk of, the imposition of any criminal liability on
any Indemnified Person, (c) such contest would not materially and adversely
affect the rights, titles and interests of Nonaffiliated Partner Trustee,
Partnership or Indenture Trustee in or to any Unit or any interest therein, and
(d) appropriate reserves with respect thereto are maintained in accordance with
GAAP; (v) the Lien of the Indenture, and the respective rights of the Holders,
Indenture Trustee, Beneficiaries, Partnership and Nonaffiliated Partner Trustee
under the Basic Documents; (vi) Liens arising out of any judgment or award
against Partnership with respect to which an appeal or proceeding for review is
being taken in good faith and with respect to which there shall have been
secured a stay of execution pending such appeal or proceeding for review so
long as (a) there exists no material risk of sale, forfeiture or loss of, or
loss or interference with the use or possession of, or diminution of value,
utility or useful life of, any Unit or any interest therein, or any risk of
interference with the payment of Priority Distributions, Supplemental Priority
Distributions, Special Distributions or any other amounts payable under the
Basic Documents, (b) such contest would not result in, or increase the risk of,
the imposition of any criminal liability on any Indemnified Person, (c) such
contest would not materially and
-32-
<PAGE> 40
adversely affect the rights, titles and interests of Partnership, Nonaffiliated
Partner Trustee or Indenture Trustee in or to any Unit or any interest therein,
and (d) appropriate reserves with respect thereto are maintained in accordance
with GAAP; and (vii) salvage rights of insurers under insurance policies
maintained by Operator pursuant to Section 12 of the O&M Agreement.
"Person" -- an individual, partnership, joint venture, corporation,
trust, limited liability company, association or unincorporated organization,
and a government or agency or political subdivision thereof.
"Premium" -- as defined in Section 2.15 of the Indenture.
"Prepayment Date" -- the date on which the Notes are to be prepaid or
redeemed (or purchased in lieu of prepayment or redemption, as applicable)
pursuant to Section 6.1, 8.3(e)(iii) or 8.3(e)(iv) of the Indenture, which
date, unless otherwise stated in the Indenture, shall be a Payment Date.
"Prepayment Price" -- the price at which the Notes are to be prepaid
or redeemed (or purchased in lieu of prepayment or redemption, where
applicable), determined as of the applicable Prepayment Date, pursuant to
Section 6.1 or 8.3(e) of the Indenture, as the case may be.
"Priority Distribution" -- the amounts set forth on Schedule 1 to the
Partnership Agreement, Schedule 4 to the Participation Agreement and Schedule 2
to the Trust Agreement, which under any circumstances and in any event, will be
an amount at least sufficient to pay in full as of the date of payment thereof,
the principal amount of and interest on the Notes due on such date.
"Property" -- all assets owned directly, indirectly or beneficially by
Partnership at any date of determination, including, without limitation, all
cash, all personal property, and any item thereof.
"Proposed Removed Units" -- as defined in Section 5.16 of the
Participation Agreement.
"Reasonable Basis" -- a "reasonable basis" determined in accordance
with the principles of ABA Formal Opinion No. 85-352, or in the case guidance
is provided by the Treasury Department under
-33-
<PAGE> 41
Section 6662(d)(2)(B)(ii) of the Code which provides a different determination
thereof, which is applicable and which overrides ABA Formal Opinion No. 85-532,
such different determination shall be utilized.
"Rebuild" -- with respect to a Unit, replacement of all hoses
(hydraulic, water or other), air lines, bearings, rings, wiring and other
normal wear components with new components and refurbishment to the level
necessary to bring the Unit to manufacturers' specified operational performance
standards for the Unit.
"Recapture Income" -- any gain recognized by Partnership (computed
without regard to any adjustment required by Section 734 or 743 of the Code)
upon the disposition of any Property of Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such Property.
"Reduction Date" -- as defined in Section 5.16 of the Participation
Agreement.
"Reduction Election" -- as defined in Section 5.16 of the
Participation Agreement.
"Register" -- as defined in Section 2.3 of the Indenture.
"Registrar" -- as defined in Section 2.3 of the Indenture.
"Regulatory Change" -- any change after the date of the Indenture in
Federal, state or foreign law or regulations or the adoption or making after
such date of any interpretation, directive or request applying to a class of
financial institutions including any Holder of or under any Federal, state or
foreign law or regulation (whether or not having the force of law and whether
or not failure to comply therewith would be unlawful) by any court or
government or monetary authority charged with the interpretation or
administration thereof.
"Reimbursed Expense" -- as defined in Section 3.2(b) of the O&M
Agreement.
"Release" -- any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment
-34-
<PAGE> 42
(including, without limitation, ambient air, surface water, groundwater and
surface or subsurface strata) or into or out of any property, including the
movement of Hazardous Substances through or in the air, soil, surface water,
groundwater or property.
"Remaining Partnership Interest" -- Nonaffiliated Partner Trustee's
Partnership Interest less the aggregate Equipment Value of all Units purchased
from Partnership pursuant to Section 5.12(ii) of the Participation Agreement,
sold pursuant to Section 5.17 of the Participation Agreement or retained
pursuant to Section 5.18 of the Participation Agreement.
"Renewal Term" -- the period from the Base Term Expiration Date to the
date 2 years thereafter.
"Replaced Unit" -- as defined in Section 5.3 of the Indenture.
"Replacement Parts" -- Parts replaced in accordance with Section 8.3
of the O&M Agreement.
"Replacement Unit" -- an item of equipment that meets the standards
of Section 5.11 or 5.12, as the case may be, of the Participation Agreement, is
subject to the Partnership Agreement and the Lien of the Indenture and is
operated and maintained under the O&M Agreement.
"Required Modification" -- as defined in Section 9.1 of the O&M
Agreement.
"Responsible Officer" -- with respect to BJ USA, Affiliated Partner,
Operator or Guarantor, the President, the Treasurer, the Chief Executive
Officer, the Chief Financial Officer, the Chief Accounting Officer or the
General Counsel.
"RT Price" -- the fair market value of Nonaffiliated Partner Trustee's
Partnership Interest which will be deemed to equal 99% of the Fair Market Value
of the Units on the last day of the Renewal Term.
"RT Right" -- as defined in Section 9.3 of the Partnership Agreement.
"Scheduled Commencement Date" -- as defined in Section 2.8(b) of the
Participation Agreement.
-35-
<PAGE> 43
"Secured Obligations" -- as defined in the Granting Clause of the
Indenture.
"Securities Act" -- the Securities Act of 1933, as amended, or any
successor law.
"Senior Financial Officer" -- with respect to BJ USA, the Chief
Financial Officer, the Chief Accounting officer or the Treasurer.
"Service Payment" -- all Minimum Service Payments and Additional
Service Payments.
"Service Taker" -- BJ USA, as Service Taker under the Services
Agreement.
"Services" -- as defined in Section 2.1 of the Services Agreement.
"Services Agreement" -- the Amended and Restated Services Agreement
dated as of August 7, 1997 between Service Taker and Partnership.
"Services Event of Default" -- as defined in Section 6.1 of the
Services Agreement.
"Services/Partnership Event of Default" -- as defined in Section 6.2
of the Services Agreement.
"Services Payment Date" -- as defined in Section 3.3 of the Services
Agreement.
"Settlement Date" -- as defined in Section 5.12 of the Participation
Agreement.
"Severable Modification" -- any Modification other than a
Non-Severable Modification.
"Special Distribution" -- as defined in Section 6.1(d) of the
Partnership Agreement.
"Subsidiary" of any Person -- any Person of which more than 50% of the
voting stock or other equity interests (in case of Persons other than
corporations) is owned or controlled, directly or indirectly, by such Person,
or one or more Subsidiaries of the
-36-
<PAGE> 44
Person or a combination thereof. Unless the context otherwise clearly
requires, references in the Basic Documents to a "Subsidiary" refer to a
Subsidiary of Guarantor. "Subsidiaries" of Guarantor shall include all
Consolidated Subsidiaries (except to the extent otherwise specifically provided
in the Basic Documents).
"Substitution Election" -- as defined in Section 7.2(d) of the
Partnership Agreement.
"Supplemental Contributions" -- as defined in Section 4.4(c) of the
Partnership Agreement.
"Supplemental Priority Distributions" -- as defined in Section 6.1(c)
of the Partnership Agreement.
"Tax Adjustment" -- as defined in Section 5.1(e) of the Partnership
Agreement.
"Tax Assumptions" -- as defined in Section 1.1 of the Tax Indemnity
Agreement.
"Tax Counsel" -- Mayer, Brown & Platt or any other independent firm of
attorneys nationally recognized as being expert in tax matters selected by
Beneficiaries and reasonably acceptable to BJ USA.
"Tax Indemnitee" -- as defined in Section 7.1(a) of the Participation
Agreement.
"Tax Indemnity Agreement" -- each Tax Indemnity Agreement, dated as of
August 7, 1997, between Guarantor and each Beneficiary.
"Tax Matters Partner" -- the Partner designated as such from time to
time pursuant to Section 8.6 of the Partnership Agreement.
"Taxable Period" -- a calendar year (or short period) for which a
Partnership Tax Return is required to be filed for the Partnership; except that
the Partnership's first Taxable Period shall begin on the Commencement Date and
shall end on December 31, 1997 (or any earlier date marking the end of the
period including the Commencement Date for which a Partnership Tax Return is
required to be filed for the Partnership).
-37-
<PAGE> 45
"Taxes" -- as defined in Section 7.1(b) of the Participation
Agreement.
"Third Party Claim" -- any claim, demand, action, cause of action,
judgment, assessment, compromise, settlement or decree, made by or in favor of
any party other than the Partnership or its partners in respect of any personal
injury or property damage.
"Total Equipment Value" -- the Equipment Value of the Units up to a
maximum of $100,000,000.
"Transaction Costs" -- as defined in Section 2.6(a) of the
Participation Agreement.
"Transaction Term" -- unless earlier terminated, the Base Term and, if
General Partner causes Partnership to exercise its option to renew the O&M
Agreement and Services Agreement pursuant to Sections 22.2 and 12.3,
respectively, thereof, the Renewal Term.
"Transaction Term Expiration Date" -- as defined in Section 4.2(a)(ii)
of the Participation Agreement.
"Transfer" -- a sale, assignment, transfer, contribution, mortgage or
other encumbrance of a Partnership Interest, or a sufferance of any third party
to sell, assign, transfer, contribute, mortgage, charge or otherwise encumber a
Partnership Interest, or a contract to do or permit any of the foregoing,
whether voluntarily or by operation of law.
"Transferee" -- as defined in Section 6.1(a) of the Participation
Agreement.
"Transferor Partner" -- any Partner desiring to Transfer its
Partnership Interest or any portion thereof pursuant to the provisions of
Article Ten of the Partnership Agreement.
"Treasury Regulations" -- proposed, temporary and final treasury
regulations promulgated under the Code as of the effective date hereof and any
successor provisions thereto.
"Trust" -- BJ Services Trust No. 1997-1, as provided in Section 11.12
of the Trust Agreement.
-38-
<PAGE> 46
"Trust Agreement" -- the Trust Agreement dated as of August 7, 1997
among Beneficiaries and First Security.
"Trust Estate" -- as defined in Section 2.2 of the Trust Agreement.
"Trust Expenses" -- as defined in Section 6.1 of the Trust Agreement.
"Trust Tax Matters Partner" -- as defined in Section 12.7 of the Trust
Agreement.
"Trustee" -- each of Nonaffiliated Partner Trustee or Indenture
Trustee and "Trustees" -- Nonaffiliated Partner Trustee and Indenture Trustee,
collectively.
"Trustee Documents" -- as defined in Section 2.1 of the Trust
Agreement.
"U.C.C." -- the Uniform Commercial Code in effect in the applicable
jurisdiction.
"Unanimous Consent" -- as defined in Section 7.4 of the Partnership
Agreement.
"Unit" -- one of the Units.
"Units" -- collectively the heavy duty truck tractors and truck
trailers, in each case with the equipment installed thereon on the Commencement
Date, each tractor or trailer, as the case may be, configured to operate on a
standalone basis or in conjunction with other Units and provide any of the
Services, or a combination thereof, and the other items of equipment, all as
more particularly described in Schedule 3 to the Participation Agreement and
each Partnership Agreement Supplement, Indenture Supplement and O&M Agreement
Supplement together with any and all appliances, Parts, instruments,
accessories, furnishings, other equipment, accessions, additions, improvements,
substitutions and replacements from time to time incorporated or installed in
or on any item thereof (other than any Severable Modifications that are not
Required Modifications) and any and all appliances, parts, instruments,
accessories, furnishings and other equipment title to which vests in, and which
is the property of, Partnership pursuant to the terms of the Partnership
Agreement.
-39-
<PAGE> 47
"Unrealized Gain" attributable to any item of Property -- as of any
date of determination, the excess, if any, of (a) the fair market value of such
Property as of such date (as determined under Section 5.1(d) of the Partnership
Agreement) over (b) the Carrying Value of such Property as of such date (before
any adjustment to be made pursuant to Section 5.1(d) of the Partnership
Agreement as of such date).
"Unrealized Loss" attributable to any item of Property -- as of any
date of determination, the excess, if any, of (a) the Carrying Value of such
Property as of such date (before any adjustment to be made pursuant to Section
5.1(d) of the Partnership Agreement as of such date) over (b) the fair market
value of such Property as of such date (as determined under Section 5.1(d) of
the Partnership Agreement).
-40-
<PAGE> 1
EXHIBIT 10.18
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") dated as of November 14, 1997, is made and entered into among BJ
SERVICES COMPANY, a Delaware corporation (the "Company"); BJ SERVICES COMPANY,
U.S.A., a Delaware corporation; BJ SERVICE INTERNATIONAL, INC., a Delaware
corporation; BJ SERVICES COMPANY MIDDLE EAST, a Delaware corporation, NOWSCO
WELL SERVICE LTD., an Alberta, Canada corporation; BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, as U.S. Agent, as Letter of Credit Issuing Bank
and as Swing Loan Bank, BANK OF AMERICA CANADA, Individually and as Canadian
Agent, THE CHASE MANHATTAN BANK, Individually and as Senior Co-Agent, BANK OF
MONTREAL, ROYAL BANK OF CANADA, TORONTO DOMINION (TEXAS), INC., CREDIT LYONNAIS
NEW YORK BRANCH, and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, each
Individually and as Co-Agent, and the other financial institutions listed on
the signature pages hereof.
W I T N E S S E T H:
WHEREAS, the parties hereto (or their predecessors in interest) have
heretofore entered into an Amended and Restated Credit Agreement dated as of
August 7, 1996 (the "Credit Agreement") providing for, among other things, (i)
term loans to be made by the Canadian Banks to BJ-Canada and (ii) a term loan
and revolving credit facilities (including revolving credit loans, swing loans
and letters of credit) to be made by the Banks to the U.S. Borrowers on the
terms and subject to the conditions therein set forth; and
WHEREAS, the Credit Agreement provides that no Foreign Subsidiary
shall, or shall be permitted to create, incur or suffer to exist any
Indebtedness, except Indebtedness in an aggregate amount for all Foreign
Subsidiaries at no time to exceed 10% of Consolidated Net Worth and except for
Indebtedness of BJ-Canada thereunder;
WHEREAS, the Company has requested that the Banks release the
Subsidiary Guaranties, and the Banks have agreed so to do provided that the
Credit Agreement be amended to restrict the incurrence of Indebtedness by all
Subsidiaries to the extent hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the sufficiency of which is hereby expressly
acknowledged, the parties hereto hereby agree to amend the Credit Agreement as
follows:
<PAGE> 2
1. CREDIT AGREEMENT AMENDMENTS.
1.1 AMENDMENT OF PERSONS ENTITLED TO BORROW. The parties hereto
hereby agree and acknowledge that from and after the date on which the
Subsidiary Guaranties are released by the Agents and the Banks, the only
Persons who are entitled to borrow, continue or convert Loans or to obtain
Letters of Credit under the Credit Agreement are the Company and the Canadian
Borrower.
1.2 AMENDMENT OF SECTION 8.05. Section 8.05 of the Credit
Agreement is hereby deleted in its entirety and the following is substituted
therefor:
"8.05 Subsidiary Indebtedness. Each of the Company and the other
Borrowers agrees that it shall not permit any Subsidiary to create, incur
or suffer to exist any Indebtedness, except Indebtedness in an aggregate
amount for all such Subsidiaries at no time to exceed 10% of Consolidated
Net Worth at such time and except for the Indebtedness of BJ-Canada under
this Agreement. For purposes of determining the amount of "Indebtedness"
under this Section 8.05, any guaranties issued by a Subsidiary with respect
to Indebtedness of a Borrower or Subsidiary Guarantor shall constitute
"Indebtedness" of such Subsidiary."
1.3. GENERAL To the extent, if any, any provision of the
Credit Agreement or any of the other Loan Documents shall conflict with the
provisions set forth in the foregoing Paragraphs 1.1 and 1.2, such provisions
shall be amended to the extent necessary so that no such conflict shall exist.
2. NO DEFAULT OR EVENTS OF DEFAULT; REPRESENTATIONS AND WARRANTIES
ARE TRUE. Each of the Borrowers hereby represents and warrants to the Banks
that on the date hereof no Event of Default or Default has occurred and is
continuing. The representations and warranties made by the Borrowers in
Article VI of the Credit Agreement are true and correct in all material
respects as of the date hereof (except such representations and warranties, if
any, which expressly refer to an earlier date, which representations and
warranties are true and correct in all material respects as of such earlier
date).
3. RATIFICATION. The Credit Agreement shall continue in full force
and effect as amended hereby. The Credit Agreement and this Amendment shall be
read, taken and construed as one and the same instrument.
4. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, and by different parties on separate counterparts, each of which
shall be construed as an original, but all of which together shall constitute
one and the same instrument.
-2-
<PAGE> 3
5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK; PROVIDED THAT THE AGENT
AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
6. CERTAIN DEFINED TERMS. Capitalized terms used herein (including
in the recitals hereof) without definition shall have the meaning assigned to
them in the Credit Agreement.
7. ENTIRE AGREEMENT. THIS AMENDMENT, THE CREDIT AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT 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 have caused this Amendment to be
executed and delivered as of the date first above written.
BJ SERVICES COMPANY
By: /s/ Taylor M. Whichard III
-----------------------------------------------
Taylor M. Whichard III
Treasurer
BJ SERVICES COMPANY, U.S.A.
By: /s/ Taylor M. Whichard III
-----------------------------------------------
Taylor M. Whichard III
Treasurer
-3-
<PAGE> 4
BJ SERVICES COMPANY MIDDLE
EAST
By: /s/ Taylor M. Whichard III
-----------------------------------------------
Taylor M. Whichard III
Treasurer
NOWSCO WELL SERVICE LTD.
By: /s/ Taylor M. Whichard III
-----------------------------------------------
Taylor M. Whichard III
Treasurer
BJ SERVICE INTERNATIONAL, INC.
By: /s/ Taylor M. Whichard III
-----------------------------------------------
Taylor M. Whichard III
Treasurer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, AS U.S.
AGENT
By: /S/
-----------------------------------------------
Name:
Title:
-4-
<PAGE> 5
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, AS LETTER OF CREDIT ISSUING BANK,
SWING LOAN BANK, AND AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
BANK OF AMERICA CANADA, AS A
CANADIAN BANK
By: /S/
-----------------------------------------------
Name:
Title:
BANK OF AMERICA CANADA, AS CANADIAN AGENT
By: /S/
-----------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.,
AS SENIOR CO-AGENT AND AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
-5-
<PAGE> 6
THE CHASE MANHATTAN BANK OF
CANADA, AS A CANADIAN BANK
By: /S/
-----------------------------------------------
Name:
Title:
ROYAL BANK OF CANADA, AS CO-AGENT AND AS A U.S.
BANK
By: /S/
-----------------------------------------------
Name:
Title:
ROYAL BANK OF CANADA, AS A CANADIAN BANK
By: /S/
-----------------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.,
AS CO-AGENT AND AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
THE TORONTO-DOMINION BANK,
AS A CANADIAN BANK
By: /S/
-----------------------------------------------
Name:
Title:
-6-
<PAGE> 7
BANK OF MONTREAL, AS CO-AGENT, AS
A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
BANK OF MONTREAL, AS A CANADIAN BANK
By: /S/
-----------------------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK
BRANCH, AS CO-AGENT AND AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
CREDIT LYONNAIS CANADA,
CALGARY BRANCH, AS A CANADIAN BANK
By: /S/
-----------------------------------------------
Name:
Title:
-7-
<PAGE> 8
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION, AS CO-AGENT
AND AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY, AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN
(CANADA), AS A CANADIAN BANK
By: /S/
-----------------------------------------------
Name:
Title:
THE FUJI BANK, LIMITED, AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
THE FUJI BANK CANADA, AS A CANADIAN
BANK
By: /S/
-----------------------------------------------
Name:
Title:
-8-
<PAGE> 9
THE BANK OF TOKYO-MITSUBISHI,
LTD. HOUSTON AGENCY, AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
BANK OF TOKYO-MITSUBISHI
(CANADA), AS A CANADIAN BANK
By: /S/
-----------------------------------------------
Name:
Title:
THE YASUDA TRUST AND BANKING
COMPANY LIMITED, NEW YORK
BRANCH, AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH, AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
By: /S/
-----------------------------------------------
Name:
Title:
-9-
<PAGE> 10
CORESTATES BANK, N.A., AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
CHRISTIANIA BANK OG
KREDITKASSE, AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
THE BANK OF NEW YORK, AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
ABN-AMRO, BANK, N.V. - HOUSTON
AGENCY, AS A U.S. BANK, BY ABN-AMRO
NORTH AMERICA, INC., AS AGENT:
By: /S/
-----------------------------------------------
Name:
Title:
By: /S/
-----------------------------------------------
Name:
Title:
-10-
<PAGE> 11
ABN-AMRO BANK CANADA, AS A
CANADIAN BANK
By: /S/
-----------------------------------------------
Name:
Title:
STANDARD CHARTERED BANK, AS A
U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
FIRST NATIONAL BANK OF
COMMERCE, AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
DEN NORSKE BANK AS, AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD.,
AS A U.S. BANK
By: /S/
-----------------------------------------------
Name:
Title:
-11-
<PAGE> 1
EXHIBIT 21.1
BJ SERVICES COMPANY
SUBSIDIARIES
<TABLE>
<CAPTION>
PERCENTAGE OWNED BY
--------------------
NAME OF ENTITY/JURISDICTION OF ORGANIZATION COMPANY SUBSIDIARY
------------------------------------------- ------- ----------
<S> <C> <C>
BJ Services Company Middle East (Delaware).................. 100%
Gulf Well Services Company (Kuwait) (Joint Venture)....... 40%
BJ Services Company Overseas (Delaware) (Inactive).......... 100%
BJ Services Company, U.S.A. (Delaware)...................... 100%
BJ Operating & Maintenance company, L.L.C. (Delaware)..... 100%
BJ Services, L.L. C. (Delaware)........................... 100%
BJ Services Equipment, L.P. (Delaware).................... 100%
Western Petroleum Services International Company
(Delaware)............................................. 100%
Western Petroleum Services International Nigeria
Limited (Nigeria) (Joint Venture)..................... 60%
P.T. Western Petroleum Servindo (Indonesia)............ 100%
BJ-Rotary Petroleum Ltd. KFT (Hungary) (Joint
Venture).............................................. 64%
Western Oceanic (Nigeria) Limited (Nigeria) (Joint
Venture)............................................... 60%
Colony Drilling Company Limited (Scotland)................ 100%
Western Oceanic, Inc. (Delaware).......................... 100%
Western Oceanic International, Inc. (Panama)........... 100%
BJ Process and Pipeline Services Company (Texas).......... 100%
KPC-Knapp Pipeline Cleaners Limited (Singapore)........ 30%
Mercury Cementing, Inc. (Nebraska)........................ 100%
Service Fracturing Company of Oklahoma, Inc............... 100%
Service Fracturing Company of Woodward.................... 100%
International NOWSCO Well Service, Inc (Texas)............ 100%
BJ Service International, Inc. (Delaware)................... 100%
BJ-Hughes C.I. Ltd. (Cayman Islands) (Inactive)........... 100%
BJ Oilwell Services (M) Sdn. Bhd. (Malaysia)(Joint
Venture)............................................... 30%
BJ Service International (Thailand) Ltd................... 100%
BJ Service Arabia Ltd. (Saudi Arabia) (Joint Venture)..... 70%
BJ Services C.I., Ltd. (Cayman Islands)................... 100%
Nowsco Well Service GmBH (Germany)........................ 100%
Nowsco Norge AS (Norway).................................. 100%
BJ Process & Pipeline Services Pte. Ltd. (Singapore)...... 100%
Nowsco Well Service SRL (Italy)........................... 100%
BJ Services International B.V. (Netherlands).............. 100%
BJ Tubular Services B.V. (Netherlands)................. 100%
Nowsco (UAE) LLC (being liquidated).................... 100%
BJ Services Company (Sakhalin) Limited (Russia)........... 100%
Nowsco Well Service Ltd. (Alberta)........................ 100%
Nowsco Well Service (Ireland) Limited.................. 100%
Nowsco Well Service Company Limited (Barbados)......... 100%
Nowsco Well Service International Limited (Bermuda).... ..... 100%
Nowsco (B) SDN. BHD. (Brunei)(Joint Venture)........... 30%
Biarritz Overseas Limited (Cyprus)..................... 100%
ZAO Biarritz Overseas Limited (Siberia).............. 100%
Nowsco International Limited (Barbados)................ 100%
Nowsco Well Service (Cyprus) Limited................... 100%
Nowsco Well Service (Vostok) Limited (Russia)........ 100%
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
PERCENTAGE OWNED BY
--------------------
NAME OF ENTITY/JURISDICTION OF ORGANIZATION COMPANY SUBSIDIARY
------------------------------------------- ------- ----------
<S> <C> <C>
NMS Oil Field Limited (Cyprus)....................... 100%
Nowsco Americas S.A. (Argentina)..................... 100%
Nowsco Well Service (Europe) BV (Netherlands)........ 100%
PT Nowsco Well Service (Indonesia)(Joint Venture).... 70%
Sarku Nowsco Well Services SDN BHD (Malaysia)(Joint
Venture)............................................ 40%
Nowsco Well Services (Vietnam) Ltd................... 100%
BJ Services Company B.V. (Netherlands)...................... 100%
BJ Services Company GmbH (Germany)........................ 100%
BJ Services AS (Norway)................................... 100%
BJ Services Company Italia S.r.1. (Italy)................. 100%
BJ Services Company Mexicana S.A. de C.V. (Mexico).......... 100%
BJ Servicios International S.A. de C.V. (Mexico)............ 100%
BJ Services Company (Nigeria) Limited (Joint Venture)....... 60%
BJ Services Company, S.A. (Panama).......................... 100%
BJ Services Company Limited (Scotland)...................... 100%
BJ Petroleum Services Limited (UK)........................ 100%
BJ Services Company (UK) Limited (Scotland)............... 100%
BJ Services Company Middle East Limited (Scotland)........ 100%
BJ Service Company Africa (Scotland)...................... 100%
BJ Tubular Services Limited (Scotland).................... 100%
BJ Process & Pipeline Services AS (Norway)............. 100%
BJ Tubular Services A/S (Denmark)...................... 100%
BJ Services Company (Australia) Pty. Ltd. (Australia)..... 100%
BJ Process & Pipeline Services Limited (UK)............... 100%
Nowsco Well Service Limited (UK).......................... 100%
McKenna & Sullivan Limited (UK)........................ 100%
BJ Services (GB) Limited (Scotland)....................... 100%
BJ Services Company (Singapore) Pte. Ltd. (Singapore)....... 100%
BJ Services Company (Hong Kong) Limited (Hong Kong)....... 100%
Indo-Chew Trading Limited (British Virgin Island)......... 100%
BJ Services de Venezuela IV, C.A. (Venezuela)............... 100%
BJ Services de Venezuela, C.A. (Venezuela).................. 100%
BJ Services de Venezuela III, C.A. (Venezuela)............ 100%
BJ Services International, S.A. (Panama).................. 100%
BJ Pumping Services Company S.A. (Panama) (Joint
Venture)............................................... 65%
International Chemical Specialities FZE (Jebel Ali)....... 100%
BJ Services Do Brazil Ltda................................ 100%
SEBEP Quimica Industria e Comercio Ltda. (Brazil)......... 100%
SEBEX Oil Well Services, S.A. (Brazil).................... 100%
BJ Services S.A. (Argentina)................................ 100%
Compania de Servicios Petroleros BJ Boliviana S.A. (BJ
Boliviana S.A.) (Bolivia) (Joint Venture)................. 49%
Hughes Services Eastern Hemisphere S.A.R.L. (France)........ 100%
International Specialty Chemicals Ltd. (Cayman Islands)
(Joint Venture)........................................... 75%
P.T. BJ Services Indonesia (Indonesia) (Joint Venture)...... 75%
Societe Algerienne de Puits Producteurs d'Hydrocarbures
(BJSP) (Algeria).......................................... 49%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-36754 of BJ Services Company on Form S-8, in Registration Statement No.
33-52506 of BJ Services Company on Form S-8, in Registration Statement No.
33-62098 of BJ Services Company on Form S-8, in Registration Statement No.
33-58637 of BJ Services Company on Form S-8, in Registration Statement No.
33-58639 of BJ Services Company on Form S-8, in Registration Statement No.
33-36713 of BJ Services Company on Form S-8 and in Registration Statement No.
33-58017 of BJ Services Company on Form S-4 of our report dated November 24,
1997 (December 15, 1997 as to Notes 6 and 14) appearing in this Annual Report on
Form 10-K of BJ Services Company for the year ended September 30, 1997.
DELOITTE & TOUCHE LLP
Houston, Texas
December 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 3,900
<SECURITIES> 0
<RECEIVABLES> 332,851
<ALLOWANCES> 6,194
<INVENTORY> 104,234
<CURRENT-ASSETS> 474,744
<PP&E> 932,581
<DEPRECIATION> 392,225
<TOTAL-ASSETS> 1,726,768
<CURRENT-LIABILITIES> 385,344
<BONDS> 0
0
0
<COMMON> 3,853
<OTHER-SE> 956,374
<TOTAL-LIABILITY-AND-EQUITY> 1,726,768
<SALES> 1,466,573
<TOTAL-REVENUES> 1,466,573
<CGS> 1,141,570
<TOTAL-COSTS> 1,141,570
<OTHER-EXPENSES> 142,596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,715
<INCOME-PRETAX> 154,368
<INCOME-TAX> 46,462
<INCOME-CONTINUING> 107,906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,906
<EPS-PRIMARY> 2.62
<EPS-DILUTED> 2.56
</TABLE>
