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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 DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10718
CAMCO INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 13-3517570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7030 ARDMORE, HOUSTON, TEXAS 77054
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (713) 747-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
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Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Rights to Purchase Common Stock, $.01 Par Value New York Stock Exchange, Inc.
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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 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. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant based upon the price at which the stock was sold as of February 27,
1998: $2,170,883,968.
Number of shares of common stock outstanding as of February 27, 1998:
37,680,539.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III Items 10, 11, 12 and 13 will be
included in a proxy statement to be filed pursuant to Regulation 14A, and is
incorporated herein by reference.
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PART I
ITEM 1. BUSINESS.
GENERAL
Camco International Inc. and subsidiaries (collectively, "Camco" or the
"Company") is one of the world's leading providers of oilfield equipment and
services for numerous specialty applications in key phases of oil and gas
drilling, completion and production. Many of the Company's products and services
have recognized names in the industry and are associated with technological
innovation and quality. Camco operates on a worldwide basis with its equipment
and services being sold or used in approximately 50 countries. Approximately 66%
of the Company's revenues in 1997 were derived from equipment or services sold
or provided outside the United States.
Camco is the leading world producer of gas lift systems. Camco also
operates one of the largest fleets of coiled tubing units in the United States,
is one of the world's two leading providers of subsurface safety valve systems,
synthetic diamond drill bits and electric submersible pump systems and is the
world's third leading provider of roller cone drill bits. On June 13, 1997,
Camco acquired Production Operators Corp.("Production Operators"), the market
leader in total responsibility gas compression services. The business
combination has been accounted for using the pooling-of-interests method of
accounting. Accordingly, the financial information reflected in this document
has been prepared as if Camco and Production Operators were combined as of the
beginning of the earliest period presented. Information regarding world markets
excludes the former Soviet Union (the "FSU") and China, for which reliable
market information is unavailable.
Camco's business consists of an Oilfield Equipment Segment and an Oilfield
Services Segment.
Oilfield Equipment Segment. Camco's Oilfield Equipment Segment provides a
wide range of manufactured oilfield products, principally under the names Reda
Pump ("Reda"), Lasalle Engineering ("Lasalle"), Lawrence Technology, Hycalog,
Reed Tool ("Reed"), Camco Products and Site Oil Tools ("Site"). Reda
manufactures electric submersible pumps ("ESPs") used to lift high volumes of
fluids from producing wells. Lasalle, acquired in September 1996, provides oil
well production services, project management and ancillary equipment for ESP
systems. Lawrence Technology manufactures electric cables and wire used with
ESPs. Hycalog manufactures synthetic diamond drill bits, and Reed manufactures
roller cone drill bits. Synthetic diamond drill bits have a faster rate of
penetration, drill more footage, generally have a higher unit sales price and
are used primarily in high cost drilling locations where their relatively higher
price can be justified by their corresponding reduction in total drilling time
and, therefore, costs. Roller cone drill bits generally have lower unit prices,
are less application sensitive and are used in a wider variety of drilling
applications. Camco Products manufactures gas lift systems used to increase the
volume of production from oil wells, subsurface safety valves used as fail-safe
devices to shut-in production in oil and gas wells in emergencies, and packers
and other items used in the completion and production phases of oil and gas
development. In December 1996, Camco Products expanded its gas lift business by
acquiring the artificial lift business line of Halliburton Company. Site Oil
Tools, which was acquired by the Company in March 1995, manufactures a full line
of packers, accessory equipment and services for the completion of oil and gas
wells. The Oilfield Equipment Segment accounted for approximately 76% of Camco's
total revenues in 1997.
Oilfield Services Segment. Camco's Oilfield Services Segment provides a
wide range of oilfield services, principally under the names Production
Operators, Camco Coiled Tubing Services ("Camco Coiled Tubing"), Camco Wireline
and Drilling & Services. Production Operators provides total responsibility gas
compression services including project management and operation for clients
engaged in gas gathering, injection, treating and processing. Camco Coiled
Tubing provides coiled tubing services and nitrogen services and performs other
downhole operations used in the initial completion of wells and in well
maintenance and treatment during the productive life of a well. Camco Wireline
provides mechanical wireline services used to install or retrieve downhole flow
control devices and to obtain reservoir data using specialized instruments.
Drilling & Services provides steerable rotary drilling system services used in
directional and horizontal drilling applications. The Oilfield Services Segment
accounted for approximately 24% of Camco's total revenues in 1997.
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Selected financial data related to Camco's business segments, foreign and
domestic operations, and export sales is set forth in Note 10 of the Notes to
the Consolidated Financial Statements included elsewhere herein.
The Company, which was incorporated in Delaware in 1988, is the successor
to Camco, Incorporated, which was incorporated in Texas in 1946. The Company's
headquarters are located at 7030 Ardmore, Houston, Texas 77054.
BUSINESS OPERATIONS
OILFIELD EQUIPMENT SEGMENT
Electric Submersible Pumps. Reda was founded in 1930 and manufactures
downhole ESPs. An ESP system consists of an electric motor, which provides
direct drive to a pump immediately above the motor, and surface control systems.
The motor and pump are positioned above the perforation of the production zone
at the bottom of the production tubing string in an oil well. ESPs are often the
most economical means of lifting high volumes of reservoir fluids (600 to 20,000
barrels per day) to the surface from oil wells which either do not flow
naturally or have low natural flow rates. In many cases, use of an ESP makes a
well economical to produce where it otherwise would be abandoned. Many ESPs are
used in wells where large quantities of water are produced with the oil. As high
flow rate wells mature, they will, in most cases, begin to produce large
quantities of water. Water also may be present as a consequence of secondary
recovery techniques involving the injection of steam or water into the
oil-bearing formation to increase oil production. ESPs are also used in deep or
deviated wells where other artificial lift systems cannot function reliably.
Although the actual life of an ESP system is influenced by variable well
characteristics such as corrosive and abrasive content in the fluid and by
downhole temperatures, the average life of a typical ESP system is approximately
18 months. Upon failure, the ESP system is pulled and either repaired with new
components or replaced entirely depending on wear and condition. Reda's network
of sales and service centers and responsiveness to replacement demands have been
important in developing new markets. Demand for Reda's products is primarily
driven by oil prices, replacement of other artificial lift systems and the
replacement market for ESPs worldwide.
Lawrence Technology manufactures cable for submersible pump installations.
This specialized cable, capable of withstanding corrosive fluids and the high
temperatures encountered downhole, carries the electric current from the surface
to the motor located at the production zone. Demand for Lawrence Technology's
products is driven primarily by demand for ESPs and by the replacement market
for ESP cable worldwide.
Lasalle specializes in providing oil well production services, project
management and ancillary equipment for ESPs. Lasalle has led the development of
offshore ESP systems and was project manager in Brazil for the first subsea ESP
installation in the world.
Electric submersible pumps, ESP cable and related services and equipment
accounted for revenues of $284.1 million, $234.6 million and $204.8 million in
1997, 1996 and 1995, respectively.
Drill Bits. Hycalog manufactures synthetic diamond drill bits. It was
founded in 1946 and manufactured its first natural diamond drill bits in 1953.
The bits manufactured by Hycalog are polycrystalline diamond compact ("PDC")
bits which utilize synthetic diamonds as the primary cutting element. PDC bits
allow faster rates of drilling penetration and can drill complete well sections
without the need for bit replacement. As a result, they are used in high cost
drilling locations (such as offshore or in remote locations) where their
technical advantages reduce drilling time sufficient to justify the high unit
sales prices. Hycalog manufactures both steel body bits and matrix bits. Steel
body bits are favored for large cutter PDCs used to drill in softer formations
at fast rates of penetration. Matrix bits have a tungsten carbide body which
makes them better suited for soft to medium formations and better able to resist
abrasive drilling fluids. Several different types of diamond bits may need to be
used in one well (diamond bits can also be used in conjunction with roller cone
bits) as different formations are encountered in drilling a well. As a result,
diamond drill bit designs are often custom engineered for specific formation
characteristics expected to be encountered. A single PDC bit may drill from
several hundred feet to over 20,000 feet depending on the hardness and
abrasiveness of the
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formation. Hycalog's patented "hybrid bit" technology, which combines synthetic
and natural diamonds on a single bit, has longer wear life in harder formations
than other PDC bits that do not include natural diamonds. PDC bits are often
used with a downhole motor.
Reed manufactures roller cone drill bits and has been an established bit
manufacturer since 1916. Reed produces roller cone drill bits for a wide variety
of oil and gas well drilling applications, primarily for use in the
high-performance markets. Roller cone bits consist of a steel body and three
rotating cones which have cutting teeth. Reed manufactures bits with milled
teeth and with tungsten carbide insert teeth, which have a longer life in harder
formations. A number of different sizes of bits are used during the drilling of
the well, and the bits are generally dulled during the drilling process.
Drilling an average well in the United States to a depth of 6,000 feet typically
might consume four to six roller cone bits. The bits are manufactured for
inventory in a variety of standard sizes. Reed has proprietary nozzle designs
(Mudpick and Mudpick II trademarks) used in its drill bits. Mudpick allows the
drilling fluid to clean the bit more effectively while drilling, which increases
rates of drilling penetration by up to 25%. By providing a sweeping effect
across the interface of the teeth and rock, Mudpick II hydraulics improve the
removal of the cuttings (in addition to cleaning the bit) and further improve
the rate of drilling penetration. Reed also holds a patent for a threaded ring
bearing design that significantly reduces the likelihood of losing a cone from
the drill bit in the well when it becomes worn and, as a result, reduces the
likelihood of costly retrieval operations. The combination of Mudpick II
hydraulics and the threaded ring bearing was introduced as enhanced hydraulic
performance ("EHP") bits in 1992. Demand for Camco's drill bit products is
primarily driven by levels of drilling activity worldwide.
Drill bits accounted for revenues of $231.7 million, $193.4 million and
$180.6 million in 1997, 1996 and 1995, respectively.
Completion Equipment. Camco Products manufactures gas lift systems,
downhole safety valves used in oil and gas well completions, packers and
accessory equipment. Camco began distributing gas lift systems in 1946 and
started manufacturing its own equipment in 1951. Gas lift systems consist
principally of mandrels containing gas lift valves which are placed in the
production tubing string of an oil well. Gas is compressed and injected from the
surface down the annulus between the production tubing and casing, enters the
tubing through the gas lift valves and lifts the oil in the production tubing to
the surface. The gas is then separated from the oil at the surface and
compressed and reinjected downhole, forming a closed-loop system. Gas lift is
usually the most economical method of lifting fluid when natural gas is produced
with the oil or is available from other wells for injection.
Safety valve systems are typically installed several hundred feet below the
well head in an oil or gas well and connected to surface control equipment. If
loss of control pressure at the surface occurs, the valve automatically closes,
thereby preventing a potential blowout and environmental harm. Safety valves,
made by certified manufacturers, are required by regulation in offshore wells
and other environmentally sensitive areas of the United States and many foreign
locations.
Camco Products' other completion equipment includes packers, expansion
joints and sliding sleeves, as well as equipment to facilitate wireline
operations in a well. Demand for equipment manufactured by Camco Products is
principally driven by the level of offshore well completions worldwide.
OILFIELD SERVICES SEGMENT
Contract Gas Compression Services. Production Operators provides contract
gas compression services. Contract gas compression services consist principally
of contract gas compression, which is the boosting of natural gas pressure by
mechanical means using custom-designed and engineered high-performance
reciprocating compression equipment. Production Operators provides total
responsibility compression operating service to oil and gas producers, pipeline
operators and gas processors. This service focuses on the custom engineering,
fabrication, turn key construction, installation, operation and maintenance of
the equipment necessary to handle any gas compression on a full responsibility,
guaranteed mechanical availability, value-added basis rather than on the lease
or sale of equipment. Gas compression services have been expanded in recent
years to include contract operation of client owned equipment and contract gas
processing and
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treating. Demand for Camco's gas compression services is driven by decisions by
petroleum and pipeline companies to outsource their gas compression and other
production requirements.
Production Operators, founded in 1961 and acquired by Camco in June 1997,
currently provides contract gas compression services primarily in the United
States, Venezuela and Argentina. The Company believes that there are significant
opportunities for Production Operators to leverage off of Camco's existing
marketing and operational infrastructure to expand its business into other
geographic regions.
Contract gas compression services accounted for revenues of $114.6 million,
$91.8 million and $72.8 million in 1997, 1996 and 1995, respectively.
Coiled Tubing Services. Camco Coiled Tubing provides coiled tubing and
nitrogen services in the United States, Nigeria and Venezuela. Camco Coiled
Tubing operates a fleet of approximately 55 coiled tubing units and 105 nitrogen
pumping units. Nitrogen pumping has various oilfield applications including
pipeline purging. Coiled tubing is flexible steel tubing with a diameter of up
to 3 1/2 inches manufactured in lengths of thousands of feet and wound or coiled
around a large reel mounted on a truck or a skid unit. Coiled tubing is inserted
into wells to perform various well-servicing operations, including the injection
of nitrogen to clean out debris from the well and the injection of chemicals for
well treatment. Because the coiled tubing can be inserted through the wellhead
into the production tubing, it can be 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 "kill" the well during
such operations, thereby 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 manipulate
downhole tools and (iv) enhanced access to remote or offshore fields due to the
smaller size and mobility of a coiled tubing unit.
Camco Coiled Tubing principally operates in the United States, Nigeria and
Venezuela and demand for its services are primarily driven by the level of oil
and gas well service and workover activity in those areas. Well service and
workover activity is driven by energy prices. The Company believes the demand
for coiled tubing services will grow due to continued technological improvements
that have increased the dependability and durability of tubing, and the range
and types of services available.
Wireline Services. Camco Wireline provides mechanical wireline (or
slickline) services. Mechanical wireline services are distinct from electric
wireline services used for geologic data collection and interpretation. A
wireline is a piano-wire sized smooth cable with which special tools can be
lowered into the well bore to place or retrieve equipment, such as a gas lift
valve or a downhole safety valve, or to measure and record bottom hole data to
determine the condition of producing wells. These services are performed under
full well pressure without the need to "kill" the well. Camco Wireline provides
services in the United States and worldwide to offshore markets where the
majority of gas lift systems and safety valves are used. Demand for Camco
Wireline's services is primarily driven by the level of completions and
workovers worldwide.
Extended Reach Drilling Services. The Company's newly formed Drilling &
Services division is developing a steerable rotary drilling system to be used in
extended reach drilling which is expected to solve some of the technical
limitations of current technology in directional and horizontal drilling
applications.
SALES, SERVICE AND DISTRIBUTION
The Company markets its various products and services primarily through its
own sales organization, providing technical assistance to customers on the
application of various products. In certain international locations, products
are distributed through independent sales agents who have access to technical
support from the Company. Camco maintains finished goods and repair parts
inventories at various stocking points and service centers around the world.
Inventories are replenished from the production of the Company's manufacturing
facilities based on expected business levels and customer requirements.
In recent years, a number of major oil and gas producers along with many
leading oilfield equipment and service providers, including Camco, have entered
into business alliances in an attempt to reduce or better
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control the overall cost to find, drill, complete and produce oil and gas. These
alliances involve relatively long-term supply and service arrangements. The
Company's management believes that as alliances become more prevalent, most of
its key customers will select alliance partners primarily on a
product-by-product basis, particularly for the higher technology, value-added
equipment and services which constitute most of Camco's business. Camco has
successfully entered into alliances in various regions around the world and with
respect to many of its key products.
CUSTOMERS
Camco's customers are primarily major and independent oil and gas companies
and foreign national oil companies. No single customer accounted for more than
10% of Camco's total revenues in 1997, but the loss of a major oil or gas
company or certain foreign national oil companies as a customer would be
significant.
INTERNATIONAL OPERATIONS
Camco's equipment and services are used in approximately 50 countries by
U.S. customers operating abroad and by foreign customers. Sales of equipment and
services outside of the United States accounted for 66%, 65% and 64% of total
revenues in 1997, 1996 and 1995, respectively. Certain of Camco's international
operations are subject to special risks inherent in doing business outside the
United States such as risks of war, boycotts, civil disturbances and
governmental activities, including currency restrictions and arbitrary
imposition of taxes. See Note 10 to the Consolidated Financial Statements
included elsewhere herein for additional financial data related to Camco's
revenues by geographic region.
The Company wholly owns all of its foreign subsidiaries engaged in
manufacturing outside of the United States and wholly owns most of its sales and
service operations outside of the United States. Government-owned petroleum
companies located in some of the countries in which Camco operates have adopted
policies (or are subject to governmental policies) giving preference to the
purchase of goods and services from companies that are majority owned by local
nationals. As a result of such policies, Camco relies on joint ventures, license
arrangements and other business combinations with local nationals in these
countries. Camco is a participant in joint ventures or a shareholder in
corporations in Abu Dhabi, Dubai and Ras Al Khaimah in the United Arab Emirates,
Egypt, Colombia, Malaysia, Brunei, Indonesia, Norway, Venezuela and the FSU.
The Company has significant operations in areas which have experienced
political instability, high inflation and significant currency fluctuations in
recent years, including Nigeria, Venezuela and the FSU. Given the dynamic
political and economic environment in each of these areas, business activity is
expected to remain somewhat volatile from year to year. Exposure to these risks
is actively monitored by management and action is taken when appropriate under
the circumstances to limit such exposures. Despite these actions, there can be
no assurance that volatility in these markets will not adversely impact the
Company's operations.
Camco operates in various foreign countries and is, therefore, subject to
currency fluctuations in these countries. Changes in the value of the U.S.
dollar against these currencies will affect the Company's results of operations
and financial position. Camco conducts a portion of its business in highly
inflationary environments such as South America and Nigeria. The effect of
currency rate changes in highly inflationary countries is reflected in the
results of operations in accordance with Statement of Financial Accounting
Standards No. 52.
In 1997, 1996 and 1995, the Company recorded translation losses of $1.8
million, $4.8 million and $5.7 million, respectively, primarily due to the
devaluation of the bolivar in Venezuela and the naira in Nigeria. Additionally,
during 1997, 1996 and 1995, the cumulative translation account, a component of
stockholders' equity, reflected a $3.8 million loss, a $7.2 million gain and a
$.5 million gain, respectively, primarily due to movements in the U.K. pound
sterling versus the U.S. dollar. The Company actively monitors foreign
subsidiaries' net asset positions denominated in foreign currencies and takes
actions when appropriate under the circumstances to limit its risk to currency
fluctuation and devaluation.
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MANUFACTURING AND RAW MATERIALS
Most of Camco's oilfield equipment products are made from steel and steel
alloys which are machined to some degree of close tolerance in the manufacturing
process. Machined pieces are inspected against product specifications and
assembled. Some products are performance tested after assembly. Some parts are
purchased in finished form from qualified suppliers when it is not economical
for Camco to perform the machining, or when the material, such as elastomers, is
other than steel. Camco has more than one source for every material it requires
in the manufacture of its products.
RESEARCH AND PRODUCT DEVELOPMENT
Camco's business strategy is to be an industry leader in technically
demanding oilfield equipment and services markets. Camco attempts to keep each
of its key products at the forefront of engineering and technical advances, and
each business unit has ongoing programs to advance this goal. In 1997, 1996 and
1995, total research and development expenditures were $33.2 million, $26.3
million and $24.3 million, respectively.
PATENTS AND TECHNOLOGY
At December 31, 1997, Camco had approximately 248 U.S. patents and 290
foreign patents in effect with approximately 89 U.S. patent applications and
approximately 134 foreign patents pending. Camco has been diligent in obtaining
patents to protect its technological developments. There is, however, no patent
or group of related patents which would enable any Camco group to dominate its
industry and no single patent or group of related patents that is material to
Camco's business.
SEASONALITY
Demand for Camco's equipment and services is subject to some seasonality
factors. Higher activity generally is experienced in the fall and winter. Demand
generally increases in the second half of the year as a result of industry
spending patterns as well as economic factors that affect the Company's
customers, such as increased cash flow from winter demand for natural gas. In
addition, in cold weather climates activity generally slows in the spring due to
both difficulty in moving equipment and government restrictions on moving heavy
equipment on affected roadways during the spring thaws. Weather conditions in
the North Sea and Arctic areas (during the winter) and in the Gulf of Mexico
(during the summer and early fall) can cause temporary disruptions to activity
in areas in which Camco operates.
ORDER BACKLOG
At December 31, 1997, the Company's backlog of firm orders for products and
equipment was approximately $99.2 million compared to approximately $76.5
million at December 31, 1996. Substantially all of such orders are expected to
be filled in 1998.
INDUSTRY CONDITIONS
Demand for and pricing of Camco's equipment and services 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 well
service and workover activity worldwide. Drilling, completion and workover
activity in turn is largely dependent on the level and volatility of oil and
natural gas prices. Given the substantially longer lead times required and
higher levels of capital investments necessary, drilling, completion and
workover activity has historically been less volatile in international markets,
from which the Company derived 56% of its revenues in 1997, than in North
America.
Pricing for crude oil and natural gas declined during 1997 reversing a
three-year upward trend. West Texas Intermediate ("WTI") crude prices averaged
$20.58 per barrel in 1997, or $1.59 per barrel lower than in 1996. U.S. natural
gas prices averaged $2.47 per MCF in 1997, down slightly from the previous year.
Worldwide drilling activity increased for the third consecutive year in 1997 as
the long-term outlook remained
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favorable for the pricing of oil and natural gas. Average rig count activity for
the previous three years is summarized in the table below:
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RIG COUNT 1997 1996 1995
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United States............................................... 943 779 723
Canada...................................................... 374 270 231
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North America..................................... 1,317 1,049 954
International............................................... 808 792 759
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Worldwide......................................... 2,125 1,841 1,713
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The Company believes that the long-term outlook for drilling, completion
and production activity remains positive as supply and demand are almost in
equilibrium and worldwide demand for crude oil is forecasted to increase through
the turn of the century. Growth in the demand for and production of natural gas
is expected to exceed that of oil.
While the Company's long-term outlook for drilling, completion and
production activity is optimistic, short-term uncertainty exists with respect to
the outlook for the industry in North America given the recent significant
declines in the price of crude oil. The price of WTI crude oil averaged $16.40
per barrel during the first two months of 1998, and declined to below $14.50 per
barrel in March 1998. The decline in U.S. natural gas prices from 1997 levels
has not been as significant. The Company believes that if WTI crude oil prices
remain depressed for a prolonged period, drilling, completion and production
activity in North America, particularly in land-based markets, could decline
significantly below 1997 levels.
The international average rig count increased for the third consecutive
year, to an average rig count of 808. The Company expects international
drilling, completion and production activities to remain relatively stable as
most international projects do not fluctuate based on short-term changes in
commodity prices.
While facing economic and currency instability, developing countries with
oil reserves in South America, Eastern Europe and the Far East often increase
exploration and production activities to provide additional hard currency
inflows to their economies. The Company believes that there continues to be
significant opportunities to provide oilfield equipment and services to increase
production in these and other areas of the world.
Demand for the Company's contract gas compression services is driven by
decisions by petroleum and pipeline companies to outsource gas compression and
other production requirements. The Company believes that demand for contract gas
compression services will increase and that significant opportunities exist to
expand high-end compression services in many markets outside the United States.
Industry conditions will continue to be influenced by numerous factors over
which Camco has no control, including the level and volatility of world oil and
gas prices, production levels of the Organization of Petroleum Exporting
Countries ("OPEC") and general activity levels of oil and gas producers
worldwide. Although it is impossible to predict the impact of such factors on
the Company, management believes these risks are acceptable. However, there can
be no assurance that any one of these factors would not have a material adverse
effect on its operations.
BUSINESS STRATEGY
Camco's business strategy is to be an industry leader in technically
demanding oilfield equipment and services markets where the Company's technology
and high quality products and services make it possible for customers to produce
oil and gas in increasingly remote and technically demanding environments. The
Company provides customers with technical innovations in its products and
services which lower their costs to find and produce oil and gas. The Company
seeks to minimize the effect of volatility of oil and gas prices and to maximize
profitability under varying market conditions by managing its cost structure in
response to changes in its markets.
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Consistent with the Company's business strategy, Camco's equipment and
services are focused on serving difficult drilling and production environments,
providing value-added applications and developing innovative solutions to
customer problems. Camco seeks to maintain a reputation for offering advanced
technology through an ongoing research and development program. This commitment
is evidenced by numerous drilling records set over the past three years by both
Reed Tool and Hycalog. In addition, Camco's Products and Services business unit
was awarded the A.S.M.E. Best Mechanical Engineering Achievement Award for its
patented system for "Drilling with Coiled Tubing" at the 1995 Offshore
Technology Conference ("OTC"). Field tests of this technology are ongoing and
based on recent results, drilling with coiled tubing continues to show promise
as a means to economically produce smaller infield oil reserves. Reed was also a
runner-up at the 1995 OTC for its new "PMC" drill bit design using a patented
manufacturing process.
COMPETITION
Camco's equipment and services are sold in highly competitive markets and
its sales and earnings can be affected by competitive actions such as price
changes, new product developments, or improved availability and delivery. Camco
competes with a large number of companies, some of which are larger than the
Company, have greater financial resources and offer substantially broader
product and service lines. The Company believes that competition for sales of
its products and services is based on numerous factors, including quality,
performance and reliability, availability, technological advances and price.
Camco is responding to this highly competitive environment through efforts
both to reduce the actual cost of its products and to increase their economic
value to the customer. Camco's design engineers and manufacturing engineers have
worked toward reducing the cost of manufacturing products to permit lower
selling prices while maintaining the technical qualities that the various
markets require. In addition, Camco's research and development efforts are
focused on improving a product's economic value to the customer by improving its
performance, thereby allowing Camco to compete on technology rather than on
price alone.
The principal competitors in ESPs are Centrilift (a division of Baker
Hughes) and ESP Inc. (a division of Wood Group).
Camco's principal competition in drill bits comes from Hughes Christensen
(a division of Baker Hughes), Smith International and Security DBS (a division
of Dresser Industries).
The principal competitors for contract gas compression are Hanover
Compressor Co., Dresser Rand (a division of Dresser Industries) and Global
Compression Services Inc.
Competition for gas lift equipment comes primarily from a division of
Weatherford Enterra. Baker Hughes and Halliburton are the principal competitors
in safety valves.
The primary competitors for coiled tubing and nitrogen services are
Halliburton, Dowell (a division of Schlumberger) and BJ Services. Competition
for mechanical wireline services comes primarily from Halliburton and numerous
small regional companies.
OPERATING RISKS AND INSURANCE
Camco's operations are subject to hazards inherent in the oil and gas
industry, such as fire, explosion, blowouts and oil spills that can cause
personal injury or loss of life, damage to property, equipment, the environment
and marine life, and suspension of operations. In addition, claims for loss of
oil and gas production and damages to formations can occur in the completion and
workover business. Litigation arising from a catastrophic occurrence at a
location where Camco's products are used may in the future result in the Company
being named as a defendant in lawsuits asserting potentially large claims. The
Company maintains insurance coverage that it believes to be customary in the
industry against these hazards. The Company maintains general liability and
property damage insurance, as well as product liability, business interruption
and other insurance, and self-insures against workers' compensation claims.
However, insurance may not provide complete protection against casualty losses.
Further, no assurance can be given that the Company will be able to maintain
adequate insurance in the future at rates it considers reasonable.
9
<PAGE> 10
Although the Company believes it will be able to obtain insurance coverage
adequate for its current operations, a successful liability claim for which the
Company is underinsured or uninsured could have a material adverse effect on the
Company.
Camco has safety and environmental compliance programs staffed by full-time
professional employees. In addition, Camco involves all levels of executive and
operating management in a continuous effort to improve its safety and
environmental record.
EMPLOYEES
At December 31, 1997, the Company had approximately 5,500 employees
worldwide, including approximately 2,400 who were employed in international
locations. Approximately 720 employees at December 31, 1997, are represented
under collective bargaining agreements in two of its manufacturing facilities in
the United States and one international plant in Belfast. The Company believes
that its relations with its employees are satisfactory.
ENVIRONMENTAL MATTERS AND REGULATIONS
Camco'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 that apply specifically to Camco's
business. Various federal, state and local laws and regulations governing the
discharge of materials into the environment, or otherwise relating to the
protection of public health and the environment, may affect Camco's operations,
expenses and costs. Environmental regulations have increasingly limited and
restricted activities that may have an impact on the environment, such as
emissions of air and water pollutants, generation and disposal of wastes, and
use and handling of hazardous substances. These limitations and restrictions
have increased operating costs for Camco and other similar businesses. In
addition, it is reasonable to expect that the costs of compliance will continue
to increase in the foreseeable future.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "superfund" law, imposes liability, regardless of
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.
These persons include the current or previous owner and operator of a facility
and companies that disposed or arranged for the disposal of the hazardous
substance found at a facility. CERCLA also authorizes the Environmental
Protection Agency (the "EPA") and, in some cases, private parties to take
actions in response to threats to the public health or the environment and to
seek recovery from such responsible classes of persons of the costs of such
actions. In the course of its operations, Camco has generated and will generate
wastes that may fall within CERCLA's definition of "hazardous substances." In
addition, prior owners or operators at current or past Camco sites may have
disposed of hazardous substances on these properties. Camco may be responsible
under CERCLA for all or part of the costs to clean up facilities at which such
substances have been disposed.
Camco's operations may generate wastes that are subject to the Federal
Resource Conservation and Recovery Act ("RCRA") and comparable state statutes.
The EPA has limited disposal options for certain hazardous wastes and may adopt
more stringent disposal standards for nonhazardous wastes. In addition, RCRA
includes a statutory exemption that allows oil and gas exploration and
production wastes to be classified as nonhazardous wastes. A similar exemption
is contained in many of the state counterparts to RCRA. If oil and gas
exploration and production wastes were required to be managed and disposed of as
hazardous wastes, either as a result of changes in RCRA or the imposition of
more stringent state regulations, domestic oil and gas producers, including many
of the Company's customers, could be required to incur substantial obligations
with respect to such wastes. Because of the potential impact on the Company's
customers, any regulatory changes that impose additional restrictions or
requirements on the disposal of oil and gas wastes could adversely affect demand
for the Company's services and products.
Camco is also subject to laws and regulations concerning occupational
health and safety. These laws, such as the Federal Occupational Safety and
Health Act ("OSHA") and comparable state statutes, establish standards that
apply generally to businesses in the manufacturing sector, including Camco's
businesses.
10
<PAGE> 11
Camco is also subject to laws and regulations concerning transportation and
pipeline operations. These laws, under the Department of Transportation,
establish standards that apply generally to businesses in the oilfield sector,
including Camco's businesses.
The Company believes that it is currently in compliance in all material
respects with the requirements of transportation, environmental and occupational
health and safety laws and regulations. Because such laws and regulations are
frequently changed, the Company is unable to predict the impact that such laws
and regulations may have on the Company's business.
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
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. These risks include changes in market conditions in
the oil and gas industry, declines in prices of oil and gas, political
instability in foreign countries in which the Company operates, currency
fluctuations and contracts, in particular those in Nigeria, South America and
Southeast Asia, increased competition in the Company's markets, governmental
restrictions affecting oil and gas exploration, the ability of the Company to
integrate and realize anticipated synergies for its acquisitions, including that
of Production Operators, the ability of the Company to achieve and execute
internal business plans, and the impact of any economic downturns and inflation
and other market factors affecting the demand and supply of oil and gas and the
products and services relating thereto. 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.
ITEM 2. PROPERTIES
Camco's principal facilities are as shown in the table below:
<TABLE>
<CAPTION>
APPROXIMATE
BUILDING
LAND SPACE
LOCATION OWNED/LEASED (ACRES) (SQUARE FEET) DESCRIPTION
-------- ------------ ------- ------------- -----------
<S> <C> <C> <C> <C>
UNITED STATES
Reda
Bartlesville, OK.......... 9 acres owned/12 acres 21 410,000 Manufacturing facility and
leased(a) offices
Bartlesville, OK.......... Owned 0.5 175,000 Offices
Reed
Houston, TX............... Owned 36 535,000 Manufacturing facility and
offices
Lawrence Technology
Lawrence, KS.............. Owned 41 330,000 Manufacturing facility and
offices
Camco Products
Houston, TX............... Owned 37 400,000 Manufacturing facility and
offices
Garland, TX............... Leased(b) 8 84,000 Manufacturing facility and
offices
North Slope, Alaska....... Building owned/Land 9 45,000 Warehouses, repair facility
leased(c) and offices
Hycalog
Houston, TX............... Leased(d) 0.5 40,000 Manufacturing facility and
offices
Production Operators
Houston, TX............... Owned 27 124,000 Manufacturing facility and
offices
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
APPROXIMATE
BUILDING
LAND SPACE
LOCATION OWNED/LEASED (ACRES) (SQUARE FEET) DESCRIPTION
-------- ------------ ------- ------------- -----------
<S> <C> <C> <C> <C>
ARGENTINA
Camco Products
Buenos Aires.............. Owned 1 75,000 Manufacturing facility and
offices
CANADA
Site Oil Tools
Calgary, Alberta.......... Owned 6 85,000 Manufacturing facility and
offices
SINGAPORE
Reda
Jurong.................... Building owned/Land 11 220,000 Manufacturing facility and
leased(e) offices
Reed
Jurong.................... Building owned/Land 6 95,000 Manufacturing facility and
leased(f) offices
UNITED KINGDOM
Camco Products
Belfast, Northern Building owned/Land 16 150,000 Manufacturing facility and
Ireland................. leased(g) offices
Hycalog
Stonehouse, England....... Owned 4 75,000 Manufacturing facility and
offices
Lasalle
Inverurie, Scotland....... Owned 3 41,000 Manufacturing facility and
offices
VENEZUELA
Camco Products
Las Morochas.............. Owned 13 75,000 Manufacturing facility,
warehouses and offices
Maracaibo................. Leased(h) 2.5 42,000 Manufacturing facility and
offices
</TABLE>
- ---------------
(a) Lease expires May 25, 2037.
(b) Lease expires December 10, 1999.
(c) Lease expires July 8, 2019.
(d) Lease expires March 31, 1999.
(e) Lease expires October 1, 2009.
(f) Lease expires May 16, 2011.
(g) Lease expires November 7, 2987.
(h) Lease expires December 31, 1998.
In addition, as of December 31, 1997, Camco operates in approximately 45
sales, service and other facilities in the United States, most of which are
leased, and operates approximately 65 sales, service and other facilities in
foreign countries, almost all of which are leased.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various lawsuits and claims arising in the
normal course of business. In the opinion of management, uninsured losses, if
any, resulting from the ultimate resolution of these matters will not have a
material adverse effect on the financial position or results of operations of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock, $.01 par value, trades on the New York Stock
Exchange under the symbol "CAM". The following table sets forth, for the periods
indicated, the high and low sales prices of the Company's Common Stock as
reported on the NYSE Composite Tape and dividends per share.
<TABLE>
<CAPTION>
PRICE RANGE
------------
HIGH LOW DIVIDENDS
---- ---- ---------
<S> <C> <C> <C>
1997
First quarter............................................. $51 1/4 $ 38 $.05
Second quarter............................................ 55 1/2 41 3/8 .05
Third quarter............................................. 74 1/4 53 7/8 .05
Fourth quarter............................................ 82 1/2 53 1/2 .05
1996
First quarter............................................. $32 3/8 $25 1/4 $.05
Second quarter............................................ 37 30 1/2 .05
Third quarter............................................. 37 1/2 32 1/4 .05
Fourth quarter............................................ 47 1/4 36 3/4 .05
</TABLE>
As of February 27, 1998, there were 505 record holders of the Common Stock.
This number does not include the number of security holders for whom shares are
held in a "nominee" or "street" name.
The Company has paid quarterly dividends of $.05 per share since its
initial public offering in December 1993. Subject to market conditions and other
factors, the Company intends to continue paying regular quarterly dividends on
its Common Stock. In addition, as long as any amount is outstanding under the
Company's term loan facility, the Company is restricted by a covenant limiting
the cumulative payment of dividends if the payment of such dividends results in
the Company's net worth falling below acceptable minimum levels. This
restriction has not had any impact on the Company's ability to pay its regular
quarterly dividends to stockholders. Because the Company operates some of its
business, particularly its international operations, through subsidiaries, its
ability to pay dividends is partly dependent upon its ability to receive
dividends and other payments from its subsidiaries.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL INFORMATION
The following selected historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements, including
the notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31(A)
------------------------------------------------------
1997 1996 1995 1994 1993
---------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues................................ $ 913,841 $764,535 $667,932 $651,514 $640,099
Cost of sales and services.............. 526,474 459,106 406,364 418,850 416,700
---------- -------- -------- -------- --------
Gross margin......................... 387,367 305,429 261,568 232,664 223,399
Selling, general and administrative
expenses............................. 219,510 191,706 177,491 165,799 163,845
Merger expenses(a)...................... 12,500 -- -- -- --
Amortization of intangible assets....... 8,604 6,460 6,022 6,036 6,664
---------- -------- -------- -------- --------
Operating income..................... 146,753 107,263 78,055 60,829 52,890
Interest expense, net................... 5,671 4,539 5,134 3,926 12,480
---------- -------- -------- -------- --------
Income before provision for income
taxes................................ 141,082 102,724 72,921 56,903 40,410
Provision for income taxes.............. 49,321 34,720 22,626 17,438 11,862
---------- -------- -------- -------- --------
Income from continuing operations....... 91,761 68,004 50,295 39,465 28,548
Income (loss) from discontinued
operations(b)........................ -- -- (7,151) 1,005 2,796
Cumulative effect of changes in
accounting principles, net of income
taxes(c)............................. (2,909) -- -- 200 (10,660)
---------- -------- -------- -------- --------
Net income.............................. $ 88,852 $ 68,004 $ 43,144 $ 40,670 $ 20,684
========== ======== ======== ======== ========
Diluted Earnings Per Share(d):
Income from continuing operations....... $ 2.39 $ 1.78 $ 1.33 $ 1.03 $ .75
Income (loss) from discontinued
operations........................... -- -- (.19) .03 .07
Cumulative effect of changes in
accounting principles................ (.08) -- -- -- (.28)
---------- -------- -------- -------- --------
Net income.............................. $ 2.31 $ 1.78 $ 1.14 $ 1.06 $ .54
========== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital......................... $ 257,699 $216,719 $219,052 $199,982 $199,828
Total assets............................ 1,117,840 971,705 881,499 802,639 811,114
Long-term debt.......................... 110,300 93,551 118,003 92,122 106,875
Stockholders' equity.................... 686,245 594,873 536,468 497,499 479,103
OTHER:
Depreciation and amortization........... 62,464 55,384 46,092 46,474 45,011
Capital expenditures.................... 95,754 61,848 89,155 65,703 35,963
Research and development................ 33,160 26,267 24,293 23,804 19,793
Dividends per share(e).................. .21 .22 .22 .21 --
</TABLE>
- ---------------
(a) On June 13, 1997, Camco International Inc. acquired Production Operators in
a business combination accounted for using the pooling-of-interests method
of accounting. Accordingly, the financial information reflected herein has
been prepared as if Camco and Production Operators were combined as of the
beginning of the earliest period presented. All costs of the merger, which
were $12.5 million, or $8.6 million net of tax benefits ($.22 per share),
were expensed during the second quarter of 1997. Excluding merger costs,
income from operations in 1997 was $2.61 per share on a diluted basis. See
Note 1 to the Consolidated Financial Statements included elsewhere herein
for further discussion of this transaction.
14
<PAGE> 15
(b) Production Operators discontinued its oil and gas production activities in
1995, as described in Note 11 to the Consolidated Financial Statements
included elsewhere herein.
(c) The Company changed its method of accounting for reengineering costs, to
expense all such costs incurred in connection with systems development
projects, as required by an Emerging Issues Task Force pronouncement issued
November 20, 1997. In 1994, Production Operators changed its method of
accounting for income taxes. Camco changed to the accrual method of
accounting for post retirement benefits other than pensions effective
January 1, 1993.
(d) Earnings per share for 1993 has been calculated based on the average common
equivalent shares outstanding subsequent to the Company's initial public
offering on December 10, 1993, plus the number of shares of Camco common
stock issued to the holders of Production Operators common stock.
(e) The Company has paid quarterly dividends on its common stock of $.05 per
share, or $.20 per share annually, since its initial Camco public offering
in December 1993. The amounts presented include the effect of dividends
paid by Production Operators prior to the merger with Camco.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Information" and the Consolidated Financial Statements and related
notes thereto, included elsewhere herein. As further described in Note 1 to the
Consolidated Financial Statements included elsewhere herein, Camco merged with
Production Operators in a business combination accounted for using the
pooling-of-interests method of accounting. Accordingly, the financial
information presented herein has been prepared as if Camco and Production
Operators were combined as of the beginning of the earliest period discussed.
GENERAL
Demand for and pricing of Camco's equipment and services 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 well
service and workover activity worldwide. Drilling, completion and workover
activity in turn is largely dependent on the level and volatility of oil and
natural gas prices. Given the substantially longer lead times required and
higher levels of capital investments necessary, drilling, completion and
workover activity has historically been less volatile in international markets,
from which the Company derived 56% of its revenues in 1997, than in North
America.
Pricing for crude oil and natural gas declined during 1997 reversing a
three-year upward trend. West Texas Intermediate ("WTI") crude prices averaged
$20.58 per barrel in 1997, or $1.59 per barrel lower than in 1996. U.S. natural
gas prices averaged $2.47 per MCF in 1997, down slightly from the previous year.
Worldwide drilling activity increased for the third consecutive year in 1997 as
the long-term outlook remained favorable for the pricing of oil and natural gas.
Average rig count activity for the previous three years is summarized in the
table below:
<TABLE>
<CAPTION>
RIG COUNT 1997 1996 1995
--------- ----- ----- -----
<S> <C> <C> <C>
United States............................................... 943 779 723
Canada...................................................... 374 270 231
----- ----- -----
North America..................................... 1,317 1,049 954
International............................................... 808 792 759
----- ----- -----
Worldwide......................................... 2,125 1,841 1,713
===== ===== =====
</TABLE>
The Company believes that the long-term outlook for drilling, completion
and production activity remains positive as supply and demand are almost in
equilibrium and worldwide demand for crude oil is forecasted to increase through
the turn of the century. Growth in the demand for and production of natural gas
is expected to exceed that of oil.
15
<PAGE> 16
While the Company's long-term outlook for drilling, completion and
production activity is optimistic, short-term uncertainty exists with respect to
the outlook for the industry in North America given the recent significant
declines in the price of crude oil. The price of WTI crude oil averaged $16.40
per barrel during the first two months of 1998, and declined to below $14.50 per
barrel in March 1998. The decline in U.S. natural gas prices from 1997 levels
has not been as significant. The Company believes that if WTI crude oil prices
remain depressed for a prolonged period, drilling, completion and production
activity in North America, particularly in land-based markets, could decline
significantly below 1997 levels.
The international average rig count increased for the third consecutive
year, to an average rig count of 808. The Company expects international
drilling, completion and production activities to remain relatively stable as
most international projects do not fluctuate based on short-term changes in
commodity prices.
While facing economic and currency instability, developing countries with
oil reserves in South America, Eastern Europe and the Far East often increase
exploration and production activities to provide additional hard currency
inflows to their economies. The Company believes that there continues to be
significant opportunities to provide oilfield equipment and services to increase
production in these and other areas of the world.
Demand for the Company's contract gas compression services is driven by
decisions by petroleum and pipeline companies to outsource gas compression and
other production requirements. The Company believes that demand for contract gas
handling services will increase and that significant opportunities exist to
expand high-end compression services in many markets outside the United States.
Industry conditions will continue to be influenced by numerous factors over
which Camco has no control, including the level and volatility of world oil and
gas prices, production levels of the Organization of Petroleum Exporting
Countries ("OPEC") and general activity levels of oil and gas producers
worldwide. Although it is impossible to predict the impact of such factors on
the Company, management believes these risks are acceptable. However, there can
be no assurance that any one of these factors would not have a material adverse
effect on its operations.
Camco operates in various foreign countries and is, therefore, subject to
currency fluctuations in these countries. Changes in the value of the U.S.
dollar against these currencies will affect the Company's results of operations
and financial position. Camco conducts a portion of its business in highly
inflationary environments such as South America and Nigeria. The effect of
currency rate changes in highly inflationary countries is reflected in the
results of operations in accordance with Statement of Financial Accounting
Standards No. 52. A number of countries in Southeast Asia began experiencing
economic and currency instability in late 1997 and such instability has
continued into 1998. While the Company has significant operations in this
region, it has not to date been adversely affected by these events as a
significant portion of its sales transactions are denominated in U.S. dollars
and such countries need to continue exploration and production activities to
ultimately obtain additional cash inflows.
In 1997, 1996 and 1995, the Company recorded translation losses of $1.8
million, $4.8 million and $5.7 million, respectively, primarily due to the
devaluation of the bolivar in Venezuela and the naira in Nigeria. Additionally,
during 1997, 1996 and 1995, the cumulative translation account, a component of
stockholders' equity, reflected a $3.8 million loss, a $7.2 million gain and a
$.5 million gain, respectively, primarily due to movements in the U.K. pound
sterling versus the U.S. dollar. The Company actively monitors foreign
subsidiaries' net asset positions denominated in foreign currencies and takes
actions when appropriate under the circumstances to limit its risk to currency
fluctuation and devaluation.
16
<PAGE> 17
The distribution of Camco's revenues by geographic region is shown below,
based upon the region in which equipment or services were sold or provided to
the customer:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
United States and Canada.................................... $403.1 $340.1 $298.1
Mexico and Central and South America........................ 153.0 127.1 127.6
Europe (including FSU)...................................... 145.7 122.4 86.8
Middle East and Africa...................................... 131.9 116.9 89.8
Far East.................................................... 80.1 58.0 65.6
------ ------ ------
$913.8 $764.5 $667.9
====== ====== ======
</TABLE>
See Note 10 to the Consolidated Financial Statements contained elsewhere in
this report for further information related to Camco's business segments and
revenues by geographic region. The information in Note 10 to the Consolidated
Financial Information is based on the source from which the equipment and
services originated.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Consolidated revenues for 1997 increased $149.3 million, or 19.5%, from
1996 to $913.8 million. This increase reflects the continued increase in
worldwide drilling and completion activity and the effect of increased revenues
attributable to business acquisitions by the Company over the past two years.
Oilfield Equipment Segment revenues climbed 22.6% to $697.0 million in 1997,
primarily due to higher sales of drill bits in North America, increased
completion product sales worldwide, and higher ESP sales in North America,
Europe, the Middle East and Southeast Asia. Oilfield Services Segment revenues
were up 10.5% to $216.8 million in 1997, primarily reflecting increased contract
gas compression revenues in the United States and South America. This increase
corresponds directly to the increase in revenue generating horsepower from
469,000 horsepower as of December 31, 1996, to 556,000 horsepower as of December
31, 1997.
Revenues in the United States and Canada increased $63.0 million, or 18.5%,
from $340.1 million in 1996 to $403.1 million in 1997. The year over year
increase is principally due to significant increases in sales of drill bits,
ESPs, completion equipment and contract gas compression revenues. These
increases were partially offset by a decrease in 1997 in well service revenues.
On the strength of higher sales of completion products and services and
increased contract gas compression revenues, Mexico and Central and South
American revenues for 1997 were $153.0 million, or 20.3% higher than in 1996.
Revenues were up 19.1% in Europe to $145.7 million in 1997, principally due to
the addition of Lasalle and improved sales of completion products, partially
offset by decreased sales of ESPs in the FSU. Revenues in the Middle East and
Africa improved by 12.8% over 1996 levels to $131.9 million, due to higher sales
of completion products and increased ESP sales and services. Far East revenues
improved to $80.1 million in 1997, 38.2% higher than in 1996, reflecting
significantly higher sales of completion products and ESPs.
Gross margins increased $81.9 million to $387.4 million, or 42.4% of
revenues in 1997, from $305.4 million, or 39.9% of revenues in 1996. This margin
increase in 1997 reflects higher volume, selective price increases in certain
markets and lower manufacturing costs due to higher production levels. The
majority of the margin increase is attributable to completion products, drill
bits and ESPs.
Selling, general and administrative expenses ("SG&A") increased $27.8
million to $219.5 million in 1997, in conjunction with the revenue increase.
SG&A as a percentage of revenues declined to 24.0% in 1997 from 25.1% in 1996 as
a portion of these expenses are not directly variable with revenues. In
addition, translation losses which are included in SG&A declined to $1.8 million
in 1997 from $4.8 million in 1996.
17
<PAGE> 18
Operating income, as a result of the significant increase in revenues
combined with improved gross margins, increased $39.5 million, or 36.8% in 1997
to $146.8 million. Excluding $12.5 million in transaction costs resulting from
the merger with Production Operators, operating income increased 48.4% to $159.3
million, or 17.4% of revenues, in 1997, from $107.3 million, or 14.0% of
revenues in 1996. Oilfield Equipment Segment operating income increased 43.2% to
$125.9 million in 1997 on revenue growth of 22.6% as a result of improved gross
margin percentages without corresponding increases in SG&A. The Oilfield
Services Segment operating income increased 20.6% to $48.4 million in 1997,
primarily reflecting the year over year growth in revenues.
Net interest expense increased $1.1 million from $4.5 million in 1996 to
$5.7 million for 1997 reflecting higher average debt balances outstanding during
1997.
1996 COMPARED TO 1995
Consolidated revenues for 1996 increased $96.6 million, or 14.5%, from 1995
to $764.5 million. This increase reflects the increase in worldwide drilling and
completion activity and includes the effect of increased revenues attributable
to business acquisitions by the Company in 1996 and 1995. Oilfield Equipment
Segment revenues were up 15.2% to $568.3 million in 1996, due to significantly
higher sales of completion products in the United States and Canada, the Middle
East and Africa and Europe, increased sales of ESPs in the United States, Middle
East and Africa and Europe and to a lesser extent increased drill bit sales in
most regions of the world. Oilfield Services Segment revenues were up 12.4% to
$196.2 million reflecting increased contract gas compression revenues in the
United States and South America, increased coiled tubing revenues in Nigeria,
and wireline revenues in the North Sea offset by slightly lower coiled tubing
revenues in the United States.
Revenues in the United States and Canada increased $42.0 million, or 14.1%,
from $298.1 million in 1995 to $340.1 million in 1996. Increased Canadian
completion product sales by Site, increased contract gas compression revenues in
the United States and an increase in United States equipment sales, reflecting
overall activity increases, accounts for the majority of the increased revenue.
Revenues in Mexico and Central and South America declined slightly with modest
declines in equipment revenues offsetting improvements in contract gas
compression revenues. European revenues totaled $122.4 million in 1996, up 41.0%
compared to 1995, and included a $12 million increase in ESP sales into the FSU
after two consecutive years of decline. Increased completion products and
services revenues, record PDC bit revenues and the acquisition of Lasalle in the
third quarter of 1996, in the North Sea region also contribute to the
improvement in European revenues. Revenues increased by 30.1% to $116.9 million
in 1996 in the Middle East and Africa, reflecting higher sales of completion
products and ESPs into that region. Far East revenues declined $7.5 million in
1996 to $58.0 million, primarily due to a reduction in ESP and completion
products sales.
Gross margins increased $43.9 million to $305.4 million, or 39.9% of
revenues in 1996, from $261.6 million, or 39.1% of revenues in 1995. The
majority of the margin increase is attributable to higher revenues and improved
margins on oilfield services resulting from cost reduction programs begun in
previous years.
Selling, general and administrative expenses increased $14.2 million to
$191.7 million in 1996, but as a percentage of revenues declined to 25.1% in
1996 from 26.6% in 1995 as a portion of these expenses are not directly variable
with revenues. Translation losses declined to $4.8 million in 1996, from $5.7
million in 1995, favorably affecting SG&A.
Operating income increased $29.2 million, or 37.4% in 1996 to $107.3
million. Oilfield Equipment Segment operating income increased 41.3% to $87.9
million in 1996 on revenue growth of 15.2%. Oilfield Services Segment operating
income increased 36.8% to $40.1 million in 1996 on revenue growth of 12.4%.
These improvements were partially offset by a $7.3 million increase in corporate
expenses in 1996. Operating income from completion products increased
substantially, primarily due to the volume increase described above, improved
pricing in selected markets and lower manufacturing costs as a result of higher
throughput in its plants. Oilfield Equipment Segment operating income was also
higher due to increased drill bit sales into the premium international markets.
The increase in Oilfield Services Segment operating income is primarily a result
of increased revenues and profitability attributable to contract gas compression
services and higher wireline activity in the North Sea and U.S. Gulf of Mexico.
In addition, losses incurred by the Company's
18
<PAGE> 19
coiled tubing joint venture in the FSU were $1.5 million less than the previous
year, as sales of condensate were sufficient to cover operating expenses in the
last half of 1996.
Net interest expense decreased $600 thousand from 1995 to $4.5 million for
the year reflecting a reduction in borrowings of high interest rate bolivar debt
in Venezuela.
FINANCIAL CONDITION
Capital Resources and Liquidity
Net cash flows from operating activities were $156.7 million, $147.7
million, and $65.8 million in 1997, 1996 and 1995, respectively. Increases in
net cash flows from operating activities in each period reflect the substantial
increases in net income and depreciation and amortization offset by an increase
in working capital in 1997 and 1995, and benefited by a decrease in working
capital in 1996. Cash flow from operating activities exceeded capital
expenditure requirements in 1997 and 1996 and is anticipated to be sufficient to
fund future capital expenditure requirements.
Net cash outflows from investing activities were $143.1 million, $95.7
million and $85.7 million in 1997, 1996 and 1995, respectively. Capital
expenditures increased to $95.8 million in 1997 from $61.9 million in 1996 and
$89.2 million in 1995. The reduced level of capital spending in 1996 is
attributable to lower additions of gas compression units in 1996 than in 1995 or
1997. Proceeds from the sale of assets totaled $.4 million, $14.9 million and
$14.3 million in 1997, 1996 and 1995, respectively. The Company used $14.5
million of cash in 1997 to acquire gas lift valve businesses in the United
States and Argentina and the remaining interest in a contract compression
subsidiary in Argentina. The Company purchased Lasalle Engineering and a gas
lift business in 1996 for $46.4 million in cash. In 1997, the Company invested
$21.7 million in its 33 1/3%-owned Venezuelan joint venture to fund progress
payments on the construction of contract gas compression, transmission and
injection equipment and facilities in connection with a twenty-year contract
jointly awarded to Production Operators and Williams International Company, the
Company's venture partner. This contract is the largest outsourced natural gas
injection project in Venezuela.
Financing activities provided $1.4 million and $16.5 million in cash in
1997 and 1995, respectively, and used cash of $44.2 million in 1996. In October
1997, the Company refinanced substantially all of its previously outstanding
debt under a new $220 million unsecured revolving credit facility. Borrowings
under the revolving credit facility are due in October 2002. Interest rates on
borrowings are LIBOR based. Total debt outstanding under the revolving credit
facility was $110.0 million as of December 31, 1997. Borrowing availability
under the revolving credit facility was $110.0 million as of December 31, 1997.
Borrowings under the revolving credit facility are expected to fluctuate with
seasonal changes and changes in the Company's financing needs.
In addition to customary representations, warranties, borrowing conditions,
affirmative covenants and events of default, the credit facility includes
financial covenants, with which Camco is in compliance, relating to maintenance
of a minimum level of net worth, maintenance of a minimum interest coverage
ratio, a maximum ratio of funded debt to total capital and limitations on
payment of dividends, sales of assets, pledges of assets, subsidiary
indebtedness, mergers, consolidations and transactions with affiliates.
The Company believes that the combination of its working capital, the
unused portion of the revolving credit facility and its cash flow from
operations should provide it with sufficient capital resources and liquidity to
meet its debt service requirements under the credit facility and manage its
business needs.
Requirements for Capital
Capital expenditures, excluding acquisitions, were $95.8 million, $61.9
million and $89.2 million in 1997, 1996 and 1995, respectively. New contracts
for gas compression services often require the addition of gas compression units
and related equipment. Capital expenditures for gas compression units and
related equipment totaled $52.2 million, $28.3 million and $63.3 million in
1997, 1996 and 1995, respectively. The Company's manufacturing operations and
other service businesses require an ongoing level of spending to maintain the
Company's productive assets, and new service contracts may require upgraded
equipment to meet job specifications and new safety requirements. In this
regard, increased demand for leased equipment,
19
<PAGE> 20
primarily ESPs, substantial refurbishment and upgrade of machine tools in the
international completion product plants, purchase of larger diameter capability
coiled tubing units and the continued refurbishment of the rock bit plant in
Singapore has resulted in increases in spending over the three-year period.
Capital expenditures in 1998 are anticipated to increase to approximately $100
million, primarily due to anticipated increases in spending for additional
service equipment required for contracts and compression business opportunities.
In addition, the Company is committed to provide up to $40.0 million in
additional funding to its Venezuelan joint venture for construction of gas
compression, transmission and injection equipment and facilities. The venture
expects to obtain project financing upon completion of construction and to repay
all advances.
Year 2000
The Company is currently evaluating its information technology
infrastructure for the Year 2000 compliance and does not expect that the cost of
required modifications will be material to its financial condition or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance.
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
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. These risks include changes in market conditions in
the oil and gas industry, declines in prices of oil and gas, political
instability in foreign countries in which the Company operates, currency
fluctuations and contracts, in particular those in Nigeria, South America and
Southeast Asia, increased competition in the Company's markets, governmental
restrictions affecting oil and gas exploration, the ability of the Company to
integrate and realize anticipated synergies for its acquisitions, including that
of Production Operators, the ability of the Company to achieve and execute
internal business plans, and the impact of any economic downturns and inflation
and other market factors affecting the demand and supply of oil and gas and the
products and services relating thereto. 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.
20
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Camco International Inc.:
We have audited the consolidated balance sheets of Camco International Inc.
(a Delaware Corporation) and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Camco
International Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
As explained in Note 1 to the financial statements, effective November 20,
1997, the Company changed its method of accounting for costs of business process
reengineering activities associated with systems development projects.
ARTHUR ANDERSEN LLP
Houston, Texas
February 10, 1998
21
<PAGE> 22
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Sales..................................................... $609,725 $503,235 $459,733
Services.................................................. 304,116 261,300 208,199
-------- -------- --------
913,841 764,535 667,932
-------- -------- --------
COST AND EXPENSES:
Cost of sales............................................. 313,551 270,712 253,268
Cost of services.......................................... 212,923 188,394 153,096
-------- -------- --------
526,474 459,106 406,364
-------- -------- --------
Gross margin........................................... 387,367 305,429 261,568
Selling, general and administrative expenses.............. 219,510 191,706 177,491
Merger expenses........................................... 12,500 -- --
Amortization of intangible assets......................... 8,604 6,460 6,022
-------- -------- --------
Operating income....................................... 146,753 107,263 78,055
Interest expense.......................................... 8,473 7,842 8,888
Interest income........................................... (2,802) (3,303) (3,754)
-------- -------- --------
Income before provision for income taxes.................. 141,082 102,724 72,921
Provision for income taxes................................ 49,321 34,720 22,626
-------- -------- --------
Income from continuing operations......................... 91,761 68,004 50,295
Loss from discontinued operation.......................... -- -- (7,151)
Cumulative effect of change in accounting principle, net
of benefit for income taxes............................ (2,909) -- --
-------- -------- --------
Net income........................................ $ 88,852 $ 68,004 $ 43,144
======== ======== ========
Earnings per share:
Basic --
Income from continuing operations...................... $ 2.45 $ 1.81 $ 1.35
Loss from discontinued operation....................... -- -- (.19)
Cumulative effect of change in accounting principle.... (.08) -- --
-------- -------- --------
Net income........................................ $ 2.37 $ 1.81 $ 1.16
======== ======== ========
Average common shares outstanding...................... 37,386 37,506 37,257
======== ======== ========
Diluted --
Income from continuing operations...................... $ 2.39 $ 1.78 $ 1.33
Loss from discontinued operation....................... -- -- (.19)
Cumulative effect of change in accounting principle.... (.08) -- --
-------- -------- --------
Net income........................................ $ 2.31 $ 1.78 $ 1.14
======== ======== ========
Average common and common equivalent shares
outstanding.......................................... 38,481 38,230 37,780
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE> 23
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1997 1996
---------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 57,255 $ 42,645
Accounts receivable, net of allowances of $16,283 and
$14,210................................................ 177,112 169,989
Inventories............................................... 206,471 169,007
Deferred income taxes..................................... 44,088 27,031
Prepaid expenses and other................................ 21,575 19,320
---------- --------
Total current assets.............................. 506,501 427,992
---------- --------
PROPERTY, PLANT AND EQUIPMENT, net of depreciation.......... 353,312 308,762
INTANGIBLE ASSETS, net of amortization of $66,448 and
$57,844................................................... 212,749 214,826
OTHER....................................................... 45,278 20,125
---------- --------
Total assets...................................... $1,117,840 $971,705
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt...................... $ 120 $ 10,345
Accounts payable.......................................... 57,765 47,595
Accrued liabilities....................................... 159,085 134,583
Income taxes payable...................................... 31,832 18,750
---------- --------
Total current liabilities......................... 248,802 211,273
---------- --------
LONG-TERM DEBT.............................................. 110,300 93,551
DEFERRED INCOME TAXES....................................... 28,690 24,742
OTHER LONG-TERM LIABILITIES................................. 43,803 47,266
---------- --------
Total liabilities................................. 431,595 376,832
---------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000 shares
authorized,
38,583,393 and 38,465,998 shares issued................ 386 385
Additional paid-in capital................................ 525,662 518,856
Retained earnings......................................... 203,911 117,364
Cumulative translation adjustment......................... (15,194) (11,405)
Treasury stock, 1,046,372 and 1,264,528 shares, at cost... (28,520) (30,327)
---------- --------
Total stockholders' equity........................ 686,245 594,873
---------- --------
Total liabilities and stockholders' equity........ $1,117,840 $971,705
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE> 24
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK
------ ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994, as previously
reported............................... $251 $436,892 $(35,871) $(19,049) $(18,430)
Adjustments for pooling-of-interest.... 133 76,211 57,362 -- --
---- -------- -------- -------- --------
BALANCE, December 31, 1994............... 384 513,103 21,491 (19,049) (18,430)
Net income............................. -- -- 43,144 -- --
Dividends to stockholders ($.22 per
share).............................. -- -- (7,449) -- --
Common stock issued pursuant to
employee stock plans................ 1 2,673 -- -- --
Deferred compensation related to
ESOP................................ -- 87 40 -- --
Currency translation adjustment........ -- -- -- 473 --
---- -------- -------- -------- --------
BALANCE, December 31, 1995............... 385 515,863 57,226 (18,576) (18,430)
Net income............................. -- -- 68,004 -- --
Purchase of treasury stock............. -- -- -- -- (13,413)
Dividends to stockholders ($.22 per
share).............................. -- -- (7,698) -- --
Common stock issued pursuant to
employee stock plans................ -- 2,131 (211) -- 1,516
Deferred compensation related to
ESOP................................ -- 862 43 -- --
Currency translation adjustment........ -- -- -- 7,171 --
---- -------- -------- -------- --------
BALANCE, December 31, 1996............... 385 518,856 117,364 (11,405) (30,327)
Net income............................. -- -- 88,852 -- --
Change in subsidiary year end.......... -- 612 4,560 -- --
Dividends to stockholders ($.21 per
share).............................. -- -- (6,865) -- --
Common stock issued pursuant to
employee stock plans................ 1 5,008 -- -- 1,807
Deferred compensation related to
ESOP................................ -- 1,186 -- -- --
Currency translation adjustment........ -- -- -- (3,789) --
---- -------- -------- -------- --------
BALANCE, December 31, 1997............... $386 $525,662 $203,911 $(15,194) $(28,520)
==== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE> 25
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 88,852 $ 68,004 $ 43,144
Adjustments to reconcile net income to net cash provided
by operating activities --
Loss on discontinued operations........................... -- -- 6,702
Cumulative effect of change in accounting principle....... 2,909 -- --
Depreciation and amortization............................. 62,464 55,384 46,092
Gain from sale of assets.................................. (234) (4,678) (3,456)
Provision (benefit) for deferred and other taxes.......... (14,389) (4,984) (5,757)
Increase in accounts receivable........................... (4,698) (2,532) (20,158)
Increase in inventories................................... (36,425) (6,566) (3,810)
Increase (decrease) in accounts payable................... 11,405 (803) (529)
Increase in accrued liabilities........................... 31,807 27,614 8,662
Increase (decrease) in income taxes payable............... 14,065 5,341 (2,932)
(Increase) decrease in other, net......................... 929 10,885 (2,195)
--------- -------- --------
Net cash provided by operating activities......... 156,685 147,665 65,763
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (95,754) (61,848) (89,155)
Proceeds from sale of assets.............................. 386 14,934 14,343
Business acquisitions..................................... (14,503) (46,373) (5,750)
Investment in joint venture............................... (21,700) -- --
Change in subsidiary year-end............................. (6,496) -- --
Other..................................................... (5,061) (2,390) (5,180)
--------- -------- --------
Net cash used in investing activities............. (143,128) (95,677) (85,742)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings under revolving credit facility.... 110,000 -- --
Decrease in borrowings under term loan.................... (50,000) (10,000) (10,000)
Increase (decrease) in borrowings under revolving loan
facility............................................... (30,000) 10,000 (5,000)
Increase (decrease) in other debt......................... (30,277) (26,284) 37,213
Dividends paid to stockholders............................ (6,865) (7,698) (7,449)
Proceeds from exercise of stock options................... 2,404 2,361 1,629
Purchase of treasury stock................................ -- (13,413) --
Change in subsidiary year-end and other................... 6,158 803 68
--------- -------- --------
Net cash provided by (used in) financing
activities...................................... 1,420 (44,231) 16,461
--------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (367) 1,613 (215)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 14,610 9,370 (3,733)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 42,645 33,275 37,008
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 57,255 $ 42,645 $ 33,275
========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 5,886 $ 4,519 $ 5,654
Cash paid for income taxes................................ $ 51,580 $ 34,002 $ 31,389
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE> 26
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Camco International Inc. and subsidiaries ("Camco" or the "Company")
manufactures products and provides services to customers in the oil and gas
drilling, completion and production sectors of the oilfield services industry.
The consolidated financial statements include the accounts of the Company and
all of its wholly owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Investments in 20%
to 50% owned joint ventures where the Company exercises significant influence
over operating and financial policies are accounted for by the equity method.
All other investments are carried at cost, which does not exceed the estimated
net realizable value of such investments.
On June 13, 1997, Camco, acquired Production Operators Corp. ("Production
Operators") through a merger (the "Merger") of a wholly owned subsidiary of the
Company with and into Production Operators. The Merger was effected pursuant to
an Agreement and Plan of Merger dated February 27, 1997, by and among the
Company, a wholly owned subsidiary of the Company, and Production Operators. A
total of 13,300,404 shares of the Company's common stock was issued to the
stockholders of Production Operators as consideration for the acquisition. The
principle followed in fixing the exchange ratio in the Merger was based on
negotiations between the parties. The business combination has been accounted
for using the pooling-of-interests method of accounting. Accordingly, the
financial statements have been prepared as if Camco and Production Operators
were combined as of the beginning of the earliest period presented. All costs of
the Merger, which were $12.5 million, or $8.6 million net of tax benefits ($.22
per share), were expensed during the second quarter of 1997.
As a result of the differing year-ends of Camco and Production Operators,
financial information for different period-ends have been combined. Camco's
financial position, results of operations and cash flows as of and for the years
ended December 31, 1996 and 1995, have been combined with Production Operators'
financial position, results of operations and cash flows as of and for the years
ended September 30, 1996 and 1995, respectively. Effective January 1, 1997,
Production Operators' fiscal year-end was changed to conform to Camco's December
31 year-end. Financial information as of and for the year ended December 31,
1997, combines both Camco's and Production Operators' results of operations for
comparable periods. Production Operators' unaudited revenues, net income and
dividends on its common stock for the three-month period ended December 31,
1996, were $26.7 million, $5.3 million and $.7 million, respectively.
Accordingly, adjustments are included in the consolidated statements of
operations, stockholders' equity and cash flows for the activity attributed to
the three-month period.
Use of Estimates
The preparation of these financial statements required the use of certain
estimates by management in determining the Company's assets, liabilities,
revenue and expenses. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments purchased
with original maturities of three months or less to be cash equivalents. The
reported amounts of such investments approximate fair value.
Inventories
Inventories, net of allowances, are valued at the lower of cost (first-in,
first-out or last-in, first-out) or market. Inventory costs consist of
materials, labor and plant overhead.
26
<PAGE> 27
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and generally depreciated
on a straight-line basis over the estimated useful lives of the assets. The
estimated useful lives used in computing depreciation range from 10 to 30 years
for buildings and 3 to 12 years for machinery and equipment, including service
equipment. Expenditures for major additions and improvements are capitalized
while minor replacements, maintenance and repairs are charged to expense as
incurred. When property is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and any resulting
gain or loss is included in the consolidated statements of operations.
Intangible Assets
Intangible assets is comprised primarily of goodwill which is amortized
over 20 to 40 years using the straight-line method. Camco's management
periodically evaluates goodwill, net of accumulated amortization, for impairment
based on the undiscounted cash flows associated with the asset compared to the
carrying amount of that asset. Management believes that there have been no
events or circumstances which warrant revision to the remaining useful life or
affect the recoverability of goodwill in any of its business units.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
This standard requires an asset and liability approach for financial accounting
and income tax reporting based on enacted tax rates and laws in effect in the
years in which differences are expected to reverse.
Revenue Recognition
The Company's revenues are composed of product sales and rental, service
and other revenues. The Company records product sales when the goods are sold to
a customer. Rental, service and other revenues are recorded as the services are
performed.
Foreign Currency Translation
The Company's financial statements of foreign subsidiaries are reported in
U.S. dollars based on the functional currency.
Foreign subsidiaries using the U.S. dollar as their functional currency
translate as follows: current assets (except inventories) and all liabilities
(except minority interests) at the rates of exchange in effect at year-end,
long-term assets and inventories at historical rates and minority interest at
the rates in effect at the dates provided. Revenue and expense accounts are
translated at the average rates of exchange in effect during the year, except
for depreciation and cost of manufactured products sold, which are translated at
historical rates. Translation adjustments are charged or credited directly to
operations.
Foreign subsidiaries using the local currency as their functional currency
translate into U.S. dollars using the current rate method. Assets and
liabilities are translated at the rates of exchange in effect at year-end,
common stock and paid-in capital are translated using historical rates and
revenue and expense accounts are translated at the average rates of exchange in
effect during the year. Translation adjustments are recorded as a separate
component of stockholders' equity rather than directly to operations.
Concentration of Credit Risk
The Company extends credit to various companies in the oil and gas industry
which may be affected by changes in economic or other external conditions. The
Company's policy is to manage its exposure to credit
27
<PAGE> 28
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
risk through credit approvals and limits and, where appropriate, to be secured
by collateral, and to provide an allowance for doubtful accounts for potential
losses. Management does not believe the Company is exposed to concentrations of
credit risk that are likely to have a material impact on the Company's financial
position or results of operations.
Environmental Expenditures
Liabilities for environmental expenditures are recorded when it is probable
that obligations have been incurred and the costs can be reasonably estimated.
Estimates are based on currently available facts and technology, presently
enacted laws and regulations and the Company's prior experience in remediation
of contaminated sites.
Change in Accounting Principle
The FASB Emerging Issues Task Force Issue No. 97-13, "Accounting for Costs
Incurred in Connection with a Consulting Contract or an Internal Project That
Combines Business Process Reengineering and Information Technology
Transformation," issued November 20, 1997, required the Company to expense
certain costs that were previously capitalizable prior to this pronouncement.
The cumulative effect of this accounting change decreased income by $4.5 million
($2.9 million, net of tax) for the year ended December 31, 1997.
Earnings Per Share
SFAS No. 128, "Earnings Per Share," was adopted by the Company in the
fourth quarter of 1997 and all earnings per share previously reported have been
restated. Basic earnings per share is computed by dividing net income by the
weighted average common shares outstanding. Diluted earnings per share is
computed by dividing net income by the weighted average number of common and
common equivalent shares outstanding. The computation of diluted earnings per
share includes the dilutive effects of options to purchase common stock and
restricted stock grants which aggregated 1,095,000, 724,000 and 523,000 in 1997,
1996 and 1995, respectively.
Pending Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997.
The Company will adopt SFAS No. 130 in the first quarter of 1998. Had SFAS No.
130 been adopted in 1997, net income, as reported, would have been adjusted for
changes in the cumulative translation for foreign currency.
2. ACQUISITIONS AND DIVESTITURES
During 1997, the Company acquired gas lift valve businesses in the United
States and Argentina for a total of $11.8 million in cash.
In September 1996, the Company acquired Lasalle Engineering Limited for
$29.5 million in a cash transaction. In December 1996, the Company acquired the
gas lift business of Halliburton, including their Venezuelan subsidiary, for
$16.9 million in a cash transaction.
In March 1995, the Company acquired Site Oil Tools, a Canadian manufacturer
of completion equipment, for $5.8 million in a cash transaction. The Company
sold the assets of its safety service business in March 1995. The Company
recognized net income of $1.5 million, or 6 cents per share, on the disposal.
The acquisitions described above were accounted for using the purchase
method of accounting.
28
<PAGE> 29
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition of Production Operators in June 1997, which was accounted
for using the pooling-of-interests method of accounting, is described in Note 1.
Revenues and net income for the periods preceding the Merger were as follows (in
thousands):
<TABLE>
<CAPTION>
REVENUES NET INCOME
-------- ----------
<S> <C> <C>
Six months ended June 30, 1997 --
Camco, as previously reported............................. $366,092 $29,391
Production Operators...................................... 56,537 14,791
Merger expenses........................................... -- (8,600)
-------- -------
$422,629 $35,582
======== =======
Year ended December 31, 1996 --
Camco, as previously reported............................. $672,732 $50,508
Production Operators...................................... 91,803 17,496
-------- -------
$764,535 $68,004
======== =======
Year ended December 31, 1995 --
Camco, as previously reported............................. $595,131 $36,318
Production Operators...................................... 72,801 6,826
-------- -------
$667,932 $43,144
======== =======
</TABLE>
3. INVENTORIES
Inventories, net of allowances, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
Raw materials............................................... $ 19,916 $ 18,405
Parts and components........................................ 69,656 54,786
Work-in-process............................................. 24,079 27,180
Finished goods.............................................. 92,820 68,636
-------- --------
$206,471 $169,007
======== ========
Inventories determined using the --
LIFO basis................................................ $ 43,661 $ 38,107
FIFO basis................................................ 162,810 130,900
-------- --------
$206,471 $169,007
======== ========
</TABLE>
Work-in-process and finished goods inventories include the cost of
materials, labor and plant overhead. The excess of current costs, determined
using the FIFO basis, over the carrying values of LIFO inventories was
approximately $10.0 million and $11.9 million at December 31, 1997 and 1996,
respectively.
29
<PAGE> 30
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
Land........................................................ $ 5,120 $ 4,327
Buildings................................................... 77,279 71,856
Machinery and equipment..................................... 266,137 234,803
Service equipment........................................... 366,732 313,997
-------- --------
715,268 624,983
Accumulated depreciation.................................... (361,956) (316,221)
-------- --------
$353,312 $308,762
======== ========
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
Salaries, wages and related benefits........................ $ 45,626 $ 42,979
Accrued insurance........................................... 12,978 13,451
Accrued taxes other than income............................. 9,814 11,117
Other....................................................... 90,667 67,036
-------- --------
$159,085 $134,583
======== ========
</TABLE>
6. DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
Revolving credit facility................................... $110,000 $ --
Term loan................................................... -- 50,000
Revolving loan facility..................................... -- 30,000
Other....................................................... 420 23,896
-------- --------
110,420 103,896
Less -- Current portion of long-term debt................... 120 10,345
-------- --------
$110,300 $ 93,551
======== ========
</TABLE>
In October 1997, the Company refinanced its previously outstanding debt
under a new $220 million unsecured revolving credit facility. Borrowings
outstanding under the revolving credit facility are due October 2002 and
interest rates on borrowings are LIBOR based. The weighted average interest rate
for borrowings outstanding under the revolving credit facility was 6.2% for
1997. The maximum and average borrowings were $120.0 million and $107.0 million,
respectively. The Company had $110.0 million of unused borrowing availability as
of December 31, 1997.
In addition to customary representations, warranties, borrowing conditions,
affirmative covenants and events of default, the revolving credit facility
includes financial covenants, with which Camco is in compliance,
30
<PAGE> 31
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
relating to maintenance of a minimum level of net worth, maintenance of a
minimum interest coverage ratio, a maximum ratio of funded debt to total capital
and limitations on payment of dividends, sales of assets, pledges of assets,
subsidiary indebtedness, mergers, consolidations and transactions with
affiliates.
Maturities of the Company's long-term debt at December 31, 1997, are as
follows (in thousands):
<TABLE>
<S> <C>
1998...................................................... $ 120
1999...................................................... 140
2000...................................................... 160
2002...................................................... 110,000
--------
$110,420
========
</TABLE>
The weighted average interest rate for the Company's previously outstanding
loans was 6.4% during 1997, 6.2% during 1996 and 6.5% during 1995.
7. INCOME TAXES
Income before provision for income taxes and provision (benefit) for income
taxes is composed of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Income before provision for income taxes
United States..................................... $ 37,519 $ 24,815 $30,504
Non-United States................................. 103,563 77,909 42,417
-------- -------- -------
$141,082 $102,724 $72,921
======== ======== =======
Provision for income taxes
Current
United States.................................. $ 27,400 $ 18,604 $18,497
Non-United States.............................. 36,310 19,065 11,873
-------- -------- -------
63,710 37,669 30,370
-------- -------- -------
Deferred
United States.................................. (14,276) (5,400) (9,268)
Non-United States.............................. (113) 2,451 1,524
-------- -------- -------
(14,389) (2,949) (7,744)
-------- -------- -------
$ 49,321 $ 34,720 $22,626
======== ======== =======
</TABLE>
The table above excludes a tax benefit of $1.6 million recorded in 1997 in
connection with the accounting change described in Note 1.
31
<PAGE> 32
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes in 1997 and 1996 reflect the impact of temporary
differences between the amount of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws and regulations. The
components of the net deferred tax asset (liability) are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves..................................... $ 31,487 $ 24,813
Compensation and benefits................................. 11,619 11,873
Other..................................................... 12,366 10,005
-------- --------
55,472 46,691
Valuation allowance....................................... (11,384) (19,660)
-------- --------
44,088 27,031
-------- --------
Deferred tax liabilities:
Excess of tax over book depreciation...................... (28,649) (24,619)
Other..................................................... (41) (123)
-------- --------
(28,690) (24,742)
-------- --------
Net deferred tax asset............................ $ 15,398 $ 2,289
======== ========
</TABLE>
The consolidated provision for income taxes differs from the provision
computed at the statutory U.S. Federal income tax rate for the following reasons
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Expected tax provision at U.S. statutory rate......... $49,379 $35,953 $25,522
Non-U.S. income, taxed at less than U.S. statutory
rate................................................ (3,190) (1,233) (3,030)
Change in valuation allowance......................... (8,276) -- --
Expenses for which no tax benefit was received........ 11,408 -- 134
------- ------- -------
$49,321 $34,720 $22,626
======= ======= =======
</TABLE>
SFAS No. 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax asset will not be realized. During 1997, the net decrease in the valuation
allowance was $8.3 million in connection with the disallowance of a portion of
the previously reserved deferred tax assets.
Undistributed earnings of non-U.S. subsidiaries included in consolidated
retained earnings amounted to $177.8 million at December 31, 1997. It is the
Company's policy that these earnings, which reflect full provision for non-U.S.
income taxes, have no additional provision for U.S. taxes on foreign
subsidiaries earnings which are expected to be reinvested indefinitely. However,
additional income taxes have been provided on planned repatriations of foreign
earnings after taking into account tax-exempt earnings and applicable foreign
tax credits.
8. RETIREMENT AND EMPLOYEE BENEFIT PLANS
Retirement Plans
The Company and its subsidiaries have defined benefit retirement plans
covering substantially all employees. The total cost of all plans for 1997, 1996
and 1995 was $6.0 million, $5.4 million and $5.2 million, respectively.
32
<PAGE> 33
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual cost is determined using the projected unit credit actuarial method.
Prior service cost is amortized on a straight-line basis over the average
remaining service period of employees expected to receive benefits. An
assumption is made for modified career average plans such that the average
earnings base period will be updated to the years prior to retirement.
It is the Company's practice to fund amounts for pensions sufficient to
meet the minimum requirements set forth in applicable employee benefit and tax
laws and such additional amounts as the Company may determine to be appropriate
from time to time. The assets of the various plans include corporate equities,
government securities and corporate debt securities.
The funded status at December 31 was as follows (in thousands):
<TABLE>
<CAPTION>
U.S. PLANS NON-U.S. PLANS
-------------------- -----------------
1997 1996 1997 1996
-------- -------- ------- ------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations
Vested benefit obligation................ $ 64,446 $ 58,839 $ 9,754 $5,550
======== ======== ======= ======
Accumulated benefit obligation........... $ 67,118 $ 61,285 $10,332 $5,804
======== ======== ======= ======
Projected benefit obligation............. $ 82,121 $ 75,626 $13,126 $7,642
Plan assets at fair value.................. 65,024 63,936 11,670 8,182
-------- -------- ------- ------
Projected benefit obligation in excess of
plan assets.............................. (17,097) (11,690) (1,456) 540
Unrecognized net loss...................... 4,054 2,284 2,774 51
Unrecognized prior service cost............ 3,951 2,871 -- --
Additional liability....................... (3,032) (2,400) -- --
-------- -------- ------- ------
(Accrued) prepaid pension cost recognized
in the consolidated balance sheets....... $(12,124) $ (8,935) $ 1,318 $ 591
======== ======== ======= ======
</TABLE>
Net periodic pension cost for the years ended December 31 included the
following components (in thousands):
<TABLE>
<CAPTION>
U.S. PLANS NON-U.S. PLANS
--------------------------- ---------------------
1997 1996 1995 1997 1996 1995
------- ------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Service cost, benefits earned during
the period......................... $ 3,742 $ 3,695 $ 3,573 $ 976 $ 793 $ 677
Interest cost on the projected
benefit obligation................. 5,916 5,341 4,747 657 525 361
Actual return on plan assets......... (5,509) (5,272) (4,578) (788) (544) (407)
Net amortization..................... 1,034 890 871 -- 2 --
------- ------- ------- ----- ----- -----
Net periodic pension cost............ $ 5,183 $ 4,654 $ 4,613 $ 845 $ 776 $ 631
======= ======= ======= ===== ===== =====
</TABLE>
All defined benefit pension plans sponsored by the Company are funded to
the extent required by Federal regulation in each of the years ended December
31, 1997, 1996 and 1995. The assumed long-term rate of return on plan assets was
9.0%, the discount rate used in estimating benefit obligations was 8.0% and the
rate of compensation increase assumed for salary-related plans was 6.5%.
Included in the above tables is the funded status and net periodic pension
cost of Camco's deferred compensation plan (the "DC Plan"). Under the DC Plan,
certain officers and selected key management personnel of the Company may
receive an amount upon retirement at age 65 equal to (x) an award level for such
individual as determined by the Board (up to a maximum of 60%) multiplied by the
average of the
33
<PAGE> 34
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
individual's highest five consecutive years earnings (including bonuses up to a
maximum of 20% of base pay each year) out of the last ten consecutive years
before retirement minus (y) the sum of the individual's benefits under the
pension plan and other tax-qualified plans sponsored by the individual's former
employers. An individual's benefits under the DC Plan vest on the earliest of
the date the individual completes ten years of service, the individual's death
or age 65. Benefits are subject to adjustment for early retirement (before age
65).
Thrift Plans
All U.S. employees are eligible to participate in the Company-sponsored
thrift plans. The plan allows eligible employees to contribute a percentage of
compensation, subject to IRS and plan limitations. The plans provide for
matching contributions which amounted to annual expense recognized by the
Company of $2.6 million, $2.3 million and $1.9 million in 1997, 1996 and 1995,
respectively.
Nonpension Postretirement Benefits
The Company offers a postretirement medical plan to substantially all
employees in the United States over age 60 who qualify for retirement and, on
the last day of active employment, are enrolled as participants in Company
medical plans for active employees. Participants under age 65 are required to
pay the full average actual cost of providing benefits to active and retired
employees. Participants age 65 and older contribute approximately 30% of the
actual cost of providing benefits to active and retired employees. Total
benefits provided over the lifetime of participants after they reach age 65 are
limited to $100,000 per participant.
The expected cost of providing nonpension postretirement benefits is
accrued during the years employees render service. The discount rate used in
determining costs and future obligations was 8.0% in 1997, 1996 and 1995. The
assumed health care cost trend rate was 10.0% in 1995, 9.0% in 1996 and 8.0% in
1997, scaling to 6.0% over six years. A one percent increase in the trend rate
for health care costs would increase the accumulated postretirement benefit
obligation by approximately 6.5% and the service and interest cost by
approximately 7.0%. The Company is not required to fund its future obligation
under the plan and does not intend to, unless favorable tax treatment becomes
available.
Accumulated postretirement benefit obligations in excess of plan assets is
classified in the accompanying balance sheets as other long-term liabilities and
consists of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1997 1996
------- -------
<S> <C> <C>
Retirees and beneficiaries.................................. $ 4,669 $ 6,421
Fully eligible participants................................. 1,172 2,542
Other active participants................................... 2,421 3,339
Unrecognized net gain....................................... 9,611 6,158
------- -------
Total............................................. $17,873 $18,460
======= =======
</TABLE>
Net periodic postretirement cost for the years ended December 31, are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1997 1996 1995
----- ---- ------
<S> <C> <C> <C>
Service cost............................................... $ 214 $314 $ 375
Interest cost.............................................. 619 919 1,337
Amortization of unrecognized gain.......................... (811) (451) --
----- ---- ------
Total............................................ $ 22 $782 $1,712
===== ==== ======
</TABLE>
34
<PAGE> 35
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management Incentive Programs
The Company has an incentive bonus plan in which selected key employees,
including executive officers, are eligible to receive cash bonus payments based
on measures of profitability and cash flow of the Company and various units of
the Company which are established and approved by the Board of Directors for
each participant in the program at the beginning of each year. A minimum
performance level must be achieved by the Company or a particular unit of the
Company before any bonus may be earned.
Stock Plans
The Company has two plans currently in effect under which future stock
option grants may be issued: the 1997 Long-Term Incentive Plan (the "1997
Incentive Plan") and the Non-Employee Directors Stock Option Plan (the
"Directors' Plan").
The 1997 Incentive Plan provides for the granting of options to officers
and key employees at an option price greater than or equal to the fair market
value of a Company share on the date of grant. The term of each option is ten
years and the options are generally exercisable in either three or four equal
annual installments beginning one year after the date of grant. Initially,
1,500,000 shares of the Company's common stock were reserved for issuance under
the 1997 Incentive Plan.
The Directors' Plan provides for the granting of options to non-employee
directors at an option price greater than or equal to the fair market value of a
Company share on the date of grant. The term of each option is ten years and the
options are generally exercisable in three equal annual installments beginning
one year after the date of grant. Two hundred and fifty thousand shares of the
Company's common stock were reserved for issuance under the Directors' Plan.
Information regarding the Company's stock option plans, including
predecessor plans, is summarized below:
<TABLE>
<CAPTION>
WEIGHTED
SHARES UNDER AVERAGE OPTION
OPTION EXERCISE PRICE PRICE RANGE
------------ -------------- ------------
<S> <C> <C> <C>
Balance at December 31, 1994................ 1,359,468 $14.86 $3.37-$19.75
Granted................................... 141,218 19.31 18.37-23.94
Exercised................................. (200,041) 11.41 3.37-15.00
Canceled.................................. (58,000) 16.09 15.00-22.75
--------- ------ ------------
Balance at December 31, 1995................ 1,242,645 15.86 3.37-23.94
Granted................................... 552,918 28.88 24.14-36.94
Exercised................................. (177,105) 14.49 4.81-22.63
Canceled.................................. (4,875) 17.45 18.00-22.63
--------- ------ ------------
Balance at December 31, 1996................ 1,613,583 20.47 3.37-36.94
Granted................................... 563,372 49.20 27.89-60.81
Exercised................................. (382,256) 18.52 3.37-28.63
Canceled.................................. (30,273) 29.05 15.00-49.06
--------- ------ ------------
Balance at December 31, 1997................ 1,764,426 $29.67 $3.37-$60.81
========= ====== ============
Available for grant at December 31, 1997.... 1,288,070
=========
Shares exercisable at December 31, 1997..... 733,045
=========
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value
35
<PAGE> 36
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at the grant date for awards in 1997, 1996 and 1995 consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income -- as reported........................... $88,852 $68,004 $43,144
Net income -- pro forma............................. 83,999 65,925 42,843
Diluted earnings per share -- as reported........... $ 2.31 $ 1.78 $ 1.14
Diluted earnings per share -- pro forma............. 2.17 1.72 1.13
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: expected dividend yield of
0.4% to 0.8%; expected stock price volatility range of 27.6% to 35.9%; risk-free
interest rate range of 6.1% to 7.2%; and expected life of 10 years.
The ranges of option fair values granted during 1997, 1996 and 1995 are
from $19.59 to $32.21 and from $12.61 to $18.39 and $10.01 to $11.54,
respectively. The weighted average of these fair values are $25.77, $14.30 and
$10.29, respectively.
Information with respect to stock options outstanding and stock options
exercisable as of December 31, 1997, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ -----------------------
WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
OPTIONS LIFE EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE
----------------------- ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.37-$19.75......................... 703,846 5.78 $15.58 500,774 $15.20
$21.54-$36.94........................ 557,080 8.19 29.22 232,271 29.64
$49.06-$60.81........................ 503,499 9.39 49.89 -- --
--------- ---- ------ ------- ------
1,764,426 7.57 $29.67 733,045 $19.77
========= ==== ====== ======= ======
</TABLE>
The Company's 1997 Incentive Plan also authorizes the granting of
restricted stock awards. Under this and previous plans, 158,750 shares of
restricted stock were awarded to Company executive officers and other key
employees that will vest over periods ranging from three to five years based
upon the completion of specified periods of future service with the Company. In
addition, 135,000 restricted shares of Common Stock were awarded to executive
officers and other key employees and approximately 119,000 shares have been
earned based upon the attainment of specified performance objectives.
Compensation is charged to income over the vesting period for these awards which
resulted in expense recognition of $4.5 million, $2.3 million and $1.7 million
in 1997, 1996 and 1995, respectively.
The Company's ESOP covers all full-time domestic employees of Production
Operators. ESOP contributions are made at the discretion of the Company's Board
of Directors. Contributions to the ESOP by the Company for the years ended
December 31, 1997, 1996 and 1995, were $925,000, $891,000 and $818,000,
respectively. Dividends received by the ESOP Trust and applied to reduction of
the ESOP term loan were $65,000, $126,000 and $119,000 in 1997, 1996 and 1995,
respectively.
36
<PAGE> 37
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
Aggregate minimum rental commitments under noncancelable operating leases
with lease terms in excess of one year as of December 31, 1997, are as follows
(in thousands):
<TABLE>
<S> <C>
1998....................................................... $ 6,375
1999....................................................... 4,066
2000....................................................... 2,784
2001....................................................... 2,141
2002....................................................... 1,516
Thereafter................................................. 12,834
-------
$29,716
=======
</TABLE>
The Company incurred total rental expense of approximately $10.4 million,
$10.0 million and $9.3 million in 1997, 1996 and 1995, respectively.
Construction Commitment
The Company is committed to provide up to $40.0 million in additional
funding to its Venezuelan joint venture to fund progress payments on the
construction of contract gas compression equipment and facilities. The venture
expects to obtain project financing upon completion of construction and repay
all advances.
Legal Proceedings
The Company is involved in certain lawsuits and claims, including claims by
federal and local authorities under various environmental protection laws,
arising in the normal course of business. In the opinion of management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
Foreign Exchange Contracts
Camco enters into a variety of foreign exchange contracts to manage its
exposure to fluctuations in foreign currency exchange rates. These contracts
generally involve the exchange of one currency for another at a future date. The
carrying value of these contracts at December 31, 1997 and 1996, approximated
fair value based on exchange rates and quoted market prices at December 31, 1997
and 1996, for comparable contracts and was not significant.
Standby Letters of Credit
As of December 31, 1997, the Company has $16.1 million of standby letters
of credit outstanding under various unsecured credit arrangements.
Stockholder Rights Agreement
The Company has a Stockholder Rights Agreement to protect against coercive
or unfair takeover tactics. Under the terms of the agreement, the Company
distributed to its stockholders one right for each share of Common Stock held.
Each right, as amended, entitles the holder to purchase one share of Common
Stock for $250 per share, subject to adjustment or, under certain circumstances,
to purchase stock of the Company or of the acquiring entity for one half of the
market value. The rights are exercisable only if a person or group acquires 15%
or
37
<PAGE> 38
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
more of the Company's Common Stock or makes a tender offer for 15 percent or
more of the Common Stock. The rights expire on December 15, 2004.
Stock Repurchase Plan
In 1996, the Board of Directors authorized a stock repurchase program for
up to $20 million of the Company's Common Stock. Shares of the Company's Common
Stock purchased pursuant to the program are reserved and used exclusively for
employee benefit plans. During 1996, the Company purchased 342,600 shares of the
Company's stock for an aggregate amount of $13.4 million.
10. SEGMENT INFORMATION
The Company is a diversified international energy service and manufacturing
company that provides a variety of services and equipment to the oil and gas
industry.
Revenues by industry segment and geographic area include both revenues from
unaffiliated customers and intercompany revenues from related companies. The
price at which intercompany sales are made is generally based on the selling
price to unaffiliated customers, less a discount, or the direct product cost
plus a markup.
Export sales from the United States to other geographic areas, including
intercompany sales to foreign subsidiaries, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Europe (including Former Soviet Union)............. $ 52,137 $ 43,218 $ 33,519
Mexico and Central and South America............... 56,149 79,978 86,857
Far East........................................... 32,827 28,610 30,002
Middle East and Africa............................. 25,474 25,610 17,670
Canada............................................. 21,598 19,557 16,120
-------- -------- --------
$188,185 $196,973 $184,168
======== ======== ========
</TABLE>
38
<PAGE> 39
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following financial information by geographic region for the years
ended December 31, 1997, 1996 and 1995, is based on the source from which the
equipment and services originate (in thousands):
<TABLE>
<CAPTION>
ADDITIONAL
OUTSIDE INTERCOMPANY OPERATING IDENTIFIABLE
REVENUES REVENUES INCOME ASSETS
-------- ------------ --------- ------------
<S> <C> <C> <C> <C>
1997
USA and Canada................................. $506,725 $ 157,881 $ 71,853 $ 641,407
Europe (including Former Soviet Union)......... 106,876 34,055 36,285 152,494
Middle East and Africa......................... 22,104 -- 884 11,852
Mexico and Central and South America........... 110,502 730 13,656 101,516
Far East....................................... 167,634 75,004 38,800 210,571
Eliminations................................... -- (267,670) (14,725) --
-------- --------- -------- ----------
Consolidated........................... $913,841 $ -- $146,753 $1,117,840
======== ========= ======== ==========
1996
USA and Canada................................. $432,923 $ 114,950 $ 47,757 $ 517,645
Europe (including Former Soviet Union)......... 136,851 27,182 21,148 134,036
Middle East and Africa......................... 14,541 -- 3,705 18,092
Mexico and Central and South America........... 79,406 207 11,961 94,576
Far East....................................... 100,814 53,300 32,761 207,356
Eliminations................................... -- (195,639) (10,069) --
-------- --------- -------- ----------
Consolidated........................... $764,535 $ -- $107,263 $ 971,705
======== ========= ======== ==========
1995
USA and Canada................................. $377,709 $ 110,397 $ 46,241 $ 488,424
Europe (including Former Soviet Union)......... 103,361 17,002 6,988 84,478
Middle East and Africa......................... 10,833 -- 1,667 14,807
Mexico and Central and South America........... 75,063 -- 3,777 75,896
Far East....................................... 100,966 37,070 22,552 217,894
Eliminations................................... -- (164,469) (3,170) --
-------- --------- -------- ----------
Consolidated........................... $667,932 $ -- $ 78,055 $ 881,499
======== ========= ======== ==========
</TABLE>
39
<PAGE> 40
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for industry segments is as follows (in thousands):
<TABLE>
<CAPTION>
DEPRECIATION
OUTSIDE OPERATING IDENTIFIABLE AND CAPITAL
REVENUES INCOME ASSETS AMORTIZATION EXPENDITURES
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1997
Oilfield equipment............... $697,015 $125,904 $ 696,494 $34,927 $37,303
Oilfield services................ 216,826 48,404 318,835 26,620 57,943
Corporate........................ -- (27,555)(a) 102,511 917 508
-------- -------- ---------- ------- -------
Consolidated............. $913,841 $146,753 $1,117,840 $62,464 $95,754
======== ======== ========== ======= =======
1996
Oilfield equipment............... $568,314 $ 87,893 $ 616,404 $31,473 $28,001
Oilfield services................ 196,221 40,121 270,816 23,003 33,685
Corporate........................ -- (20,751) 84,485 908 162
-------- -------- ---------- ------- -------
Consolidated............. $764,535 $107,263 $ 971,705 $55,384 $61,848
======== ======== ========== ======= =======
1995
Oilfield equipment............... $493,397 $ 62,209 $ 532,981 $23,574 $20,766
Oilfield services................ 174,535 29,321 272,189 21,906 68,074
Corporate........................ -- (13,475) 76,329 612 315
-------- -------- ---------- ------- -------
Consolidated............. $667,932 $ 78,055 $ 881,499 $46,092 $89,155
======== ======== ========== ======= =======
</TABLE>
- ---------------
(a) Includes merger expenses of $12.5 million incurred in connection with the
merger between Camco and Production Operators.
11. DISCONTINUED OPERATIONS
The oil and gas production activities of Production Operators were
discontinued in 1995 with a $6.7 million provision, net of tax, recorded related
to the disposal of assets and $.5 million loss, net of tax, recorded related to
operations. The discontinued operation's revenues, operating loss, tax benefit
and loss after tax in 1995 were $9.2 million, $.7 million, $.2 million and $.5
million, respectively.
40
<PAGE> 41
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1997
Revenues................................ $195,484 $227,145 $239,058 $252,154 $913,841
Gross margin............................ 82,246 96,113 99,649 109,359 387,367
Income before provision for income
taxes................................ 30,189 24,453 41,579 44,861 141,082
Income before cumulative effect of
change in accounting principle....... 19,810 15,772 27,023 29,156 91,761
Net income.............................. 19,810 15,772 27,023 26,247 88,852
Earnings per share:
Basic --
Income before cumulative effect of
change in accounting
principle....................... $ .53 $ .42 $ .72 $ .78 $ 2.45
======== ======== ======== ======== ========
Net income......................... $ .53 $ .42 $ .72 $ .70 $ 2.37
======== ======== ======== ======== ========
Diluted --
Income before cumulative effect of
change in accounting
principle....................... $ .52 $ .41 $ .70 $ .76 $ 2.39
======== ======== ======== ======== ========
Net income......................... $ .52 $ .41 $ .70 $ .68 $ 2.31
======== ======== ======== ======== ========
1996
Revenues................................ $167,648 $185,283 $190,171 $221,433 $764,535
Gross margin............................ 67,763 74,507 75,508 87,651 305,429
Income before provision for income
taxes................................ 21,280 23,495 26,538 31,411 102,724
Net income.............................. 14,288 15,593 17,452 20,671 68,004
Earnings per share:
Basic --
Net income......................... $ .38 $ .42 $ .47 $ .55 $ 1.81
======== ======== ======== ======== ========
Diluted --
Net income......................... $ .37 $ .41 $ .46 $ .54 $ 1.78
======== ======== ======== ======== ========
</TABLE>
41
<PAGE> 42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Camco International Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets of Camco International Inc. (a Delaware
Corporation) and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended December 31, 1997, included in this
Form 10-K and have issued our report thereon dated February 10, 1998. Our audits
were made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. Financial statement Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This financial statement schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 10, 1998
42
<PAGE> 43
CAMCO INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND END OF
CLASSIFICATION OF YEAR EXPENSE DEDUCTIONS YEAR
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS DEDUCTED FROM
ACCOUNTS RECEIVABLE IN THE BALANCE SHEETS:
Year ended December 31, 1997.................. $14,210 $3,864 $(1,791) $16,283
Year ended December 31, 1996.................. 14,296 2,761 (2,847) 14,210
Year ended December 31, 1995.................. 14,559 3,561 (3,824) 14,296
</TABLE>
43
<PAGE> 44
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE MATTERS.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For certain information concerning directors and executive officers of the
Company, reference is made to the information included under the captions
"Proposal 1: Election of Three Directors", "Executive Officers" and "Compliance
with Section 16(a) of the Securities Exchange Act" included in the definitive
Proxy Statement, which relates to the Annual Meeting of Stockholders of the
Company to be held on May 19, 1998 (the "Proxy Statement"), to be filed within
120 days after the close of the fiscal year, which information is incorporated
herein by such reference.
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning this Item, reference is made to the captions
"Compensation of Directors", "Executive Compensation Committee Report",
"Executive Compensation", "Retirement Plans", "Nicholson Employment Agreement",
"Executive Severance Agreements", "Performance Presentation", and "Compensation
Committee Interlocks, Insider Participation and Certain Transactions" in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information concerning this Item, reference is made to the captions
"Principal Stockholders", "Security Ownership of Management" and "Change of
Control" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this Item, reference is made to the
"Compensation Committee Interlocks, Insider Participation and Certain
Transactions" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits, Financial Statements and Financial Statement Schedules.
(1) and (2) Financial Statements and Financial Statement Schedules.
Consolidated Financial Statements and related Schedule II of the Company
are included in Item 8 (Consolidated Financial Statements and Supplementary
Data). All other schedules for the Company have been omitted since the required
information is not present or not present in an amount sufficient to require
submission of the schedule, or because the information required is included in
the Consolidated Financial Statements or the notes thereto.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 -- Reorganization Agreement (incorporated by reference to
Exhibit No. 2.1 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-70036)).
2.2 -- Agreement and Plan of Merger dated as of February 27,
1997, by and among Camco International Inc., Plane
Acquisition Corp. and Production Operators Corp.
(incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed on March 7,
1997).
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
3.1 -- Restated Certificate of Incorporation (incorporated by
reference to Exhibit No. 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993).
3.2 -- By-laws (incorporated by reference to Exhibit No. 3.4 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Restated
Certificate of Incorporation and By-laws of the Company
defining the rights of holders of Common Stock.
4.2 -- Form of Common Stock Certificate (incorporated by
reference to Exhibit No. 4.2 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
4.3 -- Rights Agreement dated as of December 15, 1994, between
Camco International Inc. and First Chicago Trust Company
of New York, as Rights Agent, which includes as exhibits,
the form of Right Certificate and the Summary of Rights
to Purchase Common Shares (incorporated by reference to
Exhibit No. 1 to the Company's Registration Statement on
Form 8-A dated December 19, 1994).
4.4 -- First Amendment to Rights Agreement dated as of October
21, 1997, between the Company and First Chicago Trust
Company of New York, as Rights Agent (incorporated by
reference to Exhibit No. 4.2 to the Company's Current
Report on Form 8-K dated November 21, 1997)
10.1* -- Amended and Restated Stock Option Plan for Nonemployee
Directors (incorporated by reference to Exhibit No. 10.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996).
10.2* -- Supplemental Executive Retirement Plan (incorporated by
reference to Exhibit No. 10.2 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-83562)).
10.3* -- Long-Term Incentive Plan of Camco International Inc.
(incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.4* -- 1997 Long-Term Incentive Plan of Camco International Inc.
(incorporated by reference to Exhibit No. 4.6 to the
Company's Registration Statement on Form S-8 (Reg. No.
333-29065)).
10.5* -- Description of Management Bonus Program (incorporated by
reference to Exhibit No. 10.4 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-83562)).
10.6* -- Letter Agreement between the Company and Gary Nicholson
(incorporated by reference to Exhibit No. 10.5 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-70036)).
10.7* -- Form of Executive Severance Agreement (incorporated by
reference to Exhibit No. 10.6 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
10.8* -- Form of First Amendment to Executive Severance Agreement
(incorporated by reference to Exhibit No. 10.7 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-83562)).
10.9 -- Form of Indemnification Agreement (incorporated by
reference to Exhibit No. 10.7 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
10.10 -- Reed Hourly Thrift Plan, as amended (incorporated by
reference to Exhibit No. 4.6 to the Company's
Registration Statement on Form S-8 (Reg. No. 333-18129)).
10.11 -- Tax Allocation Agreement (incorporated by reference to
Exhibit No. 10.9 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-70036)).
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.12 -- U.S. Tax Transition Agreement (incorporated by reference
to Exhibit No. 10.10 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70036)).
10.13 -- U.K. Tax Transition Agreement (incorporated by reference
to Exhibit No. 10.11 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70036)).
10.14 -- Credit Agreement by and among Camco International Inc.,
the Lenders party thereto, Bank of America National Trust
and Savings Association, Toronto Dominion (Texas), Inc.,
and Wachovia Bank, N.A., as co-agents and the Bank of New
York as Administrative Agent, including forms of notes
(dated October 22, 1997
10.15 -- Amended, Restated and Consolidated Lease Agreement dated
as of May 7, 1990, between the City of Bartlesville,
Oklahoma, and Reda, a division of Camco International
Inc. (incorporated by reference to Exhibit No. 10.13 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
10.16 -- Lease dated September 12, 1994, between Jurong Town
Corporation and Reda Pump Company (Singapore) Private
Limited (incorporated by reference to Exhibit No. 10.14
to the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
10.17 -- Building Agreement dated May 12, 1983, between Jurong
Town Corporation and Reed Rock Bit Company International,
Ltd. (incorporated by reference to Exhibit No. 10.15 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
10.18 -- 999 Year Lease dated November 7, 1988, between The
Department of Economic Development and Camco Limited
(incorporated by reference to Exhibit No. 10.16 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-70036)).
10.19 -- Amended and Restated Joint Venture Agreement dated July
7, 1993, between Reda Industries Ltd. and P.T. Imeco
Inter Sarana (incorporated by reference to Exhibit No.
10.17 to the Company's Registration Statement on Form S-1
(Reg. No. 33-70036)).
10.20 -- Joint Venture Agreement dated June 23, 1990, between
Camco Soviet Services Limited, and Urengoigasprom
(incorporated by reference to Exhibit No. 10.18 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-70036)).
10.21 -- Agreement for Technology Transfer, Grant For License, and
the Sale of Manufacturing Know-How and Technical
Assistance dated December 5, 1991, between the Reda
Division of Camco International Inc., Reda Pump Company
(Singapore) Private Ltd., the Lawrence Technology
Division of Camco International Inc. and Zavody Tazkeho
Strojarstva, Dubnica Vahom (incorporated by reference to
Exhibit No. 10.19 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-70036)).
10.22* -- Forms of Restricted Share Agreements (incorporated by
reference to Exhibit No. 10.22 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-83562)).
10.23 -- Service contract between Logoven S.A. and William
International Company and Production Operators, Inc.
Dated February 4, 1997.
10.24* -- Camco International Inc. Deferred Income Plan
(incorporated by reference to Exhibit No. 4.6 to the
Company's Registration Statement on Form S-8 (Reg. No.
333-23739)).
10.25* -- Camco International Inc. Deferred Income Plan Trust
(incorporated by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-8 (Reg. No.
333-23739)).
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.26* -- Camco Thrift Plan, as amended (incorporated by reference
to Exhibit No. 4.6 to the Company's Registration
Statement on Form S-8 (Reg. No. 333-09299)).
10.27 -- Lease Agreement dated July 9, 1979, between the State of
Alaska Department of Natural Resources, Division of
Forest, Land and Water Management and Camco Wireline,
Inc. (incorporated by reference to Exhibit No. 10.23 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-83562)).
10.28* -- Production Operators, Inc. Supplemental Benefit Plan
(incorporated by reference to Exhibit 28.2 to Production
Operator Corp's Current Report on Form 8-K, filed
February 24, 1992).
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP.
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Management Contract or Incentive Program.
As permitted by Item 601(b)(4) of Regulation S-K, the Company has not filed
with this Annual Report certain instruments defining the rights of holders of
long-term debt of the Company and its subsidiaries because the total amount of
securities authorized under any of such instruments does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis. The
Company agrees to furnish a copy of any such agreements to the Securities and
Exchange Commission upon request.
(b) On November 21, 1997, The Company filed a Current Report on Form 8-K
reporting an amendment to the Company's Rights Agreement.
47
<PAGE> 48
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, on March 13, 1998.
CAMCO INTERNATIONAL INC.
By: /s/ GARY D. NICHOLSON
----------------------------------
Gary D. Nicholson
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
to the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ GARY D. NICHOLSON Chairman of the Board, March 13, 1998
- ----------------------------------------------------- President, and Chief
Gary D. Nicholson Executive Officer
(Principal Executive
Officer)
/s/ HERBERT S. YATES Senior Vice March 13, 1998
- ----------------------------------------------------- President -- Finance and
Herbert S. Yates Chief Financial Officer
(Principal Financial
Officer)
/s/ BRUCE F. LONGAKER JR. Vice President -- Finance and
- ----------------------------------------------------- Corporate Controller
Bruce F. Longaker Jr. (Principal Accounting
Officer)
/s/ ROBERT L. HOWARD Director March 13, 1998
- -----------------------------------------------------
Robert L. Howard
/s/ WILLIAM J. JOHNSON Director March 13, 1998
- -----------------------------------------------------
William J. Johnson
/s/ WILLIAM A. KRAUSE Director March 13, 1998
- -----------------------------------------------------
William A. Krause
/s/ CHARLES P. SIESS, JR. Director March 13, 1998
- -----------------------------------------------------
Charles P. Siess, Jr.
/s/ T. DON STACY Director March 13, 1998
- -----------------------------------------------------
T. Don Stacy
/s/ GILBERT H. TAUSCH Director March 13, 1998
- -----------------------------------------------------
Gilbert H. Tausch
/s/ W. LESTER VARN, JR. Director March 13, 1998
- -----------------------------------------------------
W. Lester Varn, Jr.
</TABLE>
48
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
2.1 -- Reorganization Agreement (incorporated by reference to
Exhibit No. 2.1 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-70036)).
2.2 -- Agreement and Plan of Merger dated as of February 27,
1997, by and among Camco International Inc., Plane
Acquisition Corp. and Production Operators Corp.
(incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed on March 7,
1997).
3.1 -- Restated Certificate of Incorporation (incorporated by
reference to Exhibit No. 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993).
3.2 -- By-laws (incorporated by reference to Exhibit No. 3.4 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Restated
Certificate of Incorporation and By-laws of the Company
defining the rights of holders of Common Stock.
4.2 -- Form of Common Stock Certificate (incorporated by
reference to Exhibit No. 4.2 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
4.3 -- Rights Agreement dated as of December 15, 1994, between
Camco International Inc. and First Chicago Trust Company
of New York, as Rights Agent, which includes as exhibits,
the form of Right Certificate and the Summary of Rights
to Purchase Common Shares (incorporated by reference to
Exhibit No. 1 to the Company's Registration Statement on
Form 8-A dated December 19, 1994).
4.4 -- First Amendment to Rights Agreement dated as of October
21, 1997, between the Company and First Chicago Trust
Company of New York, as Rights Agent (incorporated by
reference to Exhibit No. 4.2 to the Company's Current
Report on Form 8-K dated November 21, 1997)
10.1* -- Amended and Restated Stock Option Plan for Nonemployee
Directors (incorporated by reference to Exhibit No. 10.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996).
10.2* -- Supplemental Executive Retirement Plan (incorporated by
reference to Exhibit No. 10.2 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-83562)).
10.3* -- Long-Term Incentive Plan of Camco International Inc.
(incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.4* -- 1997 Long-Term Incentive Plan of Camco International Inc.
(incorporated by reference to Exhibit No. 4.6 to the
Company's Registration Statement on Form S-8 (Reg. No.
333-29065)).
10.5* -- Description of Management Bonus Program (incorporated by
reference to Exhibit No. 10.4 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-83562)).
10.6* -- Letter Agreement between the Company and Gary Nicholson
(incorporated by reference to Exhibit No. 10.5 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-70036)).
10.7* -- Form of Executive Severance Agreement (incorporated by
reference to Exhibit No. 10.6 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
10.8* -- Form of First Amendment to Executive Severance Agreement
(incorporated by reference to Exhibit No. 10.7 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-83562)).
10.9 -- Form of Indemnification Agreement (incorporated by
reference to Exhibit No. 10.7 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70036)).
10.10 -- Reed Hourly Thrift Plan, as amended (incorporated by
reference to Exhibit No. 4.6 to the Company's
Registration Statement on Form S-8 (Reg. No. 333-18129)).
10.11 -- Tax Allocation Agreement (incorporated by reference to
Exhibit No. 10.9 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-70036)).
10.12 -- U.S. Tax Transition Agreement (incorporated by reference
to Exhibit No. 10.10 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70036)).
10.13 -- U.K. Tax Transition Agreement (incorporated by reference
to Exhibit No. 10.11 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-70036)).
10.14 -- Credit Agreement by and among Camco International Inc.,
the Lenders party thereto, Bank of America National Trust
and Savings Association, Toronto Dominion (Texas), Inc.,
and Wachovia Bank, N.A., as co-agents and the Bank of New
York as Administrative Agent, including forms of notes
(dated October 22, 1997
10.15 -- Amended, Restated and Consolidated Lease Agreement dated
as of May 7, 1990, between the City of Bartlesville,
Oklahoma, and Reda, a division of Camco International
Inc. (incorporated by reference to Exhibit No. 10.13 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
10.16 -- Lease dated September 12, 1994, between Jurong Town
Corporation and Reda Pump Company (Singapore) Private
Limited (incorporated by reference to Exhibit No. 10.14
to the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
10.17 -- Building Agreement dated May 12, 1983, between Jurong
Town Corporation and Reed Rock Bit Company International,
Ltd. (incorporated by reference to Exhibit No. 10.15 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-70036)).
10.18 -- 999 Year Lease dated November 7, 1988, between The
Department of Economic Development and Camco Limited
(incorporated by reference to Exhibit No. 10.16 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-70036)).
10.19 -- Amended and Restated Joint Venture Agreement dated July
7, 1993, between Reda Industries Ltd. and P.T. Imeco
Inter Sarana (incorporated by reference to Exhibit No.
10.17 to the Company's Registration Statement on Form S-1
(Reg. No. 33-70036)).
10.20 -- Joint Venture Agreement dated June 23, 1990, between
Camco Soviet Services Limited, and Urengoigasprom
(incorporated by reference to Exhibit No. 10.18 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-70036)).
10.21 -- Agreement for Technology Transfer, Grant For License, and
the Sale of Manufacturing Know-How and Technical
Assistance dated December 5, 1991, between the Reda
Division of Camco International Inc., Reda Pump Company
(Singapore) Private Ltd., the Lawrence Technology
Division of Camco International Inc. and Zavody Tazkeho
Strojarstva, Dubnica Vahom (incorporated by reference to
Exhibit No. 10.19 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-70036)).
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
10.22* -- Forms of Restricted Share Agreements (incorporated by
reference to Exhibit No. 10.22 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-83562)).
10.23 -- Service contract between Logoven S.A. and William
International Company and Production Operators, Inc.
Dated February 4, 1997.
10.24* -- Camco International Inc. Deferred Income Plan
(incorporated by reference to Exhibit No. 4.6 to the
Company's Registration Statement on Form S-8 (Reg. No.
333-23739)).
10.25* -- Camco International Inc. Deferred Income Plan Trust
(incorporated by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-8 (Reg. No.
333-23739)).
10.26* -- Camco Thrift Plan, as amended (incorporated by reference
to Exhibit No. 4.6 to the Company's Registration
Statement on Form S-8 (Reg. No. 333-09299)).
10.27 -- Lease Agreement dated July 9, 1979, between the State of
Alaska Department of Natural Resources, Division of
Forest, Land and Water Management and Camco Wireline,
Inc. (incorporated by reference to Exhibit No. 10.23 to
the Company's Registration Statement on Form S-1 (Reg.
No. 33-83562)).
10.28* -- Production Operators, Inc. Supplemental Benefit Plan
(incorporated by reference to Exhibit 28.2 to Production
Operator Corp's Current Report on Form 8-K, filed
February 24, 1992).
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP.
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Management Contract or Incentive Program.
<PAGE> 1
EXHIBIT 10.14
CREDIT AGREEMENT
by and among
CAMCO INTERNATIONAL INC.,
THE LENDERS PARTY HERETO,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
TORONTO DOMINION (TEXAS), INC., and
WACHOVIA BANK, N.A.,
as CO-AGENTS,
and
THE BANK OF NEW YORK,
as SWING LINE LENDER and as ADMINISTRATIVE AGENT
with
BNY CAPITAL MARKETS, INC.,
as ARRANGER
Dated as of October 22, 1997
<PAGE> 2
CREDIT AGREEMENT, dated as of October 22, 1997, by and among CAMCO
INTERNATIONAL INC., a Delaware corporation (the "Borrower"), the lenders party
hereto (together with their respective assigns, the "Lenders", each a
"Lender"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, TORONTO
DOMINION (TEXAS), INC., and WACHOVIA BANK, N.A., as Co-Agents (collectively,
the "Co-Agents"), and THE BANK OF NEW YORK ("BNY"), as agent for the Lenders
(in such capacity, the "Administrative Agent") and as swing line lender (in
such capacity, the "Swing Line Lender").
1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION
1.1. Definitions
As used in this Agreement, terms defined in the preamble have
the meanings therein indicated, and the following terms have the following
meanings:
"ABR Advances": the Revolving Credit Loans (or any portions
thereof), at such time as they (or such portions) are made and/or being
maintained at a rate of interest based upon the Alternate Base Rate.
"Accountants": Arthur Andersen, LLP (or any successor
thereto), or such other firm of certified public accountants of recognized
national standing selected by the Borrower and reasonably satisfactory to the
Administrative Agent.
"Accumulated Funding Deficiency": as defined in Section 302 of
ERISA.
"Acquisition": with respect to any Person, the purchase or
other acquisition by such Person, by any means whatsoever (including through a
merger, dividend or otherwise and whether in a single transaction or in a
series of related transactions), of (i) any Capital Stock of, or other equity
securities of, any other Person if, immediately thereafter, such other Person
would be either a Subsidiary of such Person or otherwise under the control of
such Person, (ii) any Operating Entity, or (iii) any Property of (A) any other
Person or (B) any Operating Entity, in either case other than in the ordinary
course of business, provided, however, that no acquisition of all or
substantially all of the assets of such other Person or Operating Entity shall
be deemed to be in the ordinary course of business. For purposes of this
definition, "control" shall mean the ownership of 50% or more of any class or
type of the Capital Stock of any Person.
- 2 -
<PAGE> 3
"Advance": with respect to a Revolving Credit Loan, an ABR
Advance or a Eurodollar Advance, as the case may be.
"Affected Advance": as defined in Section 3.9.
"Affiliate": as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. For purposes of this definition, control of a
Person shall mean the power, direct or indirect, (i) to vote 5% or more of the
securities or other interests having ordinary voting power for the election of
directors or other managing Persons thereof or (ii) to direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"Aggregate Credit Exposure": at any time, the sum at such time
of (i) the outstanding principal balance of the Revolving Credit Loans, plus
(ii) the outstanding principal balance of the Swing Line Loans.
"Aggregate Revolving Credit Commitment Amount": at any time,
the sum at such time of the Revolving Credit Commitment Amounts of all Lenders.
"Agreement": this Credit Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Alternate Base Rate": on any date, a rate of interest per
annum equal to the higher of (i) the Federal Funds Rate in effect on such date
plus 1/2 of 1% or (ii) the BNY Rate in effect on such date.
"Applicable Margin": (a) Subject to clause (b) of this
definition, (i) with respect to the unpaid principal balance of Eurodollar
Advances, at all times during which the applicable Pricing Level set forth
below is in effect, the percentage set forth below under the heading
"Applicable Eurodollar Margin" and adjacent to such Pricing Level, and (ii)
with respect to the Commitment Fee, at all times during which the applicable
Pricing Level set forth below is in effect, the percentage set forth below
under the heading "Applicable Fee Margin" and adjacent to such Pricing Level:
- 3 -
<PAGE> 4
<TABLE>
<CAPTION>
Applicable
Eurodollar Applicable
Pricing Level Margin Fee Margin
------------- ---------- ----------
<S> <C> <C>
Pricing Level I 0.275% 0.100%
Pricing Level II 0.325% 0.125%
Pricing Level III 0.450% 0.150%
</TABLE>
(b) Changes in the Applicable Margin resulting from a
change in a Pricing Level shall be based upon the Compliance Certificate most
recently delivered pursuant to Section 7.1(c) and shall become effective one
Business Day after the date such Compliance Certificate is delivered to the
Agent and the Lenders, provided that no reduction in the Applicable Margin
shall become effective upon the occurrence or during the continuance of any
Event of Default. Notwithstanding anything to the contrary contained in this
definition, (i) except as otherwise provided in clause (iii) below, during the
period commencing on the Effective Date and ending on the date of delivery
thereafter of the first Compliance Certificate pursuant to Section 7.1(c),
Pricing Level II shall apply, (ii) during the period commencing on the date of
delivery of the first Compliance Certificate pursuant to Section 7.1(c) and
ending on the date that is six months after the Effective Date, to the extent
that, but for this clause (ii), Pricing Level I would be in effect, Pricing
Level II shall be deemed to be in effect for all purposes of the Loan
Documents, and (iii) if, at any time and from time to time, the Borrower shall
be in Default of its obligations under Section 7.1(c), Pricing Level III shall
apply until such Default is cured.
"Approved Bank": any bank whose (or whose parent company's)
unsecured non-credit supported long-term senior indebtedness rating from (i)
S&P is at least A- or the equivalent thereof or (ii) Moody's is at least A3 or
the equivalent thereof.
"Assignment and Acceptance Agreement": an assignment and
acceptance agreement executed by an assignor and an assignee, substantially in
the form of Exhibit H.
"Available Amount": as of any date, the excess, if any of (i)
the Aggregate Revolving Credit Commitment Amount on such date, over (ii) the
Aggregate Credit Exposure on such date.
"BNY Capital Markets": BNY Capital Markets, Inc.
"BNY Rate": a rate of interest per annum equal to the rate of
interest publicly announced in New York City by BNY from time to time as its
prime commercial lending rate, such rate to be adjusted automatically (without
notice) on the effective date of any change in such publicly announced rate.
- 4 -
<PAGE> 5
"Borrowing Date": any Business Day on which (i) the Lenders
make Revolving Credit Loans, or (ii) the Swing Line Lender makes a Swing Line
Loan.
"Borrowing Request": a request for Revolving Credit Loans or a
Swing Line Loan in the form of Exhibit C.
"Business Day": for all purposes other than as set forth in
clause (ii) below, (i) any day other than a Saturday, a Sunday or a day on
which commercial banks located in New York City are authorized or required by
law or other governmental action to close, and (ii) with respect to all notices
and determinations in connection with, and payments of principal and interest
on, Eurodollar Advances, any day which is a Business Day described in clause
(i) above and which is also a day on which eurodollar funding between banks may
be carried on in London, England.
"Capital Expenditures": with respect to any Person for any
period, any expenditure by such Person during such period in respect of the
purchase or other acquisition of fixed or capital assets, provided, however,
that "Capital Expenditures" shall not include (i) capitalized leases, or (ii)
expenditures of proceeds of insurance settlements in respect of lost, destroyed
or damaged assets, equipment or other property to the extent such expenditures
are made to replace or repair such lost, destroyed or damaged assets, equipment
or other property within twelve months of the receipt of such proceeds.
"Capital Lease": a lease the obligations in respect of which
are required to be capitalized by the lessee thereunder for financial reporting
purposes in accordance with GAAP.
"Capital Stock": as to any Person, all shares, interests,
partnership interests, limited liability company interests, participations,
rights in or other equivalents (however designated) of such Person's equity
(however designated) and any rights, warrants or options exchangeable for or
convertible into such shares, interests, participations, rights or other
equity.
"Capitalization Ratio": at any fiscal quarter end, the ratio
of (i) Indebtedness (to the extent shown on the Borrower's Consolidated Balance
Sheet at such fiscal quarter end) to (ii) the sum of (A) such Indebtedness
plus (B) shareholders' equity, each in respect of the Borrower and the
Subsidiaries thereof and determined on a Consolidated basis in accordance with
GAAP.
- 5 -
<PAGE> 6
"Cash Equivalents": (i) securities issued or directly and
fully guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in full support thereof) having maturities of not more than
one year from the date of acquisition, (ii) Dollar denominated time deposits
(including, without limitation, eurodollar deposits), certificates of deposit
and bankers acceptances of (x) any Lender or (y) any Approved Bank, in any such
case with maturities of not more than six months from the date of acquisition,
(iii) Dollar denominated commercial paper with an unsecured non-credit
supported short-term commercial paper rating of at least A-1 or the equivalent
by S&P or at least P-1 or the equivalent by Moody's, maturing within one year
after the date of acquisition, (iv) marketable direct obligations issued by any
state of the United States or any political subdivision of any such state or
any public instrumentality thereof maturing within six months from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's and (v) investments in
Dollar denominated money market funds substantially all the assets of which are
comprised of securities of the types described in clauses (i) through (iv)
above.
"Change of Control": any one or more of the following events:
(i) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Exchange Act) shall have become the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of Voting Shares entitled to exercise more
than 50% of the total power of all outstanding Voting Shares of the Borrower
(including any Voting Shares which are not then outstanding of which such
person or group is deemed the beneficial owner), or (ii) a change in the
composition of the Managing Person of the Borrower shall have occurred in which
the individuals who constituted the Managing Person of the Borrower at the
beginning of the two year period immediately preceding such change (together
with any other director whose election by the Managing Person of the Borrower
or whose nomination for election by the shareholders of the Borrower was
approved by a vote of a majority of the members of such Managing Person then in
office who either were members of such Managing Person at the beginning of such
period or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the members of such Managing
Person then in office. For purposes of this definition, the term "Voting
Shares" shall mean all outstanding shares of any class or classes (however
designated) of Capital Stock of the Borrower entitled to vote generally in the
election of members of the Managing Person thereof.
"Code": the Internal Revenue Code of 1986, as the same may be
amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
- 6 -
<PAGE> 7
"Collections": with respect to any Receivables, all cash
collections and other cash proceeds in respect of such Receivables, including,
without limitation, all cash proceeds of Related Security with respect to such
Receivables.
"Commitment": a Revolving Credit Commitment or the Swing Line
Commitment, as the case may be.
"Commitment Fee": as defined in Section 3.2(a).
"Commitment Percentage": with respect to any Lender as of any
date, the percentage as of such date equal to such Lender's Revolving Credit
Commitment Amount divided by the Aggregate Revolving Credit Commitment Amount
(or, if no Commitments then exist, the percentage equal to such Lender's
Revolving Credit Commitment Amount on the last day upon which Revolving Credit
Commitments did exist divided by the Aggregate Revolving Credit Commitment
Amount as in effect on such day).
"Compliance Certificate": a certificate substantially in the
form of Exhibit E.
"Consolidated": the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP.
"Contingent Obligation": as to any Person (a "secondary
obligor"), any obligation of such secondary obligor (i) guaranteeing or in
effect guaranteeing any return on any investment made by another Person, or
(ii) guaranteeing or in effect guaranteeing any Indebtedness, lease, dividend
or other obligation (a "primary obligation") of any other Person (a "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such secondary obligor, whether contingent, (A)
to purchase any primary obligation or any Property constituting direct or
indirect security therefor, (B) to advance or supply funds (x) for the purchase
or payment of any primary obligation or (y) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of a primary obligor, (C) to purchase Property, securities or services
primarily for the purpose of assuring the beneficiary of any primary obligation
of the ability of a primary obligor to make payment of a primary obligation,
(D) otherwise to assure or hold harmless the beneficiary of a primary
obligation against loss in respect thereof, and (E) in respect of the
liabilities of any partnership in which a secondary obligor is a general
partner, except to the extent that such liabilities of such partnership are
nonrecourse to such secondary obligor and its separate Property,
- 7 -
<PAGE> 8
provided, however, that the term "Contingent Obligation" shall not include the
indorsement of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation of a Person shall be deemed
to be an amount equal to the stated or determinable amount of a primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith.
"Contract": with respect to any Receivable, any and all
instruments, agreements, leases, invoices or other writings pursuant to which
such Receivable arises or which evidences such Receivable.
"Control Person": as defined in Section 3.6.
"Conversion Date": the date on which: (i) a Eurodollar Advance
is converted to an ABR Advance, (ii) an ABR Advance is converted to a
Eurodollar Advance or (iii) a Eurodollar Advance is converted to a new
Eurodollar Advance.
"Default": any event or condition which constitutes an Event
of Default or which, with the giving of notice, the lapse of time, or any other
condition, would, unless cured or waived, become an Event of Default.
"Disposition": with respect to any Person, any sale,
assignment, transfer or other disposition by such Person, by any means, of (a)
the Capital Stock of, or other equity interests of, any other Person, (b) any
business, going concern or division or segment thereof, or (c) any other
Property of such Person other than in the ordinary course of business.
"Dollars" and "$": lawful currency of the United States.
"EBITDA": for any period, net income of the Borrower and its
Subsidiaries, determined on a Consolidated basis in accordance with GAAP for
such period plus (i) the sum of, without duplication, (a) net interest expense,
(b) provision for income taxes of the Borrower and its Subsidiaries, (c)
depreciation, amortization and other non-cash charges of the Borrower and its
Subsidiaries, and (d) extraordinary losses from sales, exchanges and other
dispositions of Property not in the ordinary course of business, each to the
extent utilized in determining such net income for such period, minus (ii) the
sum of, without duplication, each of the following with respect to the Borrower
and its Subsidiaries, to the extent utilized in determining such net income:
(a) extraordinary gains from
- 8 -
<PAGE> 9
sales, exchanges and other dispositions of Property not in the ordinary course
of business, and (b) other non-recurring items.
"Effective Date": October 22, 1997.
"Eligible Institution": a Lender, any affiliate of a Lender
and any other bank, insurance company, pension fund, mutual fund or other
financial institution.
"Employee Benefit Plan": an employee benefit plan within the
meaning of Section 3(3) of ERISA maintained, sponsored or contributed to by the
Borrower, any of its Subsidiaries or any ERISA Affiliate.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations issued thereunder,
as from time to time in effect.
"ERISA Affiliate": when used with respect to an Employee
Benefit Plan, ERISA, the PBGC or a provision of the Code pertaining to employee
benefit plans, any Person which is a member of any group of organizations
within the meaning of Sections 414(b) or (c) of the Code (or, solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, Sections 414(m) or (o) of the Code) of which the
Borrower or any of its Subsidiaries is a member.
"Eurodollar Advances": collectively, the Revolving Credit
Loans (or any portions thereof), at such time as they (or such portions) are
made and/or being maintained at a rate of interest based upon the Eurodollar
Rate.
"Eurodollar Interest Period": with respect to any Eurodollar
Advance requested by the Borrower, the period commencing on, as the case may
be, the Borrowing Date or Conversion Date with respect to such Eurodollar
Advance and ending one, two, three or six months thereafter, as selected by the
Borrower in its irrevocable Borrowing Request or its irrevocable Notice of
Conversion, provided, however, that (i) if any Eurodollar Interest Period would
otherwise end on a day which is not a Business Day, such Eurodollar Interest
Period shall be extended to the next succeeding Business Day unless the result
of such extension would be to carry such Eurodollar Interest Period into
another calendar month, in which event such Eurodollar Interest Period shall
end on the immediately preceding Business Day and (ii) any Eurodollar Interest
Period which begins on the last Business Day of a calendar month (or on a day
for which there is no numerically
- 9 -
<PAGE> 10
corresponding day in the calendar month at the end of such Eurodollar Interest
Period) shall end on the last Business Day of a calendar month. Eurodollar
Interest Periods shall be subject to the provisions of Section 3.4.
"Eurodollar Rate": with respect to the Eurodollar Interest
Period applicable to any Eurodollar Advance, a rate of interest per annum, as
determined by the Administrative Agent, obtained by dividing (and then rounding
to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, then to the
next higher 1/16 of 1%):
(a) the rate, as reported by BNY to the
Administrative Agent, quoted by BNY to leading banks in the interbank
eurodollar market as the rate at which BNY is offering Dollar deposits in an
amount equal approximately to the Eurodollar Advance of BNY to which such
Eurodollar Interest Period shall apply for a period equal to such Eurodollar
Interest Period, as quoted at approximately 11:00 a.m. two Business Days prior
to the first day of such Interest Period, by
(b) a number equal to 1.00 minus the aggregate of
the then stated maximum rates during such Eurodollar Interest Period of all
reserve requirements (including, without limitation, marginal, emergency,
supplemental and special reserves), expressed as a decimal, established by the
Board of Governors of the Federal Reserve System and any other banking
authority to which BNY and other major United States money center banks are
subject, in respect of eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board of Governors of the
Federal Reserve System) or in respect of any other category of liabilities
including deposits by reference to which the interest rate on Eurodollar
Advances is determined or any category of extensions of credit or other assets
which includes loans by non-domestic offices of any Lender to United States
residents. Such reserve requirements shall include, without limitation, those
imposed under such Regulation D. Eurodollar Advances shall be deemed to
constitute Eurocurrency Liabilities and as such shall be deemed to be subject
to such reserve requirements without benefit of credits for proration,
exceptions or offsets which may be available from time to time to any Lender
under such Regulation D. The Eurodollar Rate shall be adjusted automatically on
and as of the effective date of any change in any such reserve requirement.
"Event of Default": as defined in Section 9.1.
"Exchange Act": the Securities Exchange Act of 1934, as
amended.
- 10 -
<PAGE> 11
"Excluded Taxes": collectively, in the case of any
Indemnified Tax Person, (i) taxes imposed on the net income of such Indemnified
Tax Person by the jurisdiction in which such Indemnified Tax Person has its
situs of organization or in which such Indemnified Tax Person's lending office
is located, (ii) taxes imposed on the net income of such Indemnified Tax Person
other than those taxes described in clause (i), except to the extent that such
taxes would not have been incurred but for the situs of organization, any place
of business or the activities of the Borrower, in the jurisdiction imposing the
tax, (iii) taxes (other than withholding taxes) imposed on or measured by the
gross income, gross receipts or capital of such Indemnified Tax Person, except
to the extent that such taxes would not have been incurred but for the situs of
organization, any place of business or the activities of the Borrower, in the
jurisdiction imposing the tax, (iv) any withholding taxes imposed with respect
to a payment to a Person who has become a Lender as a result of an Assignment
to the extent such withholding arises as a result of Section 881(c)(3)(A) of
the Code, (v) any tax imposed on a transfer of a Note, and (vi) any tax imposed
as a result of the willful misconduct or gross negligence of such Indemnified
Tax Person.
"Existing Bank Debt": collectively, the Indebtedness of the
Borrower under the Credit Agreement, dated as of December 7, 1993, among the
Borrower, certain financial institutions, Bank of America National Trust and
Savings Association, Continental Bank N.A., and Toronto Dominion (Texas), Inc.,
as co-agents, and Continental Bank N.A., as administrative agent, as amended,
together with all outstanding principal, accrued interest and fees and other
sums due and payable thereunder.
"Existing Pension Plans": as defined in Section 4.10.
"Facility Obligations": all of the obligations and liabilities
of the Borrower under the Loan Documents, whether fixed, contingent, now
existing or hereafter arising, created, assumed, incurred or acquired, and
whether before or after the occurrence of any bankruptcy or other insolvency of
the Borrower including, without limitation, (a) any obligation or liability in
respect of any breach of any representation or warranty, and (b) all
post-petition interest and funding losses, whether or not allowed as a claim in
any proceeding in connection with such bankruptcy or other insolvency.
"Federal Funds Rate": for any day, a rate per annum (expressed
as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%)
equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (i) if the day for
which such rate is to be determined is not a Business Day,
- 11 -
<PAGE> 12
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (ii) if such rate is not so published for any day, the Federal Funds
Rate for such day shall be the average of the quotations for such day on such
transactions received by BNY as determined by BNY and reported to the
Administrative Agent.
"Fees": as defined in Section 2.9.
"Financial Officer": as to any Person, the chief financial
officer of such Person or such other officer as shall be satisfactory to the
Administrative Agent.
"Financial Statements": as defined in Section 4.11.
"GAAP": generally accepted accounting principles as in effect
from time to time in the United States.
"Governmental Authority": any foreign, federal, state,
municipal or other government, or any department, commission, board, bureau,
agency, public authority or instrumentality thereof, or any court or
arbitrator.
"Impermissible Qualification": means, relative to any opinion
by the Accountants as to any financial statement delivered pursuant hereto, any
qualification or exception to such opinion: (a) which is of a "going concern"
or a similar nature with respect to the Borrower or any Significant Subsidiary,
(b) which relates to the limited scope of examination of matters relevant to
such financial statement (other than scope limitations included in the standard
form of opinion utilized by the Accountants or with respect to Persons other
than the Borrower or such Significant Subsidiary), or (c) which relates to the
treatment or classification of any item in such financial statement and which,
as a condition to its removal, would require an adjustment to such item the
effect of which would be to cause the Borrower to be in default of any of its
obligations under Section 7.9.
"Included Taxes": all taxes other than Excluded Taxes.
"Income Tax": as to any Person, an income tax or franchise tax
imposed on all or part of the net income or net profits of such Person
(including any interest, fees, or penalties for late payment of such an income
tax or franchise tax) imposed by one of the following jurisdictions or by any
political subdivision or taxing authority thereof: (i) the United States, (ii)
the jurisdiction in which such Person is organized, (iii) the jurisdiction in
which such Person's principal office is located, or (iv) in the case of any
Lender, the
- 12 -
<PAGE> 13
Administrative Agent or the Swing Line Lender, any jurisdiction in which such
Person is deemed to be doing business.
"Indebtedness": as to any Person, at a particular time, all
items which constitute, without duplication, (i) indebtedness for borrowed
money, (ii) indebtedness in respect of the deferred purchase price of Property
(other than trade payables incurred in the ordinary course of business), (iii)
indebtedness evidenced by notes, bonds, debentures or similar instruments, (iv)
obligations with respect to any conditional sale or title retention agreement,
(v) indebtedness arising under acceptance facilities and the amount available
to be drawn under all letters of credit issued for the account of such Person
and, without duplication, all drafts drawn thereunder to the extent such Person
shall not have reimbursed the issuer in respect of the issuer's payment
thereof, (vi) all liabilities secured by any Lien on any Property owned by such
Person even though such Person has not assumed or otherwise become liable for
the payment thereof (other than carriers', warehousemen's, mechanics',
repairmen's or other like non-consensual statutory Liens arising in the
ordinary course of business), (vii) obligations under Capital Leases, (viii)
net obligations under interest rate or foreign currency hedging arrangements at
market value, (ix) all obligations of such Person in respect of Capital Stock
subject to mandatory redemption or redemption at the option of the holder
thereof, in whole or in part, and (x) all Contingent Obligations of such Person
in respect of any of the foregoing.
"Indemnified Liability": as defined in Section 11.20.
"Indemnified Person": as defined in Section 11.7.
"Indemnified Tax Person": the Administrative Agent, the Swing
Line Lender or any Lender.
"Intercompany Indebtedness": loans or advances which are (i)
made by the Borrower to any of its Subsidiaries or (ii) made by any Subsidiary
of the Borrower to the Borrower or to any other Subsidiary of the Borrower.
"Interest Coverage Ratio": at any fiscal quarter end, the
ratio of (i) EBITDA minus Capital Expenditures to (ii) interest expense, each
in respect of the Borrower and the Subsidiaries thereof for the four fiscal
quarter period then ended determined on a Consolidated basis in accordance with
GAAP.
"Interest Payment Date": (i) as to any ABR Advance, the last
day of each March, June, September and December commencing on the first of such
days to occur
- 13 -
<PAGE> 14
after such ABR Advance is made or any Eurodollar Advance is converted to an ABR
Advance, (ii) as to any Swing Line Loan, the date on which the outstanding
principal balance of such Swing Line Loan shall become due and payable in
accordance with Section 2.3, (iii) as to any Eurodollar Advance as to which the
Borrower has selected a Eurodollar Interest Period of one, two or three months,
the last day of such Eurodollar Interest Period, (iv) as to any Eurodollar
Advance as to which the Borrower has selected a Eurodollar Interest Period of
six months, the last day of each three month interval occurring during such
Eurodollar Interest Period and the last day of such Eurodollar Interest Period;
(v) as to all Advances, the Revolving Credit Maturity Date, and (vi) as to all
Swing Line Loans, the Swing Line Maturity Date.
"Interest Period": a Eurodollar Interest Period or a Swing
Line Interest Period, as the case may be.
"Investments": as defined in Section 8.5.
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit or preferential arrangement, encumbrance, lien (statutory or other), or
other security agreement or security interest of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agreement and any capital or financing lease having substantially the same
economic effect as any of the foregoing.
"Loan": a Revolving Credit Loan or a Swing Line Loan, as the
case may be.
"Loan Documents": collectively, this Agreement and the Notes.
"Loans": the Revolving Credit Loans and/or the Swing Line
Loans, as the case may be.
"Managing Person": with respect to any Person that is (i) a
corporation, its board of directors, (ii) a limited liability company, its
board of control, managing member or members, (iii) a limited partnership, its
general partner, (iv) a general partnership or a limited liability partnership,
its managing partner or executive committee or (v) any other Person, the
managing body thereof or other Person analogous to the foregoing.
"Margin Stock": any "margin stock", as defined in Regulation U
of the Board of Governors of the Federal Reserve System, as amended,
supplemented or otherwise modified from time to time.
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<PAGE> 15
"Material Adverse Change": a material adverse change in the
financial condition, operations, business or Property of the Borrower and its
Subsidiaries taken as a whole.
"Material Adverse Effect": a material adverse effect on (i)
the financial condition, operations, business or Property of the Borrower and
its Subsidiaries taken as a whole, or (ii) the ability of the Borrower or any
of its Subsidiaries to perform any of its payment obligations or other material
obligations under the Loan Documents to which it is a party.
"Moody's": Moody's Investors Service, Inc., or any successor
thereto.
"Multiemployer Plan": a Pension Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"Negotiated Rate": with respect to each Swing Line Loan, the
rate per annum agreed to by the Borrower and the Swing Line Lender in
accordance with section 2.5(b) as the interest rate that such Swing Line Loan
shall bear.
"Note": a Revolving Credit Note or the Swing Line Note, as the
case may be.
"Notes": the Revolving Credit Notes and/or the Swing Line
Note, as the case may be.
"Notice of Conversion": a notice substantially in the form of
Exhibit D.
"Operating Entity": any Person or any business or operating
unit of a Person which is, or could be, operated separate and apart from (i)
the other businesses and operations of such Person, or (ii) any other line of
business or business segment.
"Organizational Documents": as to any Person which is (i) a
corporation, the certificate or articles of incorporation and by-laws of such
Person, (ii) a limited liability company, the limited liability company
agreement or similar agreement of such Person, (iii) a partnership, the
partnership agreement or similar agreement of such Person, or (iv) any other
form of entity or organization, the organizational documents analogous to the
foregoing.
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<PAGE> 16
"Outstandings": as of any date, an amount equal to (a) with
respect to the Swing Line Lender, the outstanding principal balance on such
date of all Swing Line Loans minus the aggregate sum of all payments by any
Lender in participation of such Swing Line Loans, and (b) with respect to each
Lender, the outstanding principal balance on such date of all the Revolving
Credit Loans of such Lender plus the excess of (i) the aggregate sum of all
payments by such Lender in participation of the Swing Line Loans, over (ii) all
reimbursements of such Lender in respect thereof.
"Outstanding Percentage": as of any date and with respect to
each Lender and the Swing Line Lender, as the case may be, a fraction the
numerator of which is the Outstandings of such Lender or the Swing Line Lender,
as applicable, on such date, and the denominator of which is the aggregate
Outstandings of all Lenders and the Swing Line Lender on such date.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, or any Governmental Authority
succeeding to the functions thereof.
"Pension Plan": at any date of determination, any Employee
Benefit Plan (including a Multiemployer Plan), the funding requirements of
which (under Section 302 of ERISA or Section 412 of the Code) are, or at any
time within the six years immediately preceding such date, were in whole or in
part, the responsibility of the Borrower, any of its Subsidiaries or any ERISA
Affiliate.
"Person": any individual, firm, partnership, limited liability
company, joint venture, corporation, association, business enterprise, joint
stock company, unincorporated association, trust, Governmental Authority or any
other entity, whether acting in an individual, fiduciary, or other capacity,
and for the purpose of the definition of "ERISA Affiliate", a trade or
business.
"Pricing Level": Pricing Level I, Pricing Level II, or Pricing
Level III, as the case may be.
"Pricing Level I": any time when the Capitalization Ratio is
less than 0.15:1.00.
"Pricing Level II": any time when the Capitalization Ratio is
greater than or equal to 0.15:1.00 but less than 0.30:1.00.
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<PAGE> 17
"Pricing Level III": any time when the Capitalization Ratio is
greater than or equal to 0.30:1.00.
"Prohibited Transaction": a transaction which is prohibited
under Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Section 408 of ERISA or a class exemption issued by
the U.S. Department of Labor.
"Property": all types of real, personal, tangible, intangible
or mixed property.
"Receivable Assets": with respect to any Person, the
Receivables, Collections, Contracts, Records and Related Security of such
Person.
"Receivable" of any Person means, as at any date of
determination thereof, the unpaid principal portion of the obligation of any
customer of such Person to pay money to such Person (without giving effect to
any transfer or conveyance thereof pursuant to a Securitized Receivables
Transaction), whether constituting an account, chattel paper, instrument or
general intangible, arising in connection with the sale of goods or the
rendering of services by such Person in the ordinary course of such Person's
business, plus any finance charges, late fees or other similar charges
receivable with respect thereto, but shall be calculated net of all credits,
rebates and offsets owed to such customer by such Person (and for purposes
hereof, a credit or rebate paid by check or draft of such Person shall be
deemed to be outstanding until such check or draft shall have been debited to
the respective account of such Person on which such check or draft was drawn).
"Receivables Facility": the 364-day $55,000,000 commercial
paper facility secured by the Borrower's U.S. and Canadian Receivables, as such
shall be amended, modified or extended from time to time.
"Records": with respect to any Receivable, all Contracts and
other documents, books, records and other information (including, without
limitation, computer programs, tapes, disks, punch cards, data processing
software and related property and rights) relating to such Receivable and any
Related Security therefor.
"Regulatory Change": the occurrence of any of the following
after the Effective Date: (i) the adoption of any treaty, constitution, law,
rule or regulation, (ii) the issuance or promulgation of any directive,
guideline or request from any Governmental Authority (whether or not having the
force of law), or (iii) any change in the interpretation
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<PAGE> 18
of any existing treaty, constitution, law, rule, regulation, directive,
guideline or request by any Governmental Authority.
"Related Security": with respect to any Receivable:
(a) all interest of a Person in inventory and
other goods (including returned or repossessed inventory or goods), if any, the
financing of the sale of which inventory and goods by such Person gave rise to
such Receivable, and all insurance contracts with respect thereto,
(b) all other security interests or liens and
property subject thereto from time to time, if any, purporting to secure
payment of such Receivable, whether pursuant to the Contract related to such
Receivable or otherwise, together with all financing statements and security
agreements describing any collateral securing such Receivable,
(c) all guaranties, insurance and other
agreements or arrangements of whatever character from time to time supporting
or securing payment of such Receivable whether pursuant to the Contract related
to such Receivable or otherwise,
(d) all service contracts and other contracts and
agreements associated with such Receivables,
(e) all Records related to such Receivable, and
(f) all proceeds of any of the foregoing.
"Reportable Event": with respect to any Pension Plan, (i) any
event set forth in Sections 4043(c) (other than a Reportable Event as to which
the 30 day notice requirement is waived by the PBGC under applicable
regulations), 4062(c) or 4063(a) of ERISA or the regulations thereunder, (ii)
an event requiring the Borrower, any of its Subsidiaries or any ERISA Affiliate
to provide security to a Pension Plan under Section 401(a)(29) of the Code, or
(iii) any failure to make any payment required by Section 412(m) of the Code.
"Required Lenders": at any time (i) prior to the Revolving
Credit Commitment Termination Date, Lenders having Revolving Credit Commitment
Amounts greater than 50% of the Aggregate Revolving Credit Commitment Amount
and (ii) on or after the Revolving Credit Commitment Termination Date, Lenders
having the aggregate of (x)
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<PAGE> 19
outstanding Revolving Credit Loans and (y) Swing Line Exposure greater than 50%
of the Aggregate Credit Exposure (or, if there are no Revolving Credit Loans
then outstanding and no Swing Line Exposure, Lenders having Revolving Credit
Commitment Amounts greater than 50% of the Aggregate Revolving Credit
Commitment Amount immediately prior to the termination of the Commitments).
"Restricted Payment": as to any Person (i) any dividend or
other distribution, direct or indirect, on account of any shares of Capital
Stock or other equity interest in such Person now or hereafter outstanding
(other than a dividend payable solely in shares of such Capital Stock to the
holders of such shares) and (ii) any redemption, retirement, sinking fund or
similar payment, purchase or other acquisition, direct or indirect, of any
shares of any class of Capital Stock or other equity interest in such Person
now or hereafter outstanding.
"Revolving Credit Commitment": in respect of any Lender, such
Lender's undertaking during the Revolving Credit Commitment Period to make
Revolving Credit Loans, subject to the terms and conditions hereof, in an
aggregate outstanding principal amount not exceeding the Revolving Credit
Commitment Amount of such Lender.
"Revolving Credit Commitment Amount": as of any date and with
respect to any Lender, the amount set forth adjacent to its name under the
heading "Revolving Credit Commitment Amount" in Exhibit A on such date or, in
the event that such Lender is not listed in Exhibit A, the "Revolving Credit
Commitment Amount" which such Lender shall have assumed from another Lender in
accordance with Section 11.6 on or prior to such date, as the same may be
reduced from time to time pursuant to Section 2.6.
"Revolving Credit Commitment Period": the period from the
Effective Date until the Revolving Credit Commitment Termination Date.
"Revolving Credit Commitment Termination Date": the earlier of
the Business Day immediately preceding the Scheduled Revolving Credit
Commitment Termination Date or such other date upon which the Revolving Credit
Commitments shall have been terminated in accordance with Section 2.6 or
Section 9.2.
"Revolving Credit Exposure": with respect to any Lender as of
any date, the sum as of such date of (i) the outstanding principal balance of
such Lender's Revolving Credit Loans and (ii) such Lender's Swing Line
Exposure.
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<PAGE> 20
"Revolving Credit Loan" and "Revolving Credit Loans": as
defined in Section 2.1.
"Revolving Credit Maturity Date": the Scheduled Revolving
Credit Commitment Termination Date, or such earlier date on which the Revolving
Credit Notes shall become due and payable, whether by acceleration or
otherwise.
"Revolving Credit Note" and "Revolving Credit Notes": as
defined in Section 2.2.
"S&P": Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
"Scheduled Revolving Credit Commitment Termination Date":
October 22, 2002.
"SEC": the Securities and Exchange Commission or any
Governmental Authority succeeding to the functions thereof.
"Securitized Receivables Transaction": the sale, transfer,
conveyance, lease, pledge, lien, conditional sale, assignment or other transfer
in the nature of a security interest or sale by the Borrower or its
Subsidiaries of Receivables of the Borrower or its Subsidiaries pursuant to the
Receivables Facility.
"Security": as defined in Section 2(1) of the Securities Act
of 1933, as amended.
"Significant Subsidiary": each "Significant Subsidiary" of the
Borrower within the meaning of Regulation S-X of the SEC as in effect from time
to time.
"Special Counsel": Emmet, Marvin & Martin, LLP as, or such
other counsel selected by the Administrative Agent as, special counsel to the
Administrative Agent in connection with the Loan Documents.
"Subsidiary": as to any Person, any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which such Person or any Subsidiary of such Person, directly or indirectly,
either (i) in respect of a corporation, owns or controls more than 50% of the
outstanding capital stock having ordinary voting power to elect a majority of
the Managing Person thereof, irrespective of whether a class
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<PAGE> 21
or classes shall or might have voting power by reason of the happening of any
contingency, or (ii) in respect of an association, partnership, limited
liability company, joint venture or other business entity, is entitled to share
in more than 50% of the profits and losses, however determined.
"Substitute Lender": as defined in Section 3.11.
"Swing Line Commitment": the undertaking of the Swing Line
Lender during the Swing Line Commitment Period to make Swing Line Loans,
subject to the terms and conditions hereof, in an aggregate outstanding
principal amount not in excess of the Swing Line Commitment Amount, and the
commitment of the Lenders to participate therein as set forth in Section 2.3,
as the same may be reduced pursuant to Section 2.6.
"Swing Line Commitment Amount": $15,000,000.
"Swing Line Commitment Period": the period from the Effective
Date to, but excluding, the Swing Line Commitment Termination Date.
"Swing Line Commitment Termination Date": the earlier of the
sixth Business Day immediately preceding the Revolving Credit Commitment
Termination Date or such other date upon which the Swing Line Commitments shall
have been terminated in accordance with Section 2.6 or Section 9.2.
"Swing Line Exposure": at any time, in respect of any Lender,
an amount equal to the aggregate outstanding principal amount of the Swing Line
Loans at such time multiplied by such Lender's Commitment Percentage at such
time.
"Swing Line Interest Period": subject to the provisions of
Section 3.4, with respect to any Swing Line Loan requested by the Borrower, the
period commencing on the Borrowing Date with respect to such Swing Line Loan
and ending not in excess of seven days thereafter, as selected by the Borrower
in its irrevocable Borrowing Request, provided, however, that (i) if any Swing
Line Interest Period would otherwise end on a day that is not a Business Day,
such Swing Line Interest Period shall be extended to the next succeeding
Business Day, and (ii) the Borrower shall select Swing Line Interest Periods so
as not to have more than three different Swing Line Interest Periods
outstanding at any one time for all Swing Line Loans.
"Swing Line Loan" and "Swing Line Loans": as defined in
Section 2.3(a).
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<PAGE> 22
"Swing Line Maturity Date": the date upon which the Swing Line
Commitment shall have been terminated in accordance with Section 2.6 or
Section 9.2, or such earlier date on which the Swing Line Note shall become due
and payable, whether by acceleration or otherwise.
"Swing Line Note": as defined in Section 2.4.
"Swing Line Participation Amount": as defined in Section
2.3(c).
"Tax": any present or future tax, levy, impost, duty, charge,
fee, deduction or withholding of any nature and whatever called, by a
Governmental Authority, on whomsoever and wherever imposed, levied, collected,
withheld or assessed.
"Termination Event": with respect to any Pension Plan, (i) a
Reportable Event, (ii) the termination of a Pension Plan, or the filing of a
notice of intent to terminate a Pension Plan, or the treatment of a Pension
Plan amendment as a termination under Section 4041(c) of ERISA, (iii) the
institution of proceedings to terminate a Pension Plan under Section 4042 of
ERISA, or (iv) the appointment of a trustee to administer any Pension Plan
under Section 4042 of ERISA.
"Unfunded Pension Liabilities": with respect to any Pension
Plan, at any date of determination, the amount determined by taking the
accumulated benefit obligation, as disclosed in accordance with Statement of
Accounting Standards No. 87, "Employers' Accounting for Pensions", over the
fair market value of Pension Plan assets.
"United States": the United States of America.
"Unrecognized Retiree Welfare Liability": with respect to any
Employee Benefit Plan that provides post- retirement benefits other than
pension benefits, the amount of the transition obligation, as determined in
accordance with Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions," as of
the most recent valuation date, that has not been recognized as an expense in
an income statement of the Borrower and its Subsidiaries, provided that prior
to the date such Statement is applicable to the Borrower, such amount shall be
based on an estimate made in good faith of such transition obligation.
"U.S. Person": a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under any
laws of the United States,
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<PAGE> 23
or any estate or trust that is subject to United States federal income taxation
regardless of the source of its income.
1.2. Principles of Construction
(a) All terms defined in a Loan Document shall have the
meanings given such terms therein when used in the other Loan Documents or any
certificate, opinion or other document made or delivered pursuant thereto to
the extent not otherwise provided therein.
(b) As used in the Loan Documents and in any certificate,
opinion or other document made or delivered pursuant thereto, accounting terms
not defined in Section 1.1, and accounting terms partly defined in Section 1.1,
to the extent not defined, shall have the respective meanings given to them
under GAAP. If at any time any change in GAAP would affect the computation of
any financial ratio or requirement set forth in this Agreement, the
Administrative Agent, the Lenders and the Borrower shall negotiate in good
faith to amend such ratio or requirement to reflect such change in GAAP
(subject to the approval of the Required Lenders), provided that, until so
amended, (i) such ratio or requirement shall continue to be computed in
accordance with GAAP prior to such change therein and (ii) the Borrower shall
provide to the Administrative Agent and the Lenders financial statements and
other documents required under this Agreement (or such other items as the
Administrative Agent may reasonably request) setting forth a reconciliation
between calculations of such ratio or requirement before and after giving
effect to such change in GAAP.
(c) The words "hereof", "herein", "hereto" and
"hereunder" and similar words when used in a Loan Document shall refer to such
Loan Document as a whole and not to any particular provision thereof, and
Section, schedule and exhibit references contained therein shall refer to
Sections thereof or schedules or exhibits thereto unless otherwise expressly
provided therein.
(d) The phrase "may not" is prohibitive and not
permissive.
(e) Unless the context otherwise requires, words in the
singular number include the plural, and words in the plural include the
singular.
(f) Unless specifically provided in a Loan Document to
the contrary, any reference to a time shall refer to such time in New York.
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<PAGE> 24
(g) Unless specifically provided in a Loan Document to
the contrary, in the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding".
(h) References in any Loan Document to a fiscal period
shall refer to that fiscal period of the Borrower.
2. AMOUNT AND TERMS OF LOANS
2.1. Revolving Credit Loans
Subject to the terms and conditions hereof, each Lender
severally (and not jointly) agrees to make revolving credit loans (each a
"Revolving Credit Loan" and, as the context may require, collectively with all
other Revolving Credit Loans of such Lender and with the Revolving Credit Loans
of all other Lenders, the "Revolving Credit Loans") to the Borrower from time
to time during the Revolving Credit Commitment Period, provided that
immediately after giving effect thereto (i) such Lender's Revolving Credit
Exposure would not exceed such Lender's Revolving Credit Commitment Amount, and
(ii) the Aggregate Credit Exposure would not exceed the Aggregate Revolving
Credit Commitment Amount. During the Revolving Credit Commitment Period, the
Borrower may borrow, prepay in whole or in part and reborrow under the
Revolving Credit Commitments, all in accordance with the terms and conditions
of this Agreement. Subject to the provisions of Sections 2.5 and 3.3, at the
option of the Borrower, Revolving Credit Loans may be made as one or more (i)
ABR Advances, (ii) Eurodollar Advances or (iii) any combination thereof.
2.2. Revolving Credit Notes
The Revolving Credit Loans made by each Lender shall be
evidenced by a promissory note made by the Borrower, substantially in the form
of Exhibit B-1, payable to the order of such Lender, and dated as of the
Effective Date (each, as indorsed or modified from time to time, a "Revolving
Credit Note" and, collectively with the Revolving Credit Notes of all other
Lenders, the "Revolving Credit Notes"). The outstanding principal balance of
the Revolving Credit Loans shall be due and payable on the Revolving Credit
Maturity Date.
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<PAGE> 25
2.3. Swing Line Loans
(a) Subject to the terms and conditions of this
Agreement, the Swing Line Lender agrees to make swing line loans (each a "Swing
Line Loan" and, collectively, the "Swing Line Loans") to the Borrower from time
to time during the Swing Line Commitment Period in an aggregate principal
amount at any one time outstanding not to exceed the Swing Line Commitment
Amount, provided that immediately after making each Swing Line Loan, (i) the
Swing Line Lender's Revolving Credit Exposure would not exceed the Swing Line
Lender's Revolving Credit Commitment Amount, (ii) the aggregate unpaid balance
of the Swing Line Loans would not exceed the Swing Line Commitment Amount, and
(iii) the Aggregate Credit Exposure would not exceed the Aggregate Revolving
Credit Commitment Amount. During the Swing Line Commitment Period, the
Borrower may borrow, prepay in whole or in part and reborrow under the Swing
Line Commitment, all in accordance with the terms and conditions of this
Agreement. No Swing Line Loan shall be made prior to the making of the first
Revolving Credit Loans on the first Borrowing Date.
(b) The Swing Line Lender shall not be obligated to make
any Swing Line Loan at a time when any Lender shall be in default of its
obligations under this Agreement unless arrangements to eliminate the Swing
Line Lender's risk with respect to such defaulting Lender's participation in
such Swing Line Loan shall have been made for the benefit of the Swing Line
Lender and such arrangements are satisfactory to the Swing Line Lender. The
Swing Line Lender will not make a Swing Line Loan if the Administrative Agent,
or any Lender by notice to the Swing Line Lender and the Borrower no later than
one Business Day prior to the Borrowing Date with respect to such Swing Line
Loan, shall have determined that the conditions set forth in Section 6 have not
been satisfied and such conditions remain unsatisfied as of the requested time
of the making of such Loan. Each Swing Line Loan shall be due and payable on
the earliest to occur of the last day of the Swing Line Interest Period
applicable thereto, the fifth Business Day prior to the Revolving Credit
Commitment Termination Date, the date on which the Swing Line Commitment shall
have been voluntarily terminated by the Borrower or the Swing Line Lender in
accordance with Section 2.6, and the date on which the Swing Line Loans shall
become due and payable pursuant to the provisions hereof, whether by
acceleration or otherwise.
(c) Upon each receipt by a Lender of notice of an Event
of Default from the Administrative Agent pursuant to Section 10.5, such Lender
shall purchase unconditionally, irrevocably, and severally (and not jointly)
from the Swing Line Lender a participation in the outstanding Swing Line Loans
(including accrued interest thereon) in an amount (the "Swing Line
Participation Amount") equal to the product of (i) its Com-
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<PAGE> 26
mitment Percentage, and (ii) the aggregate outstanding principal balance of the
Swing Line Loans plus all accrued and unpaid interest thereon. Each Lender
shall also be liable for an amount equal to the product of its Commitment
Percentage and any amounts paid by the Borrower pursuant to this Section 2.3
that are subsequently rescinded or avoided, or must otherwise be restored or
returned. Such liabilities shall be absolute and unconditional and without
regard to the occurrence of any Default or the compliance by the Borrower with
any of its obligations under the Loan Documents.
(d) In furtherance of subsection (c) immediately above,
upon each receipt by a Lender of notice of an Event of Default from the
Administrative Agent pursuant to Section 10.5, such Lender shall promptly make
available to the Administrative Agent for the account of the Swing Line Lender
its Swing Line Participation Amount at the office of the Administrative Agent
specified in Section 11.2, in lawful money of the United States and in
immediately available funds. The Administrative Agent shall deliver the
payments made by each Lender pursuant to the immediately preceding sentence to
the Swing Line Lender promptly upon receipt thereof in like funds as received.
Each Lender shall indemnify and hold harmless the Administrative Agent and the
Swing Line Lender from and against any and all losses, liabilities (including
liabilities for penalties), actions, suits, judgments, demands, costs and
expenses resulting from any failure on the part of such Lender to pay, or from
any delay in paying the Administrative Agent any amount such Lender is required
to pay in accordance with this Section 2.3 (except in respect of losses,
liabilities or other obligations suffered by the Administrative Agent or the
Swing Line Lender, as the case may be, resulting from the gross negligence or
willful misconduct of the Administrative Agent or the Swing Line Lender, as the
case may be), and such Lender shall be required to pay interest to the
Administrative Agent for the account of the Swing Line Lender from the date
such amount was due until paid in full, on the unpaid portion thereof, at a
rate of interest per annum equal to (i) from the date such amount was due until
the third day therefrom, the Federal Funds Rate, and (ii) thereafter, the
Federal Funds Rate plus 2%, payable upon demand by the Swing Line Lender. The
Administrative Agent shall distribute such interest payments to the Swing Line
Lender upon receipt thereof in like funds as received.
(e) Whenever the Administrative Agent is reimbursed by
the Borrower, for the account of the Swing Line Lender, for any payment in
connection with Swing Line Loans and such payment relates to an amount
previously paid by a Lender pursuant to this Section, the Administrative Agent
will promptly pay over such payment to such Lender.
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<PAGE> 27
2.4. Swing Line Note
The Swing Line Loans made by the Swing Line Lender shall be
evidenced by a promissory note made by the Borrower, substantially in the form
of Exhibit B-2, payable to the order of the Swing Line Lender, and dated as of
the Effective Date (as indorsed or modified from time to time, including all
replacements thereof and substitutions therefor, the "Swing Line Note").
2.5. Procedure for Borrowing
(a) Revolving Credit Loans. The Borrower may borrow under
the Revolving Credit Commitments on any Business Day during the Revolving
Credit Commitment Period, provided that the Borrower shall notify the
Administrative Agent by the delivery of a Borrowing Request, which shall be
sent by facsimile and shall be irrevocable (confirmed promptly, and in any
event within five Business Days, by the delivery to the Administrative Agent of
a Borrowing Request manually signed by the Borrower), no later than: 12:00
noon, three Business Days prior to the requested Borrowing Date, in the case of
Eurodollar Advances, and 12:00 noon, one Business Day prior to the requested
Borrowing Date, in the case of ABR Advances, specifying (A) the aggregate
principal amount to be borrowed under the Revolving Credit Commitments, (B) the
requested Borrowing Date, (C) whether such borrowing is to consist of one or
more Eurodollar Advances, ABR Advances, or a combination thereof and (D) if the
borrowing is to consist of one or more Eurodollar Advances, the amount of, and
the length of the Interest Period for, each such Eurodollar Advance. Each (i)
Eurodollar Advance to be made on a Borrowing Date, when aggregated with all
amounts to be converted to a Eurodollar Advance on such date and having the
same Interest Period as such first Eurodollar Advance, shall equal no less than
$5,000,000 or such amount plus a whole multiple of $1,000,000 in excess thereof
and (ii) each ABR Advance made on each Borrowing Date shall equal no less than
$5,000,000 or such amount plus a whole multiple of $1,000,000 in excess thereof
or, if less, the unused portion of the Aggregate Revolving Credit Commitment
Amount.
(b) Swing Line Loans. The Borrower may borrow under the
Swing Line Commitment on any Business Day during the Swing Line Commitment
Period, provided that the Borrower shall notify the Administrative Agent and
the Swing Line Lender (by telephone or facsimile confirmed promptly, and in any
event within five Business Days, by the delivery to the Administrative Agent
and the Swing Line Lender of a Borrowing Request manually signed by the
Borrower) no later than: 3:00 p.m., on the requested Borrowing Date, specifying
(i) the aggregate principal amount to be borrowed under the Swing Line
Commitment, (ii) the requested Borrowing Date, and (iii) the amount of, and the
length of the Swing Line Interest Period for, each Swing Line Loan, provided,
however, that no such Swing Line Interest Period shall end after the Swing Line
Commitment
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<PAGE> 28
Termination Date. The Swing Line Lender will then, subject to its
determination that the terms and conditions of this Agreement have been
satisfied and subject to its agreement with the Borrower on the Negotiated Rate
to be applicable thereto, make the requested amount available promptly on that
same day, to the Administrative Agent who, thereupon, will promptly make such
amount available to the Borrower at the office of the Administrative Agent
specified in Section 11.2 by crediting the account of the Borrower at such
office. Each borrowing of Swing Line Loans shall be in an aggregate principal
amount equal to $100,000 or such amount plus a whole multiple of $50,000 in
excess thereof or, if less, the unused portion of the Swing Line Commitment
Amount.
(c) Funding of Revolving Credit Loans. Upon receipt of
each Borrowing Request requesting Revolving Credit Loans, the Administrative
Agent shall promptly notify each Lender thereof. Subject to its receipt of the
notice referred to in the preceding sentence, each Lender will make the amount
of its Commitment Percentage of the requested Revolving Credit Loans available
to the Administrative Agent for the account of the Borrower at the office of
the Administrative Agent set forth in Section 11.2 not later than 2:00 p.m., on
the relevant Borrowing Date requested by the Borrower, in funds immediately
available to the Administrative Agent at such office. The amounts so made
available to the Administrative Agent on such Borrowing Date will then, subject
to the satisfaction of the terms and conditions of this Agreement, as
determined by the Administrative Agent, be promptly made available on such date
to the Borrower by the Administrative Agent at the office of the Administrative
Agent specified in Section 11.2 by crediting the account of the Borrower at
such office or elsewhere as the Borrower may from time to time instruct the
Administrative Agent in writing.
(d) Failure to Fund. Unless the Administrative Agent
shall have received prior notice from a Lender (by telephone or otherwise, such
notice to be promptly confirmed by facsimile or other writing) that such Lender
will not make available to the Administrative Agent such Lender's Commitment
Percentage of the Revolving Credit Loans requested by the Borrower, the
Administrative Agent may assume that such Lender has made such share available
to the Administrative Agent on the Borrowing Date in accordance with this
Section, and the Administrative Agent may, in reliance upon such assumption,
make available to the Borrower on the Borrowing Date a corresponding amount.
If and to the extent such Lender shall not have so made its Commitment
Percentage of such Revolving Credit Loans available to the Administrative
Agent, such Lender and the Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount (to the
extent not previously paid by the other), together with interest thereon for
each day from the date such amount is made available to the Borrower to the
date such amount is paid to the Administrative Agent, at a rate per annum equal
to,
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<PAGE> 29
in the case of the Borrower, the applicable interest rate payable by the
Borrower in respect of such Loans as set forth in Section 3.1, and, in the case
of such Lender, at a rate of interest per annum equal to the Federal Funds Rate
for the first three days after the due date of such payment and the Federal
Funds Rate plus 2% thereafter until the date such payment is received by the
Administrative Agent. Such payment by the Borrower, however, shall be without
prejudice to its rights against such Lender. If such Lender shall pay to the
Administrative Agent such corresponding amount, such amount so paid shall
constitute such Lender's Revolving Credit Loan as part of the Revolving Credit
Loans for purposes of this Agreement, which Loan shall be deemed to have been
made by such Lender on the Borrowing Date applicable to such Revolving Credit
Loans.
(e) Netting. If a Lender makes a new Loan on a Borrowing
Date on which the Borrower is to repay an existing Loan from such Lender, such
Lender shall apply the proceeds of such new Loan to make such repayment, and
only the excess of the proceeds of such new Loan over the outstanding principal
balance of the existing Loan being repaid need be made available to the
Administrative Agent.
2.6. Termination, Reduction or Increases in Commitments
(a) Voluntary Termination or Reductions. The Borrower
shall have the right, upon at least three Business Days' prior written notice
to the Administrative Agent, (A) at any time when the Aggregate Credit Exposure
shall be zero, to terminate the Revolving Credit Commitments of all of the
Lenders, (B) at any time and from time to time when the Aggregate Revolving
Credit Commitment Amount shall exceed the Aggregate Credit Exposure, to
permanently reduce the Aggregate Revolving Credit Commitment Amount by a sum
not greater than the amount of such excess, provided, however, that each such
reduction shall be in the amount of $5,000,000 or such amount plus a whole
multiple of $1,000,000 in excess thereof, and (C) to terminate the Swing Line
Commitment and/or permanently reduce the Swing Line Commitment Amount,
provided, however, that each such reduction shall be in the amount of
$5,000,000 or such amount plus a whole multiple of $1,000,000 in excess
thereof.
(b) Reductions in General. Each reduction of the
Aggregate Revolving Credit Commitment Amount shall be made by reducing each
Lender's Revolving Credit Commitment Amount by an amount equal to such Lender's
Commitment Percentage of such reduction. Simultaneously with each reduction of
the Aggregate Revolving Credit Commitment Amount, the Borrower shall pay the
Commitment Fee accrued and unpaid on the amount by which the Aggregate
Revolving Credit Commitment Amount is being reduced.
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<PAGE> 30
2.7. Prepayments
(a) Voluntary Prepayments. The Borrower may, at its
option, prepay the Revolving Credit Loans without premium or penalty (but
subject to Section 3.5), in full at any time or in part from time to time by
delivering to the Administrative Agent an irrevocable written notice thereof on
the proposed prepayment date, in the case of Revolving Credit Loans consisting
of ABR Advances, and at least three Business Days prior to the proposed
prepayment date, in the case of Revolving Credit Loans consisting of Eurodollar
Advances, specifying whether the Revolving Credit Loans to be prepaid consist
of ABR Advances, Eurodollar Advances, or a combination thereof, the amount to
be prepaid and the date of prepayment, whereupon the amount specified in such
notice shall be due and payable on the date specified. Upon receipt of such
notice, the Administrative Agent shall promptly notify each Lender thereof.
Each partial prepayment of the Revolving Credit Loans pursuant to this
subsection (a) shall be in an aggregate principal amount of $5,000,000 or such
amount plus a whole multiple of $1,000,000 in excess thereof, or, if less, the
outstanding principal balance of the Revolving Credit Loans. After giving
effect to any partial prepayment with respect to Eurodollar Advances which were
made (whether as the result of a borrowing or a conversion) on the same date
and which had the same Interest Period, the outstanding principal balance of
such Eurodollar Advances shall exceed $5,000,000. Swing Line Loans may not be
prepaid.
(b) In General. Simultaneously with each prepayment of a
Revolving Credit Loan, the Borrower shall prepay all accrued interest on the
amount prepaid through the date of prepayment. Unless otherwise specified by
the Borrower, each prepayment of Revolving Credit Loans shall first be applied
to ABR Advances. If any prepayment is made in respect of any Eurodollar
Advance or any Swing Line Loan, in whole or in part, prior to the last day of
the applicable Interest Period, the Borrower agrees to indemnify the Lenders in
accordance with Section 3.5.
2.8. Use of Proceeds
The Borrower agrees that the proceeds of the Loans shall be
used solely (i) to repay the Existing Bank Debt, (ii) to pay all of the Fees
due hereunder, (iii) to pay the reasonable out-of-pocket fees and expenses
incurred by the Borrower in connection with the Loan Documents, (iv) for the
Borrower's working capital purposes in the ordinary course of business and (v)
for the Borrower's general corporate purposes, including acquisitions, not
inconsistent with the provisions hereof. Notwithstanding anything to the
contrary contained in any Loan Document, the Borrower further agrees that no
part of the
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<PAGE> 31
proceeds of any Loan will be used, directly or indirectly, for a purpose which
violates any law, rule or regulation of any Governmental Authority, including,
without limitation, the provisions of Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System, as amended.
2.9. Payments
(a) Except as otherwise expressly provided herein, each
payment, including each prepayment, of principal and interest on the Loans, of
the Commitment Fee and of all of the other fees to be paid to the
Administrative Agent and the Lenders in connection with the Loan Documents (the
Commitment Fee together with all of such other fees, being sometimes
hereinafter collectively referred to as the "Fees") shall be made prior to 1:00
p.m., on the date such payment is due to the Administrative Agent for the
account of the applicable Lenders at the Administrative Agent's office
specified in Section 11.2, in each case in lawful money of the United States,
in immediately available funds and without set-off or counterclaim. The
failure of the Borrower to make any such payment by such time shall not
constitute a Default, provided that such payment is made on such due date, but
any such payment made after 1:00 p.m., on such due date shall be deemed to have
been made on the next Business Day for the purpose of calculating interest.
Promptly upon receipt thereof by the Administrative Agent, each payment of
principal and interest on the Loans shall be remitted by the Administrative
Agent in like funds as received to the Swing Line Lender and each Lender (i)
first, pro rata according to its Outstanding Percentage of the amount of
interest which is then due and payable under the Loan Documents, and (ii)
second, pro rata according to its Outstanding Percentage of the amount of
principal which is then due and payable under the Loan Documents. Promptly
upon receipt thereof by the Administrative Agent, each payment of the
Commitment Fee shall be remitted by the Administrative Agent in like funds as
received to each Lender pro rata according to such Lender's Revolving Credit
Commitment Amount or, if the Revolving Credit Commitments shall have terminated
or been terminated, according to the outstanding principal balance of such
Lender's Revolving Credit Loans.
(b) If any payment hereunder or under the Notes shall be
due and payable on a day which is not a Business Day, the due date thereof
(except as otherwise provided in the definition of Eurodollar Interest Period)
shall be extended to the next Business Day and (except with respect to payments
in respect of the Fees) interest shall be payable at the applicable rate
specified herein during such extension, provided, however that if such next
Business Day is after the Maturity Date, any such payment shall be due on the
immediately preceding Business Day.
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<PAGE> 32
2.10. Extension of Revolving Credit Commitment Period
The Borrower may at any time and from time to time (but not
more frequently than once per annum) request that the Lenders agree (the
decision so to agree to be within the sole and absolute discretion of each
Lender) to extend the Revolving Credit Commitment Period by one year per each
such request by giving written notice thereof (each an "Extension Request"),
substantially in the form of Exhibit I, to the Administrative Agent. Upon
receipt of each such notice, the Administrative Agent shall promptly send each
Lender a copy thereof. In the event that all Lenders shall have consented to
such Extension Request, the then existing Scheduled Revolving Credit Commitment
Termination Date shall be extended to the day which is one year following the
then existing Scheduled Revolving Credit Commitment Termination Date (or, if
such day is not a Business Day, the Business Day immediately preceding such
day), provided, however, that (A) immediately before and after giving effect
thereto, no Default shall exist, and (B) the Administrative Agent shall have
received such certificates, legal opinions and other documents as it shall
reasonably request in connection with such extension. In all other events, the
then existing Scheduled Revolving Credit Commitment Termination Date shall not
be extended and shall remain in full force and effect until such time, if any,
as the same may be extended pursuant to a subsequent Extension Request.
3. INTEREST, FEES, YIELD PROTECTIONS, ETC.
3.1. Interest Rate and Payment Dates
(a) Prior to Default. Except as otherwise provided in
Section 3.1(b) and 3.1(c), Revolving Credit Loans and Swing Line Loans shall
bear interest on the outstanding principal balance thereof at the applicable
interest rate or rates per annum set forth below:
ADVANCES RATE
-------- ----
Each ABR Advance Alternate Base Rate.
Each Eurodollar Advance Eurodollar Rate for the
applicable Interest Period
plus the Applicable Margin
applicable to Eurodollar
Advances.
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<PAGE> 33
Each Swing Line Loan Negotiated Rate
applicable to such Swing Line
Loan for the applicable
Interest Period.
(b) Default Rate. Upon the occurrence and during the
continuance of an Event of Default under Sections 9.1(a) or 9.1(b), the unpaid
principal balance of the Loans shall bear interest at a rate per annum (whether
before or after the entry of a judgment thereon) equal to 2% plus the rate
which would otherwise be applicable under Section 3.1(a), and any overdue
interest or other amount payable under the Loan Documents shall bear interest
(whether before or after the entry of a judgment thereon) at a rate per annum
equal to the Alternate Base Rate plus 2%. For purposes of the preceding
sentence, the rate applicable pursuant to Section 3.1(a), as the case may be,
to any overdue principal, interest or other amount payable under the Loan
Documents shall be (i) in the case of an overdue principal balance of any
Eurodollar Advance, the applicable Eurodollar Rate plus the Applicable Margin
until the last day of the applicable Interest Period (or the earlier
termination thereof pursuant to this Agreement) and thereafter at the Alternate
Base Rate, (ii) in the case of an overdue principal balance of any Swing Line
Loan, the applicable Negotiated Rate until the last day of the applicable Swing
Line Interest Period (or the earlier termination thereof pursuant to this
Agreement) and thereafter at the Alternate Base Rate and (iii) in all other
cases, the Alternate Base Rate. All such interest shall be payable on demand.
(c) In General. Interest on (i) ABR Advances to the
extent based on the BNY Rate shall be calculated on the basis of a 365 or
366-day year (as the case may be), and (ii) ABR Advances to the extent based on
the Federal Funds Rate, Eurodollar Advances and Swing Line Loans shall be
calculated on the basis of a 360-day year, in each case, for the actual number
of days elapsed. Except as otherwise expressly provided herein, interest shall
be payable in arrears on each Interest Payment Date and upon each payment
(including prepayment) of the Loans. Any change in the interest rate on the
Loans resulting from a change in the Alternate Base Rate or reserve
requirements shall become effective as of the opening of business on the day on
which such change shall become effective. The Administrative Agent shall, as
soon as practicable, notify the Borrower and the Lenders of the effective date
and the amount of each such change in the BNY Rate, but any failure to so
notify shall not in any manner affect the obligation of the Borrower to pay
interest on the Loans in the amounts and on the dates required. Each
determination of the Alternate Base Rate or a Eurodollar Rate by the
Administrative Agent pursuant to this Agreement shall be conclusive and binding
on all parties hereto absent manifest error. The Borrower acknowledges that to
the extent interest payable on ABR Advances is based on the BNY Rate, such rate
is only one of the bases for computing
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<PAGE> 34
interest on loans made by the Lenders, and by basing interest payable on ABR
Advances on the BNY Rate, the Lenders have not committed to charge, and the
Borrower has not in any way bargained for, interest based on a lower or the
lowest rate at which any Lender may now or in the future make loans to other
borrowers.
3.2. Fees
(a) Commitment Fees. The Borrower agrees to pay to the
Administrative Agent, for the account of the Lenders in accordance with each
Lender's Commitment Percentage, a fee (the "Commitment Fee"), during the period
from the Effective Date through the Revolving Credit Commitment Termination
Date, at a rate per annum equal to the Applicable Margin on the average daily
excess of (i) the Aggregate Revolving Credit Commitment Amount, over (ii) the
aggregate outstanding principal balance of the Revolving Credit Loans. The
Commitment Fee shall be payable (i) quarterly in arrears on the last day of
each March, June, September and December during such period commencing on the
first such day following the Effective Date, (ii) on the date of any reduction
in the Aggregate Revolving Credit Commitment Amount (to the extent of such
reduction) and (iii) on the Revolving Credit Maturity Date. The Commitment Fee
shall be calculated on the basis of a 360-day year for the actual number of
days elapsed.
(b) Administrative Agent's Fees. The Borrower agrees to
pay to the Administrative Agent, for its own account, such other fees as have
been agreed to in writing by the Borrower and the Administrative Agent.
3.3. Conversions
(a) The Borrower may elect from time to time to convert
one or more Eurodollar Advances to ABR Advances by delivering to the
Administrative Agent by facsimile a Notice of Conversion (confirmed promptly,
and in any event within five Business Days, by the delivery to the
Administrative Agent of a Notice of Conversion manually signed by the Borrower)
at least one Business Day's prior irrevocable notice of such election,
specifying the amount to be converted, provided, that any such conversion shall
only be made on a Business Day and on the last day of the Eurodollar Interest
Period applicable thereto. In addition, the Borrower may elect from time to
time to convert ABR Advances to Eurodollar Advances or existing Eurodollar
Advances to new Eurodollar Advances by delivering to the Administrative Agent
by facsimile a Notice of Conversion (confirmed promptly, and in any event
within five Business Days, by the delivery to the Administrative Agent of a
Notice of Conversion manually signed by the Borrower) at least three Business
Days' prior irrevocable notice of such election, specifying the amount to be
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<PAGE> 35
so converted and the initial Eurodollar Interest Period relating thereto,
provided that any such conversion shall only be made on a Business Day and, in
the case of existing Eurodollar Advances being converted to new Eurodollar
Advances, on the last day of the Eurodollar Interest Period applicable thereto.
The Administrative Agent shall promptly provide the Lenders with notice of each
such election. Advances may be converted pursuant to this Section in whole or
in part, provided that the amount to be converted to each Eurodollar Advance,
when aggregated with any Eurodollar Advance to be made on such date in
accordance with Section 2.5 and having the same Eurodollar Interest Period as
such first Eurodollar Advance, shall equal no less than $5,000,000 or such
amount plus a whole multiple of $1,000,000 in excess thereof.
(b) Notwithstanding anything in this Agreement to the
contrary, upon the occurrence and during the continuance of an Event of
Default, the Borrower shall have no right to elect to convert any existing ABR
Advance to a new Eurodollar Advance or to convert any existing Eurodollar
Advance to a new Eurodollar Advance. In such event, all ABR Advances shall be
automatically continued as ABR Advances and all Eurodollar Advances shall be
automatically converted to ABR Advances on the last day of the Eurodollar
Interest Period applicable to such Eurodollar Advance.
(c) Each conversion shall be effected by each Lender by
applying the proceeds of its new ABR Advance or Eurodollar Advance, as the case
may be, to its Advances (or portion thereof) being converted (it being
understood that any such conversion shall not constitute a borrowing for
purposes of Sections 4 or 6).
3.4. Concerning Eurodollar Interest Periods and Swing Line Interest
Periods
Notwithstanding any other provision of any Loan Document:
(a) If the Borrower shall have failed to elect a
Eurodollar Advance under Section 2.5 or 3.3, as the case may be, in connection
with any borrowing of new Revolving Credit Loans or expiration of a Eurodollar
Interest Period with respect to any existing Eurodollar Advance, the amount of
the Revolving Credit Loans subject to such borrowing or such existing
Eurodollar Advance shall thereafter be an ABR Advance until such time, if any,
as the Borrower shall elect a new Eurodollar Advance pursuant to Section 3.3.
(b) No Interest Period selected in respect of the
conversion of any Eurodollar Advance comprising a Revolving Credit Loan shall
end after the Scheduled Revolving Credit Commitment Termination Date, and no
Interest Period selected in re-
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<PAGE> 36
spect of any Swing Line Loan shall end after the fifth Business Day prior to
the Scheduled Revolving Credit Commitment Termination Date.
(c) The Borrower shall not be permitted to have
more than ten Eurodollar Advances outstanding at any one time, it being agreed
that each borrowing of a Eurodollar Advance pursuant to a single Borrowing
Request shall constitute the making of one Eurodollar Advance for the purpose
of calculating such limitation.
3.5. Indemnification for Loss
Notwithstanding anything contained herein to the contrary, if
the Borrower shall fail for any reason to borrow a Revolving Credit Loan in
respect of which it shall have requested a Eurodollar Advance or to convert an
Advance to a Eurodollar Advance after it shall have notified the Administrative
Agent of its intent to do so, or if the Borrower shall fail to borrow a Swing
Line Loan after the Swing Line Lender shall have agreed to a Negotiated Rate
with respect thereto, or if a Eurodollar Advance or Swing Line Loan shall
terminate for any reason prior to the last day of the Interest Period
applicable thereto, or if the Borrower shall for any reason prepay or repay all
or any part of the principal amount of a Eurodollar Advance or Swing Line Loan
prior to the last day of the Interest Period applicable thereto, the Borrower
shall indemnify each Lender against, and pay on demand directly to such Lender
the amount (calculated by such Lender using any reasonable method chosen by
such Lender which is customarily used by such Lender for such purpose) equal to
any loss or out-of-pocket expense suffered by such Lender as a result of such
failure to borrow or convert, or such termination, repayment or prepayment,
including any loss, cost or expense suffered by such Lender in liquidating or
employing deposits acquired to fund or maintain the funding of such Eurodollar
Advance or Swing Line Loan, as the case may be, or redeploying funds prepaid or
repaid, in amounts which correspond to such Eurodollar Advance or Swing Line
Loan, as the case may be, and any internal processing charge customarily
charged by such Lender in connection therewith. In the event that any
Lender makes any claim under this Section 3.5, such Lender shall furnish to the
Borrower a statement showing in reasonable detail the calculation of the amount
so claimed.
3.6. Capital Adequacy
If the amount of capital required or expected to be maintained
by any Lender or any Person directly or indirectly owning or controlling such
Lender (each a "Control Person"), shall be affected by the occurrence of a
Regulatory Change and such Lender shall have determined that such Regulatory
Change shall have had or will thereaf-
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<PAGE> 37
ter have the effect of reducing the rate of return on such Lender's or such
Control Person's capital in respect of the Eurodollar Advances, Revolving
Credit Commitment or Swing Line Loan participations made or maintained by such
Lender, in any case to a level below that which such Lender or such Control
Person could have achieved or would thereafter be able to achieve but for such
Regulatory Change (after taking into account such Lender's or such Control
Person's policies regarding capital adequacy) by an amount deemed by such
Lender to be material, then, within ten days after demand by such Lender, the
Borrower shall pay to such Lender or such Control Person, as the case may be,
such additional amount or amounts as shall be sufficient to compensate such
Lender or such Control Person for such reduction. In the event that any
Lender makes any claim under this Section 3.6, such Lender shall furnish to the
Borrower a statement showing in reasonable detail the calculation of the amount
so claimed.
3.7. Reimbursement for Increased Costs
If any Lender, the Administrative Agent or the Swing Line
Lender shall determine that a Regulatory Change:
(a) does or shall (i) subject it to any Tax of
any kind whatsoever with respect to any Eurodollar Advances or its obligations
under this Agreement to make Eurodollar Advances, or (ii) change the basis of
taxation of payments to it of principal, interest or any other amount payable
hereunder in respect of its Eurodollar Advances; or
(b) does or shall impose, modify or make
applicable any reserve, special deposit, compulsory loan, assessment, increased
cost or similar requirement against assets held by, or deposits of, or advances
or loans by, or other credit extended by, or any other acquisition of funds by,
any office of such Lender in respect of its Eurodollar Advances which is not
otherwise included in the determination of a Eurodollar Rate;
and the result of any of the foregoing is to increase the cost to such Lender
of making, renewing, converting or maintaining its Eurodollar Advances or its
commitment to make such Eurodollar Advances, or to reduce any amount receivable
hereunder in respect of its Eurodollar Advances, then, in any such case, the
Borrower shall pay such Lender or the Administrative Agent, as the case may be,
within ten days after demand therefor, such additional amounts as is sufficient
to compensate such Lender or the Administrative Agent, as the case may be, for
such additional cost or reduction in such amount receivable which such Lender
deems to be material as determined by such Lender or the Administrative Agent,
as the case may be; provided, however, that nothing in this Section shall
require the Borrower to indemnify the Lenders or the Administrative Agent, as
the case
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<PAGE> 38
may be, with respect to withholding Taxes for which the Borrower has no
obligation under Section 3.10. No failure by any Lender or the Administrative
Agent to demand, and no delay in demanding, compensation for any increased cost
shall constitute a waiver of its right to demand such compensation at any time,
provided, however, that such Lender or the Administrative Agent shall only be
entitled to such compensation with respect to costs incurred, without
duplication (a) on and after the date such Lender or the Administrative Agent,
as the case may be, notified the Borrower of the Regulatory Change giving rise
thereto, (b) 90 days prior to such date, and (c) in the event that such
Regulatory Change imposed costs on such Lender or the Administrative Agent
retroactively, during the period commencing such number of days after the
applicable retroactive date therefor as shall equal the number of days, in
excess of 90, from the date of such Regulatory Change to the date such Lender
or the Administrative Agent, as the case may be, shall have notified the
Borrower thereof. A statement setting forth in reasonable detail the
calculations of any additional amounts payable pursuant to this Section
submitted by a Lender or the Administrative Agent, as the case may be, to the
Borrower shall be presumptively correct absent manifest error.
3.8. Illegality of Funding
Notwithstanding any other provision hereof, if any Lender
shall reasonably determine that any Regulatory Change shall make it unlawful
for such Lender to make or maintain any Eurodollar Advance as contemplated by
this Agreement, such Lender shall promptly notify the Borrower and the
Administrative Agent thereof, and (i) the commitment of such Lender to make
such Eurodollar Advances or convert ABR Advances to Eurodollar Advances shall
forthwith be suspended, (ii) such Lender shall fund its portion of each
requested Eurodollar Advance as an ABR Advance and (iii) such Lender's
Revolving Credit Loans then outstanding as such Eurodollar Advances, if any,
shall be converted automatically to an ABR Advance on the last day of the then
current Eurodollar Interest Period applicable thereto or at such earlier time
as may be required. If the commitment of any Lender with respect to Eurodollar
Advances is suspended pursuant to this Section and such Lender shall have
obtained actual knowledge that it is once again legal for such Lender to make
or maintain Eurodollar Advances, such Lender shall promptly notify the
Administrative Agent and the Borrower thereof and, upon receipt of such notice
by each of the Administrative Agent and the Borrower, such Lender's commitment
to make or maintain Eurodollar Advances shall be reinstated.
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<PAGE> 39
3.9. Substituted Interest Rate
In the event that (i) the Administrative Agent shall have
determined (which determination shall be conclusive and binding) that by reason
of circumstances affecting the interbank eurodollar market either adequate or
reasonable means do not exist for ascertaining the Eurodollar Rate, or (ii)
Required Lenders shall have notified the Administrative Agent that they have
determined (which determination shall be conclusive and binding absent manifest
error) that the applicable Eurodollar Rate will not adequately and fairly
reflect the cost to such Lenders of maintaining or funding loans bearing
interest based on such Eurodollar Rate, with respect to any portion of the
Revolving Credit Loans that the Borrower has requested be made as Eurodollar
Advances or Eurodollar Advances that will result from the requested conversion
of any portion of the Advances into Eurodollar Advances (each, an "Affected
Advance"), the Administrative Agent shall promptly notify the Borrower and the
Lenders (by telephone or otherwise, to be promptly confirmed in writing) of
such determination, on or, to the extent practicable, prior to the requested
Borrowing Date or Conversion Date for such Affected Advances. If the
Administrative Agent shall give such notice, (a) any Affected Advances shall be
made as ABR Advances, (b) the Advances (or any portion thereof) that were to
have been converted to Affected Advances shall be converted to ABR Advances and
(c) any outstanding Affected Advances shall be converted, on the last day of
the then current Eurodollar Interest Period with respect thereto, to ABR
Advances. Until any notice under clauses (i) or (ii), as the case may be, of
this Section has been withdrawn by the Administrative Agent (by notice to the
Borrower promptly upon either (x) the Administrative Agent having determined
that such circumstances affecting the interbank eurodollar market no longer
exist and that adequate and reasonable means do exist for determining the
Eurodollar Rate, or (y) the Administrative Agent having been notified by such
Required Lenders that circumstances no longer render the Advances (or any
portion thereof) Affected Advances), no further Eurodollar Advances shall be
required to be made by the Lenders, nor shall the Borrower have the right to
convert all or any portion of the Revolving Credit Loans to or as Eurodollar
Advances.
3.10. Taxes; Net Payments
(a) All payments made by the Borrower under the Loan
Documents shall be made free and clear of, and without reduction for or on
account of, any Included Taxes required by law to be withheld from any amounts
payable under the Loan Documents. In the event that the Borrower is prohibited
by law from making payments under the Loan Documents free of deductions or
withholdings in respect of Included Taxes, then the Borrower shall pay such
additional amounts to the Administrative Agent, for the benefit of the
Indemnified Tax Persons, as may be necessary in order that the actual amounts
received by each Indemnified Tax Person in respect of interest and any other
amount
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<PAGE> 40
payable under the Loan Documents after deduction or withholding (and after
payment of any additional taxes or other charges due as a consequence of the
payment of such additional amounts) shall equal the amount that would have been
received if such deduction or withholding were not required. In the event that
any such deduction or withholding with respect to Included Taxes can be reduced
or nullified as a result of the application of any relevant double taxation
convention, the relevant Indemnified Tax Person will cooperate with the
Borrower (at the sole expense of the Borrower) in making application to the
relevant taxing authorities to seek to obtain such reduction or nullification,
so long as it would not be disadvantageous to such Indemnified Tax Person,
provided, however, that no Indemnified Tax Person shall have any obligation to
engage in litigation with respect thereto. If the Borrower shall make any
payments under this Section 3.10 or shall make any deductions or withholdings
from amounts paid in accordance with this Section 3.10, the Borrower shall, as
promptly as practicable thereafter, forward to the Administrative Agent
original or certified copies of official receipts or other evidence acceptable
to the Administrative Agent establishing such payment and the Administrative
Agent in turn shall distribute copies of such receipts to each Indemnified Tax
Person. If payments under the Loan Documents to any Indemnified Tax Person are
or become subject to any withholding, such Indemnified Tax Person shall (unless
otherwise required by a Governmental Authority or as a result of any treaty,
convention, law, rule, regulation, order or similar directive applicable to
such Indemnified Tax Person) use its best efforts to designate a different
office or branch to which payments are to be made under the Loan Documents from
that initially selected thereby, if such designation would avoid or mitigate
such withholding and would not be disadvantageous to such Indemnified Tax
Person. In the event that any Indemnified Tax Person shall have determined
that it received a refund or credit for Included Taxes paid by the Borrower
under this Section 3.10, such Indemnified Tax Person shall promptly notify the
Administrative Agent and the Borrower of such fact and shall remit to the
Borrower the amount of such refund or credit applicable to the payments made by
the Borrower in respect of such Indemnified Tax Person under this Section 3.10.
(b) Each Indemnified Tax Person shall deliver to the
Borrower such certificates, documents, or other evidence as the Borrower may
reasonably require from time to time as are necessary to establish that such
Indemnified Tax Person is not subject to withholding under Section 1441, 1442
or 3406 of the Code or as may be necessary to establish, under any law imposing
upon the Borrower, hereafter, an obligation to withhold any portion of the
payments made by the Borrower under the Loan Documents, that payments to the
Administrative Agent on behalf of such Indemnified Tax Person are not subject
to withholding. Notwithstanding any provision herein to the contrary, the
Borrower shall not have any obligation to pay to the Administrative Agent for
the benefit of any Indemnified Tax Person any amount which the Borrower is
required to withhold (and
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<PAGE> 41
shall have no obligation to otherwise indemnify any Lender with respect to such
amount) to the extent that the Borrower's obligation to withhold is due to the
failure of such Indemnified Tax Person to file any required statement,
certificate or other document with respect to exemption which such Borrower
requested of it.
(c) Each Indemnified Tax Person not incorporated under
the laws of the United States or any State thereof shall deliver to the
Borrower such certificates, documents, or other evidence as the Borrower may
reasonably require from time to time as are necessary to establish that such
Indemnified Tax Person is not subject to withholding under Section 1441, 1442
or 3406 of the Code or as may be necessary to establish, under any law imposing
upon the Borrower, hereafter, an obligation to withhold any portion of the
payments made by the Borrower under the Loan Documents, that payments to the
Administrative Agent on behalf of such Indemnified Tax Person are not subject
to withholding. Notwithstanding any provision herein to the contrary, the
Borrower shall not have any obligation to pay to the Administrative Agent for
the benefit of any Indemnified Tax Person any amount which the Borrower is
liable to withhold due to the failure of such Indemnified Tax Person to file
any statement of exemption required by the Code.
3.11. Substitution of Lenders
Notwithstanding anything to the contrary contained herein, if
any Lender shall request compensation pursuant to Sections 3.6, 3.7 or 3.10,
then, in each such case, provided that no Event of Default shall then exist and
be continuing, the Borrower may require that such Lender transfer all of its
right, title and interest under the Loan Documents to one or more of the other
Lenders (in the sole and absolute discretion of each such Lender) or any other
Eligible Institution identified by the Borrower and reasonably acceptable to
the Administrative Agent and the Swing Line Lender (a "Substitute Lender"), if
such Substitute Lender agrees to assume all of the obligations of such Lender
under the Loan Documents for consideration equal to all principal, interest,
Fees and other sums owing to such Lender under the Loan Documents, whether or
not then otherwise due. Subject to the execution and delivery by the Borrower
at its expense of a new Revolving Credit Note, an instrument of assignment and
assumption, and such other documents as such Lender may reasonably require,
such Substitute Lender shall be a "Lender" for all purposes hereunder. Without
prejudice to the survival of any other agreement of the Borrower hereunder, the
agreements of the Borrower contained in Sections 3.5, 3.6, 3.7, 11.7 and 11.20
(without duplication of any payments made to such Lender by the Borrower or the
Substitute Lender) shall survive for the benefit of any Lender replaced under
this Section with respect to the time prior to such replacement.
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<PAGE> 42
4. REPRESENTATIONS AND WARRANTIES
In order to induce the Administrative Agent and the Lenders to enter
into this Agreement, the Lenders to make the Revolving Credit Loans and the
Swing Line Lender to make the Swing Line Loans and the Lenders to participate
therein, the Borrower makes the following representations and warranties to the
Administrative Agent, the Swing Line Lender and each Lender:
4.1. Existence and Power
Each of the Borrower and each Significant Subsidiary has been
duly organized and is validly existing in good standing under the laws of the
jurisdiction of its incorporation or formation, has all requisite power and
authority to own its Property and to carry on its business as now conducted,
and is in good standing and authorized to do business in each jurisdiction in
which the nature of the business conducted therein or the Property owned by it
therein makes such qualification necessary, except where such failure to
qualify would not reasonably be expected to have a Material Adverse Effect.
4.2. Authority and Execution
Each of the Borrower and each Significant Subsidiary has full
legal power and authority to own its Property, conduct its business and enter
into, execute, deliver and perform the terms of the Loan Documents to which it
is a party all of which have been duly authorized by all proper and necessary
corporate, partnership or other applicable action and are in full compliance
with its Organizational Documents. The Borrower has duly executed and
delivered the Loan Documents.
4.3. Binding Agreement
This Agreement constitutes, and the Notes, when issued and
delivered pursuant hereto for value received, will constitute, the valid and
legally binding obligations of the Borrower, enforceable in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles.
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<PAGE> 43
4.4. Litigation
Except as set forth on Schedule 4.4, there are no actions,
suits or proceedings at law or in equity or by or before any Governmental
Authority (whether purportedly on behalf of the Borrower or any of its
Subsidiaries) pending or, to the knowledge of the Borrower, threatened against
the Borrower or any of its Subsidiaries or maintained by the Borrower or any of
its Subsidiaries or which may affect the Property of the Borrower or any of its
Subsidiaries or any of their respective Properties or rights, which would
reasonably be expected to have a Material Adverse Effect.
4.5. Required Consents
Except for information filings required to be made in the
ordinary course of business which are not a condition to the performance by the
Borrower under the Loan Documents, no consent, authorization or approval of,
filing with, notice to, or exemption by, stockholders or holders of any other
equity interest, any Governmental Authority or any other Person is required in
connection with the execution, delivery or performance of the Loan Documents by
the Borrower. The Borrower, prior to each borrowing of Loans hereunder, has
obtained all necessary approvals and consents of, and has filed or caused to be
filed all reports, applications, documents, instruments and information
required to be filed pursuant to all applicable laws, rules, regulations and
requests of, all Governmental Authorities in connection with such borrowing.
4.6. Absence of Defaults; No Conflicting Agreements
Neither the Borrower nor any of its Subsidiaries is in default
under any judgment, order, writ, injunction, decree or decision of any
Governmental Authority or any mortgage, indenture, contract or agreement to
which it is a party or by which it or any of its Property is bound, the effect
of which default would reasonably be expected to have a Material Adverse
Effect. The execution, delivery and performance of the terms of the Loan
Documents will not constitute a default under or result in a breach of or
require the mandatory repayment of or other acceleration of payment under or
pursuant to the terms of, any such mortgage, indenture, contract or agreement.
4.7. Compliance with Applicable Laws
The Borrower and each of its Subsidiaries is complying with
all laws, regulations, rules and orders of all Governmental Authorities, except
to the extent a violation thereof would not reasonably be expected to have a
Material Adverse Effect.
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<PAGE> 44
4.8. Taxes
Each of the Borrower and each of its Subsidiaries has filed or
caused to be filed all tax returns required to be filed and has paid, or has
made adequate provision for the payment of, all taxes shown to be due and
payable on said returns or in any assessments made against it the failure of
which to file or pay would be likely to have a Material Adverse Effect, and no
tax Liens have been filed with respect thereto. The charges, accruals and
reserves on the books of the Borrower and each of its Significant Subsidiaries
with respect to all taxes are, to the best knowledge of the Borrower, adequate
for the payment of such taxes, and the Borrower knows of no unpaid assessment
which is due and payable against the Borrower or any of its Subsidiaries or any
claims being asserted which could reasonably be expected to have a Material
Adverse Effect, except such thereof as are being contested as required under
Section 7.4, and for which adequate reserves have been set aside in accordance
with GAAP.
4.9. Governmental Regulations
Neither the Borrower nor any of its Subsidiaries nor any
Person controlled by, controlling, or under common control with, the Borrower
or any of its Subsidiaries, is subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, as amended, or
the Investment Company Act of 1940, as amended, or is subject to any statute or
regulation which prohibits or restricts the incurrence of Indebtedness,
including statutes or regulations relative to common or contract carriers or to
the sale of electricity, gas, steam, water, telephone, telegraph or other
public utility services. Neither the Borrower nor any of its Subsidiaries is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any Margin Stock.
No part of the proceeds of any Loan will be used, directly or indirectly, for a
purpose which violates any law, rule or regulation of any Governmental
Authority, including, without limitation, the provisions of Regulations G, T, U
or X of the Board of Governors of the Federal Reserve System, as amended.
After giving effect to the making of each Loan, Margin Stock will constitute
less than 25% of the assets (as determined by any reasonable method) of the
Borrower and its Subsidiaries.
4.10. Plans
The only Pension Plans in effect as of the Effective Date (the
"Existing Pension Plans") are listed on Schedule 4.10. Each Employee Benefit
Plan is in compliance with ERISA and the Code, where applicable, except where
any failure to so comply would not reasonably be expected to have a Material
Adverse Effect. As of the Effective Date, (i) the amount of all Unfunded
Pension Liabilities under the Pension Plans does not
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<PAGE> 45
exceed the sum therefor set forth on Schedule 4.10, and (ii) there are no
Employee Benefit Plans under which there is Unrecognized Retiree Welfare
Liability. Neither the Borrower nor any of its Subsidiaries or ERISA
Affiliates (i) is a party to any Multiemployer Plan or (ii) has incurred any
liability in connection with any Multiemployer Plan. The Borrower and its
Subsidiaries and ERISA Affiliates have, as of the Effective Date, made all
contributions or payments to or under each such Pension Plan required by law or
the terms of such Pension Plan or any contract or agreement with respect
thereto. No material liability to the PBGC has been, or is expected by the
Borrower, any of its Subsidiaries or any ERISA Affiliate to be, incurred by the
Borrower, any such Subsidiary or any ERISA Affiliate. Liability, as referred
to in this Section includes any joint and several liability. Each Employee
Benefit Plan which is a group health plan within the meaning of Section
5000(b)(1) of the Code is in compliance with the continuation of health care
coverage requirements of Section 4980B of the Code, except where any failure to
so comply would not reasonably be expected to have a Material Adverse Effect.
4.11. Financial Statements
The Borrower has heretofore delivered to the Administrative
Agent and the Lenders copies of the audited Consolidated Balance Sheet of the
Borrower as of December 31, 1996, and the related Consolidated Statements of
Operations, Stockholder's Equity and Cash Flows for the fiscal year then ended,
and copies of the unaudited Consolidated Balance Sheet of the Borrower as of
June 30, 1997, and the related Consolidated Statements of Operations,
Stockholder's Equity and Cash Flows for the fiscal quarter then ended
(collectively, the "Financial Statements"). The Financial Statements fairly
present in all material respects the Consolidated financial condition and
results of the operations of the Borrower and its Subsidiaries as of the dates
and for the periods indicated therein and have been prepared in conformity with
GAAP. Except as reflected in the Financial Statements or in the notes thereto,
neither the Borrower nor any of its Subsidiaries has any obligation or
liability of any kind (whether fixed, accrued, Contingent, unmatured or
otherwise) which, in accordance with GAAP, should have been shown on the
Financial Statements and was not. No Material Adverse Change occurred during
the period commencing on June 30, 1997 and ending on the first Borrowing Date.
4.12. Property
Each of the Borrower and each of its Subsidiaries has good and
marketable title to, or a valid leasehold interest in, all of its real
Property, and is the owner of, or has a valid lease of, all personal property,
in each case which is material to the Borrower and its Subsidiaries, taken as a
whole, subject to no Liens, except Liens permitted under Sec-
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<PAGE> 46
tion 8.2 of this Agreement. All leases of Property to the Borrower or any of
its Subsidiaries are in full force and effect, the Borrower or such Subsidiary,
as the case may be, enjoys quiet and undisturbed possession under all leases of
real property and neither the Borrower nor any of its Subsidiaries is in
default beyond any applicable grace period of any provision thereof, the effect
of which could reasonably be expected to have a Material Adverse Effect.
4.13. Authorizations
Each of the Borrower and each of its Subsidiaries possesses or
has the right to use all franchises, licenses and other rights as are material
and necessary for the conduct of its business, and with respect to which it is
in compliance, with no known conflict with the valid rights of others which
could reasonably be expected to have a Material Adverse Effect. No event has
occurred which permits or, to the best knowledge of the Borrower, after notice
or the lapse of time or both, or any other condition, could reasonably be
expected to permit, the revocation or termination of any such franchise,
license or other right which revocation or termination could reasonably be
expected to have a Material Adverse Effect.
4.14. Environmental Matters
Neither the Borrower nor any of its Subsidiaries (i) has
received written notice or otherwise learned of any claim, demand, action,
event, condition, report or investigation indicating or concerning any
potential or actual liability which individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect, arising in connection
with (A) any non-compliance with or violation of the requirements of any
applicable federal, state or local environmental health or safety statute or
regulation, or (B) the release or threatened release of any toxic or hazardous
waste, substance or constituent, or other substance into the environment, (ii)
to the best knowledge of the Borrower, has any threatened or actual liability
in connection with the release or threatened release of any toxic or hazardous
waste, substance or constituent, or other substance into the environment which
individually or in the aggregate could reasonably be expected to have a
Material Adverse Effect, (iii) has received notice of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release or threatened release of any toxic or hazardous waste, substance or
constituent or other substance into the environment for which the Borrower or
any of its Subsidiaries is or would be liable, which liability could reasonably
be expected to have a Material Adverse Effect, or (iv) has received notice that
the Borrower or any of its Subsidiaries is or may be liable to any Person under
the Comprehensive Environmental Response, Compensation and Liability Act, as
amended,
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<PAGE> 47
42 U.S.C. Section 9601 et seq., or any analogous state law, which liability
could reasonably be expected to have a Material Adverse Effect. The Borrower
and each of its Subsidiaries is in compliance with the financial responsibility
requirements of federal and state environmental laws to the extent applicable,
including those contained in 40 C.F.R., parts 264 and 265, subpart H, and any
analogous state law, except in those cases in which the failure so to comply
would not reasonably be expected to have a Material Adverse Effect.
4.15. Absence of Certain Restrictions
No indenture, certificate of designation for preferred stock,
agreement or instrument to which the Borrower or any of its Subsidiaries is a
party (other than this Agreement), prohibits or limits in any way, directly or
indirectly the ability of any Subsidiary of the Borrower to make Restricted
Payments, or to make loans or advances or repay any such loans or advances to
the Borrower or to any other Subsidiary of the Borrower.
4.16. No Misrepresentation
No representation or warranty contained in any Loan Document
and no certificate or report from time to time furnished by the Borrower or any
of its Subsidiaries in connection with the transactions contemplated thereby,
contains or will contain a misstatement of material fact, or omits or will omit
to state a material fact required to be stated in order to make the statements
therein contained not misleading in the light of the circumstances under which
made.
5. CONDITIONS TO EFFECTIVENESS
The effectiveness of this Agreement shall be subject to the
fulfillment of the following conditions precedent:
5.1. Evidence of Action
The Administrative Agent shall have received a certificate,
dated as of the Effective Date, of the Secretary or Assistant Secretary or
other analogous counterpart of the Borrower (i) attaching a true and complete
copy of the resolutions of its Managing Person and of all documents evidencing
all necessary corporate, partnership or similar action (in form and substance
satisfactory to the Administrative Agent) taken by it to authorize the Loan
Documents and the transactions contemplated thereby, (ii) attaching a
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<PAGE> 48
true and complete copy of its Organizational Documents, (iii) setting forth the
incumbency of its officer or officers or other analogous counterpart who may
sign the Loan Documents, including therein a signature specimen of such officer
or officers and (iv) attaching a certificate of good standing of the Secretary
of State of the jurisdiction of its formation and of each other jurisdiction in
which it is qualified to do business.
5.2. This Agreement
The Administrative Agent shall have received counterparts of
this Agreement signed by each of the parties hereto (or receipt by the
Administrative Agent from a party hereto of a telecopy signature page signed by
such party which shall have agreed to promptly provide the Administrative Agent
with originally executed counterparts hereof).
5.3. Notes
The Administrative Agent shall have received the Revolving
Credit Notes and the Swing Line Note.
5.4. Absence of Litigation
There shall be no injunction, writ, preliminary restraining
order or other order of any nature issued by any Governmental Authority in any
respect affecting the transactions provided for in the Loan Documents and no
action or proceeding by or before any Governmental Authority shall have been
commenced or threatened seeking to prevent or delay the transactions
contemplated by the Loan Documents or challenging any term or provision
thereof or seeking any damages in connection therewith, and the Administrative
Agent shall have received a certificate, in all respects satisfactory to the
Administrative Agent, of an executive officer of the Borrower to the foregoing
effects, to the best of such officer's knowledge.
5.5. Existing Bank Debt
Prior to or simultaneously with the making of the Loans on the
first Borrowing Date, the Borrower shall have fully repaid all Existing Bank
Debt and all agreements with respect thereto shall have been cancelled or
terminated, all Liens, if any, securing the same shall have been terminated,
and the Administrative Agent shall have received satisfactory evidence thereof.
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<PAGE> 49
5.6. Opinions
The Administrative Agent shall have received (a) an opinion of
Ronald R. Randall, General Counsel of the Borrower, and an opinion of Fulbright
& Jaworski L.L.P., special counsel to the Borrower, each dated as of the
Effective Date and substantially in the form of Exhibits F-1 and F-2
respectively, together with certain local counsel opinions reasonably
satisfactory to the Administrative Agent, it being understood that all such
opinions are being delivered upon the direction of the Borrower, and that the
addressees thereof may and will rely on such opinion, and (b) an opinion of
Special Counsel, dated as of the Effective Date and substantially in the form
of Exhibit G.
5.7. Fees and Expenses
All fees payable to the Administrative Agent and the Lenders
on or prior to the first Borrowing Date shall have been paid, and the
reasonable fees and expenses of Special Counsel in connection with the
preparation, negotiation and closing of the Loan Documents shall have been
paid.
5.8. Other Documents
The Administrative Agent shall have received such other
documents, each in form and substance reasonably satisfactory to the
Administrative Agent, as the Administrative Agent shall reasonably require in
connection with the making of Loans on the first Borrowing Date.
6. CONDITIONS OF LENDING - ALL LOANS
The obligation of each Lender (including the Swing Line Lender) to
make any Loan on a Borrowing Date and each Lender to participate therein is
subject to the satisfaction of the following conditions precedent as of the
date of such Loan:
6.1. Compliance
On each Borrowing Date and after giving effect to the Loans to
be made thereon (i) there shall exist no Default and (ii) the representations
and warranties contained in the Loan Documents shall be true and correct in all
material respects with the same effect as though such representations and
warranties had been made on such Borrowing Date. Each borrowing by the
Borrower shall constitute a representation and warranty by
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the Borrower as of such Borrowing Date that each of the foregoing matters is
true and correct in all respects.
6.2. Borrowing Request
With respect to the Loans to be made on each Borrowing Date,
the Administrative Agent shall have received a Borrowing Request, in each case
duly executed by the Borrower.
7. AFFIRMATIVE COVENANTS
The Borrower agrees that, so long as this Agreement is in effect, any
Loan remains outstanding, or any other amount is owing under any Loan Document
to any Lender or the Administrative Agent, the Borrower shall:
7.1. Financial Statements and Information
Furnish or cause to be furnished to the Administrative Agent
and each Lender:
(a) As soon as available, but in any event within
90 days after the end of each fiscal year, a copy of (i) its Consolidated
balance sheet as at the end of such fiscal year, together with the related
Consolidated statements of operations, stockholders' equity and cash flows as
of and through the end of such fiscal year, setting forth in each case in
comparative form the figures for the preceding fiscal year, such Consolidated
financial statements to be audited and certified without Impermissible
Qualification by the Accountants, or (ii) the Borrower's annual report on Form
10-K in respect of such fiscal year, together with the financial statements
required to be attached thereto, provided the Borrower is required to file such
annual report on Form 10-K with the SEC and such filing is actually made.
(b) As soon as available, but in any event within
45 days after the end of each of the first three fiscal quarters of each fiscal
year, a copy of (i) the Consolidated balance sheet of the Borrower as at the
end of each such quarterly period, together with the related Consolidated
statements of operations, stockholders' equity and cash flows for such period
and for the elapsed portion of the fiscal year through such date, setting forth
in each case in comparative form the figures for the corresponding periods of
the preceding fiscal year, certified by a Financial Officer of the Borrower as
being com-
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<PAGE> 51
plete and correct in all material respects and as presenting fairly the
Consolidated financial condition and the Consolidated results of operations of
the Borrower (subject to normal year-end adjustments), or (ii) the Borrower's
quarterly report on Form 10-Q in respect of such fiscal quarter, together with
the financial statements required to be attached thereto, provided the Borrower
is required to file such quarterly report on Form 10-Q with the SEC and such
filing is actually made.
(c) Within 45 days after the end of each of the
first three fiscal quarters, and within 90 days after the end of the last
fiscal quarter, of each fiscal year a Compliance Certificate, certified by a
Financial Officer of the Borrower.
(d) Prompt written notice if: (i) the Borrower or
any Subsidiary shall fail (1) to pay, or, if required to purchase or otherwise
acquire, shall fail to purchase or otherwise acquire, any part of the principal
of, the premium, if any, or the interest on, or any other payment of money due
under or in respect of, any Indebtedness or operating lease obligations in a
then outstanding aggregate amount of $5,000,000 or more, on or prior to the
expiration of any period of grace with respect thereto, whether or not such
default has been waived by the holders of such Indebtedness, or (2) to perform
or observe any other agreement, term or condition contained in any document
evidencing or securing such Indebtedness or operating lease obligations, or in
any agreement under which any such Indebtedness or operating lease obligation
was issued or created, if the effect of such failure is (x) to cause, or permit
such holders (or a trustee on behalf of such holders) to cause, any payment in
respect of such Indebtedness or operating lease obligations to become due prior
to the stated date of maturity thereof, or (y) to cause the Borrower or any
Subsidiary to be required to purchase or otherwise acquire such Indebtedness or
operating lease obligations, (ii) there shall occur a Default or a Material
Adverse Change or (iii) a Change of Control should occur.
(e) Prompt written notice of any citation,
summons, subpoena, order to show cause or other document naming the Borrower or
any of its Subsidiaries a party to any proceeding before any Governmental
Authority which could reasonably be expected to have a Material Adverse Effect
or which calls into question the validity or enforceability of any of the Loan
Documents, and include with such notice a copy of such citation, summons,
subpoena, order to show cause or other document.
(f) Promptly upon becoming available, copies of
all registration statements, Annual Reports to shareholders, 10-Ks, 10-Qs, 8-
Ks, proxy materials and other material documents which the Borrower or any of
its Subsidiaries may now or here-
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<PAGE> 52
after be required to deliver to shareholders or file with or deliver to any
securities exchange or the SEC.
(g) Prompt written notice in the event that the
Borrower, any of its Subsidiaries or any ERISA Affiliate knows, or has reason
to know, that any event shall have occurred or will occur, or any condition
exists, with respect to a Pension Plan the result of which could reasonably be
expected to have a Material Adverse Effect.
(h) Such other information as the Administrative
Agent or any Lender shall reasonably request from time to time.
7.2. Legal Existence
Except as may otherwise be permitted by Section 8.3, maintain,
and cause each Significant Subsidiary to maintain, its corporate, partnership
or analogous existence, as the case may be, in good standing in the
jurisdiction of its incorporation or formation and in each other jurisdiction
in which the failure so to do would reasonably be expected to have a Material
Adverse Effect; provided, however, that any Subsidiary of the Borrower may be
dissolved if such dissolution would not reasonably be expected to have a
Material Adverse Effect.
7.3. Taxes
Pay and discharge when due, and cause each of its Subsidiaries
so to do, all Taxes upon or with respect to the Borrower or such Subsidiary and
all Taxes upon the income, profits and Property of the Borrower and its
Subsidiaries, which if unpaid, could reasonably be expected to have a Material
Adverse Effect or become a Lien on Property of the Borrower or such Subsidiary
(other than a Lien described in Section 8.2(i)), unless and to the extent only
that such Taxes shall be contested in good faith and by appropriate proceedings
diligently conducted by the Borrower or such Subsidiary and provided that any
such contested Tax, shall not constitute, or create, a Lien on any Property of
the Borrower or such Subsidiary, and, provided further, that the Borrower shall
give the Agent prompt notice of such contest and that such reserve or other
appropriate provision as shall be required by the Accountants in accordance
with GAAP shall have been made therefor.
7.4. Insurance
Maintain, and cause each of its Subsidiaries to maintain, with
financially sound and reputable insurance companies insurance on all its
Property in at least such
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amounts, having such deductibles and against at least such risks (but including
in any event public liability, product liability and business interruption
coverage) as are usually insured against in the same general area by companies
engaged in the same or a similar business, and furnish to the Administrative
Agent upon request full information as to all such insurance carried.
7.5. Performance of Obligations
Pay and discharge when due, and cause each of its Subsidiaries
so to do, all lawful Indebtedness, obligations and claims for labor, materials
and supplies or otherwise which, if unpaid, (i) would reasonably be expected to
have a Material Adverse Effect, or (ii) become a Lien upon Property of the
Borrower or any of its Subsidiaries other than a Lien permitted under Section
8.2, unless and to the extent only that the validity of such Indebtedness,
obligation or claim shall be contested in good faith and by appropriate
proceedings diligently conducted, and provided that the Borrower shall give the
Administrative Agent prompt notice of any such contest and that such reserve or
other appropriate provision as may be required by GAAP shall have been made
therefor.
7.6. Condition of Property
At all times, maintain, protect and keep in good repair,
working order and condition (ordinary wear and tear excepted), and cause each
of its Subsidiaries so to do, all Property necessary to the operation of the
Borrower's or such Subsidiary's business except to the extent that the failure
so to do would not reasonably be expected to have a Material Adverse Effect.
7.7. Observance of Legal Requirements
Observe and comply in all respects, and cause each of its
Subsidiaries so to do, with all laws, ordinances, orders, judgments, rules,
regulations, certifications, franchises, permits, licenses, directions and
requirements of all Governmental Authorities, which now or at any time
hereafter may be applicable to it, except to the extent a violation thereof
would not reasonably be expected to have a Material Adverse Effect, and except
such violations thereof as shall be contested in good faith and by appropriate
proceedings diligently conducted by it, provided that the Borrower shall give
the Administrative Agent prompt notice of such contest and that such reserve or
other appropriate provision as shall be required in accordance with GAAP shall
have been made therefor.
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7.8. Inspection of Property; Books and Records; Discussions
Keep proper books of record and account, and cause each of its
Subsidiaries so to do, in which full, true and correct entries in conformity
with GAAP and all requirements of law shall be made in all dealings and
transactions in relation to its business and activities; and at all reasonable
times, upon reasonable prior notice, permit representatives of the
Administrative Agent and each Lender to visit the offices of the Borrower and
each of its Subsidiaries, to examine the books and records thereof and
Accountants' reports relating thereto, and to make copies or extracts
therefrom, to discuss the affairs of the Borrower and each such Subsidiary with
the respective officers thereof, and to examine and inspect the Property of the
Borrower and each such Subsidiary and to meet and discuss the affairs of the
Borrower and each such Subsidiary with the Accountants.
7.9. Financial Covenants
(a) Interest Coverage Ratio. Maintain as of the last day
of each fiscal quarter, an Interest Coverage Ratio of not less than 2.00:1.00.
(b) Capitalization Ratio. Maintain as of the last day of
each fiscal quarter, a Capitalization Ratio of not more than 0.40:1.00.
(c) Minimum Shareholders' Equity. Maintain as of the last
day of each fiscal quarter, Consolidated shareholders' equity of not less than
the sum of (i) $475,000,000, (ii) an amount equal to 50% of positive net income
in respect of each fiscal quarter ending after the Effective Date and (iii)
100% of the net proceeds received by the Borrower and its Subsidiaries in
connection with each issuance by the Borrower or any Subsidiary thereof of any
equity security thereof on or after the Effective Date.
8. NEGATIVE COVENANTS
The Borrower agrees that, so long as this Agreement is in effect, any
Loan remains outstanding and unpaid, or any other amount is owing under any
Loan Document to any Lender or the Administrative Agent, the Borrower shall
not:
8.1. Indebtedness
Create, incur, assume or suffer to exist any liability for
Indebtedness, or permit any of its Subsidiaries so to do, except (i)
Indebtedness due under the Loan Documents, (ii) Indebtedness of the Borrower or
any of its Subsidiaries existing on the Effective
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Date as set forth on Schedule 8.1 (other than the Existing Bank Debt which is
to be repaid on the Effective Date) and any refinancing (but not increase)
thereof, (iii) Intercompany Indebtedness, (iv) to the extent that the
Receivables Facility shall constitute or be deemed to constitute a Lien on the
Receivables of the Borrower or any Subsidiary thereof, Indebtedness under the
Receivables Facility in an amount not in excess of $55,000,000, (v) other
Indebtedness (other than Contingent Obligations) of the Borrower which, in the
aggregate, shall not exceed $100,000,000 outstanding at any time, and (vi)
Contingent Obligations of the Borrower which, in the aggregate, shall not
exceed $100,000,000 outstanding at any time.
8.2. Liens
Create, incur, assume or suffer to exist any Lien upon any of
its Property, whether now owned or hereafter acquired, or permit any of its
Subsidiaries so to do, except (i) Liens for Taxes in the ordinary course of
business which are not delinquent or which are being contested in accordance
with Section 7.3, provided that enforcement of such Liens is stayed pending
such contest, (ii) Liens in connection with workers' compensation, unemployment
insurance or other social security obligations (but not ERISA), (iii) deposits
or pledges to secure bids, tenders, contracts (other than contracts for the
payment of money), leases, statutory obligations, surety and appeal bonds and
other obligations of like nature arising in the ordinary course of business,
(iv) zoning ordinances, easements, rights of way, minor defects,
irregularities, and other similar restrictions affecting real Property which do
not adversely affect the value of such real Property or impair its use for the
operation of the business of the Borrower or such Subsidiary, (v) mechanics',
materialmen's, carriers', warehousemen's and other similar Liens arising by
operation of law and incurred in the ordinary course of business which are not
delinquent or which are being contested in accordance with Section 7.5,
provided that enforcement of such Liens is stayed pending such contest, (vi)
Liens arising out of judgments or decrees which are being contested in
accordance with Section 7.7, provided that enforcement of such Liens is stayed
pending such contest, (vii) Liens in favor of the Administrative Agent and the
Lenders under the Loan Documents, (viii) Liens on Margin Stock to the extent
that a prohibition on such Liens would result in the Administrative Agent and
the Lenders being deemed to be "indirectly secured" by Margin Stock under
Regulation U of the Board of Governors of the Federal Reserve System, as
amended, taking into account the value of Margin Stock owned by the Borrower
and its Subsidiaries and any other relevant facts and circumstances, (ix) Liens
on Property of the Borrower and its Subsidiaries existing on the Effective Date
as set forth on Schedule 8.2 as renewed from time to time, but not any
increases in the amounts secured thereby or extensions thereof to additional
Property, (x) Liens under Capital Leases permitted by Section 8.1, (xi) Liens
under leases of real Prop-
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erty provided that such Liens attach only to the Property so leased or any
fixtures or other equipment located on such real Property, (xii) Liens on
Property (including, in the event such Property constitutes capital stock of a
newly acquired Subsidiary, Liens on the Property of such Subsidiary) acquired
after the Effective Date and either existing on such Property when acquired, or
created contemporaneously with, or within 180 days of, such acquisition, to
secure the payment or financing of the purchase price thereof, provided that
such Liens attach only to the Property so purchased or acquired (or the
Property of such acquired Subsidiary, as the case may be) and provided further
that any Indebtedness secured by such Liens is permitted by Section 8.1, and
(xiii) (A) Liens encumbering the Receivable Assets of the Borrower incurred
pursuant to a Securitized Receivables Transaction, and (B) Liens encumbering
the Receivable Assets of the Borrower and the Borrower's Subsidiaries incurred
pursuant to Securitized Receivables Transactions so long as the obligations
secured by such Receivable Assets do not exceed 100% of the net book value of
the Receivables of the Borrower and the Borrower's Subsidiaries and Collections
of such Receivables securing such obligations, plus costs of collection
(including without limitation, attorneys fees).
8.3. Merger, Consolidations and Acquisitions
Consolidate with, be acquired by, merge into or with any
Person, make any Acquisition or enter into any binding agreement to do any of
the foregoing which is not contingent on obtaining the consent of the Required
Lenders, or permit any of its Subsidiaries so to do, except:
(a) provided that immediately before and after
giving effect thereto no Default shall exist, any direct or indirect
wholly-owned Subsidiary of the Borrower may merge or consolidate with the
Borrower or any other direct or indirect wholly-owned Subsidiary of the
Borrower, provided that in the event of a merger of the Borrower and such
wholly-owned Subsidiary, the Borrower shall be the survivor;
(b) mergers involving Subsidiaries as part of an
Acquisition permitted by subsection (d) below;
(c) Investments permitted by Section 8.5; and
(d) other mergers and Acquisitions, provided that
(i) in the case of a merger involving the Borrower, the Borrower is the
survivor thereof, (ii) immediately before and after giving effect to any such
merger or Acquisition, no Default shall or would exist and all of the
representations and warranties contained in Section 4 shall be true and
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correct as if then made, (iii) the cash consideration payable by the Borrower
or any Subsidiary in connection with any such merger or Acquisition shall not
exceed $100,000,000, (iv) each consummation of a merger or Acquisition
contemplated by this subsection shall be deemed to be a representation and
warranty by the Borrower on the date of such merger as to the facts specified
in clauses (i), (ii) and (iii) of this subsection (d), and (v) the
Administrative Agent shall have received such other information or documents as
the Administrative Agent or Required Lenders shall have reasonably requested.
8.4. Dispositions
Make any Disposition, or permit any of its Subsidiaries so to
do, except:
(a) Dispositions of any Investments permitted
under Section 8.5(a);
(b) Dispositions (other than a Disposition of all
or substantially all assets of the Borrower or any Significant Subsidiary),
provided that (i) immediately before and after giving effect to any such
Disposition, no Default shall or would exist, (ii) each consummation of a
Disposition contemplated by this subsection shall be deemed to be a
representation and warranty by the Borrower on the date of such Disposition as
to the facts specified in clause (i) of this subsection (b), and (iii) the
Administrative Agent shall have received such other information or documents as
the Administrative Agent or Required Lenders shall have reasonably requested;
and
(c) sales of Receivable Assets of the Borrower
and the Borrower's Subsidiaries pursuant to a Securitized Receivables
Transaction.
8.5. Investments, Loans, Etc.
At any time, directly or indirectly purchase, hold, own or
otherwise acquire or invest in any Capital Stock, evidence of indebtedness or
other obligation or security or any interest whatsoever in any other Person, or
make or permit to exist any loans, advances or other extensions of credit to,
or any investment (whether in cash or other Property) in, any other Person, or
enter into any arrangement for the purpose of providing funds or credit to any
other Person, or become a partner or joint venturer in any partnership or joint
venture, or make any other investment, whether by way of capital contribution,
time deposit or otherwise, in or with any Person, or make any commitment or
otherwise agree to do any of the foregoing (all of which are sometimes referred
to herein as "Investments"), or permit any of its Subsidiaries so to do,
except:
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(a) Investments in cash and Cash Equivalents;
(b) Investments existing on the Effective Date as
set forth on Schedule 8.5;
(c) normal business banking accounts in federally
insured institutions;
(d) Investments by the Borrower or any Subsidiary
of the Borrower in Intercompany Indebtedness;
(e) Investments by the Borrower or any of its
Subsidiaries in the Capital Stock of any Subsidiary of the Borrower;
(f) Receivables arising from the sale of goods
and services in the ordinary course of business of the Borrower and its
Subsidiaries;
(g) at any time when a Person becomes a
Subsidiary, all Investments of such Person at such time, provided that the
Borrower shall have thirty (30) days after such Person becomes a Subsidiary to
replace all such Investments of such Subsidiary with Investments permitted
under this Section 8.5 (other than under this subsection (g));
(h) Investments in (A) any Security having (1) a
short- term rating of A-2 or higher by S&P or P-2 or higher by Moody's, or a
long- term rating of A or higher by S&P or A-2 or higher by Moody's, and (2) a
maturity, or exercisable put-option, within 190 days from the date of
acquisition thereof, and (B) any bond fund or money-market fund substantially
all of whose assets are comprised of such Securities of the type as described
in the preceding clause (A) of this sentence;
(i) Acquisitions permitted by Section 8.3(d); and
(j) other Investments by the Borrower or any of
its Subsidiaries, provided that the aggregate cost of all such Investments (net
of the fair market value of all proceeds received upon the sale or exchange
thereof) shall not exceed 15% of the Consolidated shareholders' equity of the
Borrower and its Subsidiaries.
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8.6. Business Changes
Materially change the nature of the business of the Borrower
and its Subsidiaries as conducted on the Effective Date.
8.7. Limitation on Negative Pledges
Enter into any agreement, other than (i) this Agreement, (ii)
purchase money mortgages or Capital Leases permitted by this Agreement (in
which cases, any prohibition or limitation shall only be effective against the
assets financed thereby), and (iii) the Receivables Facility (provided that any
prohibition or limitation contained therein shall only be effective against the
Receivable Assets), or permit any of its Subsidiaries so to do, which prohibits
or limits the ability of the Borrower or such Subsidiary to create, incur,
assume or suffer to exist any Lien upon any of its Property or revenues,
whether now owned or hereafter acquired, in favor of the Lenders.
8.8. Sale/Leaseback Transactions
Enter into any arrangement with any Person providing for the
leasing by the Borrower or any Subsidiary of any Property which has been or is
to be sold or transferred by the Borrower or any Subsidiary to such Person or
any Affiliate of such Person (a "Sale/Leaseback Transaction"), provided,
however, that the Borrower may enter into one or more Sale/Leaseback
Transactions from time to time, provided that, immediately after giving effect
to each Sale/Leaseback Transaction, the aggregate fair market value of all
consideration paid to the Borrower in all Sale/Leaseback Transactions occurring
on or after the Effective Date would not exceed $25,000,000.
8.9. Restricted Payments
Declare or pay any Restricted Payment, or permit any of its
Subsidiaries so to do, except: (i) the Borrower or any of its Subsidiaries may
declare and pay Restricted Payments to the Borrower or any of its Subsidiaries,
and (ii) the Borrower may make Restricted Payments at any time and from time
to time, provided that immediately before and after making each such Restricted
Payment, no Default or Event of Default shall or would exist.
8.10. Transactions with Affiliates
Become, or permit any Subsidiary of the Borrower to become, a
party to any transaction with any Affiliate thereof unless the terms and
conditions relating thereto are as favorable to the Borrower or such Subsidiary
as those which would be obtainable at
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the time in a comparable arms-length transaction with a Person other than an
Affiliate thereof.
9. DEFAULT
9.1. Events of Default
The following shall each constitute an "Event of Default"
hereunder:
(a) The failure of the Borrower to make any
payment of principal on any Note when due and payable; or
(b) The failure of the Borrower to make any
payment of interest, Fees, expenses or other amounts payable under any Loan
Document or otherwise to the Administrative Agent with respect to the loan
facilities established hereunder within three Business Days of the date when
due and payable; or
(c) The failure of the Borrower to observe or
perform any covenant or agreement contained in Sections 2.8, 7.2, 7.9, or
Section 8; or
(d) The failure of the Borrower to observe or
perform any other term, covenant, or agreement contained in any Loan Document
and such failure shall have continued unremedied for a period of 30 days after
the Borrower shall have become aware thereof; or
(e) Any representation or warranty made by the
Borrower (or by an officer thereof on its behalf) in any Loan Document or in
any certificate, report, opinion (other than an opinion of counsel) or other
document delivered or to be delivered pursuant thereto, shall prove to have
been incorrect or misleading (whether because of misstatement or omission) in
any material respect when made; or
(f) The Borrower or any Subsidiary shall fail (i)
to pay, or, if required to purchase or otherwise acquire, shall fail to
purchase or otherwise acquire, any part of the principal of, the premium, if
any, or the interest on, or any other payment of money due under, any
Indebtedness or operating lease obligations in a then outstanding aggregate
principal amount of $10,000,000 or more, on or prior to the expiration of any
period of grace with respect thereto, or (ii) to perform or observe any other
agreement, term or condition contained in any document evidencing or securing
such Indebtedness or
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operating lease obligations, or in any agreement under which any such
Indebtedness or operating lease obligation was issued or created, if the effect
of such failure is (x) to cause, or permit such holders (or a trustee on behalf
of such holders) to cause, any payment in respect of such Indebtedness or
operating lease obligations to become due prior to the stated date of maturity
thereof, or (y) to cause the Borrower or any Subsidiary to be required to
purchase or otherwise acquire such Indebtedness or operating lease obligations;
or
(g) The Borrower or any Significant Subsidiary
shall (i) suspend or discontinue its business, (ii) make an assignment for the
benefit of creditors, (iii) generally not be paying its debts as such debts
become due, (iv) admit in writing its inability to pay its debts as they become
due, (v) file a voluntary petition in bankruptcy, (vi) become insolvent
(however such insolvency shall be evidenced), (vii) file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment
of debt, liquidation or dissolution or similar relief under any present or
future statute, law or regulation of any jurisdiction, (viii) petition or apply
to any tribunal for any receiver, custodian or any trustee for any substantial
part of its Property, (ix) be the subject of any such proceeding filed against
it which remains undismissed for a period of 45 days, (x) file any answer
admitting or not contesting the material allegations of any such petition filed
against it or any order, judgment or decree approving such petition in any such
proceeding, (xi) seek, approve, consent to, or acquiesce in any such
proceeding, or in the appointment of any trustee, receiver, sequestrator,
custodian, liquidator, or fiscal agent for it, or any substantial part of its
Property, or an order is entered appointing any such trustee, receiver,
custodian, liquidator or fiscal agent and such order remains in effect for 45
days, or (xii) take any formal action for the purpose of effecting any of the
foregoing or looking to the liquidation or dissolution of the Borrower or any
Significant Subsidiary; or
(h) An order for relief is entered under the
United States bankruptcy laws or any other decree or order is entered by a
court having jurisdiction (i) adjudging the Borrower or any Significant
Subsidiary bankrupt or insolvent, (ii) approving as properly filed a petition
seeking reorganization, liquidation, arrangement, adjustment or composition of
or in respect of the Borrower or any Significant Subsidiary under the United
States bankruptcy laws or any other applicable Federal or state law, (iii)
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator
(or other similar official) of the Borrower or any Significant Subsidiary or of
any substantial part of the Property of any thereof, or (iv) ordering the
winding up or liquidation of the affairs of the Borrower or any Significant
Subsidiary, and any such decree or order continues unstayed and in effect for a
period of 45 days; or
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(i) Judgments or decrees against the Borrower or
any Significant Subsidiary aggregating in excess of $5,000,000 shall remain
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of 30 days; or
(j) The occurrence of a Change of Control; or
(k) Any Loan Document shall cease, for any
reason, to be in full force and effect, or the Borrower shall so assert in
writing or shall disavow any of its obligations thereunder; or
(l) (i) any Termination Event shall occur; (ii)
any Accumulated Funding Deficiency, whether waived, shall exist with respect to
any Pension Plan; (iii) any Person shall engage in any Prohibited Transaction
involving any Employee Benefit Plan; (iv) the Borrower, any of its Subsidiaries
or any ERISA Affiliate shall fail to pay when due an amount which is payable by
it to the PBGC or to a Pension Plan under Title IV of ERISA; (v) the imposition
of any tax under Section 4980B(a) of the Code; (vi) the assessment of a civil
penalty with respect to any Employee Benefit Plan under Section 502(c) of
ERISA; or (vii) any other event or condition shall occur or exist with respect
to an Employee Benefit Plan which in the case of clauses (i) through (vii)
would, individually or in the aggregate, have a Material Adverse Effect.
9.2. Contract Remedies
(a) Upon the occurrence of an Event of Default or at any
time thereafter during the continuance thereof, (i) if it is an Event of
Default specified in Sections 9.1(g) or 9.1(h), all Revolving Credit
Commitments and the Swing Line Commitment shall immediately and automatically
terminate and the Loans, all accrued and unpaid interest thereon and all other
amounts owing under the Loan Documents shall immediately become due and
payable, and (ii) if it is any other Event of Default, upon the direction of
the Required Lenders the Administrative Agent shall (A) by notice to the
Borrower, declare all Revolving Credit Commitments and the Swing Line
Commitment to be terminated forthwith, whereupon such Revolving Credit
Commitments and the Swing Line Commitment shall immediately terminate, and/or
(B) by notice of default to the Borrower, declare the Loans, all accrued and
unpaid interest thereon and all other amounts owing under the Loan Documents to
be due and payable forthwith, whereupon the same shall immediately become due
and payable. Except as otherwise provided in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
The Borrower hereby further expressly waives and covenants not to assert any
appraisement, valuation, stay, extension, redemption or similar laws, now or at
any time
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hereafter in force which might delay, prevent or otherwise impede the
performance or enforcement of any Loan Document.
(b) In the event that the Revolving Credit Commitments of
all the Lenders and the Swing Line Commitment of the Swing Line Lender shall
have been terminated or the Loans, all accrued and unpaid interest thereon and
all other amounts owing under the Loan Documents shall have been declared due
and payable pursuant to the provisions of this Section, any funds received by
the Administrative Agent, Swing Line Lender and the Lenders from or on behalf
of the Borrower shall be remitted to and applied by the Administrative Agent in
the following manner and order: (i) first, to the payment of interest on, and
then the principal portion of, any Loans which the Administrative Agent may
have advanced on behalf of any Lender for which the Administrative Agent has
not then been reimbursed, (ii) second, to the payment of any fees or expenses
due the Administrative Agent from the Borrower, (iii) third, to reimburse the
Administrative Agent, the Swing Line Lender and the Lenders for any expenses
(to the extent not paid pursuant to clause (ii) above) due from the Borrower
pursuant to the provisions of Section 11.20, (iv) fourth, to the outstanding
principal amount of the Swing Line Loans (together with all interest thereon),
(v) fifth, to the payment of the Fees, (vi) sixth, to the payment of any other
fees, expenses or amounts (other than the principal of and interest on the
Loans) payable by the Borrower to the Administrative Agent, the Swing Line
Lender or any of the Lenders under the Loan Documents, (vii) seventh, to the
payment, pro rata according to the Outstanding Percentage of each Lender, of
interest due on the Loans (other than the Swing Line Loans), (viii) eighth, to
the payment, pro rata according to Outstanding Percentage of each Lender, of
principal on the Loans (other than the Swing Line Loans), and (ix) ninth, any
remaining funds shall be paid to whomsoever shall be entitled thereto or as a
court of competent jurisdiction shall direct.
10. THE ADMINISTRATIVE AGENT AND THE CO-AGENTS
10.1. Appointment
Each Lender hereby irrevocably designates and appoints BNY as
the Administrative Agent of such Lender under the Loan Documents and each
Lender hereby irrevocably authorizes the Administrative Agent to take such
action on its behalf under the provisions of the Loan Documents and to exercise
such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of the Loan Documents, together with such
other powers as are reasonably incidental thereto. The duties of the
Administrative Agent shall be mechanical and administrative in nature, and,
notwithstand-
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ing any provision to the contrary elsewhere in any Loan Document, the
Administrative Agent shall not have any duties or responsibilities other than
those expressly set forth therein, or any fiduciary relationship with, or
fiduciary duty to, any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into the
Loan Documents or otherwise exist against the Administrative Agent.
10.2. Delegation of Duties
The Administrative Agent may execute any of its duties under
the Loan Documents by or through agents or attorneys-in-fact and shall be
entitled to rely upon, and shall be fully protected in, and shall not be under
any liability for, relying upon, the advice of counsel concerning all matters
pertaining to such duties.
10.3. Exculpatory Provisions
Neither the Administrative Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with the Loan Documents (except the
Administrative Agent for its own gross negligence or willful misconduct), or
(ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower, or any officer
thereof, contained in the Loan Documents or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, the Loan Documents or for the
value, validity, effectiveness, genuineness, perfection, enforceability or
sufficiency of any of the Loan Documents or for any failure of the Borrower or
any other Person to perform its obligations thereunder. The Administrative
Agent shall not be under any obligation to any Lender to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, the Loan Documents, or to inspect the Property, books or
records of the Borrower. The Lenders acknowledge that the Administrative Agent
shall not be under any duty to take any discretionary action permitted under
the Loan Documents unless the Administrative Agent shall be instructed in
writing to do so by the Required Lenders and such instructions shall be binding
on all Lenders and all holders of the Notes; provided, however, that the
Administrative Agent shall not be required to take any action which exposes the
Administrative Agent to personal liability or is contrary to law or any
provision of the Loan Documents. The Administrative Agent shall not be under
any liability or responsibility whatsoever, as Administrative Agent, to the
Borrower or any other Person as a consequence of any failure or delay in
performance, or any breach, by any Lender of any of its obligations under any
of the Loan Documents.
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10.4. Reliance by Administrative Agent
The Administrative Agent shall be entitled to rely, and shall
be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, opinion, letter, cablegram, telegram, facsimile, telex
or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by a proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent may treat each Lender, as the case may be, or the Person
designated in the last notice filed with it under this Section, as the holder
of all of the interests of such Lender, in its Loans and Notes, as applicable,
until written notice of transfer, signed by such Lender (or the Person
designated in the last notice filed with the Administrative Agent) and by the
Person designated in such written notice of transfer, in form and substance
satisfactory to the Administrative Agent, shall have been filed with the
Administrative Agent. The Administrative Agent shall not be under any duty to
examine or pass upon the validity, effectiveness, enforceability or genuineness
of the Loan Documents or any instrument, document or communication furnished
pursuant thereto or in connection therewith, and the Administrative Agent shall
be entitled to assume that the same are valid, effective and genuine, have been
signed or sent by the proper parties and are what they purport to be. The
Administrative Agent shall be fully justified in failing or refusing to take
any action under the Loan Documents unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under the Loan Documents in accordance with a request
or direction of the Required Lenders, and such request or direction and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders and all future holders of the Notes.
10.5. Notice of Default
The Administrative Agent shall be deemed not to have knowledge
or notice of the occurrence of any Default unless the Administrative Agent has
received written notice thereof from a Lender or the Borrower. In the event
that the Administrative Agent receives such a notice, the Administrative Agent
shall promptly give notice thereof to the Lenders and the Borrower.
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10.6. Non-Reliance on Administrative Agent and Other Lenders
Each Lender expressly acknowledges that neither the
Administrative Agent nor any of its respective officers, directors, employees,
agents, attorneys-in-fact or affiliates has made any representations or
warranties to it and that no act by the Administrative Agent hereinafter,
including any review of the affairs of the Borrower, shall be deemed to
constitute any representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any Lender,
and based on such documents and information as it has deemed appropriate made
its own evaluation of and investigation into the business, operations,
Property, financial and other condition and creditworthiness of the Borrower
and the value and Lien status of any collateral security and made its own
decision to enter into this Agreement. Each Lender also represents that it
will, independently and without reliance upon the Administrative Agent or any
Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, evaluations
and decisions in taking or not taking action under any Loan Document, and to
make such investigation as it deems necessary to inform itself as to the
business, operations, Property, financial and other condition and
creditworthiness of the Borrower and the value and Lien status of any
collateral security. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the Administrative Agent hereunder,
the Administrative Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the business,
operations, Property, financial and other condition or creditworthiness of the
Borrower which at any time may come into the possession of the Administrative
Agent or any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates.
10.7. Indemnification
Each Lender agrees to indemnify and hold harmless the
Administrative Agent in its capacity as such (to the extent not promptly
reimbursed by the Borrower and without limiting the obligation of the Borrower
to do so), pro rata according to the aggregate of the outstanding principal
balance of the Loans (or at any time when no Loans are outstanding, according
to its Commitment Percentage), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever including, without limitation,
any amounts paid to the Lenders (through the Administrative Agent) by the
Borrower pursuant to the terms of the Loan Documents, that are subsequently
rescinded or avoided, or must otherwise be restored or returned) which may at
any time (including, without limitation, at any time following the payment of
the Loans and the Notes) be imposed on, incurred by or asserted against the
Administrative Agent in any way relating to or arising out of the Loan
Documents or any other documents contemplated by or referred to therein or the
transac-
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tions contemplated thereby or any action taken or omitted to be taken by the
Administrative Agent under or in connection with any of the foregoing;
provided, however, that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements to the extent resulting
solely from the finally adjudicated gross negligence or willful misconduct of
the Administrative Agent. Without limitation of the foregoing, each Lender
agrees to reimburse the Administrative Agent promptly upon demand for its pro
rata share of any unpaid fees owing to the Administrative Agent, and any costs
and expenses (including, without limitation, reasonable fees and expenses of
counsel) payable by the Borrower under Section 11.20, to the extent that the
Administrative Agent has not been paid such fees or has not been reimbursed for
such costs and expenses by the Borrower. The failure of any Lender to
reimburse the Administrative Agent promptly upon demand for its pro rata share
of any amount required to be paid by the Lenders to the Administrative Agent as
provided in this Section shall not relieve any other Lender of its obligation
hereunder to reimburse the Administrative Agent for its pro rata share of such
amount, but no Lender shall be responsible for the failure of other Lender to
reimburse the Administrative Agent for such other Lender's pro rata share of
such amount. The agreements in this Section shall survive the termination of
the Revolving Credit Commitments of all of the Lenders, the Swing Line
Commitment of the Swing Line Lender and the payment of all amounts payable
under the Loan Documents.
10.8. Administrative Agent in Its Individual Capacity
BNY and its affiliates may make secured or unsecured loans to,
accept deposits from, issue letters of credit for the account of, act as
trustee under indentures of, and generally engage in any kind of business with,
the Borrower as though BNY were not Administrative Agent hereunder and BNY
Capital Markets did not arrange the transactions contemplated hereby. With
respect to the Revolving Credit Commitment and Swing Line Commitment made or
renewed by BNY and the Notes issued to BNY, BNY shall have the same rights and
powers under the Loan Documents as any Lender and may exercise the same as
though it were not the Administrative Agent, and the terms "Lender" and
"Lenders" shall in each case include BNY.
10.9. Successor Administrative Agent
If at any time the Administrative Agent deems it advisable, in
its sole discretion, it may submit to each of the Lenders a written notice of
its resignation as Administrative Agent under the Loan Documents, such
resignation to be effective upon the earlier of (i) the written acceptance of
the duties of the Administrative Agent under the Loan
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Documents by a successor Administrative Agent and (ii) on the 30th day after
the date of such notice. Upon any such resignation, the Required Lenders shall
have the right to appoint from among the Lenders a successor Administrative
Agent. If no successor Administrative Agent shall have been so appointed by
the Required Lenders and accepted such appointment in writing within 30 days
after the retiring Administrative Agent's giving of notice of resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent, which successor Administrative Agent shall be a
commercial bank organized under the laws of the United States or any State
thereof and having a combined capital, surplus, and undivided profits of at
least $100,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent's rights, powers, privileges and duties as
Administrative Agent under the Loan Documents shall be terminated. The
Borrower and the Lenders shall execute such documents as shall be necessary to
effect such appointment. After any retiring Administrative Agent's resignation
as Administrative Agent, the provisions of the Loan Documents shall inure to
its benefit as to any actions taken or omitted to be taken by it, and any
amounts owing to it, while it was Administrative Agent under the Loan
Documents. If at any time there shall not be a duly appointed and acting
Administrative Agent, the Borrower agrees to make each payment due under the
Loan Documents directly to the Lenders entitled thereto during such time.
Notwithstanding anything to the contrary contained in this Section 10.9, the
appointment of any successor Administrative Agent shall be consented to by the
Borrower (such consent not to be unreasonably withheld and such consent not to
be required during the occurrence and continuance of any Default).
10.10. Co-Agents
Notwithstanding anything to the contrary contained in the Loan
Documents, except for their duties and obligations as Lenders, none of the
Co-Agents shall have any duty or obligation under the Loan Documents. All of
the provisions of this Section 10 which are applicable to the Administrative
Agent shall apply, generally, to each of the Co-Agents, with any necessary
changes in points of detail.
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11. OTHER PROVISIONS
11.1. Amendments and Waivers
With the written consent of the Required Lenders, the
Administrative Agent, the Swing Line Lender and the Borrower may, from time to
time, enter into written amendments, supplements or modifications of the Loan
Documents and, with the consent of the Required Lenders, the Administrative
Agent on behalf of the Lenders may execute and deliver to any such parties a
written instrument waiving or a consent to a departure from, on such terms and
conditions as the Administrative Agent may specify in such instrument, any of
the requirements of the Loan Documents or any Default and its consequences;
provided, however, that:
(a) no such amendment, supplement, modification, waiver
or consent shall, without the consent of all of the Lenders, (i) increase the
Revolving Credit Commitment Amount of any Lender or the Aggregate Revolving
Credit Commitment Amount, (ii) extend (other than as provided in Section 2.10)
the Scheduled Revolving Credit Commitment Termination Date, (iii) decrease the
rate, or extend the time of payment, of interest of, or change or forgive the
principal amount or extend the time of payment of, or change the pro rata
allocation of payments under, any Note, or decrease the rate, or extend the
time of payment, or change the pro rata allocation of payments in respect of
the Commitment Fee, (iv) change the provisions of Sections 3.5, 3.6, 3.7, 3.8,
3.9, 3.10, 11.1, 11.6(a) or 11.8, or (v) change the definition of "Required
Lenders";
(b) without the written consent of the Administrative
Agent, no such amendment, supplement, modification or waiver shall amend,
modify or waive any provision of Section 10 or otherwise change any of the
rights or obligations of the Administrative Agent hereunder or under the Loan
Documents; and
(c) without the written consent of the Swing Line Lender,
no such amendment, supplement, modification or waiver shall change the Swing
Line Commitment or change any other term or provision that relates to the Swing
Line Commitment or the Swing Line Loans.
Any such amendment, supplement, modification or waiver shall
apply equally to the Administrative Agent, the Swing Line Lender and each of
the Lenders and shall be binding upon the parties to the applicable Loan
Document, the Lenders, the Swing Line Lender, the Administrative Agent and all
future holders of the Notes. In the case of any waiver, the parties to the
applicable Loan Document, the Lenders, the Swing Line Lender and the
Administrative Agent shall be restored to their former position and rights
hereunder and under the outstanding Notes and other Loan Documents to the
extent provided for in such waiver, and any Default waived shall not extend to
any subsequent or
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other Default, or impair any right consequent thereon. The Loan Documents may
not be amended orally or by any course of conduct.
11.2. Notices
Except as otherwise provided in each Loan Document, all
notices, requests and demands to or upon the respective parties to such Loan
Document to be effective shall be in writing and shall be deemed to have been
duly given or made when delivered by hand, one Business Day after having been
sent by overnight courier service or three Business Days after having been
deposited in the mail, first-class postage prepaid, or, in the case of notice
by facsimile, when sent, addressed as follows in the case of the Borrower and
the Administrative Agent, addressed as set forth on Schedule 11.2, in the case
of each Lender, or addressed to such other addresses as to which the
Administrative Agent may be hereafter notified by the respective parties
thereto or any future holders of the Notes:
The Borrower:
Camco International Inc.
7030 Ardmore
Houston, Texas 77054
Attention: Herbert S. Yates,
Senior Vice President
Telephone: (713) 749-5649
Facsimile: (713) 749-5878
The Administrative Agent:
The Bank of New York
One Wall Street
Agency Function Administration
18th Floor
New York, New York 10286
Attention: Ramona Washington
Telephone: (212) 635-4699
Facsimile: (212) 635-6365
with a copy to:
The Bank of New York
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<PAGE> 71
One Wall Street
New York, New York 10286
Attention: Alan F. Lyster,
Vice President
Telephone: (212) 635-6895
Facsimile: (212) 635-6434
except that any notice, request or demand by the Borrower to or upon the
Administrative Agent, the Swing Line Lender or the Lenders pursuant to Sections
2.5 or 3.3 shall not be effective until received. Any party to a Loan Document
may rely on signatures of the parties thereto which are transmitted by
facsimile or other electronic means as fully as if originally signed.
11.3. No Waiver; Cumulative Remedies
No failure to exercise and no delay in exercising, on the part
of the Administrative Agent, the Swing Line Lender or any Lender, any right,
remedy, power or privilege under any Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power
or privilege under any Loan Document preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The
rights, remedies, powers and privileges under the Loan Documents are cumulative
and not exclusive of any rights, remedies, powers and privileges provided by
law.
11.4. Survival of Representations and Warranties and Certain
Obligations
(a) All representations and warranties made under the
Loan Documents and in any document, certificate or statement delivered pursuant
thereto or in connection therewith shall survive the execution and delivery of
the Loan Documents.
(b) The obligations of the Borrower under Sections 3.5,
3.6, 3.7, 3.10, 11.7 and 11.20 shall survive the termination of the Revolving
Credit Commitments of all of the Lenders, the Swing Line Commitment and the
payment of the Loans and all other amounts payable under the Loan Documents.
11.5. Lending Offices
Each Lender agrees that, upon the occurrence of any event
giving rise to any increased cost or indemnity under Sections 3.6, 3.7 and 3.10
with respect to such
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Lender, it will, if requested by the Borrower, use reasonable efforts (subject
to overall policy considerations of such Lender) to designate another lending
office for any Loans affected by such event, provided that such designation is
made on such terms that such Lender and its lending office suffer no economic,
legal or regulatory disadvantage, with the object of avoiding the consequence
of the event giving rise to the operation of any such Section. Nothing in this
Section shall affect or postpone any of the obligations of the Borrower or the
right of any Lender provided in Sections 3.6, 3.7 and 3.10.
11.6. Successors and Assigns
(a) This Agreement, the Notes and the other Loan
Documents to which the Borrower is a party shall be binding upon and inure to
the benefit of the Borrower, the Lenders, the Swing Line Lender, the
Administrative Agent, all future holders of the Notes and their respective
successors and assigns. The Borrower shall not assign any right, nor delegate
any duty, under any Loan Document without the prior written consent of the
Administrative Agent, the Swing Line Lender and each Lender and any such
attempted assignment or delegation without each such consent shall be void.
(b) Subject to Section 11.6(e), each Lender and the Swing
Line Lender may at any time assign all or any portion of its rights under one
or more of the Loan Documents to any Federal Reserve Bank.
(c) In addition to its rights under Section 11.6(b), each
Lender shall have the right to sell, assign, transfer or negotiate (each an
"Assignment") one hundred percent, or any lesser percentage, of its Loans, its
Revolving Credit Commitment and its Notes to any Affiliate of such Lender, to
any other Lender, or, with the consent of the Administrative Agent, the Swing
Line Lender and the Borrower (which consent shall not be unreasonably withheld
and shall not be required of the Borrower, if, at the time of such Assignment,
an Event of Default shall exist), to any other Eligible Institution, provided
that (i) each such Assignment shall be of a constant, and not a varying,
percentage of the assignor Lender's rights and obligations under the Loan
Documents, (ii) the Revolving Credit Commitment Amount of the Revolving Credit
Commitment assigned, shall be not less than $5,000,000, or the full Revolving
Credit Commitment Amount of such assignor Lender's Revolving Credit Commitment,
and (iii) the assignor Lender and such assignee shall deliver to the
Administrative Agent three copies of an Assignment and Acceptance Agreement
executed by each of them, along with an assignment fee in the sum of $3,500 for
the account of the Administrative Agent. Upon receipt of such number of
executed copies of each such Assignment and Acceptance Agreement, together with
the assignment fee therefor, and the Borrower's consent to such Assignment, if
required, the Administra-
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tive Agent shall record the same and execute not less than two copies of such
Assignment and Acceptance Agreement, deliver one such copy to the assignor and
one such copy to the assignee, and deliver one photocopy thereof, as executed,
to the Borrower. From and after the Assignment Effective Date specified in,
and as defined in, such Assignment and Acceptance Agreement, the assignee
thereunder shall be a party hereto and shall for all purposes of this Agreement
and the other Loan Documents be deemed a "Lender" and, to the extent provided
in such Assignment and Acceptance Agreement, the assignor Lender thereunder
shall be released from its obligations under this Agreement and the other Loan
Documents subject to Section 11.6(e). The Borrower agrees that, in connection
with each such Assignment, it shall at its own cost and expense execute and
deliver to the Administrative Agent for the account of such assignee a
Revolving Credit Note. The Administrative Agent shall be entitled to rely upon
the representations and warranties made by the assignee under each Assignment
and Acceptance Agreement.
(d) In addition to the participations provided for in
Section 11.10(b), each Lender may grant participations in all or any part of
its Loans, its Notes and its Revolving Credit Commitment to one or more
Eligible Institutions, provided that (i) such Lender's obligations under this
Agreement and the other Loan Documents shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties to this Agreement and the
other Loan Documents for the performance of such obligations, (iii) the
Borrower, the Administrative Agent, the Swing Line Lender and the Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under the Loan Documents and such Lender shall
retain the sole right to enforce the obligations of the Borrower relating to
the Loan Documents and to approve any modification, amendment, or waiver of any
provision of the Loan Documents, subject to the provisions of Section
11.6(d)(vi), (iv) no sub-participations shall be permitted, (v) the granting of
such participation does not require that any out-of-pocket cost or expense be
borne by the Borrower, (vi) the voting rights of any holder of any
participation shall be limited to the right to consent to any action taken or
omitted to be taken by such Lender under the Loan Documents which would (A)
increase the Revolving Credit Commitment Amount of any Lender (provided that no
waiver of a Default or of any mandatory reduction of any of the foregoing shall
be deemed to constitute such a change), (B) extend the Revolving Credit
Commitment Period (other than as provided in Section 2.10), (C) reduce the
amount or extend the time of payment of any Fee, (D) reduce the rate or extend
the time of payment of interest on any Loan or any Note (other than the
applicability of any post-default increase in such rate of interest), (E)
reduce the amount or extend the time of payment of any installment or other
payment of principal on any Loan or any Note, (F) decrease or forgive the
principal amount of any Loan or any Note, or (G) consent to any assignment or
delegation by the Borrower of all of its rights or obligations
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under all of the Loan Documents, or (H) release any collateral or any security
interest thereon (other than in connection with a Disposition permitted under
Section 8.4, and (vii) such Lender shall notify the Borrower at or prior to the
time any such participation is granted.
(e) No Lender shall, as between and among the Borrower,
the Administrative Agent and such Lender, be relieved of any of its obligations
under the Loan Documents as a result of any assignment of or granting of
participations in, all or any part of its Loans, its Revolving Credit
Commitment and its Notes, except that a Lender shall be relieved of its
obligations to the extent of any such Assignment of all or any part of its
Loans, its Revolving Credit Commitment or its Notes pursuant to Section
11.6(c).
11.7. Indemnity
The Borrower agrees to defend, protect, indemnify, and hold
harmless the Administrative Agent, BNY Capital Markets, the Swing Line Lender
and each and all of the Lenders, each of their respective Affiliates and each
of the respective officers, directors, employees and agents of each of the
foregoing (each an "Indemnified Person" and, collectively, the "Indemnified
Persons") from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
the reasonable fees and disbursements of counsel (including the allocated costs
of in-house counsel to the extent that outside counsel is not utilized) to
such Indemnified Persons) in connection with any investigative, administrative
or judicial proceeding, whether direct, indirect or consequential and whether
based on any federal or state laws or other statutory regulations, including,
without limitation, securities and commercial laws and regulations, under
common law or at equitable cause, or on contract or otherwise, (including any
liabilities and costs under environmental laws, Federal, state or local health
or safety laws, regulations, or common law principles, arising from or in
connection with the past, present or future operations of the Borrower or its
predecessors in interest, or the past, present or future environmental
condition of the Property of the Borrower or any of its Subsidiaries, the
presence of asbestos-containing materials at any such Property, or the release
or threatened release of any hazardous substance into the environment from any
such Property) in any manner relating to or arising out of the Loan Documents,
any commitment letter or fee letter executed and delivered by the Borrower or
any of its Subsidiaries, the Swing Line Lender and/or the Administrative Agent,
the capitalization of the Borrower or any of its Subsidiaries, the Revolving
Credit Commitments, the making of, management of and participation in the
Loans, or the use or intended use of the proceeds of the Loans hereunder,
provided that the Borrower shall have no obligation under this Section to an
Indemni-
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fied Person with respect to any of the foregoing to the extent found in a final
judgment of a court having jurisdiction to have resulted primarily out of the
gross negligence or wilful misconduct of such Indemnified Person or arising
solely from claims between one such Indemnified Person and another such
Indemnified Person, or arising from claims the Borrower may assert against such
Indemnified Person. The indemnity set forth herein shall be in addition to any
other obligations or liabilities of the Borrower to each Indemnified Person
under the Loan Documents or at common law or otherwise, and shall survive any
termination of the Loan Documents, the expiration of the Revolving Credit
Commitments of all of the Lenders and the payment of all Indebtedness of the
Borrower under the Loan Documents.
11.8. Limitation of Liability
No claim may be made by the Borrower, any of its Subsidiaries,
any Lender or other Person against the Administrative Agent, any Lender, or any
directors, officers, employees, or agents of any of them for any special,
indirect, consequential or punitive damages in respect of any claim for breach
of contract or any other theory of liability arising out of or related to the
transactions contemplated by any Loan Document, or any act, omission or event
occurring in connection therewith, and each of the Borrower, its Subsidiaries,
any such Lender or other Person hereby waives, releases and agrees not to sue
upon any claim for any such damages, whether or not accrued and whether or not
known or suspected to exist in its favor.
11.9. Counterparts
Each Loan Document (other than the Notes) may be executed by
one or more of the parties thereto on any number of separate counterparts and
all of said counterparts taken together shall be deemed to constitute one and
the same document. It shall not be necessary in making proof of any Loan
Document to produce or account for more than one counterpart signed by the
party to be charged. A counterpart of any Loan Document or to any document
evidencing, and of any amendment, modification, consent or waiver to or of any
Loan Document transmitted by facsimile shall be deemed to be an originally
executed counterpart. A set of the copies of the Loan Documents signed by all
the parties thereto shall be deposited with each of the Borrower and the
Administrative Agent. Any party to a Loan Document may rely upon the
signatures of any other party thereto which are transmitted by facsimile or
other electronic means to the same extent as if originally signed.
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11.10. Adjustments; Set-off
(a) In addition to any rights and remedies of each Lender
provided by law, upon the occurrence of an Event of Default and acceleration of
the Notes, or at any time upon the occurrence and during the continuance of an
Event of Default under Sections 9.1(a) or 9.1(b), each Lender and the Swing
Line Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, to set-off and apply against any indebtedness or other
liability, whether matured or unmatured, of the Borrower to such Lender or the
Swing Line Lender arising under the Loan Documents, any amount owing from such
Lender or the Swing Line Lender to the Borrower. To the extent permitted by
applicable law, the aforesaid right of set-off may be exercised by such Lender
or the Swing Line Lender against the Borrower or against any trustee in
bankruptcy, custodian, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor of the
Borrower, or against anyone else claiming through or against the Borrower or
such trustee in bankruptcy, custodian, debtor in possession, assignee for the
benefit of creditors, receivers, or execution, judgment or attachment
creditors, notwithstanding the fact that such right of set-off shall not have
been exercised by such Lender or the Swing Line Lender prior to the making,
filing or issuance of, service upon such Lender or the Swing Line Lender of, or
notice to such Lender or the Swing Line Lender of, any petition, assignment for
the benefit of creditors, appointment or application for the appointment of a
receiver, or issuance of execution, subpoena, order or warrant. Each Lender
and the Swing Line Lender agrees promptly to notify the Borrower and the
Administrative Agent after each such set-off and application made by such
Lender or the Swing Line Lender, as the case may be, provided that the failure
to give such notice shall not affect the validity of such set-off and
application.
(b) If any Lender or the Swing Line Lender shall obtain
any payment (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) on account of its Loans or its Notes in excess of its
Outstanding Percentage of payments then due and payable on account of the Loans
or the Notes received by all the Lenders and the Swing Line Lender, such Lender
or the Swing Line Lender, as the case may be, shall forthwith purchase,
without recourse, for cash, from the other Lenders and the Swing Line Lender
such participations in their Loans and Notes as shall be necessary to cause
such purchaser to share such excess payment with each of them according to
their Outstanding Percentages, provided, however, that if all or any portion of
such excess payment is thereafter recovered from such purchaser, such purchase
shall be rescinded and the related seller shall repay to such purchaser the
purchase price to the extent of such recovery, together with an amount equal to
such seller's pro rata share (according to the proportion of (i) the amount of
all other related required repayments to (ii) the total amount so recov-
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ered from the purchaser) of any interest or other amount paid or payable by the
purchaser in respect of the total amount so recovered.
11.11. Construction
Each party to a Loan Document represents that it has been
represented by counsel in connection with the Loan Documents and the
transactions contemplated thereby and that the principle that agreements are to
be construed against the party drafting the same shall be inapplicable.
11.12. Governing Law
The Loan Documents and the rights and obligations of the
parties thereunder shall be governed by, and construed and interpreted in
accordance with, the internal laws of the State of New York, without regard to
principles of conflict of laws, but including Section 5-1401 of the General
Obligations Law.
11.13. Headings Descriptive
Section headings have been inserted in the Loan Documents for
convenience only and shall not be construed to be a part thereof.
11.14. Severability
Every provision of the Loan Documents is intended to be
severable, and if any term or provision thereof shall be invalid, illegal or
unenforceable for any reason, the validity, legality and enforceability of the
remaining provisions thereof shall not be affected or impaired thereby, and any
invalidity, illegality or unenforceability in any jurisdiction shall not affect
the validity, legality or enforceability of any such term or provision in any
other jurisdiction.
11.15. Integration
All exhibits to a Loan Document shall be deemed to be a part
thereof. Except for agreements between the Administrative Agent and/or the
Swing Line Lender and the Borrower with respect to certain fees, the Loan
Documents embody the entire agreement and understanding among the Borrower, the
Administrative Agent, the Swing Line Lender and the Lenders with respect to the
subject matter thereof and supersede all
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prior agreements and understandings among them with respect to the subject
matter thereof.
11.16. Consent to Jurisdiction
Each party to a Loan Document hereby irrevocably submits to
the jurisdiction of any New York State or Federal court sitting in the City of
New York over any suit, action or proceeding arising out of or relating to the
Loan Documents. Each party to a Loan Document hereby irrevocably waives, to
the fullest extent permitted or not prohibited by law, any objection which it
may now or hereafter have to the laying of the venue of any such suit, action
or proceeding brought in such a court and any claim that any such suit, action
or proceeding brought in such a court has been brought in an inconvenient
forum. Each party to the Loan Documents hereby agrees that a final judgment in
any such suit, action or proceeding brought in such a court, after all
appropriate appeals, shall be conclusive and binding upon it.
11.17. Service of Process
Each party to a Loan Document hereby irrevocably consents to
the service of process in any suit, action or proceeding by sending the same by
first class mail, return receipt requested or by overnight courier service, to
the address of such party set forth in Section 11.2 of this Agreement. Each
party to a Loan Document hereby agrees that any such service (i) shall be
deemed in every respect effective service of process upon it in any such suit,
action, or proceeding, and (ii) shall to the fullest extent enforceable by law,
be taken and held to be valid personal service upon and personal delivery to
it.
11.18. No Limitation on Service or Suit
Nothing in the Loan Documents or any modification, waiver,
consent or amendment thereto shall affect the right of any party to the Loan
Documents to serve process in any manner permitted by law or limit the right of
the Administrative Agent, the Swing Line Lender or any Lender to bring
proceedings against the Borrower in the courts of any jurisdiction or
jurisdictions in which the Borrower may be served.
11.19. WAIVER OF TRIAL BY JURY
EACH OF THE ADMINISTRATIVE AGENT, THE SWING LINE LENDER, THE
LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHT IT MAY HAVE TO A
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<PAGE> 79
TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN
CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREIN.
FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE
SWING LINE LENDER, THE ADMINISTRATIVE AGENT, OR THE LENDERS, OR COUNSEL TO THE
ADMINISTRATIVE AGENT OR THE LENDERS, HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT THE SWING LINE LENDER, THE ADMINISTRATIVE AGENT OR THE LENDERS WOULD NOT,
IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY
TRIAL PROVISION. THE BORROWER ACKNOWLEDGES THAT THE SWING LINE LENDER, THE
ADMINISTRATIVE AGENT AND THE LENDERS HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, INTER ALIA, THE PROVISIONS OF THIS SECTION.
11.20. Expenses
The Borrower agrees, promptly after presentation of a
statement or invoice therefor, and whether any Loan is made (i) to pay or
reimburse the Administrative Agent and BNY Capital Markets for all their
respective out-of-pocket costs and expenses reasonably incurred in connection
with the development, preparation and execution of, the Loan Documents and any
amendment, supplement or modification thereto (whether or not executed or
effective), any other documents prepared in connection therewith and the
consummation of the transactions contemplated thereby, including the reasonable
fees and disbursements of Special Counsel, (ii) to pay or reimburse the
Administrative Agent, the Swing Line Lender and each Lender for all of its costs
and expenses, including reasonable fees and disbursements of counsel (including
the allocated costs of in-house counsel to the extent that outside counsel is
not utilized), incurred in connection with the preservation or enforcement of
any rights under the Loan Documents and any such other documents, including,
without limitation, the reasonable fees and disbursements of counsel (including
the allocated costs of in-house counsel to the extent that outside counsel is
not utilized) to the Administrative Agent, the Swing Line Lender and the several
Lenders, (iii) to pay, indemnify, and hold each of the Swing Line Lender, the
Lenders and the Administrative Agent harmless from and against any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other similar taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, the Loan Documents and any such other
documents, and (iv) to pay, indemnify and hold each of the Swing Line Lender,
the Lenders and the Administrative Agent and each of its officers, directors and
employees harmless from and against any
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<PAGE> 80
and all other liabilities, obligations, claims, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever (including reasonable counsel fees and disbursements
(including the allocated costs of in-house counsel to the extent that outside
counsel is not utilized)) with respect to the execution, delivery, performance,
enforcement and administration of, or in any other way arising out of or
relating to, the Loan Documents (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, however, that the Borrower shall have no
obligation to pay Indemnified Liabilities to the Administrative Agent, the Swing
Line Lender or any Lender to the extent arising from the gross negligence or
willful misconduct of the Administrative Agent, the Swing Line Lender or such
Lender. The agreements in this Section shall survive the performance by the
Borrower of all of its other obligations under the Loan Documents.
11.21. Treatment of Certain Information
Each Lender, the Swing Line Lender and the Administrative
Agent agrees (on behalf of itself and each of its affiliates, directors,
officers, employees and representatives) to use reasonable precautions to keep
confidential, in accordance with their customary procedures for handling
confidential information of the same nature, all non-public information
supplied by the Borrower or any of its Subsidiaries pursuant to this Agreement
which (a) is identified by such Person as being confidential at the time the
same is delivered to such Lender, the Swing Line Lender or the Administrative
Agent, or (b) constitutes any financial statement, financial projections or
forecasts, budget, compliance certificate, audit report, management letter or
accountants' certification delivered hereunder, provided, however, that nothing
herein shall limit the disclosure of any such information (i) to the extent
required by law, rule, regulation or judicial process, (ii) on a confidential
basis, to counsel to any Lender, the Swing Line Lender or the Administrative
Agent, (iii) to bank examiners, auditors or accountants, and any analogous
counterpart thereof, (iv) to the Administrative Agent, the Lenders or the Swing
Line Lender, (v) in connection with any litigation to which any one or more of
the Lenders, the Swing Line Lender or the Administrative Agent is a party, (vi)
to any assignee or participant (or prospective assignee or participant) so long
as such assignee or participant (or prospective assignee or participant) agrees
to keep such information confidential on substantially the same basis as set
forth in this Section, or (vii) to affiliates of the Administrative Agent, the
Swing Line Lender and each Lender.
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<PAGE> 81
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
CAMCO INTERNATIONAL INC.
By:
----------------------
Name:
----------------------
Title:
----------------------
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<PAGE> 82
THE BANK OF NEW YORK, in its
individual capacity, as Swing Line
Lender and as Administrative Agent
By:
----------------------
Name:
----------------------
Title:
----------------------
- 82 -
<PAGE> 83
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, in its
individual capacity and as Co-Agent
By:
----------------------
Name:
----------------------
Title:
----------------------
- 83 -
<PAGE> 84
TORONTO DOMINION (TEXAS), INC.,
in its individual capacity and
as Co-Agent
By:
----------------------
Name:
----------------------
Title:
----------------------
- 84 -
<PAGE> 85
WACHOVIA BANK, N.A., in its
individual capacity and as Co-Agent
By:
----------------------
Name:
----------------------
Title:
----------------------
- 85 -
<PAGE> 86
ABN AMRO BANK N.V.
By:
----------------------
Name:
----------------------
Title:
----------------------
- 86 -
<PAGE> 87
BANK ONE, TEXAS, NA
By:
----------------------
Name:
----------------------
Title:
----------------------
- 87 -
<PAGE> 88
MARINE MIDLAND BANK
By:
----------------------
Name:
----------------------
Title:
----------------------
- 88 -
<PAGE> 89
CAMCO INTERNATIONAL INC.
EXHIBIT B-1
FORM OF REVOLVING CREDIT NOTE
_____________ __,1997
New York, New York
FOR VALUE RECEIVED, the undersigned, CAMCO INTERNATIONAL INC,,
a Delaware corporation (the "Borrower"), hereby promises to pay to the order of
________________________ (the "Lender"), the outstanding principal balance of
the Revolving Credit Loans made by the Lender, and to pay interest from the
date hereof on the principal balance thereof from time to time outstanding, at
the rate or rates, and at the times, set forth in the Credit Agreement, dated
as of ____________ ________ , 1997, among the Borrower, the Lenders party
thereto, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, TORONTO
DOMINION (TEXAS), INC., and WACHOVIA BANK, N.A., as Co-Agents, and THE BANK OF
NEW YORK, as agent for the Lenders (the "Administrative Agent") and as Swing
Line Lender (as the same may be amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), in each case at the office of the
Administrative Agent located at One Wall Street, New York, New York, or at such
other place as the Administrative Agent may specify from time to time, in lawful
money of the United States of America in immediately available funds.
Capitalized terms used herein which are not otherwise defined
herein shall have the respective meanings ascribed thereto in the Credit
Agreement.
The Revolving Credit Loans evidenced by this Revolving Credit
Note are payable in the amounts and under the circumstances, and its maturity
is subject to acceleration upon the terms, set forth in the Credit Agreement.
This Revolving Credit Note is one of the Revolving Credit Notes under, and as
such term is defined in, the Credit Agreement, and is subject to, and should be
construed in accordance with, the provisions thereof, and is entitled to the
benefits set forth in the Loan Documents.
The Lender is hereby authorized to record on the schedule
annexed hereto, and any continuation sheets which the Lender may attach hereto,
(i) the date and amount of each Revolving Credit Loan made by the Lender, (ii)
the character thereof as an ABR Advance, a Eurodollar Advance or a combination
thereof, (iii) the interest rate (without regard to the
<PAGE> 90
Applicable Margin) and the Interest Period applicable to each Eurodollar
Advance, and (iv) the date and amount of each conversion of, and each payment
or prepayment of principal of, any such Revolving Credit Loan. No failure to so
record or any error in so recording shall affect the obligation of the Borrower
to repay the Revolving Credit Loans, together with interest thereon, as
provided in the Credit Agreement, and the outstanding principal balance of the
Revolving Credit Loans made by the Lender as set forth in such schedule shall
be presumed to be correct absent manifest error.
Except as specifically otherwise provided in the Credit
Agreement, the Borrower hereby waives presentment, demand, notice of dishonor,
protest, notice of protest and all other demands, protests and notices in
connection with the execution, delivery, performance, collection and
enforcement of this Revolving Credit Note.
This Revolving Credit Note may only be amended by an
instrument in writing executed pursuant to the provisions of Section 11.1 of
the Credit Agreement.
THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS, BUT INCLUDING SECTION 5-1401 OF THE
GENERAL OBLIGATIONS LAW.
CAMCO INTERNATIONAL INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
- 2 -
<PAGE> 91
CAMCO INTERNATIONAL INC.
EXHIBIT B-2
FORM OF SWING LINE NOTE
_____________ __,1997
New York,New York
FOR VALUE RECEIVED, the undersigned, CAMCO INTERNATIONAL INC.,
a Delaware corporation (the "Borrower"), hereby promises to pay to the order of
THE BANK OF NEW YORK (the "Swing Line Lender"), the outstanding principal
balance of the Swing Line Loans made by the Swing Line Lender, and to pay
interest from the date hereof on the principal balance thereof from time to
time outstanding, at the rate or rates, and at the times, set forth in the
Credit Agreement, dated as of _________ _______, 1997, among the Borrower, the
Lenders party thereto, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
TORONTO DOMINION (TEXAS), INC., and WACHOVIA BANK, N.A., as Co-Agents, and THE
BANK OF NEW YORK, as agent for the Lenders (in such capacity, the
"Administrative Agent") and as Swing Line Lender (as the same may be amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
in each case at the office of the Administrative Agent located at One Wall
Street, New York, New York, or at such other place as the Administrative Agent
may specify from time to time, in lawful money of the United States of America
in immediately available funds.
Capitalized terms used herein which are not otherwise defined
herein shall have the respective meanings ascribed thereto in the Credit
Agreement.
The Swing Line Loans evidenced by this Swing Line Note are
payable in the amounts and under the circumstances, and its maturity is subject
to acceleration upon the terms, set forth in the Credit Agreement. This Swing
Line Note is the Swing Line Note under, and as such term is defined in, the
Credit Agreement, and is subject to, and should be construed in accordance
with, the provisions thereof, and is entitled to the benefits set forth in the
Loan Documents.
The Swing Line Lender is hereby authorized to record on the
schedule annexed hereto, and any continuation sheets which the Swing Line
Lender may attach hereto, (i) the date and amount of each Swing Line Loan made
by it, (ii) the Interest Period and
<PAGE> 92
the Negotiated Rate applicable to each Swing Line Loan, and (iii) each payment
and prepayment of the principal of each Swing Line Loan. No failure to so record
or any error in so recording shall affect the obligation of the Borrower to
repay the Swing Line Loans, together with interest thereon, as provided in the
Credit Agreement, and the outstanding principal balance of the Swing Line Loans
made by the Swing Line Lender as set forth in such schedule shall be presumed to
be correct absent manifest error.
Except as specifically otherwise provided in the Credit
Agreement, the Borrower hereby waives presentment, demand, notice of dishonor,
protest, notice of protest and all other demands, protests and notices in
connection with the execution, delivery, performance, collection and
enforcement of this Swing Line Note.
This Swing Line Note may only be amended by an instrument in
writing executed pursuant to the provisions of Section 11.1 of the Credit
Agreement.
THIS SWING LINE NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS, BUT INCLUDING SECTION 5-1401 OF THE
GENERAL OBLIGATIONS LAW.
CAMCO INTERNATIONAL INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
- 2 -
<PAGE> 1
EXHIBIT 10.23
CONTRACT NO. 86-C-414
EL FURRIAL
GAS COMPRESSION SERVICES CONTRACT
BETWEEN
LAGOVEN, S.A.
AND
WILLIAMS INTERNATIONAL COMPANY AND PRODUCTION OPERATORS, INC.
1
<PAGE> 2
CONTRACT NO. 86-C-414
CONTENTS
<TABLE>
<CAPTION>
CLAUSE DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
1 ONE DEFINITIONS 06
2 TWO PURPOSE OF THE CONTRACT 09
3 THREE DURATION 11
4 FOUR OBLIGATIONS AND GUARANTEES OF
OPERATOR 13
5 FIVE OBLIGATIONS OF LAGOVEN 19
6 SIX SAFETY AND HEALTH STANDARDS 20
7 SEVEN TECHNICAL INFORMATION 23
8 EIGHT PERMITS 25
9 NINE FIRES AND OTHER EMERGENCIES 26
10 TEN START OF SERVICE 26
11 ELEVEN METERING 28
12 TWELVE RATE AND ADJUSTMENTS 31
13 THIRTEEN PRICE OF UTILITIES 34
14 FOURTEEN RECOGNITION OF INVESTMENTS 35
15 FIFTEEN BONUS AND PENALTY 36
16 SIXTEEN FORM OF PAYMENT 36
17 SEVENTEEN ACCOUNTING 38
18 EIGHTEEN AUDITING 39
19 NINETEEN LIABILITY FOR DAMAGES 40
20 TWENTY BONDS AND INSURANCE 41
21 TWENTY ONE APPLICABLE LAW 45
22 TWENTY TWO MECHANISMS FOR RESOLVING
DISPUTES 45
23 TWENTY THREE PATENTS, TRADEMARKS, LICENSES
AND COPYRIGHTS 48
</TABLE>
2
<PAGE> 3
CONTRACT NO. 86-C-414
CONTENTS
<TABLE>
<CAPTION>
CLAUSE DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
24 TWENTY FOUR CONFIDENTIALITY 49
25 TWENTY FIVE FORCE MAJEURE OR ACT OF GOD 50
26 TWENTY SIX ASSIGNMENT AND TRANSFER OF
THE CONTRACT 53
27 TWENTY SEVEN CONFLICT OF INTEREST 54
28 TWENTY EIGHT HIRING OF PERSONNEL 56
29 TWENTY NINE TERMINATION FOR NONCOMPLIANCE 56
30 THIRTY REPRESENTATIVES, ANNOUNCEMENTS
AND NOTIFICATIONS 58
31 THIRTY ONE TAXES, FEES AND CONTRIBUTIONS 59
32 THIRTY TWO LEGAL ATTACHMENTS 60
33 THIRTY THREE RATE ADJUSTMENTS 61
34 THIRTY FOUR INTEGRAL CONTRACT, WAIVERS AND
MODIFICATIONS 61
35 THIRTY FIVE LANGUAGES AND COPIES 62
</TABLE>
3
<PAGE> 4
CONTRACT NO. 86-C-414
ATTACHMENTS
ATTACHMENT A PERFORMANCE BOND LETTER OF CREDIT
ATTACHMENT B FORMULA FOR INCREASES
ATTACHMENT C TERMS OF PAYMENT, BONUS AND PENALTY
- PRICE OF THE CONTRACT.
ATTACHMENT C-1 TERMS OF PAYMENT, BONUS AND PENALTY
- HIGH PRESSURE SYSTEM.
ATTACHMENT C-2 TERMS OF PAYMENT, BONUS AND PENALTY
- MEDIUM PRESSURE SYSTEM.
ATTACHMENT D-1 TECHNICAL SPECIFICATIONS
- HIGH PRESSURE SYSTEM
ATTACHMENT D-2 TECHNICAL SPECIFICATIONS
- MEDIUM PRESSURE SYSTEM
ATTACHMENT E CONFIDENTIALITY AGREEMENT
ATTACHMENT F PERFORMANCE BOND LETTER FROM THE
WILLIAMS COMPANIES AND PRODUCTION OPERATORS
CORPORATION
ATTACHMENT G TECHNICAL PROPOSAL.
4
<PAGE> 5
CONTRACT NO. 86-C-414
EL FURRIAL GAS COMPRESSION SERVICES
Between LAGOVEN, S.A., affiliate of Petr--leos de Venezuela, S.A., domiciled in
Caracas, constituted by document recorded in the First Government Registry of
Commercial Affairs in the Judicial Circuit of the Federal District and State of
Miranda on 18 December 1975 under No. 56, Volume 116-A and published in the
Municipal Gazette of the Federal District No. 14816 on 20 December 1975,
hereinafter called LAGOVEN, represented herein by Peter Pagazani, domiciled in
Caracas and holder of Identification Certificate No. 1.753.884, acting under
power of attorney granted by LAGOVEN, S.A. authenticated before Notary Public
Office Number Sixteen in Caracas, on February 1st, 1995, recorded under Number
52, Volume 07, of the books of authentications and recorded in the Government
Registry of Commercial Affairs of the Judicial Circuit of the Federal District
and State of Miranda, on March 1st, 1995, recorded under Number 36, Volume
2-C-SGDO, for one part and for the other Williams International Company,
affiliate of The Williams Companies, incorporated and existing under the laws
of the State of Delaware and domiciled in Tulsa, Oklahoma, United States of
North America, represented herein by Randall Lee Barnard, a United States
citizen and holder of passport No. 131482551, domiciled in the city of Tulsa,
Oklahoma, acting under power of attorney granted by Williams International
Company, authenticated before Notary Public of the State of Oklahoma and
certified by the Consulate of Venezuela in the city of Houston, Texas; and
Production Operators Incorporated, affiliate of Production Operators
Corporation and incorporated and existing under the laws of the State of
Florida and domiciled in the city of Houston, Texas, United States of North
America, represented herein by Brian Anthony Matusek, a United States citizen
and holder of passport No. 130481643, domiciled in the city of Houston, Texas,
acting as Vice President and duly authorized to act hereunder, hereinafter
called THE OPERATOR, an agreement has been made to enter into the contract
contained in the following clauses.
[STAMP:]
LAGOVEN, S.A.
LEGAL DEPARTMENT - CARACAS
D.B.A.
ILLEGIBLE SIGNATURE
5
<PAGE> 6
CONTRACT NO. 86-C-414
EL FURRIAL GAS COMPRESSION SERVICES
1. CLAUSE ONE
DEFINITIONS
The words and terms that appear in this contract, whether written in
plural or singular form, will have the following meaning:
1.1 START UP CERTIFICATE: Document signed by the REPRESENTATIVES of
LAGOVEN and THE OPERATOR, one for each Plant, indicating the start
date of the SERVICE of each Plant.
1.2 CONTRACT YEAR: Period of twelve (12) months that begins January 1 and
ends the following December 31 in accordance with the Gregorian
calendar. Except the first CONTRACT YEAR which begins on the date of
the START UP CERTIFICATE and ends December 31 of that year and the
last CONTRACT YEAR which begins January 1 of the CONTRACT YEAR and
ends on the anniversary date of the date of START UP CERTIFICATE.
1.3 CONTRACT: The terms and conditions established in this document and
its Attachments.
1.4 DAY: Corresponds to the 24 hour period that begins at 12:00 am, local
time.
1.5 DOLLARS: Refers to United States of America Dollars.
1.6 METERING STATION: Refers to the set of metering instruments belonging
to THE OPERATOR which OPERATOR will construct and maintain in
accordance with the specifications indicated in CLAUSE ELEVEN -
METERING.
1.7 GAS: Gas handled and compressed at the INSTALLATIONS in accordance
with the conditions established in the TECHNICAL SPECIFICATIONS that
comprise Attachment "D" of the CONTRACT.
1.8 INSTALLATIONS: The infrastructure, equipment and pipeline systems
belonging to THE OPERATOR to be designed, constructed, maintained
6
<PAGE> 7
CONTRACT NO. 86-C-414
and operated by THE OPERATOR to guarantee the SERVICE on reliable
bases including the installations for prevention and control of
hazards.
1.9 UTILITIES: Natural Gas and Electricity supplied directly or
indirectly by LAGOVEN at the interconnection points specified in
Attachment "D" TECHNICAL SPECIFICATIONS.
1.10 MONTH: Calendar month that begins on the first day of each month.
1.11 MMSCFD: Million standard cubic feet per DAY.
1.12 PROJECT: Refers to the design and construction of the INSTALLATIONS.
1.13 PARTY(IES): Individually LAGOVEN or THE OPERATOR, and both
collectively.
1.14 PDVSA AND AFFILIATES: PDVSA is Petr--leos de Venezuela, S.A., company
owning one hundred percent (100%) of the stock of LAGOVEN. AFFILIATES
are companies in which PDVSA directly or indirectly owns at least
fifty percent (50%) of the stock.
1.15 INITIAL PERIOD: Corresponds to the first 20 years of SERVICE for the
High Pressure Plant and 15 years for the Medium Pressure Plant,
calculated from the signing of the START UP CERTIFICATE of the gas
compression operation for each plant.
1.16 PERIOD OF SERVICE: Is the time consisting of the INITIAL PERIOD and
the extensions agreed upon by the PARTIES.
1.17 SERVICE CONNECTION POINT: Points where the following connections are
made in accordance with specifications established in Attachment "D",
TECHNICAL SPECIFICATIONS.
o Electrical feed connection to High and Medium Pressure Compression
Plants.
7
<PAGE> 8
CONTRACT NO. 86-C-414
o Firewater line from the Jusep'n area to the Medium Pressure
Compression Plant.
o Points where the condensate discharge and oily water drainage from
the Medium Pressure Plant are connected to the corresponding
Jusep'n systems.
1.18 INTERCONNECTION POINT: Points where the following connections are
made in accordance with the specifications established in Attachment
D, TECHNICAL SPECIFICATIONS.
o Suction pipeline of the Medium Pressure Plant to the Jusepin
production installations.
o Discharge pipeline of the Medium Pressure Plant to ACOGAS Plant.
o ACOGAS Plant to pipeline that transports the Gas to the High
Pressure Compression Plant.
o ACCRO Plant Discharge to feed pipeline of the High Pressure
Compression Plant.
o MUSCAR Plant Discharge to feed pipeline of the High Pressure
Compression Plant.
o Connection of gas distribution pipelines to LAGOVEN and CORPOVEN
gas injection wells.
1.19 PPM: Refers to parts per million.
1.20 SAFETY AND HEALTH: Refers to all the activities related to Industrial
Safety or Accident Prevention, Fire Prevention and Control,
Environmental Protection and Industrial Hygiene.
1.21 REPRESENTATIVE(S): The Person(s) designated by each PARTY in
accordance with this CONTRACT to fulfill the
8
<PAGE> 9
CONTRACT NO. 86-C-414
duties and obligations of LAGOVEN and/or THE OPERATOR, respectively.
1.22 SERVICE: Refers to all the activities inherent to the receipt,
compression, transportation and distribution of gas in accordance with
the conditions and amounts specified in Attachment "D", TECHNICAL
SPECIFICATIONS.
1.23 SITE: Areas of land where the INSTALLATIONS will be constructed as
indicated in Attachment "D", TECHNICAL SPECIFICATIONS.
2. CLAUSE TWO
PURPOSE OF THE CONTRACT
2.1 THE OPERATOR will perform the SERVICE for account of LAGOVEN, but at
risk and cost of THE OPERATOR, it being understood that:
2.1.1 The OPERATOR'S remuneration for the SERVICE will only
consist of the remuneration stipulated in CLAUSE TWELVE: RATE AND
ADJUSTMENTS and will not include rights of ownership on the gas,
compressed or to be compressed, or the hydrocarbons.
2.1.2 The rights of THE OPERATOR arising from this CONTRACT
do not include rights over the economic benefits resulting from
LAGOVEN'S commercial activities.
2.1.3 This CONTRACT is entered into with THE OPERATOR with
regard to its particular conditions for which it is considered a
personal service contract. As a consequence of the above, THE
OPERATOR may not merge, associate or change its stockholder
structure or transfer the ownership of more than thirty three
percent (33%) of its voting shares without notifying LAGOVEN in
writing with at least (3) months notice prior
9
<PAGE> 10
CONTRACT NO. 86-C-414
to the date on which any of the above mentioned situations is
directed to take effect and must provide to LAGOVEN any
documentation the latter requests. The authorization of LAGOVEN
may not be arbitrarily denied; however, if in relation to this
CONTRACT, LAGOVEN deems it not convenient to its interests that
any of the above referenced circumstances take place, it will so
advise THE OPERATOR and if THE OPERATOR notwithstanding LAGOVEN'S
objection insists on carrying out its decision, LAGOVEN may cancel
this CONTRACT. In this event, the provisions of CLAUSE TWENTY
NINE - TERMINATION FOR NONCOMPLIANCE, Section 29.2 shall be
applied.
2.1.4 The following attachments are part of this CONTRACT:
ATTACHMENT A Performance Bond Letter Of Credit
ATTACHMENT B Formula For Increases
ATTACHMENT C Terms Of Payment, Bonus And Penalty
- Price Of The Contract.
ATTACHMENT C-1 Terms Of Payment, Bonus And Penalty
- High Pressure System.
ATTACHMENT C-2 Terms Of Payment, Bonus And Penalty
- Medium Pressure System.
ATTACHMENT D-1 Technical Specifications
- High Pressure System
ATTACHMENT D-2 Technical Specifications
- Medium Pressure System
ATTACHMENT E Confidentiality Agreement
ATTACHMENT F Performance Bond Letter From The
Williams Companies And Production
Operators Corporation
ATTACHMENT G Technical Proposal.
10
<PAGE> 11
CONTRACT NO. 86-C-414
3. CLAUSE THREE
DURATION
3.1 This CONTRACT will take effect on the date it is signed and will have
a duration of twenty (20) years calculated from the date the START UP
CERTIFICATE is signed for the service of the High Pressure Plant, plus
the time it takes to design and construct the INSTALLATIONS.
However, as regards the Medium Pressure Plant, the time of operation
that Lagoven states it requires according to the TECHNICAL
SPECIFICATIONS, Attachment "D", is fifteen (15) years, calculated from
the START UP CERTIFICATE corresponding to said Plant. At the end of
that time, there will be no obligation on Lagoven's part to receive
SERVICE from the Medium Pressure Plant and the provisions of Section
3.3 below will apply unless the PARTIES agree to extend the SERVICE in
accordance with Section 3.2 of this clause.
3.2 LAGOVEN may request the extension of the CONTRACT for additional
periods and to that end will notify THE OPERATOR in writing at least
two (2) years prior to the termination of the INITIAL PERIOD, stating
the duration of the requested extension. After THE OPERATOR receives
the notification, the parties will meet to agree on the terms and
conditions of the extension of the CONTRACT. Any extension agreed
upon between the PARTIES will be in writing.
3.3 If the parties cannot reach an agreement for the extension of the
CONTRACT, LAGOVEN with at least two (2) months prior to the expiration
of the INITIAL PERIOD or of any of its eventual extensions, may:
3.3.1 Request return of the SITE, in which case THE OPERATOR will
proceed to dismantle the INSTALLATIONS upon expiration of the
INITIAL PERIOD or of any of its extensions and do everything
necessary to return the SITE free of structures,
installations,
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CONTRACT NO. 86-C-414
machinery, equipment, waste and in the same environmental
conditions it was in at the time it was received. To these
effects, THE OPERATOR will have a period of one hundred twenty
(120) days calculated from the termination of the CONTRACT.
For the area of each Plant, it will not be required that THE
OPERATOR restore the original topography and vegetation to
conditions prior to construction but it will be the OPERATOR'S
responsibility to completely withdraw all structures,
equipment or material, whether on the surface or below it
within the area of each Plant including any equipment,
structures and materials outside the area of same that have
formed an integral part of said Plant, leaving the place
completely cleared and clean.
In the case of gas pipelines outside the Plants, THE OPERATOR
must remove all equipment, material or surface structure that
forms part of or is associated with said pipelines (example:
vents, manifolds, pipe, valves, fences, platforms, foundation
slabs, etc.) leaving these areas in the same cleaned up
conditions as specified for the Plants, it not being necessary
to remove the structures located in the subsoil.
3.3.2 Acquire all or part of the INSTALLATIONS, materials, machinery
and equipment utilized or destined to render the SERVICE for a
price that will be agreed upon among the parties. If LAGOVEN
decides to acquire only part of the INSTALLATIONS and other
property, the provisions of Section 3.3.1 above will apply to
those which it does not wish to acquire.
Each one of the PARTIES will assume its legal costs related
with the sales-purchase operation.
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3.4 In the event that LAGOVEN notifies THE OPERATOR of its intent to
acquire all or part of the INSTALLATIONS, THE OPERATOR is obligated
to:
3.4.1 Not make any change in the accounting practices, operation,
maintenance, contracts and in general of any kind that might
affect the receiving, compression and distribution of gas or
the INSTALLATIONS.
3.4.2 Take all reasonably necessary and appropriate actions to
preserve and protect the value and usefulness of all the assets
belonging to THE OPERATOR necessary to completely fulfill the
obligations of THE OPERATOR specified in this CONTRACT.
3.4.3 Not execute or omit any action or permit any action to be
executed or omitted which may cause an infraction or violation
of THE OPERATOR on any contract for goods or services, or
supply of materials, or on third parties and which could affect
any of the properties or assets of THE OPERATOR.
4. CLAUSE FOUR
OBLIGATIONS AND GUARANTEES OF OPERATOR
4.1 THE OPERATOR will develop and carry out under its entire and exclusive
responsibility all the activities necessary to provide the SERVICE on
the terms established in the CONTRACT and in accordance with terms and
conditions of its proposal dated September 17, 1996, and the
subsequent technical clarifications contained in documents
POI-WIC/IGAS-P-026 / 027 / 028 / 029 / 030 / 031 / 032 and 033, all of
which is part of Attachment G of this CONTRACT.
The INSTALLATIONS to be executed by THE OPERATOR are the ones defined
in its technical proposal dated September 17, 1996 as GAS
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CONTRACT NO. 86-C-414
AND ELECTRIC DRIVERS ALTERNATE CASE for the High Pressure Plant and
HIGH SPEED OPTION for the Medium Pressure Plant.
4.2 In the event of noncompliance with the provisions stipulated in the
above section, LAGOVEN will have the option of cancelling the CONTRACT
in accordance with Clause Twenty Nine - TERMINATION FOR NONCOMPLIANCE,
Section 29.1.
4.3 THE OPERATOR must begin the service with the compression in the High
Pressure Plant of a stable 300 MMSCFD of gas in accordance with the
technical specifications included in TECHNICAL SPECIFICATIONS,
Attachment "D-1", seventeen (17) months after signing the CONTRACT and
increase it by an additional stable 150 MMSCFD of gas twenty (20)
months after signing the CONTRACT.
4.4 THE OPERATOR must begin the service in the Medium Pressure Plant with
the compression of the rate of flow established in the base profile
eight (8) months after signing the CONTRACT.
4.5 THE OPERATOR will construct the INSTALLATIONS the principal parts of
which are:
4.5.1 Suction pipeline from the Medium Pressure Plant and its
connection to the Jusep'n production installations.
4.5.2 Medium Pressure Compression Plant.
4.5.3 Discharge pipeline from the Medium Pressure Plant and its
connection to the ACOGAS Plant.
4.5.4 Pipeline for transporting from ACOGAS Plant property of LAGOVEN
to the High Pressure Compression Plant.
4.5.5 Pipeline for transporting gas from ACCRO to High Pressure
Plant.
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4.5.6 High pressure gas compression plant. (High Pressure Plant).
4.5.7 Pipeline for transporting gas at high pressure to gas injection
wells.
4.6 The plants will be constructed on LAGOVEN lands which will be assigned
by gratuitous bailment to THE OPERATOR. The pipelines, for their
part, will be constructed on lands where LAGOVEN will establish
easements which will be extended to THE OPERATOR. These pipelines
must be placed maximizing the use of existing corridors, THE OPERATOR
being responsible for the design of the route which must be submitted
to LAGOVEN for approval prior to carrying out the above mentioned
easements.
4.7 THE OPERATOR agrees to include in the design of the INSTALLATIONS the
provisions necessary to minimize the effect that the operation, stable
or not, of its INSTALLATIONS might have on the operation of the systems
of LAGOVEN and AFFILIATES. These provisions will be part of the
PROJECT.
4.8 THE OPERATOR must construct, maintain and operate THE METERING
STATIONS, in the amount, location and arrangement established in
Attachment "D", TECHNICAL SPECIFICATIONS.
4.9 Without prejudice to any other declarations contained in this CONTRACT,
THE OPERATOR expressly declares the following:
4.9.1 It is completely knowledgeable of the nature of the SERVICE to
be provided and is fully and technically prepared for it.
4.9.2 It is fully familiar with the prevailing conditions in
Venezuela and communities adjacent to the INSTALLATIONS, as well as
legislation applicable to the SERVICE and the local regulations.
Likewise, THE OPERATOR declares it knows the SITE, the general and
local conditions, as well as
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all the factors that could have an impact on the SERVICE during
the design, construction, operation and maintenance of the
INSTALLATIONS, such as the physical, meteorological and climatic
conditions that prevail at the SITE, the topography and
accessibility of the SITE, the availability of labor, materials,
equipment, electricity, transportation resources, docks, lodging,
industrial services and special services.
4.9.3 That any lack, carelessness, error or omission in obtaining the
information referenced in number 4.9.2 above as well as any other
of equal or similar nature, will not relieve it of its
responsibility in complying with its obligations that are derived
from this CONTRACT.
4.9.4 It guarantees that it will provide the SERVICE according to the
requirements of this CONTRACT.
4.9.5 That it will correct, in the shortest time possible, any
failure that occurs during the design or construction of the
INSTALLATIONS or during the rendering of the SERVICE at its sole
and exclusive account, without cost whatsoever for LAGOVEN.
4.10 THE OPERATOR guarantees that it will hire qualified personnel
necessary for the operation and maintenance of the INSTALLATIONS. THE
OPERATOR is the sole party responsible for fulfilling the obligations
relative to said personnel stipulated in the Organic Labor Law in
effect in Venezuela, as well as any other law, regulation, decree or
resolution issued by the competent authorities, THE OPERATOR being
subject to that expressly established in same.
4.11 THE OPERATOR guarantees that the personnel and other resources
associated with the INSTALLATIONS are appropriate and sufficient to
maintain optimum operation and suitable maintenance of the
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CONTRACT NO. 86-C-414
INSTALLATIONS, to permit guaranteeing a reliable, continuous,
efficient and safe SERVICE.
4.12 THE OPERATOR guarantees that all the materials, equipment, flanges and
accessories to be used in the construction of the INSTALLATIONS will
be of the appropriate quality on a world-wide level for similar
installations; that internationally recognized engineering practices
will be used; and that it will use during the design and construction
of the INSTALLATIONS one of the following codes: European, Japanese
or United States of America. In the event of using European or
Japanese code, THE OPERATOR will provide to LAGOVEN its equivalent to
the United States of America code.
Likewise it guarantees that the flanges and piping accessories to be
used in the INSTALLATIONS will be of recognized reputation and
reliable origin and its quality must not be questioned by national or
foreign specialized companies or institutions.
4.13 THE OPERATOR guarantees that all the components, installations and
equipment of the INSTALLATIONS will be maintained in good condition
and that the maintenance work will be performed to achieve levels of
availability of the units equal to or greater than those contemplated
in the original design of the plant and which are stated in the
proposal in order to minimize the sporadic deficiencies in plant
capacity which will be subject to penalties established in Attachment
"C" of this CONTRACT.
4.14 Without prejudice to the provisions stipulated in CLAUSE TWENTY FIVE -
FORCE MAJEURE or ACT OF GOD, during the period of validity of this
CONTRACT,THE OPERATOR will be the sole party responsible for the
continuity of the SERVICE, being obligated to proceed with the actions
that may be necessary with greatest speed possible and assuming all
related expenses when said continuity is interrupted.
4.15 THE OPERATOR guarantees ON-SITE availability of the usual and
customary spare parts necessary to repair in the briefest possible
time any failure of any component of the INSTALLATIONS.
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4.16 THE OPERATOR will be responsible for handling and disposal of
contaminated waste such as: contaminated rain water, sewage and any
other waste from the INSTALLATIONS in an environmentally safe and
reliable manner complying with the legal dispositions on the matter.
4.17 THE OPERATOR is obligated to comply with all Venezuelan laws,
regulations, ordinances, decrees, resolutions and other dispositions
relative to rendering the SERVICE. It is expressly understood that
the violation of the legal dispositions, wilfully, through ignorance
or misinterpretation will not relieve THE OPERATOR from repairing
without delay to its exclusive account the damages and losses
resulting from its action or omission or relieve it of its
responsibility of satisfactorily rendering the SERVICE or complying
with the obligations derived from this CONTRACT.
4.18 THE OPERATOR must inform LAGOVEN in writing of any modification in the
INSTALLATIONS that could affect the SERVICE.
4.19 THE OPERATOR must deliver to LAGOVEN, within thirty (30) days after
signing the CONTRACT the PROJECT Performance Schedule describing its
sequence and duration covering the period between the date when the
CONTRACT comes into effect and the DATE OF THE START UP CERTIFICATE of
each one of the Plants (High and Medium Pressure). Any change that
may occur on said Performance Schedule prior to the start of the
SERVICE must be reported in writing to LAGOVEN providing a detailed
description of the reasons for such change and attaching the modified
Performance Schedule. In any event, THE OPERATOR is obligated to keep
LAGOVEN informed on the progress of the projects and fulfillment of
the Performance schedule.
4.20 THE OPERATOR will obtain prior written authorization from LAGOVEN to
publish any information related to the SERVICE and/or the SITE. THE
OPERATOR will also require its subcontractors to comply with this
requirement.
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4.21 THE OPERATOR will maintain all the original data and information
resulting from the SERVICE including but not limited to geophysical
data, engineering, records and completion reports of THE PROJECT and
any other data that THE OPERATOR may compile while the CONTRACT is in
effect. Said data and information may be reviewed by LAGOVEN at any
time and will be delivered to LAGOVEN in the event the installations
are acquired upon termination of the CONTRACT.
4.22 THE OPERATOR will permit LAGOVEN representatives access to all the
installations associated with this CONTRACT in order to conduct
inspections, audits or investigation of any kind related to the
construction, operation or maintenance of the INSTALLATIONS that may
affect the SERVICE and will facilitate the performance of the
activities of said representatives.
5. CLAUSE FIVE
OBLIGATIONS OF LAGOVEN
5.1 LAGOVEN will pay THE OPERATOR for the SERVICE according to the volume
of gas compressed and according to the terms and conditions stipulated
in this CONTRACT.
5.2 LAGOVEN will assign by gratuitous bailment to THE OPERATOR two lots of
land. Lot A, located in the area of EL FURRIAL where the High
Pressure Plant will be constructed and Lot B where the Medium Pressure
Compression Plant will be constructed located in the area of Jusep'n.
Said lots of land will be assigned for a period equal to the SERVICE
of each Plant, plus the time period that construction lasts on each of
the lots, as well as the time period needed for dismantling
INSTALLATIONS, when the SERVICE is completed. LAGOVEN will deliver
Lot A in a period no greater than five (5) months and Lot B in a
period not greater than two (2) months, both periods calculated from
the date the CONTRACT is signed. These periods will apply for
purposes of availability of the lands for starting construction; but
will not affect the possibility that THE OPERATOR has, from the date
the
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CONTRACT is signed to have access to the lands for purposes of
performing studies and/or surveys that do not alter existing
conditions of said lands.
The referenced lots will be returned upon termination of the service
in the same physical and environmental conditions in which they were
delivered.
In addition to the lands, LAGOVEN will supply the rights of way for
laying the gas gathering , transportation and distribution lines
outside the Compression Plants. The rights of way will be obtained by
LAGOVEN in a period no greater than three (3) months calculated from
the date on which LAGOVEN receives from THE OPERATOR the route plans
with the detailed topographical information together with the
descriptive report and technical specifications of the lines.
In the event of delay in obtaining lots A and B, or the easements,
beyond the maximum periods previously indicated, LAGOVEN will
recognize an extension of the PROJECT completion date if said delay
directly causes a delay in the construction which must be demonstrated
by THE OPERATOR. In no event may the delay in construction be greater
than the time of the delay in obtaining the easements or obtaining
lots A and B.
5.3 The lands that are assigned (lots A and B) will be the object of an
environmental inspection (Base Line Study) conducted by a company
qualified for that purpose contracted and paid by LAGOVEN. The result
of said inspection will be accepted by the PARTIES as proof of the
pre-existing environmental condition for which LAGOVEN assumes
responsibility. The result of the environmental inspection will be an
attachment to the gratuitous bailment contract that the PARTIES will
execute.
5.4 LAGOVEN will be responsible for negotiating and completing those
agreements with third parties, holders of lands and owners of
properties within the site required by THE OPERATOR to carry out the
SERVICE. Said rights granted by third parties to LAGOVEN will be
extended to THE OPERATOR throughout the duration of the SERVICE.
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6. CLAUSE SIX
SAFETY AND HEALTH STANDARDS
6.1 THE OPERATOR will at all times maintain all its work areas in safe,
orderly and cleaned up conditions during construction, operation and
maintenance of the INSTALLATIONS as well as all the installations
associated with same.
6.2 THE OPERATOR will be responsible upon termination of this CONTRACT,
for cleaning up and returning the SITE to the original condition it
was in at the time it was delivered excluding only the underground
sections of the pipelines located outside the limits of the areas
denominated Lot "A" and Lot "B" defined in Section 5.2. THE OPERATOR
will not be responsible for preexisting environmental conditions.
6.3 THE OPERATOR guarantees to establish and SAFETY AND HEALTH program
suitable to the characteristics and type of work that will be
performed during the design phases, construction, start up, operation,
maintenance and dismantling of the INSTALLATIONS.
6.4 THE OPERATOR will take the necessary steps for preservation and safety
of life, property, crops, vegetation, environmental protection,
prevention of environmental contamination and health and safety of
personnel taking all necessary precautions to avoid harming the
environment during the design phases, construction, start up,
operation, maintenance and dismantling of the INSTALLATIONS. Likewise
it will take the necessary steps so as, in the event of disasters
and/or accidents, to minimize the effects of same on people, the
environment and property.
6.5 THE OPERATOR will have supervisory personnel duly trained in the
performance of the activities of the PROJECT and the SERVICE and in
aspects of SAFETY AND HEALTH related to same. Likewise it will be
responsible for training its personnel on matters of SAFETY AND HEALTH
and will provide suitable training that,
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at a minimum, conforms with internationally accepted practices and
standards.
6.6 THE OPERATOR declares it is fully aware of and agrees to comply with
Venezuelan laws, regulations and other legal dispositions on matters
of SAFETY AND HEALTH and further agrees to comply with the standards
and procedures of SAFETY AND HEALTH presented by THE OPERATOR in its
proposal and approved by LAGOVEN which is an integral part of this
CONTRACT.
6.7 THE OPERATOR declares it is knowledgeable of the systems of
notification, reporting and investigation of accidents utilized by
PDVSA and agrees to follow them strictly.
6.8 THE OPERATOR must comply with the design standards of PDVSA'S Hazards
Engineering Manual contemplated in Attachment "D", TECHNICAL
SPECIFICATIONS, which it states it knows and is considered an integral
part of this CONTRACT.
6.9 It is understood that the design, operation and maintenance of the
fire fighting systems and equipment of the INSTALLATIONS will be the
exclusive responsibility of THE OPERATOR.
6.10 THE OPERATOR will be responsible for the performance of a "Hazop" risk
analysis of operability and a quantitative risk analysis of the design
of the INSTALLATIONS. This analysis must be performed by a
specialized company selected by THE OPERATOR and approved by LAGOVEN
and will be contracted and paid by THE OPERATOR. The final design of
the installations must comply with the risk tolerance criteria
established by PDVSA, according to the standards indicated in
Attachment "D", TECHNICAL SPECIFICATIONS.
Throughout the period of SERVICE, THE OPERATOR agrees to conduct
technical safety audits, at the time LAGOVEN requires, of THE
OPERATOR'S INSTALLATIONS through a specialized company previously
approved by LAGOVEN and contracted and paid by THE OPERATOR. THE
OPERATOR must execute, at its cost and in the briefest time possible,
the actions and/or
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improvements necessary to eliminate the unsafe conditions of the INSTALLATIONS
identified in the audit report which might affect the safety of the
installations owned by LAGOVEN. LAGOVEN may request up to a maximum
of one (1) audit every six (6) months.
7. CLAUSE SEVEN
TECHNICAL INFORMATION
7.1 LAGOVEN reserves the right, and OPERATOR so agrees, to request from
OPERATOR any information on any technical aspect relative to the
design and/or construction of the INSTALLATIONS, each time LAGOVEN
deems it necessary for the purpose of verifying the compliance with
standards on SAFETY AND HEALTH. Thereafter, LAGOVEN may make
suggestions or comments relative to design and/or construction
aspects, without this signifying the acquisition of a commitment,
responsibility or obligation whatsoever on LAGOVEN'S part, for the
design and/or construction of the INSTALLATIONS, or the partial or
total release of THE OPERATOR from any of the responsibilities or
obligations that THE OPERATOR has contracted according to this
CONTRACT.
7.2 In accordance with Section 7.1 above, THE OPERATOR will deliver to
LAGOVEN, for its information during the design phase of the
INSTALLATIONS a copy of the documents and plans that are listed in
this section.
THE OPERATOR is free to make as many deliveries of said documents and
plans during the design phase of the INSTALLATIONS as it deems
convenient; but at least must make two (2) formal deliveries: One
upon completion of the basic engineering and another upon completion
of the approved construction plans before starting construction of the
INSTALLATIONS.
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The documents to be delivered to LAGOVEN are the following:
a) Process Flow Diagrams ("PFD's")
b) Piping and Instrumentation Diagrams ("P&ID's")
c) Equipment Layout Plan ("Plot Plan")
d) Piping Layout and Underground Masonry
e) ESD Systems Cause and Effect Diagram
7.3 THE OPERATOR must submit to review and approval of LAGOVEN the
construction plans of any portion of the INSTALLATIONS to be
interconnected to installations of LAGOVEN and/or any AFFILIATE. The
referenced plans must be submitted, at the latest, three (3) months
before construction starts on any of the systems involved. LAGOVEN
will issue the approval and/or comments on the construction plans
within a period not greater than thirty (30) continuous days
calculated from the date of formal receipt of same.
It is understood that this will be the only portion of the
INSTALLATIONS where the design will be approved by LAGOVEN, without
this relieving THE OPERATOR of its responsibility for errors,
omissions, defects or failures in the design and construction of such
systems or installations.
7.4 Given the importance of the reliability of the SERVICE, all the
technical documents related to the INSTALLATIONS such as criteria and
bases of design, drawings, sketches and plans, specifications and/or
materials sheets, installation manuals, equipment testing reports,
final construction plans, detailed time schedules, operations and/or
maintenance manuals, mechanical catalogs and any other similar and/or
engineering document must be available for information and/or
inspection by LAGOVEN which shall have the right to reproduce and use
them at their discretion with prior consent of THE OPERATOR which
shall not deny same unless there are sufficiently justifiable reasons
for such and without this implying a violation of right of ownership
or any other right of THE OPERATOR but always subject to the
confidentiality to which CLAUSE TWENTY FOUR - CONFIDENTIALITY refers.
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7.5 The access and activities mentioned in this clause must be performed
in such a way as to not disturb or interrupt the construction or
operation of the INSTALLATIONS.
7.6 LAGOVEN assumes no obligation of reviewing, detecting errors or
omissions or correcting any deficiency in the technical information
supplied by THE OPERATOR for information.
8. CLAUSE EIGHT
PERMITS
8.1 THE OPERATOR will be responsible and defray its own expenses for the
timely processing and obtaining of all the permits, licenses,
certificates and visas required by competent governmental authorities
which have jurisdiction over THE OPERATOR, its employees and/or agents
by reason of the design, construction, operation and maintenance of
the INSTALLATIONS, including those necessary for importing any
material and equipment throughout the period of validity of this
CONTRACT.
8.2 THE OPERATOR will also be responsible for the performance of any
environmental or other kind of study required by competent authorities
except for the environmental inspection contemplated in Clause 5.3 of
this CONTRACT.
8.3 LAGOVEN may cooperate, according to its capability and availability of
personnel, in the processing of permits, licenses or certificates
required by THE OPERATOR but in no case will LAGOVEN assume any
responsibility over the result of its effort.
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9. CLAUSE NINE
FIRES AND OTHER EMERGENCIES
9.1 At OPERATOR'S request, LAGOVEN may provide support fighting fires
occurring at the INSTALLATIONS or SITE, it being understood that
LAGOVEN will not be responsible for material damages or bodily
injuries resulting from its intervention.
9.2 LAGOVEN at OPERATOR'S request, in accordance with the availability and
capability of LAGOVEN'S personnel, will provide support in
transporting injured people from the INSTALLATIONS or SITE to
assistance centers during the fires and/or any other emergency. THE
OPERATOR relieves LAGOVEN from all responsibility that may arise from
transporting injured people and will be in charge of obtaining the
permits, authorizations or certificates necessary for transporting
injured people.
9.3 In the event of coinciding fires or other emergencies in a LAGOVEN
INSTALLATION and in the INSTALLATIONS or SITE, it is understood that
LAGOVEN will give preference to attending said fires or other
emergencies in its own installations and/or injured people.
9.4 In the event that LAGOVEN supports THE OPERATOR in an emergency at the
INSTALLATIONS or SITE, THE OPERATOR will reimburse LAGOVEN the
expenses incurred by said support. To that effect LAGOVEN will
present an invoice for such expenses that must be paid within thirty
(30) days after it is presented.
10. CLAUSE TEN
START OF SERVICE
10.1 For each Plant, THE OPERATOR must report to LAGOVEN in writing thirty
(30) days in advance of the date on which the PROJECT will be
completed and testing will begin on the INSTALLATIONS.
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At the same time as this notification or on an earlier date, THE
OPERATOR will deliver to LAGOVEN the detailed start up procedure of
the INSTALLATIONS.
For each Plant, THE OPERATOR will ask LAGOVEN in writing two (2)
months in advance for the gas requirements to conduct the equipment
start up tests. Subject to THE OPERATOR'S compliance with the
conditions described in this section, LAGOVEN will guarantee the
availability of the volume of gas required for the High Pressure Plant
upon completion of thirteen (13) months calculated from the signing of
the CONTRACT and for the Medium Pressure Plant upon completion of
seven (7) months calculated from the signing of the CONTRACT.
10.2 For each on of the Plants that comprise the INSTALLATIONS, after
operations testing has been completed and THE OPERATOR deems that
SERVICE may begin, the latter will notify LAGOVEN as to the date
scheduled for said start up at least seven (7) days in advance.
In the case of the High Pressure Plant, the START UP CERTIFICATE will
only be signed upon completion of a minimum period of seven (7)
continuous days of operation during which the injection rate is
greater than or equal to 300 MMSCFD during at least ninety seven
percent (97%) of the time, in which case the starting date of the
SERVICE will be the first day of said period.
For the purposes of signing the START UP CERTIFICATE, if on the date
scheduled for starting operation, LAGOVEN does not provide the
required volume of 300 MMSCFD, operation must be carried out based on
injection volume that LAGOVEN is capable of providing, the other
requirements established in the preceding paragraph being fulfilled
for this new injection volume. Upon completion of these requirements,
the signing of the START UP CERTIFICATE can take place.
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The date of the START UP CERTIFICATE will be used for purposes of
applying the penalty and bonus established in CLAUSE FIFTEEN - BONUS
AND PENALTY.
For the Medium Pressure Plant, the START UP CERTIFICATE will only be
signed after completion of a minimum period of seven (7) continuous
days of operation during which the compression rate is equal to or
greater than 55 MMSCFD during at least ninety seven percent (97%) of
the time, in which case the starting date of the SERVICE will be the
first day of said period.
For the purposes of signing the START UP CERTIFICATE, if on the date
scheduled for starting of operation, LAGOVEN does not provide the
required volume of 55 MMSCFD, operation must be carried out based on
compression volume that LAGOVEN is capable of providing, the other
requirements established in the preceding paragraph being fulfilled
for this new compression volume. Upon completion of these
requirements, the signing of the START UP CERTIFICATE can take place.
The date of the START UP CERTIFICATE will be used for purposes of
applying the penalty in the event of delay, CLAUSE FIFTEEN - BONUS AND
PENALTY.
11. CLAUSE ELEVEN
METERING
11.1 REQUIREMENTS OF INSTRUMENTS
11.1.1 All the gas metering instruments will be located in the
METERING STATIONS. The information from those metering
instruments will be centralized in control rooms in each of THE
OPERATOR'S plants. The metering will be real time utilizing on
line instruments and computer devices unless otherwise determined
by mutual agreement. THE OPERATOR, by mutual agreement with
LAGOVEN,
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will have available output signals from the transmission and
computer devices to LAGOVEN for monitoring purposes. In the event
it is necessary, additional equipment will be installed to protect
and ensure suitable operation of the transmission and computer
devices.
11.1.2 LAGOVEN will have access at all times to the METERING STATIONS.
11.1.3 The readings, calibration, repair and adjustment of meters of
UTILITIES and of GAS including analytical equipment will be for
the account of THE OPERATOR.
11.1.4 The records of the metering instruments prepared by THE
OPERATOR will belong to it and THE OPERATOR will maintain them on
file for a period not less than two (2) years. Throughout this
period, THE OPERATOR at LAGOVEN'S request will deliver the records
and calculations for inspection and verification subject to their
return by LAGOVEN within a period of twenty (20) days following
receipt. LAGOVEN will have a similar obligation to maintain the
records.
11.2 CALIBRATION OF THE INSTRUMENTS
11.2.1 Calibration of the metering instruments means "the verification
that each instrument is within the metering tolerance accepted in
this CONTRACT".
11.2.2 At any time at LAGOVEN'S request or at least once a MONTH, THE
OPERATOR will calibrate the meters, instruments and accessories,
including the analyzers in the presence of REPRESENTATIVE(S) of
LAGOVEN as indicated below and the REPRESENTATIVES of both PARTIES
will observe together any adjustment that is made. The primary
metering elements will be inspected at each calibration.
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11.2.3 THE OPERATOR must maintain technical manuals from manufacturers
and calibration manuals on the instruments utilized to meter the
SERVICE. THE OPERATOR must establish and maintain the documented
procedures for calibration and agreement or lack of agreement of
the instruments and calibration equipment. THE OPERATOR must
train the personnel assigned to calibration of the metering
instruments of the SERVICE. THE OPERATOR must have an instrument
shop which will house the certified equipment and calibration
tools required for the metering instruments of the service.
11.2.4 THE OPERATOR will notify LAGOVEN in writing about the
performance of all the calibrations, tests and/or repairs of the
meters and accessory instruments at least seventy two (72) hours
prior to performing said calibrations, tests and/or repairs. The
cost of the calibrations, tests and/or repairs will be for THE
OPERATOR'S account.
11.2.5 THE OPERATOR will timely provide to the other PARTY a copy of
all the equipment tests, calibrations, repairs and/or test reports
and forms even when said activity is witnessed or not by LAGOVEN.
The percentage of error of the metering devices must not exceed
the limits indicated below:
<TABLE>
<CAPTION>
Parameter Limits
--------- ------
<S> <C> <C>
Differential Pressure: + 1 % of the scale ("full scale")
-
Static Pressure: + 0.5 % of the scale ("full scale")
-
Temperature: + 1 % of the scale ("full scale")
-
</TABLE>
If a deviation is detected in any official flow meter greater
than two percent (2%), LAGOVEN may adjust the volume metered
by the equipment that shows said deviation by a percentage
equal to half the difference existing between the
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percentage of deviation detected and the maximum tolerable two
percent (2%), to be applied from the date of the last
calibration to the date that the exceeding deviation is
detected.
12. CLAUSE TWELVE
RATE AND ADJUSTMENTS
12.1 The SERVICE will be compensated by applying two rates per million
standard cubic feet processed, which are indicated in attachment "C-1"
for the High Pressure Plant, and Attachment "C-2" for the Medium
Pressure Plant.
12.2 Said rates include all the costs of OPERATOR related to the SERVICE
such as national or foreign labor costs, maintenance, administration,
utilities, depreciation, profit, bonds, insurance, emergencies and all
applicable taxes, with the exception of the Wholesale and Luxury Tax
(ICSVM), which will be invoiced by THE OPERATOR and paid by LAGOVEN at
the applicable rate.
12.3 The rates will be adjusted after written request by THE OPERATOR by
applying the following procedures that are indicated for each cost
item, as follows:
NATIONAL DIRECT LABOR
Includes only personnel considered Lower Payroll. The base salary
offered will be adjusted in the same proportion of salary increases as
are produced by Applicable Collective Bargaining Contract and/or Laws
and/or Governmental Decrees.
The base benefits offered will be adjusted in proportion to the
changes that are produced by Applicable Collective Bargaining Contract
and/or Laws and/or Governmental Decrees.
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These adjustments will be effective on the same date that the salary
increases or benefit changes are produced by Applicable Collective
Bargaining Contract and/or Laws and/or Governmental Decrees.
FOREIGN DIRECT LABOR
To be adjusted at the beginning of the CONTRACT YEAR applying the
inflation index of the United States of America denominated the
Consumer Price Index.
MAINTENANCE
Includes the yearly costs of labor, equipment, etc., related to the
maintenance and repairs of any type (ordinary and extraordinary
maintenance) of the INSTALLATIONS as well as the costs related to
replacement of equipment and/or their parts, transportation,
nationalization and installation. Additionally includes the costs of
catalysts, oils lubricants and any other substance required for
maintenance of the INSTALLATIONS.
The portion in Bolivars will be adjusted quarterly in accordance with
the Price Indexes published by the Central Bank of Venezuela by
applying the formula for increases included in Attachment B of this
CONTRACT. The portion indicated in DOLLARS will be adjusted at the
beginning of each CONTRACT YEAR utilizing the inflation index of the
United States of America denominated the Producer Price Index.
In the event that any of the indexes used to adjust the prices ceases
to be published by the corresponding organization, the PARTIES agree
to define and immediately agree on an alternate index that will be
incorporated in the price adjustment mechanism.
The PARTIES agree to adjust the values of the indexes used in the
price adjustment mechanism in the event that the base year
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used as a reference is changed by the corresponding organization.
ADMINISTRATION
Includes the costs related to the administration of the INSTALLATIONS
such as: support personnel, including personnel considered Upper
Payroll, accounting, telephone, fax, stationery, mail, courier, bonds
and insurance, etc. In no event will it include "overhead" expenses
or expenses corresponding to parent organization of THE OPERATOR.
The portion in Bolivars will be adjusted semiannually in accordance
with the Price Indexes published by the Central Bank of Venezuela
applying the formula for increases included in Attachment B of this
CONTRACT.
The portion indicated in DOLLARS will be adjusted at the beginning of
each CONTRACT YEAR utilizing the inflation index of the United States
of America denominated the Producer Price Index.
UTILITIES
The cost associated with the utilities will be adjusted when there is
a change in their prices whether by Laws or Decrees or when LAGOVEN
deems it necessary. The date of the adjustment associated with
UTILITIES will take effect on the date when the change in price of
same takes effect.
DEPRECIATION
Corresponds to the amount of depreciation of the INSTALLATIONS. This
item will not be the object of adjustment at any time of the PERIOD OF
SERVICE.
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PROFIT
The profit is expressed in Dollars and Bolivars. Neither of the two
portions will be the object of adjustment at any time of the PERIOD OF
SERVICE.
EMERGENCIES
The costs and expenses related to fires and other emergencies
indicated in CLAUSE NINE - FIRES AND OTHER EMERGENCIES will not be
considered for purposes of requesting price adjustments by reason of
SERVICE nor for any reason.
12.4 THE OPERATOR accepts and agrees that, in the event LAGOVEN
requests OPERATOR to increase the capacity of the High Pressure Plant
to 600 MMSCFD according to the terms of Attachment "D", TECHNICAL
SPECIFICATIONS, the RATE to be applied calculated from the time in
which THE OPERATOR begins compression of 600 MMSCFD at the High
Pressure Plant shall be that which is presented in the proposal for
said capacity.
13. CLAUSE THIRTEEN
PRICE OF UTILITIES
LAGOVEN will deduct from the invoice presented by THE OPERATOR the
costs related to the UTILITIES corresponding to the month the invoice
is presented, consumed by THE OPERATOR, in accordance with CLAUSE
SIXTEEN - FORM OF PAYMENT.
The electricity will only be supplied by LAGOVEN temporarily, the
provision of this service will be assumed later by the company in
charge of supplying electricity.
THE OPERATOR will pay the electricity at the beginning of the CONTRACT
in an amount in Bolivars equivalent to 0.016975 Dollars for each
kilowatt
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hour. This rate may be adjusted by LAGOVEN when it deems necessary
and as long as it is the supplier of electricity.
14. CLAUSE FOURTEEN
RECOGNITION OF INVESTMENTS
14.1 In the event that by express written requirement from LAGOVEN THE
OPERATOR needs to optimize and/or expand the INSTALLATIONS and that to
take such actions it is necessary to make an investment of capital in
the INSTALLATIONS, the PARTIES will meet and analyze the reasonably
possible options for making such investments of capital before
committing any related funds.
THE OPERATOR will provide in writing to LAGOVEN in a period no greater
than sixty (60) continuous DAYS calculated from the date of receipt by
OPERATOR of LAGOVEN'S written requirement, an estimate of the cost of
the capital investment and the impact it might have on the rate. Once
the additional capital is approved by LAGOVEN, the PARTIES will agree
to adjust the rate according to CLAUSE TWELVE - RATE AND ADJUSTMENTS.
14.2 If an agreement is not reached on the options of the investment of
capital within a period of sixty (60) continuous DAYS calculated from
the date LAGOVEN receives the cost estimate, LAGOVEN may maintain the
SERVICE on the terms initially agreed or recur to the mechanisms for
resolving disputes in accordance with that provided in CLAUSE TWENTY
TWO - MECHANISMS FOR RESOLVING DISPUTES in order to make a decision
relative to the estimate of the cost of capital investment and the
impact that it might have on the rate.
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15. CLAUSE FIFTEEN
BONUS AND PENALTY
15.1 MEDIUM PRESSURE PLANT
The terms and conditions to be applied regarding Bonus and Penalty
both on STARTING the SERVICE as well as the normal operation of the
Medium Pressure Plant are those established in Attachment "C-2", TERMS
OF PAYMENT, BONUS AND PENALTY.
15.2 HIGH PRESSURE PLANT
The terms and conditions to be applied regarding Bonus and Penalty
both on STARTING the SERVICE as well as the normal operation of the
High Pressure Plant are those established in Attachment "C-1", TERMS
OF PAYMENT, BONUS AND PENALTY.
16. CLAUSE SIXTEEN
FORM OF PAYMENT
16.1 THE OPERATOR must present within the first five (5) work days of each
month a monthly invoice for providing the SERVICE to LAGOVEN during
the previous month which clearly states the total amount of GAS as
well as the amount owed in bolivars and DOLLARS in accordance with
CLAUSE TWELVE - RATE AND ADJUSTMENTS. The invoice must comply with
the requirements established in the applicable legal dispositions, be
printed on THE OPERATOR'S letterhead, be duly signed by THE OPERATOR'S
REPRESENTATIVE and be delivered to the office of LAGOVEN'S
REPRESENTATIVE.
16.2 The invoices presented by THE OPERATOR may be objected to, totally or
partially, by LAGOVEN within the 10 days following their
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receipt. The objections will be reported to THE OPERATOR within the
time frame indicated. THE OPERATOR in this event may elect to present
an invoice that does not include the amounts objected to which will be
paid within the period indicated in Section 16.4 or may retain the
objected to invoice until explaining the objections with LAGOVEN. It
is understood that the presentation of an invoice that does not
include amounts objected to does not imply THE OPERATOR'S waiver of
said amounts. Likewise it is understood that the objected to amounts
will not earn interest of any kind.
16.3 LAGOVEN may suspend up to 20% of the total payment to which OPERATOR
has a right to protect or indemnify LAGOVEN for losses due to actions
solely imputable to THE OPERATOR in accordance with clause NINETEEN of
this CONTRACT, LAGOVEN will inform OPERATOR of the amount withheld and
the reasons for said withholding; it is understood that the withheld
amount will not generate interests of any kind.
16.4 LAGOVEN will pay to THE OPERATOR within thirty (30) calendar days
following presentation of the invoices the balance resulting after
having made any withholdings such as: Income Tax (ISLR), cost of
UTILITIES, municipal taxes and, if appropriate, the withholding to
which Section 16.3 above refers. The payment will be made by bank
deposit to the account that THE OPERATOR indicates through written
communication.
16.5 Any change that THE OPERATOR makes relative to the Account Number or
Banking Institution to which this Clause refers must be timely
reported to LAGOVEN in writing and signed by THE OPERATOR'S
REPRESENTATIVE.
16.6 LAGOVEN will pay to THE OPERATOR the amount of the portion in DOLLARS
in equivalent bolivars calculated at the exchange rate that is
applicable for the date the payment is processed, it being THE
OPERATOR'S responsibility to convert said payment to equivalent
DOLLARS. LAGOVEN will pay the exchange rate difference that may arise
between the rate of exchange utilized by LAGOVEN on the
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payment and the exchange rate in effect on the date said payment is
converted to DOLLARS so long as THE OPERATOR makes said conversion
within a maximum period of two (2) working days following the date of
the deposit or credit to account of THE OPERATOR. To make said
payment effective, THE OPERATOR will have eight (8) continuous days
following the date of the deposit or credit to account to submit the
request for the exchange difference by presenting the original receipt
for DOLLARS indicated on the invoice and the rate of exchange applied
by the financial institution. If the claim for the exchange
difference is not submitted within the indicated time period, it will
be understood that THE OPERATOR waives the right to present any claim.
On the other hand, THE OPERATOR must reimburse LAGOVEN the amounts in
bolivars in the event that the exchange difference results in a
decrease in the bolivar exchange rate with respect to the DOLLAR.
In the event that due to some law or governmental resolution such as
establishing an exchange rate control system it is impossible for THE
OPERATOR to acquire DOLLARS, LAGOVEN will pay in DOLLARS in a United
States of America bank the portion of payments that correspond to said
currency through credit to account at the bank indicated by THE
OPERATOR.
16.7 The invoice must break down the amount corresponding to the general
wholesale sales and luxury excise tax or any other tax of this kind
that is applicable.
17. CLAUSE SEVENTEEN
ACCOUNTING
17.1 All the books, invoices and records of THE OPERATOR related to the
operations under this CONTRACT will be maintained on a calendar year
basis, will be in accordance with Applicable Law and will be available
for audit by LAGOVEN.
17.2 Furthermore, THE OPERATOR must comply with those special instructions
or requirements not provided in legal dispositions or
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general-type accounting principals relative to the operations under
this CONTRACT which are indicated by LAGOVEN relative to its books,
records, invoicing processes, so long as such instructions or
requirements are reasonable in the context of general accounting
practices.
18. CLAUSE EIGHTEEN
AUDITING
18.1 During the life of the CONTRACT and up to two (2) years after
termination or resolution of same, representatives of LAGOVEN, duly
authorized, will have access at all times to all the books, records,
receipts, vouchers, personnel files and any other documents of
OPERATOR related to the SERVICE for the purpose of verifying
OPERATOR'S compliance with its contractual obligations.
18.2 The scope of the review by authorized REPRESENTATIVES of LAGOVEN may
also be extended to aspects related to the components of costs, cost
recovery factors, rates, other administrative, computer and
operational aspects which are advisable.
18.3 The auditing right may be extended to external auditing (independent
auditors), the latter being performed by specialized companies with
LAGOVEN'S Auditing Department maintaining strict interaction to ensure
the degree of independence that must exist and the technical and
operational performance of the work according to the scope of the
review conducted.
18.4 The result of the audit will be reported to THE OPERATOR. If from the
audit there is a credit in LAGOVEN'S favor, THE OPERATOR upon
LAGOVEN'S requirement will proceed to make the payment of the
resulting amount and must bear the reasonable costs incurred in
conducting the audit. Likewise if the audit results in a credit in
THE OPERATOR'S favor, LAGOVEN upon
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OPERATOR'S requirement will proceed to make the payment of the
resulting amount.
19. CLAUSE NINETEEN
RESPONSIBILITIES FOR DAMAGES
19.1 THE OPERATOR agrees to indemnify LAGOVEN in the event of claims,
suits, actions, losses, expenses or obligations, including attorneys
fees and/or expenses, costs and costs incurred by LAGOVEN that may
result from the injury or death of a LAGOVEN employee or for damages
or losses of material goods owned by LAGOVEN which are caused by
imprudence, negligence, incompetence, fault and/or wilful misconduct
of THE OPERATOR, its contractors, subcontractors, employees or any
other person, animal or thing for which THE OPERATOR must respond
civilly.
19.2 LAGOVEN agrees to indemnify THE OPERATOR in the event of claims,
suits, actions, losses, expenses or obligations, including attorneys
fees and/or expenses, costs and costs incurred by THE OPERATOR that
may result from the injury or death of an employee of THE OPERATOR or
for damages or losses of material goods owned by THE OPERATOR which
are caused by imprudence, negligence, incompetence, fault and/or
wilful misconduct of LAGOVEN, its contractors, subcontractors,
employees or any other person, animal or thing for which LAGOVEN must
respond civilly.
19.3 THE OPERATOR will indemnify and defend LAGOVEN in the event of claims,
suits, rights or actions, losses or obligations, including attorneys
fees and/or expenses, costs and costs incurred by LAGOVEN that may
result from injury or death of third parties, or damages of their
goods caused by imprudence, negligence, incompetence, fault and/or
wilful misconduct of THE OPERATOR, its contractors, subcontractors,
employees or any other person, animal or thing for which it must
respond civilly.
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19.4 LAGOVEN will indemnify and defend THE OPERATOR in events of claims,
suits, rights or actions, losses or obligations, including attorneys
fees and/or expenses, costs and costs incurred by THE OPERATOR that
may result from injury or death of third parties, or damages of their
goods caused by imprudence, negligence, incompetence, fault and/or
wilful misconduct of LAGOVEN, its contractors, subcontractors,
employees or any other person, animal or thing for which it must
respond civilly.
19.5 The PARTIES, among themselves, will only be responsible for the direct
damages that may arise during the life of the contract and will not
respond for loss of profit or indirect damages.
20. CLAUSE TWENTY
BONDS AND INSURANCE
20.1 LABOR BOND: THE OPERATOR agrees to obtain and maintain from the start
of the SERVICE a labor bond to guarantee to LAGOVEN the faithful and
sound performance of labor obligations assumed by THE OPERATOR towards
its workers in accordance with that established in the Organic Labor
Law and its Regulations in effect in Venezuela as well as the legal,
contractual benefits that may be agreed upon in the future to the
benefit of the workers or employees of THE OPERATOR. The bonded sum
will be the amount equal to ten percent (10%) of the annual payroll of
THE OPERATOR'S personnel in Venezuela for providing the SERVICE. This
bond must be delivered to LAGOVEN when the first START UP CERTIFICATE
is signed and must be in effect until fourteen (14) months after
termination of the CONTRACT, unless THE OPERATOR presents the
respective release forms endorsed by the competent Labor Inspector's
office.
LAGOVEN may withhold an amount equal to the amount guaranteed if THE
OPERATOR does not provide the referenced bond, keeping said
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withholding until THE OPERATOR provides such bond to LAGOVEN'S
satisfaction.
THE OPERATOR must obtain for its workers, the workers of its Assignees
and the workers of its subcontractors who are not Venezuelan and who
work in Venezuela the policies "Workers Compensation Insurance" for
North American employees and "Employers Liability Insurance" or its
equivalent if the workers are of a nationality other than North
American.
20.2 CIVIL LIABILITY INSURANCE: In order to ensure discharge of the
liability that is incumbent exclusively upon THE OPERATOR to indemnify
the eventual damages and losses caused by THE OPERATOR, its employees,
contractors or subcontractors on property, installations and/or
workers of LAGOVEN or third parties as a result of the construction of
the INSTALLATIONS or provision of the SERVICE which is the object of
this CONTRACT, THE OPERATOR must obtain a policy on civil liability to
third parties from an insurance company with a minimum coverage of
five million (US$ 5,000,000.00) DOLLARS throughout the life of this
CONTRACT.
The civil liability policy assists in the discharge of the liability
that THE OPERATOR assumes before third parties but in no event limits
it.
It is understood that during the phase prior to starting the SERVICE,
THE OPERATOR will only respond, as regards damages to property of
LAGOVEN, for damages not covered in LAGOVEN'S policy, for the
deductible and for any amount that exceeds the maximum limit of
coverage of said policy. LAGOVEN will advise THE OPERATOR as to the
risks covered in its policy as well as the deductible and the maximum
amount of coverage.
20.3 EMPLOYER'S LIABILITY INSURANCE: THE OPERATOR, as sole employer of the
workers utilized in the performance of the CONTRACT and in order to
respond for injuries, sickness or death of its personnel due to the
construction,
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operation and/or maintenance of the INSTALLATIONS must obtain and
maintain throughout the entire life of the CONTRACT an employer's
liability insurance policy.
The employer's liability insurance must cover the difference between
the amount of the indemnification that corresponds to Obligatory
Social Security and that established in the Collective Bargaining
Contract that may be applicable.
This insurance must cover the obligations derived from:
a) Title VIII of the Organic Labor Law.
b) Collective bargaining labor contract that may be applicable.
c) Any legal other disposition on the matter.
20.4 CIVIL LIABILITY INSURANCE FOR VEHICLES: In order to ensure discharge
of the responsibility that is exclusively incumbent upon THE OPERATOR
to indemnify eventual damages and losses caused by vehicles of THE
OPERATOR or of its subcontractors to property, installations and/or
workers of LAGOVEN or of third parties due to the construction of the
INSTALLATIONS or the provision of the SERVICE, which is the object of
this CONTRACT, THE OPERATOR must obtain a Civil Liability policy for
vehicles in the amount to be indicated by LAGOVEN.
20.5 GUARANTEE OF DISMANTLING: In the event that 12 months prior to
expiration of the INITIAL PERIOD or any of the extensions the PARTIES
have not agreed to extend the SERVICE, THE OPERATOR must obtain a
performance bond issued by a bank or insurance company domiciled in
Venezuela of recognized solvency and to LAGOVEN'S satisfaction in the
amount of fifteen million DOLLARS (US$ 15,000,000.00) to guarantee the
dismantlement of the installations upon finalization of the contract.
This bond must be in effect for a period of twenty four (24) months.
20.6 GENERAL PROVISIONS
20.6.1 The Bonds mentioned in this CONTRACT must be joint and
several and constituted by authenticated document
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issued by a banking institution or insurance company domiciled
and with offices in Venezuela, of recognized solvency and to
LAGOVEN'S satisfaction and will include express mention that
the surety waives the right to the benefits that are conferred
by Articles 1833, 1834 and 1836 of the Venezuelan Civil Code.
It must include the reference to the number and purpose of the
CONTRACT. The bond documents must be presented before signing
for approval by LAGOVEN.
20.6.2 If THE OPERATOR does not comply with the requirements
stipulated in Sections 20.2, 20.3 and 20.4 above, or if for
any circumstance having complied fails to pay the premiums or
payments to renew the insurance policies indicated in
mentioned numbers, LAGOVEN at its discretion may pay said
premiums or payments, subsequently deducting from any invoice
presented by THE OPERATOR the amount paid.
20.6.3 All the Insurance stipulated in this clause must include a
clause obligating the insurer to inform THE OPERATOR and
LAGOVEN in writing thirty (30) days prior to the expiration
date of any payment pending relative to said insurance or the
date of expiration of the policy. Except as regards the Civil
Liability Policy established in Section 20.4 above.
20.6.4 All the Insurances stipulated in this clause will be
contracted with Insurance Companies approved by the Insurance
Commissioner, of recognized solvency, to LAGOVEN'S
satisfaction, through authentic documents in 3 copies, one of
which must be delivered to LAGOVEN and must comply with that
stipulated in the Law and Regulations of Insurance and
Reinsurance Companies as well as any other standard in effect
on the matter. Prior to contracting any insurance policy, THE
OPERATOR must obtain approval from
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LAGOVEN to contract with the proposed Insurance Company.
20.6.5 Prior to starting the activities that require such
insurance, LAGOVEN may require THE OPERATOR to present the
insurance policies described in this Clause or the documents
that substantiate that these have been contracted such as
receipt of premium or temporary coverage.
Likewise, THE OPERATOR is obligated to deliver annually to
LAGOVEN substantiation of the renewal of the insurance
referenced in this clause issued by the insurer.
20.6.6 The insurance policies mentioned in this clause must include
LAGOVEN as co-insured.
20.6.7 The expiration of the policies must be December 31 of each
year.
21. CLAUSE TWENTY ONE
APPLICABLE LAW
The interpretation, validity and execution of this CONTRACT will be made in
accordance with the laws of the Republic of Venezuela.
22. CLAUSE TWENTY TWO
MECHANISM FOR RESOLVING DISPUTES
In the event of disputes, either of the PARTIES may submit them to the
non-binding procedures indicated in this clause or they may have
recourse directly to the arbitration procedure. Nevertheless, if the
non-binding procedure has begun, same must be concluded before having
recourse to arbitration. The mechanisms for resolving disputes are:
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22.1 AMICABLE ARRANGEMENT
22.1.1 Through the negotiation of an executive and an attorney,
(hereinafter NEGOTIATORS) who represent each one of the
PARTIES. For purposes of this section, any of the PARTIES
will notify the other PARTY in writing of any dispute,
controversy or claim not resolved in the normal course of its
negotiations. The PARTY thus notified must respond in writing
to the other PARTY within fifteen (15) days following receipt
of the notification. Both the notification as well as the
response must include: (a) the position of the PARTY and a
summary of its arguments; and (b) the name and position of its
NEGOTIATORS.
22.1.2 Thirty (30) days following the notification, the NEGOTIATORS
of each PARTY will meet to try to arrive at an agreement.
22.1.3 All the negotiations conducted in accordance with this
section will be confidential and may not be revealed or raised
in any subsequent judicial or extrajudicial proceedings.
22.1.4 If the dispute, claim or controversy is not resolved by the
NEGOTIATORS within forty five (45) days following the
notification or if the NEGOTIATORS have not met within thirty
(30) days following the notification, the PARTIES will submit
the dispute, claim or controversy to conciliation.
22.2 CONCILIATION
In the event that the disputes or controversies cannot be resolved in
accordance with the above number, the PARTIES may submit such disputes
or controversies to the consideration of a conciliator. The
conciliator will be designated by joint agreement between the PARTIES
and the costs of the conciliation will be defrayed equally among them.
The PARTIES will report their reasonings and positions to the
conciliator
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who must structure a solution acceptable to both PARTIES within a
reasonable period. This solution will be non-binding or obligatory
for the PARTIES. The discussions or solutions effected during the
conciliation procedure may not be presented totally or partially in
any subsequent proceedings whether judicial or extrajudicial. Once
the mechanisms of amicable and conciliatory resolution have been
exhausted, the PARTIES may submit to arbitration for the solution of
the disputes or controversies in accordance with that stipulated in
Section 22.3 below.
22.3 ARBITRATION
22.3.1 Any dispute, claim or controversy related, connected or
derived from this CONTRACT, its non compliance, termination or
validity which has not been resolved in accordance with the
mechanisms indicated in the preceding Sections will be
resolved finally by arbitration.
22.3.2 The arbitration will be conducted in accordance with the Rules
of Arbitration of the International Chamber of Commerce
(I.C.C.) in effect at the time arbitration begins. In the
event that said Rules conflict with the requirements of this
section, the requirements of this CONTRACT will prevail.
22.3.3 The arbitration will take place in the city of Caracas,
Venezuela, unless the parties mutually agree in writing to
hold all or part of the procedure in a different place.
22.3.4 The arbitration tribunal will be comprised of three
arbitrators bound by legal principles. Each party will
nominate one arbitrator and these, after they have been
elected and their nominations have been accepted will nominate
by mutual agreement the third arbitrator who will serve as
president of the arbitration tribunal. If the two nominated
arbitrators do not reach an agreement to designate the third
arbitrator within a period of sixty (60) days from the date on
which the last of said two (2) arbitrators was
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nominated, the third arbitrator will be designated by the
International Arbitration Court of the International Chamber
of Commerce.
22.3.5 Any decision of the arbitration tribunal must be in writing
and reasoned, being final and binding upon the PARTIES in the
arbitration procedure. The PARTIES agree that the ruling may
be executed in the arbitration procedure against one of them
or their goods and that the confirmation and respective
execution of the arbitral ruling may be required of any
competent tribunal or Court.
23. CLAUSE TWENTY THREE
PATENTS, TRADEMARKS, LICENSES AND COPYRIGHTS
23.1 THE OPERATOR is obligated to obtain and pay royalties or premiums for
any licenses, patents, trademarks, copyrights and other rights that
cover the materials, machinery, tools, equipment or combinations,
mixtures of substances or goods, methods or procedures required during
the execution of THE PROJECT or during the rendering of the SERVICE.
23.2 In the event that THE OPERATOR does not obtain the patents and/or
licenses or fails to pay the royalties or other items which are the
conditions on which the license has been granted, it will be obligated
to pay any damages and losses caused to LAGOVEN and in particular all
type of court and out-of-court costs arising as a result of claims,
suits or other actions in or outside of Venezuela.
23.3 THE OPERATOR will expeditiously report to LAGOVEN when it has
knowledge of the existence of a patent, trademark, license, copyrights
or other rights relative to which LAGOVEN may be sued or subject to
claims by reason of the direct or indirect use of materials,
machinery, tools, composition, methods or
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CONTRACT NO. 86-C-414
procedures during the construction of THE PROJECT or during the
rendering of the SERVICE.
23.4 With respect to any subcontract that THE OPERATOR enters into with
third parties, THE OPERATOR will require its subcontractors to grant
to LAGOVEN and PDVSA and AFFILIATES the same protection with regard to
patents, copyrights or other obligations or rights that THE OPERATOR
has in the execution of the CONTRACT.
23.5 THE OPERATOR is required to include, in its user contracts on
licenses, assignment of patents, trademarks, copyrights and any user
licenses on intellectual property, a clause according to which, in the
event that all or part of the INSTALLATIONS, materials, equipment or
inventories become property of LAGOVEN, the latter automatically
obtains the right to use and/or exploit the intellectual or industrial
rights relative to the INSTALLATIONS. THE OPERATOR must provide
substantiation of the inclusion of the assignment clause mentioned.
24. CLAUSE TWENTY FOUR
CONFIDENTIALITY
24.1 The PARTIES agree to not reveal the confidential information handled
by each PARTY to third parties or use it for purposes other than those
inherent to this CONTRACT without prior written consent from the other
PARTY.
24.2 Information not considered confidential is all that: a) has been
acquired or has been in the possession of the PARTIES prior to signing
this CONTRACT except the information supplied in the Request for
Proposal Document, b) is or has been or comes to be public knowledge
without the intervention of the PARTY, its employees, contractors or
subcontractors, and c) has been obtained in good faith from a third
party prior to signing this CONTRACT.
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CONTRACT NO. 86-C-414
24.3 All confidential information that due to legal requirements is
requested by governmental authorities or must be provided to auditors,
financial institutions, consultants, buyers, shareholders,
constructors for use in the performance of the work related to this
CONTRACT may be provided upon authorization of the PARTY to whom said
information belongs and after signing a confidentiality agreement
essentially identical to the one contained in Attachment "E" of this
CONTRACT.
24.4 In the event that any of the PARTIES is required by judicial or
governmental authorities to provide confidential information, the
PARTY receiving the request must, before providing it, report in
writing to the other PARTY in order for the latter to have the
opportunity, should it so desire, to take the actions necessary to
prevent or limit the supply of the information.
25. CLAUSE TWENTY FIVE
FORCE MAJEURE OR ACT OF GOD
Force Majeure or Act of God will be considered as: (1) any cause or
factor outside and foreign to the PARTIES produced by Man or by
Nature, (2) the occurrence of which is impossible to foresee, or (3)
if foreseeable such occurrence is irresistible, unavoidable through
the due diligence of the PARTY whose obligation is affected (4) and
makes it absolutely impossible to fully or partially comply with the
obligations that said PARTY has contracted by virtue of this CONTRACT.
25.1 Events of Force Majeure include among others the following acts of
Man: labor strikes, disturbances or civil disobedience, vandalism,
assaults, riots, insurrections, rebellions, wars (declared or not),
acts of sabotage or terrorism, governmental orders and dispositions
that meeting the characteristics indicated in the above paragraph
absolutely prevent total or partial compliance with any of the
obligations contained in this CONTRACT.
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CONTRACT NO. 86-C-414
Events of Act of God include among others the following acts of
Nature: epidemics, floods, earthquakes, seaquakes, hurricanes, storms
of any kind, fire and other acts of Nature that meeting the
characteristics indicated in the above section absolutely prevent the
total or partial compliance of any of the obligations contained in
this CONTRACT.
25.2 In the event of labor strikes it is expressly understood that neither
of the PARTIES will be obligated to accept any demands or requests of
its workers or unions that said PARTY at its sole discretion deems
unreasonable.
25.3 Both PARTIES agree to use their best efforts to maintain the
continuity of THE SERVICE and likewise agree to perform all the
activities or actions necessary to minimize the negative consequences
that might affect THE SERVICE.
25.4 No difficulty in complying with the obligations contained in this
CONTRACT, including difficulties of a financial type, will be
considered causes of FORCE MAJEURE or ACT OF GOD. Nor will FORCE
MAJEURE or ACT OF GOD be considered for events or situations such as:
a) The delayed delivery of equipment or construction materials
caused by backlog at the manufacturer's plant or other place,
oversold market conditions, inefficiency or similar events.
b) Delayed compliance of THE OPERATOR or any of its
subcontractors caused by scarcity of supervisors, manpower,
inefficiency or similar events and scarcity of services.
c) Lack of electricity or GAS supply, when it is possible for
LAGOVEN to use alternative sources of supply in sufficient
quantities.
25.5 The PARTIES will not be responsible for noncompliance with one or more
of the obligations they have assumed by virtue of this CONTRACT in
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CONTRACT NO. 86-C-414
the event that an act of FORCE MAJEURE or ACT OF GOD occurs and while
it continues which makes it absolutely impossible to comply with one
or more obligations except as regards the obligation of making the
payments due for amounts of money already owed.
25.6 In all the events of FORCE MAJEURE AND ACT OF GOD the obligations
which cannot be carried out will be suspended during the time the
obstacle endures except for that provided in number 25.8.
25.7 The PARTY that alleges FORCE MAJEURE or ACT OF GOD must notify the
other PARTY in writing regarding the obstacle and its effects on the
former's ability to meet the obligation concerned. This notification
must be issued as soon as the PARTY alleging the ACT OF GOD or FORCE
MAJEURE knows or should have known about the obstacle.
25.8 If the effects of the FORCE MAJEURE or ACT OF GOD prevent compliance
with all or part of the obligations of this CONTRACT for a period of
six (6) months calculated from the date of the notification provided
in the above section, either of the PARTIES will have the right to
cancel this CONTRACT for which it must notify the other PART of its
decision to cancel.
25.9 In the event the CONTRACT is terminated because of FORCE MAJEURE or
ACT OF GOD, LAGOVEN will have the right to select: (a) the return of
the site free of all construction in the same conditions in which it
was found within a period not to exceed one hundred eighty (180) DAYS.
The costs incurred for dismantling or taking down the projects and the
environmental restoration will be the exclusive responsibility of THE
OPERATOR; or (b) to purchase all or part of the INSTALLATIONS,
materials, equipment and/or inventories at a reasonable price agreed
upon by the PARTIES.
25.10 The delay derived from a situation of FORCE MAJEURE or ACT OF GOD that
affects the manufacturers, suppliers or subcontractors of THE OPERATOR
and an acceptable alternative source of service, equipment,
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CONTRACT NO. 86-C-414
parts or materials is not available may constitute for purposes of
this CONTRACT a situation of FORCE MAJEURE or ACT OF GOD.
26. CLAUSE TWENTY SIX
ASSIGNMENT AND TRANSFER OF THE CONTRACT
26.1 LAGOVEN has the right, upon notification to THE OPERATOR to assign or
transfer all or part of this CONTRACT to PDVSA or its operating
AFFILIATES with the condition that PDVSA or THE AFFILIATE assumes all
the rights and obligations that LAGOVEN has in accordance with this
CONTRACT.
26.2 THE OPERATOR may not assign, delegate, transfer or subcontract the
operation of the installations, all or in part, the rights and
obligations it has assumed in this CONTRACT without prior
authorization from LAGOVEN. In any event of assignment or transfer,
it is understood that THE OPERATOR will guarantee that the assignee
will comply with the requirements relative to THE SERVICE as though it
were THE OPERATOR. The PARTIES agree that no assignment or transfer
of the CONTRACT in this sense will diminish the responsibility of any
of the PARTIES in accordance with the terms of the CONTRACT.
26.3 THE OPERATOR may contract the services required to fulfill its
obligations, except for that provided in section 26.2 above, so long
as the subcontracts are subject to reasonable market conditions and
granted to technically and financially reliable subcontractors;
furthermore, THE OPERATOR will be responsible for the execution by
said subcontractors as if the corresponding activities were performed
by THE OPERATOR itself.
26.4 Without prejudice to the responsibility assumed by THE OPERATOR in
accordance with this CONTRACT, THE OPERATOR must require any assignee
or subcontractor to obtain insurance policies and
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CONTRACT NO. 86-C-414
bonds to back their responsibilities in accordance with the terms and
conditions stipulated in this CONTRACT.
Likewise, THE OPERATOR will protect and indemnify LAGOVEN for any
payment made by LAGOVEN to an assignee or subcontractor of THE
OPERATOR which results from noncompliance of THE OPERATOR with any
obligation that it has according to the assignment or subcontract.
27. CLAUSE TWENTY SEVEN
CONFLICT OF INTEREST
27.1 THE OPERATOR states that no situation exists that would be a "Conflict
of Interest" that affects the execution or performance of this
CONTRACT.
27.2 A "Conflict of Interest" will exist when on a decision, act or
contract of LAGOVEN, one or several LAGOVEN employees taking part or
influencing such decision, act or contract, personally benefit or
favor their immediate families (ascendents/descendents, brothers,
nephews and other relatives to the 4(i) of blood relationship and the
2(i) by marriage) or the persons who depend directly or even
indirectly through other individuals or even businesses, that is,
associations, corporations or companies.
27.3 In accordance with section 27.2 above, "Conflict of Interest" will be
considered in the following situations, without being limited to same:
27.3.1 Maintain commercial relationships or have interest of any
other kind that could give rise to the possibility of granting
preferential treatment to any individual or corporation that
is conducting or trying to conduct business with LAGOVEN.
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CONTRACT NO. 86-C-414
27.3.2 Deliver or authorize the delivery of any data or information
relative to decisions, plans, projects, bids or any other
information of LAGOVEN.
27.3.3 Accept from any individual or corporation that is conducting
or trying to conduct business with LAGOVEN, commissions,
profit sharing, gifts in cash or in kind, donations in bonuses
or other payments, loans or advances, services, repairs,
improvements or cost free travel or any other grants of
similar nature.
27.3.4 Carry out executive or management missions or render service
as an employee, consultant or agent in any commercial,
industrial or financial institution, directly or indirectly,
related to or which are conducting or trying to conduct
business with LAGOVEN.
27.3.5 If LAGOVEN becomes aware that THE OPERATOR or the companies
that comprise same, subcontractors or assignees have given
place to a "Conflict of Interest" situation provided in
sections 27.2 and 27.3 above without having previously
notified LAGOVEN as referenced in section 27.3.6 below,
without prejudice to the rights that correspond to it, LAGOVEN
may make the decision to cancel this CONTRACT at its sole
determination and full right without need for judicial
decision or resolution and without LAGOVEN being obligated to
indemnify THE OPERATOR, subcontractor or assignee for damages
and losses or any other concept.
27.3.6 Each PARTY agrees to notify the other of any situation or
circumstance that occurs and which may create a "Conflict of
Interest" for the execution or performance of this CONTRACT
with the purpose of taking the steps necessary to avoid or
correct the situation outlined in accordance with the
provisions of this CONTRACT and applicable laws on this
matter.
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CONTRACT NO. 86-C-414
28. CLAUSE TWENTY EIGHT
HIRING OF PERSONNEL
The PARTIES agree to not conduct any activity to attract and hire
employees that are on the payroll of one of them, their parent
companies, affiliates or subsidiaries to incorporate them on their own
payroll. Likewise they agree to not hire personnel that have been on
the payroll of any of the PARTIES or its parent companies, affiliates
or subsidiaries unless at least six (6) months have transpired
calculated from the termination of the labor relationship with any of
the above referenced companies.
29. CLAUSE TWENTY NINE
TERMINATION FOR NONCOMPLIANCE
29.1 In the event of noncompliance or deficiency in the execution of the
obligations assumed in this CONTRACT by either of the PARTIES, the
other PARTY may issue written notification to the noncomplying PARTY
indicating clearly the nature of the noncompliance. In this event the
noncomplying PARTY will have a period of thirty (30) DAYS to correct
its action and adapt to the CONTRACT. In the event that the
referenced time is insufficient due to the nature of the failure or
noncompliance, the PARTY must request in writing thirty (30)
additional DAYS for correction. In the event that said period
transpires without having corrected the failure, the PARTY not in
noncompliance may cancel this CONTRACT immediately irrespective of the
exercising of other rights or actions conferred by law or the
CONTRACT.
29.2 In the event the contract is terminated for noncompliance of THE
OPERATOR, THE OPERATOR must pay to LAGOVEN the following sums of
money: Thirty (30) Million DOLLARS if the termination occurs during
the first five year period of the duration; Twenty (20) Million
DOLLARS if the termination occurs during the second
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CONTRACT NO. 86-C-414
five year period of the life of the CONTRACT; Fifteen (15) Million
DOLLARS if the termination occurs during the third five year period of
the duration; and Ten (10) Million DOLLARS if the termination occurs
during the fourth five year period of the CONTRACT.
THE OPERATOR must pay to LAGOVEN such sum, whatever the case, in the
course of forty five (45) continuous days calculated from the date THE
OPERATOR receives the Letter of Termination of the CONTRACT,
furthermore LAGOVEN will have the right to exercise one of the
following options:
a) Demand vacation of the SITE for which, unless LAGOVEN for
reasons of its own convenience decides otherwise, the SITE
must be returned free of all construction, machinery,
equipment, waste and environmentally sound, in the conditions
prevailing at the time it was delivered, within a period not
to exceed one hundred twenty continuous days.
b) Purchase, at a reasonable price agreed upon by the PARTIES,
all or part of THE INSTALLATIONS, materials, equipment and/or
inventories.
29.3 In the event noncompliance with the CONTRACT is due to causes
imputable to LAGOVEN, LAGOVEN will pay to THE OPERATOR the amount
corresponding to the undepreciated investment, calculated by
multiplying the depreciation component of the rates times the gas
volume to be compressed during the remaining time period, in
accordance with compression profiles of Attachments D-1 and D-2.
Additionally LAGOVEN will exercise one of the following options.
a) Require THE OPERATOR to vacate the SITE in a period no greater
than one hundred eighty (180) days. For which, unless LAGOVEN
for reasons of its own convenience decides otherwise, the SITE
must be returned free of all construction, machinery,
equipment, waste and environmentally sound, in the conditions
prevailing at the time it was
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CONTRACT NO. 86-C-414
delivered. The reasonable costs for vacating the SITE will be
the responsibility of LAGOVEN.
b) Purchase the INSTALLATIONS at a reasonable cost agreed upon by
the PARTIES.
29.4 It is understood that the amounts that the PARTIES are required to pay
in accordance with this Clause will be the only compensation payable
on demand in the event of termination of the CONTRACT for
noncompliance.
30. CLAUSE THIRTY
REPRESENTATIVES, ANNOUNCEMENTS AND NOTIFICATIONS
30.1 REPRESENTATIVES OF THE PARTIES
The REPRESENTATIVES of the PARTIES must establish by mutual agreement
the administration procedures of the CONTRACT and communication
between the PARTIES. It is expressly understood and agreed that no
REPRESENTATIVE of the PARTIES will have authority to modify all or
part of this corresponding CONTRACT.
30.2 NOTICES AND NOTIFICATIONS
All the notices, notifications and other communication issued by
virtue of, or required by this CONTRACT must be in writing signed by
the REPRESENTATIVE of the PARTIES and sent by certified mail or hand
delivered, with acknowledgement of receipt, or by fax and/or telex
with written confirmation to the addresses indicated in this Clause.
These addresses may be changed by written notice sent to the other
PARTY, the change of address taking effect fifteen (15) calendar days
calculated from the receipt of written notice of said change.
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CONTRACT NO. 86-C-414
LAGOVEN
Representative: Roberto Brucker
Address: Edificio Sede Lagoven
Avenida Alirio Ugarte Pelayo
Modulo IV - Nivel 2
Maturin, Estado Monagas
Venezuela
Telephone: 406924
Fax: 406908
THE OPERATOR
Representative: Randall Barnard
Address: One Williams Center, Tulsa, Oklahoma 74172, USA
Telephone: 00-001-918-588-2398
Fax: 00-001-918-588-2103
A copy of notices sent to THE REPRESENTATIVE of THE OPERATOR will be sent to
Mr. Brian Matusek, via fax 001 713 896 2652.
31. CLAUSE THIRTY ONE
TAXES, FEES AND CONTRIBUTIONS
31.1 THE OPERATOR will be the sole and exclusive party responsible for the
obligations of paying all the national, state or municipal fees,
duties, contributions and taxes that are established in Venezuela and
which are applicable, which may be imposed by virtue of the
construction or operation of the INSTALLATIONS or the provision of the
SERVICE.
31.2 It is likewise understood that any other charge, tax or contribution
that THE OPERATOR my eventually be required to pay outside of
Venezuela by reason of or due to this CONTRACT will be for THE
OPERATOR'S account.
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CONTRACT NO. 86-C-414
32. CLAUSE THIRTY TWO
LEGAL ATTACHMENT(S)
32.1 If at any time there are reasonable indications of any preventive or
executive legal attachment or claim directed against THE OPERATOR
and/or its subcontractors for noncompliance with its obligations
through which any charge or loss may be derived for LAGOVEN, the
latter will have the authority to withhold the amount it owes THE
OPERATOR up to an amount equal to the amount claimed. Said amount
withheld may be substituted by a bond presented by THE OPERATOR to
LAGOVEN issued by a bank or insurance company of recognized solvency
that guarantees to LAGOVEN faithful and sound compliance with the
obligations from which the legal attachment or claim is derived.
32.2 It is understood that if LAGOVEN has to make any payment for the items
stated in section 32.1 above because of a definitive judgement issued
by a judicial or competent government authority that establishes the
obligation of payment to third parties to the detriment of THE
OPERATOR, LAGOVEN will immediately notify THE OPERATOR. Likewise it
is expressly understood and agreed that the authority of withholding
provided in section 32.1 above will not be implemented in the events
of labor claims or legal attachments so long as THE OPERATOR maintains
in effect, for the time of the claim, a bond that protects LAGOVEN for
such items in accordance with the provisions established in CLAUSE
TWENTY - BONDS AND INSURANCE.
32.3 If for preventive, executive, judicial or any other kind of measures
such as those derived from processes of liquidation, bankruptcy or
delinquency not imputable to LAGOVEN the INSTALLATIONS cease to
compress the GAS, THE OPERATOR is obligated to immediately correct the
situation. If the situation continues for a period greater than forty
five (45) continuous days, LAGOVEN will have the right to cancel this
CONTRACT irrespective of the exercising of other rights or actions
conferred by law or the CONTRACT.
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CONTRACT NO. 86-C-414
In the event of termination of the CONTRACT for these circumstances,
LAGOVEN may exercise the options indicated in CLAUSE TWENTY NINE -
TERMINATION FOR NONCOMPLIANCE, section 29.2, and likewise will become
creditor by way of damages and losses of the amount that corresponds,
referenced in said Clause.
33. CLAUSE THIRTY THREE
RATE ADJUSTMENTS
For adjustments other than those provided in CLAUSE TWELVE - RATE AND
ADJUSTMENTS, the adjustments in the rate due to decrees, laws,
ordinances, collective bargaining contracts, exchange rate or
assessment measures must be submitted to LAGOVEN'S consideration by
THE OPERATOR in writing together with supporting documents.
LAGOVEN will study the rate request and finding it in keeping will
approve it. In the event it has objections to the request it will
notify THE OPERATOR and the PARTIES will meet in order to discuss the
requested adjustment.
34. CLAUSE THIRTY FOUR
INTEGRAL CONTRACT, WAIVERS AND MODIFICATIONS
34.1 This CONTRACT constitutes the entirety of the agreement between
LAGOVEN and THE OPERATOR and replaces other understandings, agreements
or previous contracts, written or verbal, of any kind except those
expressly indicated in this CONTRACT.
34.2 No waiver of the CONTRACT or part of same or failure to demand or
force fulfillment of any rights under the CONTRACT will constitute
waiver of any of the other rights under this CONTRACT.
34.3 The effects of the invalidity and unperformability of all or part of
any of the provisions contained in this CONTRACT will only be limited
to the entirety or part of such
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CONTRACT NO. 86-C-414
invalid or unperformable provisions without extending to the entirety
or part of the remaining provisions of this CONTRACT.
34.4 This CONTRACT may not be modified by any verbal commitment or
otherwise except by mutual agreement between the PARTIES in writing
and signed by the persons authorized to obligate the PARTIES.
35. CLAUSE THIRTY FIVE
LANGUAGES AND COPIES
Of this CONTRACT two (2) copies are made in Spanish, of the same
content and to one sole effect, in witness whereof the PARTIES sign
said copies in Caracas on the 4th day of the month of February of
1997.
For LAGOVEN: For THE OPERATOR:
--------------------------- -----------------------------------
Name: Peter Pagazani R. Name: Randall Barnard
ID.: 1.753.884 Passport No. 131482551
Title: Director Title: Managing Director
Williams International
Company
-----------------------------------
Name: Brian Matusek
Passport No. 130481643
Vice President
Production Operators, Inc.
62
<PAGE> 1
EXHIBIT 21.1
CAMCO INTERNATIONAL INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
OWNERSHIP
SUBSIDIARIES JURISDICTION PERCENTAGE*
------------ ------------ -----------
<S> <C> <C>
Camco International Group Inc. Delaware
Camco International Capital Corporation Delaware
Camco Trading Corp. Texas
Camco Reda Group, Inc. Delaware
Camco Drilling Group, Inc. Delaware
Camco International Limited U.S. Virgin Islands
Camco Services International Inc. Texas
CSI Cameroun S.A.R.L. Cameroun
Adinin-Camco SDN. BHD. Brunei 49
Camco (Malaysia) SDN. BHD. Malaysia 49
Camco Oilfield Services Limited Trinidad 80
Camco Services Danmark Denmark 51
Camco Services Norway AS Norway 50
Camco Services of Saudi Arabia Limited Saudi Arabia 50
Marjan Oilfield Services Company Abu Dhabi 49
Camco LLC Dubai 49
K/S Camco Services Norway AS Norway 49
Camco International (Colombia) S.A. Colombia
Nowcam Services (Nigeria) Limited Nigeria
Camco International (UK) Limited United Kingdom
Camco Drilling Group Limited United Kingdom
Camco, Limited United Kingdom
Camco Limited Nigeria 94
Camco S.A.R.L. France
Camco U.K. Pension Trustee Limited United Kingdom
Camco Soviet Services Limited United Kingdom
Tyumgascamco Limited Russia 49
Reda Industries Limited United Kingdom
PT Reda Pump Indonesia 80
Lasalle Engineering (Holdings) Limited United Kingdom
Lasalle Engineering Limited United Kingdom
Camco Cayman Limited Cayman Islands
Camco Asia (Private) Limited Singapore
Camco de Mexico S.A. de C.V. Mexico
Camco de Venezuela S.A. Venezuela 83
Manufacturas Camco De Venezuela, S.A. Venezuela
Camco Well Services Cayman Island
C.J.R. Limited Cayman Islands
Camco Wireline, C.A. Venezuela
Petroil Services Corporation Cayman Islands 50
Camco Reda S.A. Peru
Oilfield Equipment Leasing Limited Jersey Islands
Reed Tool Singapore Pte Ltd. Singapore
Camco International (Canada) Limited Canada
Reed Tool Company S.A.R.L. France
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
OWNERSHIP
SUBSIDIARIES JURISDICTION PERCENTAGE*
------------ ------------ -----------
<S> <C> <C>
Camco Drilling Group Norge A/S Norway
Acc. S.A. de C.V. Mexico 49
Reda Del Ecuador, S.A. Ecuador
Industrial Operations Holdings Inc. Liberia
Reda Ras Al Khaimah Ltd. U.A.E. 47
ESI Private Ltd. Singapore
Reda Pump Company (Singapore) Private Limited Singapore
Wan Shih Pump Pte. Ltd. Singapore
Egyptian-American Technical Services Company Egypt 50
Camco International (Australia) PTY Limited Australia
Camco International (Brasil) LTDA Brazil
Camco de Argentina S.A. Argentina
Camco International (Argentina) S.A. Argentina
Production Operators Corp. Delaware
Production Operators Inc. Florida
Kamlok Oil & Gas, Inc. Delaware
Xtra Energy Corporation Texas
TTV, Inc. Texas
Transmission Systems Inc. Delaware
Texas Tertiary Joint Venture Texas
Servicios Production Operators C.A. Venezuela
Production Operators Argentina S.A. Argentina
Production Operators Canada, Limited Canada
Production Operators Cayman Inc Cayman Islands
POI Operating Company S de R.L. Mexico
POI Mexico Service Company S. de R.L. Mexico
Wilpro Energy Services (El Furrial) Limited Cayman Islands 33
Guara Project Company Cayman Islands 50
Equipo de Servicios Petroleros Limitada Colombia 16
</TABLE>
- ---------------
* Unless otherwise indicated, subsidiaries are wholly-owned.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-78666, 33-78668, 333-09299, 333-14817,
333-18129, 333-27041, 333-23739 and 333-29065.
ARTHUR ANDERSEN LLP
Houston, Texas
March 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 57,255 42,645 0
<SECURITIES> 0 0 0
<RECEIVABLES> 193,395 183,217 0
<ALLOWANCES> (16,283) (14,210) 0
<INVENTORY> 206,471 169,007 0
<CURRENT-ASSETS> 506,501 427,992 0
<PP&E> 715,268 624,983 0
<DEPRECIATION> (361,956) (316,221) 0
<TOTAL-ASSETS> 1,117,840 971,705 0
<CURRENT-LIABILITIES> 248,802 211,273 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 386 385 0
<OTHER-SE> 685,859 594,488 0
<TOTAL-LIABILITY-AND-EQUITY> 1,117,840 971,705 0
<SALES> 913,841 764,535 667,932
<TOTAL-REVENUES> 913,841 764,535 667,932
<CGS> 526,474 459,106 406,364
<TOTAL-COSTS> 745,984 650,812 583,855
<OTHER-EXPENSES> 21,104 6,460 6,022
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 5,671 4,539 5,134
<INCOME-PRETAX> 141,082 102,724 72,921
<INCOME-TAX> 49,321 34,720 22,626
<INCOME-CONTINUING> 91,761 68,004 50,295
<DISCONTINUED> 0 0 (7,151)
<EXTRAORDINARY> 0 0 0
<CHANGES> 2,909 0 0
<NET-INCOME> 88,852 68,004 43,144
<EPS-PRIMARY> 2.37 1.81 1.16
<EPS-DILUTED> 2.31 1.78 1.14
</TABLE>
